A cash cow with wings

The city of Los Angeles is facing a budget gap this year of $150 million and up to double that next year. Except for police hiring, virtually all city services are on the table for cutbacks.

In the past, City Hall has tended to reach for short-term solutions to close budget gaps caused by brief economic downturns. But with the city’s economy unlikely to improve dramatically in the near future because of the severity of the housing meltdown, it would be better to come up with bold, longer-term proposals that can generate reliable revenue.

If city leaders want a serious fix for our ailing budget, they should let a private company operate LAX.

Other big cities have privatized their airport operations. Private companies run Britain’s Heathrow and Gatwick airports, as well as airports in Frankfurt, Hamburg, Rome, Naples, Athens, Sydney, Auckland, Brussels and nearly every airport in Mexico. In the United States, Chicago is in the final stages of contracting out the operation of Midway Airport and expects to collect $2 billion to $3 billion in lease payments over the next 50 years from the winning bidder. As part of the deal, all city employees at Midway would be guaranteed comparable jobs, pay and benefits at the privately run airport.

LAX should be the next privately run airport. Think of it this way. The city of Los Angeles is the landlord of a huge commercial and industrial complex -- valued at $34 billion -- that makes money from the companies that do business on its premises -- the airlines, the food concessionaires, the parking lot operators and so on. But federal law prevents the city from using that money to pay for other city needs, such as crime prevention, paramedics or traffic improvements. Privatizing the operation of the airport would free up that money for non-airport uses.

There’s another advantage to turning LAX over to a private company to operate. The five appointed members on the Airport Commission are required to approve all LAX contracts, some of which are quite lucrative. That role turns them into favorite targets of lobbyists representing bidding companies, which makes the process vulnerable to political corruption. Privatizing the airport’s operations would eliminate this possibility.

Early in his administration, Mayor Richard Riordan tried to privatize LAX’s operation, but various federal restrictions at the time blocked his attempt. But in 1996, Congress approved a pilot program that allowed cities to lease their airports’ operations to private bidders.

Using a conservative estimate based on recent airport lease agreements worldwide, and the estimated value of the smaller Midway lease, turning the operation of LAX over to a private company for 50 years, the industry standard, could generate $5 billion in revenue for the city in the form of annual lease payments of $100 million. And as in the case with Midway, city employees at LAX should keep their jobs, pay and benefits at the privatized airport.

There aren’t too many other ideas that could produce so much revenue with so few downsides.