COLUMN RIGHT : Contracts Could Cure Budget Blues : Turning to the private sector to provide services could help California save $1.3 billion.

The California state budget is in a $3.6- billion quagmire--lots of vital services need funding, but there isn’t enough funding to go around.

Gov. George Deukmejian is considering an across-the-board cut in state services of 7.5%. Yet the Democrat-controlled Senate Budget and Fiscal Review Committee just passed a $56.4-billion version of the budget--calling for $2.6 billion more than the governor. So what to do? Tax hikes or spending cuts appear to be the only logical alternatives. Or are they?

Privatization--a popular good-government method of allowing the private sector to furnish services traditionally provided by the government--is an alternative whose time has come. After reviewing just 25% of the proposed state budget, the Los Angeles-based Reason Foundation has identified nearly $1.3 billion in savings if state officials were to consider a combination of privatization and the elimination of a few nonessential agencies.

The cuts in agencies are minimal but could save more than $58 million alone. Programs that subsidize commercial activities--the California Arts Commission ($18 million), the Agricultural Export Program ($4.7 million) and the Energy Commission’s development program ($35.5 million)--could be eliminated without harming vital public interests.

Another $339 million could be saved if the state were to consider contracting out service functions--a popular form of privatization--such as management and operations of prisons ($212 million), developmental centers for the physically and mentally disabled ($57 million) and highway maintenance ($69 million). Additionally, more than $874 million in aid to local governments could be saved if the state were to require those governments to contract out for certain services.

Many state officials across the country, faced with the same budget shortfall as California, have successfully used the contract method.

Florida, Kentucky, Louisiana, New Mexico, Texas and Tennessee have authorized private contractors to provide or operate correctional facilities. In Kentucky, this has meant a savings of 21% in state spending. In Tennessee, savings are reported to be as much as 15%. California could save 10% or more from its planned $2.1 billion- budget request for adult institutions if it were to contract out the operation of these facilities. At the very least, this would eliminate the need for the state’s request for a $214-million increase in spending on corrections institutions.

Contracting out for highway maintenance has also been popular; Michigan, New Jersey, New York, Pennsylvania, Texas and even California have all employed it to some extent. California contracted out about 10%, or $61.6 million, of its budget for highway maintenance in the 1989-90 fiscal year, and anticipates contracting for $92.3 million in 1990-91.

While Caltrans should be commended, there is more that could be done--another $533 million in maintenance work could be contracted out for a total savings of $138 million. However, it may be necessary to pass a constitutional amendment in November to permit at least half of these savings to be used to help relieve the 1990-91 budget shortfall.

In South Carolina, Florida and Kentucky, state officials have decided to contract out some of the work of running centers that serve people with disabilities. South Carolina’s taxpayers have enjoyed improved service and a savings of more than $3.4 million. In Florida and Kentucky, private developmental service centers have provided taxpayers with better-trained staff, superior equipment and more advanced technology. California’s disabled deserve the same opportunity for better care, under well-written and closely monitored contracts.

The bulk of savings for the state would result from a reduction in the need for state aid to local governments. California should institute a mandatory competitive contracting act to require all cities and counties to allow the private sector to compete to furnish certain public services, as Los Angeles County has done so well.

Privatization will not solve all of our current budget woes. But it is a step in the right direction.