Don’t Give Away L.A.’s Golden Goose : The airport makes a hefty profit--the issue is how to divert some of it to non-airport uses, not privatization.

Los Angeles International Airport is the single most valuable asset owned by the residents of the city of Los Angeles.

What LAX is not is a mismanaged, bureaucratically bungled department. Despite recent deceptive claims in the mayoral campaign that only the private sector can turn a profit, the Department of Airports consistently delivers surplus revenues in excess of $50 million a year. Moreover, these revenues are expected to quadruple, to $200 million annually by the end of this year, because of a renegotiation of landing fees charged to the airlines by LAX.

The relevant question that has not yet been raised in this year’s mayor’s race is, “How can we best divert this money to other city departments that desperately need it?”

The City Council’s jurisdiction over airport revenues is limited legally in three ways: Federal Aviation Administration regulations; City Charter requirements, and covenants made to airport capital-improvement bondholders.

Each of these restrictions basically requires that all revenues generated by the airport and the airport-related services only be spent either on the cost of running the airport or for capital improvements at the airport.

Thus, the privatization argument is a red herring because the real issue is obtaining authorization to divert airport revenues to non-airport uses, not who will run the airport more efficiently. The airport already turns a hefty profit.

The idea of leasing LAX came about because it was originally believed that a private lessee’s payments to the city would be exempt from the legal restrictions and could be paid into the city’s general fund. Legal analyses of this question have been commissioned by the city from two esteemed law firms in Los Angeles: Skadden, Arps wrote a major report for the Airport Commission and O’Melveny and Myers wrote a report for the city’s chief administrative officer.

Despite claims in the mayoral race to the contrary, both reports reject the lease concept on the basis that lease payments would not be exempt from the legal restrictions.

In addition, any student of accounting can easily demonstrate that no private entity would ever agree to lease payments equal to the full value to the city of the potential cash flow from the airport. Any corporation has to take its profit off the top. Also, because of the city’s ability to borrow money at a significantly lower rate than the private sector, any future cash flow will always be worth more to the city than to private investors.

A better idea is to implement a policy of “cost centers” in the Department of Airport’s accounting system. The airport already bills the airlines for services it provides them, such as trash collection. This innovative accounting maneuver would allow the airport to charge the airlines for costs incurred in various areas of the airport. According to the most recent legal opinions, these payments would be free of all legal restrictions on revenue transfers to the city. The airlines endorse this option, and it would not require an exemption from the federal regulations.

The city’s moral imperative is like that of a parent facing a temporary drop in income. What city leaders must do is strive to preserve the family estate, because it is rightfully a legacy to our children. Certainly, voters in the June 8 election should carefully examine any “get-rich quick” promises made by the mayoral candidates. Our plea to the new mayor must be: “Please don’t squander our children’s financial future to pay today’s bills.”