UP for sale? State's worsening budget crisis may lead to privatizing assets

November 24, 1991|By David Conn

You can almost hear the auctioneer's singsong patter: "Next up, ladies and gents, we have a beautifully located, 3,200-acre parcel, with plenty of parking, more traffic volume than you could hope for, and an owner who's absolutely desperate to sell. Now, what am I bid for the Baltimore-Washington International Airport?"

It hasn't come to that. Yet. But Maryland's woeful economy and the state's worsening budget crisis may provide once-in-a-lifetime business opportunities for those with the money to play.

As legislators and budget officials struggle to contain a growing state deficit, they are taking more seriously the idea of contracting out state services, or even selling off state assets.

The state currently contracts out much of its own printing, custodial, maintenance and garbage collection services, according to the Department of General Services.

And the Department of Public Safety and Correctional Services pays private firms to run many of the medical and food operations at its prisons.

As the state's budget troubles mount, that trend could accelerate and even include the sale of state assets. The recent news that another $150 million may have to be lopped off this year's budget -- on top of a $450 million cut last month -- has given new currency to the idea of privatization. And with powerful legislators such as House Speaker R. Clayton Mitchell Jr., D-Kent, still viscerally opposed to tax increases, privatization may be one of the only viable options to cut the budget.

Besides BWI, Maryland's state-controlled assets include three vTC small railroads, an extensive system of port facilities, the Wholesale Food Center in Jessup, the World Trade Center and (( the Baltimore Convention Center.

"I feel that anything and everything is up for grabs," said Senate President Thomas V. Mike Miller Jr., D-Prince George's.

Mr. Miller said the idea of selling off BWI might not fly because of political and bureaucratic obstacles. But there appears to be enough interest in the private sector to make the idea economically feasible.

"The one thing Maryland would not have a shortage of, if it were to offer some of these properties, is bids," said James H. Burnley IV, a Washington lawyer who served as U.S. transportation secretary from 1987 to 1989. He said he spoke recently with Mr. Miller about the idea of privatizing state properties.

Private operation or ownership of public airports is not merely fiction. A division of Lockheed Corp. helped design and finance the construction of parts of the airports in San Francisco and San Jose, Calif., and still has a hand in running them, as well as public airports in Burbank, Calif.; Columbus, Ohio; New York state; and Atlanta.

Although a one-time sale of an attractive property such as BWI might not seem prudent, Mr. Burnley pointed out that taxpayers stand to benefit two ways: immediately, from the cash infusion at the time of sale, and from the property and income taxes a private owner would pay for years to come.

Sen. Howard A. Denis, R-Montgomery, has asked fiscal analysts for an inventory of all state-owned properties in order to stimulate debate about selling some of them to raise money.

He noted that Baltimore contracted with Washington-area businessman Abe Pollin to run its Baltimore Arena in 1988. Last year the arena turned its first profit, excluding the management fee to Mr. Pollin's Centre Management.

An amendment Mr. Denis added to the budget reconciliation bill that legislators approved last month would have allowed the state to sell the Convention Center if some complicated ownership issues were resolved.

The amendment failed, but Mr. Denis said that he received enough encouragement from colleagues to persuade him to bring up the subject in January, when the legislature convenes again.

"It just appears to me as if privatization is the wave of the future and a way that we can mitigate a lot of the pain of budget cuts and tax increases," he said.

Privatization in Maryland could take two forms: the outright sale of state-owned assets, and the "farming out" of facilities and services.

The Charles H. Hickey Jr. School for juvenile delinquents, whose operations were taken over by a Colorado firm in September, is an example of that farming-out -- and also a reminder that privatization is not necessarily a panacea.

The Hickey School is costing the state more now than it did before. The Department of Juvenile Services has a $2.8 million deficit because the state had to pay for accrued leave and other benefits of employees who lost jobs at the institution in August. It was a one-time cost, not the fault of the new company, Rebound Inc.

In addition, there have been more than two dozen escapes from the Baltimore County campus since the company took control.

But state officials say the school is going through an inevitable transition period.

In the long run, the contract will make sense and save the state money, said William S. Ratchford II, who heads the Department of Fiscal Services.

Some services, such as police protection, "clearly are and should remain as a function of government," said Delegate Charles J. Ryan, D-Prince George's, chairman of the House Appropriations Committee. But, he said, "there's a very good chance that we'll move more heavily into that area."

Mr. Ryan said, "We'd be happy to deal with private buyers on anything."

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