Don’t Oveprestimate Privatization’s Value : New Taxes, Cuts and User Fees Deserve Study Too

Robert W. Poole Jr., president of the Reason Foundation, has received lots of attention for his ideas about privatization in a county wary of government and tax increases.

Recently, he urged the county to sell assets, privatize services and cut its work force by 10% as a way of coping with the bankruptcy crisis. Suggestions such as selling John Wayne Airport with the El Toro Marine Corps Air Station, and privatizing fire protection, have raised the hopes of those who would like to think that the county can get out of its troubles without raising taxes.

These ideas surely need to be considered, but there is reason to think that privatization is not all it’s cracked up to be, and that it may not do enough soon enough.

Public officials who are seduced by privatization need to remember first that the county is dealing with an immediate budget crisis and notes due in the summer. To date, there is not much activity on the real estate front. Privatization, to the extent that it is wise, seems best employed as a long-term strategy rather than a summons to hold a fire sale.

The foundation estimated that the sale of El Toro and John Wayne could earn between $1 billion and $1.25 billion. Poole says surplus land can bring in between $1 billion and $1.5 billion. All that sounds good, but there are many questions beyond the basic one: Are these numbers realistic?

It is not even clear which Orange County assets would be most attractive to potential buyers. The airport, for example, has about $330 million in debt, and a substantial federal investment that would have to be repaid. There is talk also of selling landfill space, but some experts have noted that landfill demand is not as high as it had been.

In some cases, taxpayers might be unhappy about unloading things that they already own, such as municipal golf courses and softball fields. Paramedic services certainly can be streamlined, it seems, with a potential for savings, but questions about the resulting quality of care need to be addressed.

Warnings like those of Dennis Aigner, dean of UC Irvine’s Graduate School of Management, should be heeded. He says there are dangers of pushing too fast to solve the problem in the short term.

The county has some experience of its own that should be instructive. For example, the county probation department has said it might turn supervision of 160 offenders over to private hands. But the supervisors already have eliminated contracts with 50 private attorneys representing indigent defendants. They transferred the cases to full-time county lawyers under the theory that it is easier to control the expenditures of government employees than private lawyers.

And in law enforcement, the reputation of the sheriff is good, and there is likely to be public concern about turning all this over to the private sector.

As for the sale of county property, Standard & Poor’s, the credit rating agency, has said that without changes in state law, money recouped by selling county property could raise no more than $350 million.

The public intrinsically seems to have a realistic grasp of things. The Times Orange County Poll in January found solid support for privatization, but most residents said they believed a combination of tax increases, increased user fees and cuts would be necessary.

Privatization can be an important element in the mix, but should not be regarded as the primary engine for Orange County’s recovery from the bankruptcy crisis. It should take its place among other solutions, and not be viewed as a cure-all.