[Photo of James M. Hohman]

James M. Hohman

Assistant Director of Fiscal Policy

James M. Hohman is assistant director of fiscal policy at the Mackinac Center for Public Policy. He holds a degree in economics from Northwood University in Midland, Mich.

Michigan School Privatization Survey 2014

Click here for a PDF of the study.  

Introduction


In 2003, when it came to contracting out for common public school services, only outsourcing food provision could be considered a rather common occurrence in Michigan. And there was good reason for this: school districts are prohibited from making a profit from their cafeteria, but any deficits created in providing food for students must be covered by general school funds. When deficits occurred, school officials often looked for outside help from food service management companies.
Contracting out for the two other most common noninstructional school services — custodial and transportation services — was rare in 2003. Only one out of 15 districts contracted out for custodial services and even fewer for transportation — one out of 26.
Since 2003, however, there has been an explosion of privatization in these areas. This year, 47.5 percent of districts contract out for custodial services and 24 percent contract out for transportation services. Districts have largely been propelled to contract out for these services based on a desire to save money. The more efficiently districts can provide these noninstructional services, the more resources they can devote to their core function — providing educational opportunities to students.
In addition to this rationale, spending pressures, created in large part by rising employee health insurance and retirement costs, compelled districts to find ways to stretch dollars further. All school district employees are mandatory participants in the state-run Michigan Public School Employees’ Retirement System. Contribution rates for this program increased from 12.16 percent of payroll in 2001 to 34.54 percent of payroll in 2014. Most private sector employers offer retirement benefits that cost between five to seven percent of payroll on average.
These ever-increasing costs help explain why many districts have begun using employee leasing agencies, which allow employees to be paid at the same rates while districts escape the MPSERS payments. Interestingly, this may be a win-win, as employees get to vest their retirement benefits much earlier than under the MPSERS plan. According to Bellweather Education Partners, less than half of all school employees vest in MPSERS’s pension benefits.
This survey finds that in 2014 more school districts contracted out for food, custodial and transportation services than ever before. However, the rate of annual increase in the number of districts that contract out was less than in previous years. Contracting increased from 66.2 percent of districts in 2013 to 66.6 percent of districts in 2014. The average rate of increase over the last five years was 4.3 percentage points.
There may be a many factors contributing to this slowed rate of growth in school privatization. It could be that school support service privatization has topped out. In other words, there may come a time when all the districts that could contract out for quality services while simultaneously saving money have. However, while the percentage of districts grew only slightly from 2013 to 2014, the number of districts in each of the categories surveyed — custodial, food or transportation — that privatized increased at higher rates than the overall number of districts that contract out support services. … more

One Sector Grew Last Decade: Corporate Welfare

Very few jobs to show for special favors, subsidies. … more

Gubernatorial Campaign Should be About Things That Matter

Close MPSERS to Stretch Dollars Further

10 Facts About Pension Systems in Michigan

Grasping At Taxes to Pay for Pensions

Schools, municipalities get creative. … more

What Proposal 1 Means for Michigan Going Forward

Did Gov. Snyder Create 275,000 jobs?

Job Announcements Don't Equal Job Creation

Too many candidates propping up corporate welfare. … more

Truth Squad’s Failed Proposal 1 Fact Check

Three exemptions to personal property tax, not elimination. … more

Proposal 1 of 2014: Summary and Assessment

Download the full study here.
On Aug. 5 Michigan voters will be asked to approve or reject Proposal 1, which would modify the state’s personal property tax. The legislation that would go into effect if Proposal 1 were approved by voters creates three new exemptions for certain businesses that are currently subject to the personal property tax; it does not eliminate the personal property tax. Commercial and industrial businesses with less than $80,000 of personal property will be exempt, and, eventually, all manufacturing personal property will be exempt. These exemptions amount to an estimated $600 million tax cut when fully implemented.
The package of bills includes a mechanism for reimbursing local government units for the revenue lost from these new exemptions. The state would set aside a portion of the statewide Use tax revenue, and use this revenue to reimburse local governments. It is estimated that local governments will be reimbursed for the entirety of the revenue lost due to the personal property tax cuts.
The state would also levy a new, but relatively small, tax on manufacturing personal property that qualifies for one of the exemptions described above, except the small parcel exemption. The state estimates this to raise $117.5 million, making the overall net tax cut of the legislation package worth about $500 million. … more

Legislators Should Look To Oklahoma To Address Pension Change ‘Transition Costs’

Agenda for Detroit: What Role Should State Play Post-Bankruptcy?

Michigan Politicians Misrepresenting Attorney General Position To Push Detroit Bailout

Lawmakers Misrepresent Detroit Pension Bill

Legislation does not “cap” potential taxpayer contributions. … more

Media Misinterpreting Detroit Pension Bill

Legislation doesn't address pension underfunding. … more

Money For Detroit Is Clearly a Bailout

Policymakers should stop saying otherwise. … more

Alleged ‘Transition Costs’ Avoidable In Detroit

Shouldn't be used as a roadblock to pension reform. … more

More Detroit Favors Piled On Top of Other Favors

City gets more in revenue sharing than all others combined. … more

Utah's Lessons for Michigan Pension Reform

How to Make Michigan Schools More Expensive

Mark Schauer's education plan protects the status quo. … more

More State Favors for Detroit

Deferment through borrowing. … more

Detroit’s Special Favors Add Up

Only city in Michigan allowed to tax utility bills. … more

More Higher Ed Spending Questionable

Legislators, taxpayers need answers. … more

Pension Debt: Not Just a Problem in Detroit

Agenda For Detroit: What Role State Government Should Play After Bankruptcy

Right-to-Work States See Larger Gains

Personal income and population growth numbers released. … more

Michigan's Film Incentive Program Has Been A Bust

Right-to-Work Should be Judged on Economic Data

Corporate welfare inquiries not a good barometer of success. … more

There Is No Relationship Between College Graduates and Economic Growth

Other Michigan Cities in Pension Debt

Not just a Detroit problem. … more

Look at Municipal Finance Trends Before Pumping In More Money

Why Tax Rate Cuts Matter More Than Increasing Credits and Exemptions

Analysis: Michigan's Labor Force Growth Among Fastest in Nation

Benefits in Balance

How Politicians Game the Pension System

Michigan Still Underfunding Teacher Pensions

Made full contribution just twice in last decade. … more

State Loses 200,000 Jobs, MEDC Finds 2,185

Why tax cuts are better than corporate welfare. … more

Michigan Taxpayers Have Already Bailed Out Detroit

Michigan School Privatization Survey 2013

Michigan’s school districts have saved money by turning to the private-sector to provide support services. This 2013 survey shows that 65.5 percent of districts now contract out food, custodial or transportation services to private-sector vendors. This is an increase from 31.0 percent in 2001. The survey covers the three services, satisfaction and insourcing among Michigan’s public school districts and has been performed in 2001, 2003, and annually since 2005. … more

Little Disclosure on Business Subsidies

Deals could eat up half of budget surplus. … more

Why Detroit Pensions are Underfunded

Plenty of blame to go around. … more

What Economic Development Transparency Should Look Like

Pension 'Transition Costs' Remain a Myth

Direct Cash Grants: Anti-Crony Capitalism Policies Fall Short

Fact and Fiction About Right-to-Work: A Reality Check at the One-Year Anniversary

More Money, Higher Taxes Not the Solution for Detroit

Minimum Wage Battles in Michigan