Battle Creek's Player's Dilemma

Battle Creek Public Schools, in the last month, has approved cuts to several extracurricular activities in an effort to salvage the district’s financial situation. Subject to the cut were lower-participation sports including tennis, golf and bowling, which, according to the Battle Creek Enquirer, amount to $36,000. Other programs cut included camp programs for first, third and fourth-graders, which Battle Creek decided last week to suspend in order to save another $180,000. Parents may very well be concerned about the loss of these programs. Fortunately, there are more material steps Battle Creek can take which would save these programs, such as implementing a pay-to-play mechanism for extracurricular activities or outsourcing essential services to the market.

Like most school districts, Battle Creek appropriates extracurricular dollars from its pool of existing revenues, most of which are derived from taxation. Effectively, this means that parents must (through their taxes) collectively pay for these programs regardless of whether or not their children wish to participate. This system creates a problem easily explained by economic science: when members of groups are able to share the costs of what they buy, they tend to over-consume in a phenomenon known as the unscrupulous diner’s dilemma.

According to the unscrupulous diner’s dilemma, when the cost of a purchase is spread across others, the buyer is allowed to impose costs on others which exceed his or her own benefit. But because the purchase becomes less expensive for the buyer, and because all others in this situation are facing the same decision, each individual is incentivized to purchase more than he or she normally would. This over-consumption leads to socially undesirable outcomes, including a waste of resources.

This same principle accounts for why groups who split their tab at bars may end up drinking too much. It holds true with extracurricular programs as well: You may end up with many parents paying for an entire school weight room that only a relative handful of student athletes use – or want to use.

This inefficiency should be corrected. But the outright elimination of these programs without offering a replacement may result in revenue losses, should parents respond by moving their children to another district. Under Michigan’s school financing system, a foundation allowance of $7,059 per student in Battle Creek’s case would follow the students to another district. In other words, if even six students leave Battle Creek Public Schools because of its cut to sports programs, the resulting revenue losses would be greater than the $36,000 saved. Fortunately, there are actions Battle Creek can take to keep these programs alive.

A more efficient approach to providing extracurricular programs is a pay-to-play system, in which parents and students are allowed to make choices with their money, based on how much they value tennis, golf, bowling and other options as well. Under this system, the costs of the programs desired are borne directly by those who obtain direct benefit from the program, which does not result in the same over-consumption and waste of resources caused by cost-socialization. Moreover, because parents and students are responsible for these programs, they are not at risk of being cut from the school district’s budget.

It can be argued that the implementation of a pay-to-play mechanism is a form of privatization. On the supply side, it offers competing choices of extracurricular activities to parents and students. On the demand side, payment is no longer required of everyone collectively and costs are internalized. The idea of a private transaction is that he or she who benefits from a purchase also bears its full cost, without imposing negative externalities onto other people.

Because the potential savings are small, cutting and privatizing extracurricular programs cannot be the sole solution to Battle Creek’s budget deficit. Fortunately, the benefits of privatization can work in other ways as well, such as through competitive contracting for essential school services.

Based on the Mackinac Center for Public Policy’s ongoing 2012 Michigan School Privatization Survey, more than half of Michigan school districts are currently using competitive contracting in some form. Districts close to Battle Creek Public Schools (including Albion Public Schools, Harper Creek Community Schools, Lakeview School District and more) are contracting with firms to outsource food, custodial and transportation services. Battle Creek Public Schools, on the other hand, currently contracts only for food-service management – though they stated that they are happy with the service provided.

When a school district correctly uses contracting to outsource its services to a competing supply of firms, it can get better quality services at a lower price. Data from the Mackinac Center’s annual Michigan School Privatization Survey show that from 2009-2011, average savings per pupil were $32 for food services, $118 for custodial services, and $98 for transportation. Based on these figures, Battle Creek could realize an estimated $1,389,296 in savings from outsourcing these three services. While this amount does not solve the entire budget deficit, it is a considerable step in the right direction.

By implementing a pay-to-play mechanism to finance its extracurricular activities, or by following the example set by its neighbors and competitively contracting with firms for its essential services, Battle Creek can use privatization to its advantage and save its extracurriculars from the axe.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.