One City Hopes to Keep its Navy Base Afloat By Privatizing It

When Louisville, Ky., community and business leaders realized that a local Navy facility would not escape the Pentagon's base closure ax, they decided that a radical rescue plan was needed to avert an economic disaster.

That effort culminates today when the Navy is to hand over the Louisville Naval Ordnance Station to an independent agency and two defense companies in the first-ever full-scale privatization of a US military installation.

"We're doing something that has never been done before," says Frank Jemley, head of the non-profit Louisville-Jefferson County Redevelopment Authority, the agency overseeing the project. "This has really been a breakthrough effort."

Private contractors have for years handled noncombat functions, such as firefighting and trash collection, at military bases. But post-cold-war defense manpower and budget cuts have left the services with more infrastructure than they need or can afford. Turning over repair and maintenance facilities to private industry has won considerable support within the Clinton administration as an alternative to closures that can devastate local economies.

Last year, in the last of four rounds of base shutdowns authorized since 1988, the independent Base Closure and Realignment Commission agreed to plans to "privatize-in-place" operations at three Air Force facilities and two naval depots, including the one in Louisville.

First of many?

Advocates say the Louisville project is the first to get off the ground and could provide valuable lessons for the others. It is not only expected to save the Pentagon as much as $300 million, but also to preserve 1,000 local jobs that would have otherwise been lost. Furthermore, backers say, turning over the facility's operations to defense firms will help retain a portion of the nation's shrinking defense industrial base.

"The alternative was to lose 1,200 to 1,400 jobs and a payroll of $25 million-plus," says Louisville Mayor Jerry Abramson. "The spinoff would have had a significant effect on the local economy."

Under the plan known as "privatization in place," United Defense Corp. and Hughes Missile Systems Corp. are taking over the care and repair of major gun systems that the Navy has been bringing to the base for servicing for the past 55 years. They are hiring most of the base's 1,200 civilian workers and will build a new state-of-the-art "gun center."

Mr. Jemley says the closure of the base would have cost the local economy up to $140 million annually. The privatization plan will cause some losses to area vendors and tax revenues, but nowhere near the same as a shutdown, he adds.

Independent defense experts enthusiastically support the idea of the Pentagon "selling off" excess infrastructure as a way of saving money. But they caution that there may be limits to privatization-in-place plans.

No guarantees

The success of such plans, experts say, depends on the military providing the same level of work to private contractors as it performed. With the services confronting further cutbacks and defense firms competing fiercely for shrinking Pentagon business, there is no guarantee of that happening, they say.

"When you are faced with a situation where there is excess capacity both in the military and the private sectors, privatization-in- place is not the most efficient solution because it preserves that excess capacity," explains Paul Taibl of the Washington-based Executives for National Security.

"The wave of the future is going to be for the Department of Defense to look at privatization as a way of shedding infrastructure or transitioning it from the public to private sector," he says. "Privatization in place keeps workload at a facility. Places like Louisville are going to be the exception rather than the rule."

Louisville officials say they understand that they are going to have to bring in other business as a hedge to ensure the project's viability. They point out that the Navy is bound to keep work on major weapons systems at the facility for only five years.

Mr. Abramson says that Hughes and United Defense will be seeking work from foreign navies and other US military installations. He points out that United Parcel Service's international hub is located at Louisville Airport, providing potential clients with shipping services.

Local officials will also try to lure nondefense companies to locate on parts of the facility that the defense contractors have no plans for using, says Jemley.