Government-owned businesses goes downward

Ventures a drain on states, localities

Updated 3d 12h ago

By Dennis Cauchon, USA TODAY


Pedestrians in Queens, N.Y., walk past an OTB location. New York's Off-Track Betting makes payments to the state but can't cover expenses.

Government-owned businesses that generate revenue for states and cities have taken a sharp turn downward and now are draining money from many struggling governments, a USA TODAY analysis found.

States and cities operate hundreds of such enterprises — power companies, sewer systems, betting parlors, subways and more — that earned more than $120 billion in profits during the 1990s.

These businesses started losing money in 2006 and are on track to lose $3.5 billion nationwide this year, according to an analysis of data from the Bureau of Economic Analysis (BEA).

This reversal is adding to the financial squeeze state and local governments are suffering because of a 6.7% drop in tax collections during 2009. Governments are raising taxes, hiking utility rates or cutting budgets to cope.

State and local governments operate enterprises that generate about $250 billion in revenue annually. Traditional cash cows such as gambling and utilities are making less money, although they're still profitable. Money losers such as transit systems and housing authorities are suffering growing losses.

"The recession hit us last fall," says Austin Energy Senior Vice President Elaine Hart. The city-owned power company will reduce its contribution to Austin's operating budget by $5 million this year.

A bad economy reduces electricity use and water consumption — bad news for cities that depend on utility profits to fund fire, police and other services. San Antonio, which gets nearly 30% of its budget from a city-owned power company, will see its take slashed this year by $38 million to $251 million.

"With tax collections in decline, we really need this money," says Pasadena, Calif., finance director Andrew Green. His city took an extra $2 million from its utility this year, for a total of $19 million, to balance its budget.

Bus and subway systems lost a record $32.2 billion in 2008, double the loss recorded a decade earlier, the BEA reports.

Casino competition and a decline in wagering hurt government-run gambling. New York's Off-Track Betting lost $75 million last year. It makes payments to the state, but can't cover expenses.