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Privatization of school support services is a time-tested means for lowering educational costs. The three major services that school districts in Michigan contract out for are food, custodial and transportation. The Mackinac Center for Public Policy's survey of privatization is the longest running and most comprehensive source of school support service data in the nation.
Privatization of school support services is a time-tested means for lowering educational costs. The three major services that school districts in Michigan contract out for are food, custodial and transportation. The Mackinac Center for Public Policy's survey of privatization is the longest running and most comprehensive source of school support service data in the nation.
The Mackinac Center surveys all school districts in the state annually and has found that the overall rate of contracting out for food, custodial and transportation services has increased every year since the survey's inception in 2001. The most recent data are no exception: As of June 2008, 42.2 percent of school districts contract out, an increase of 4.9 percent over 2007.[*]
[*] The number of operating conventional school districts in Michigan is not always the same from year to year. There were 552 districts in 2007, but 551 in 2008 as White Pine Public Schools enrolled no students for the current year. In this study, we have used the number of operational school districts to calculate and compare school district contracting rates in different years, meaning that the contracting rate in any given year may not be based on the typical 552 school districts. Also, as of writing, we have been unable to receive a response from Detroit Public Schools from our Freedom of Information request. The district has been excised from this year's count, leaving 550 districts.
Every school district purchases items and services. From buying crayons to the installation of heating systems, school districts routinely participate in transactions with private companies.
Since the passage of Public Act 112 of 1994, which made contracting out a prohibited subject of collective bargaining, districts have been increasingly contracting for school support services that had once been more typically handled by district personnel. The purpose of this survey is to discover the extent of contracting for these services in Michigan school districts. This is the sixth year of the survey.
Obtaining and publishing this information, which is not available in any centralized location, is useful for tracking annual changes and informing the public about the degree to which school support service privatization occurs. The trends that emerge from annual or biennial research on school privatization statewide underscore something of a revealed preference in districts for or against support service contracting. That is, privatization allows us to see what districts and people do, rather than what they say, to underscore their preferences at any particular time.
The privatization survey was conducted largely by telephone between May 20 and Aug. 13, 2008. The vast majority of respondents were either district superintendents or school business officers. Some respondents preferred to answer Mackinac Center questions in writing only. Indeed, many asked that the Center submit its questionnaire in a formal Freedom of Information Act request. The Center was happy to comply with their request.
Privatization of support services includes contracting with a private entity for any part of the "normal" operation of a service function. This is a necessary distinction as some districts have joint provision of services between private and in-house service providers. For instance, at least 16 percent of all school districts and 55 percent of districts contracting for food service contract out for food service management while keeping employees on the district payroll.
This form of privatization also includes districts that contract for only a few routes of transportation services or for cleaning select district buildings. Big Bay de Noc School District, for example, contracts for just one custodian at a reported savings of $20,000. Partial contracting for the provision of transportation can be seen at Norway-Vulcan Area Schools where district employees and private contractors are used. These districts are counted as contracting for support services.
Districts also contract out for special education busing. Special education is considered outside the normal scope of standard transportation services and thus is excluded from our survey. Also excluded are districts that contract out transportation for student athletic or other events.
Districts that contract with employee management groups are included in support service privatization.
Some districts contract with other governmental units to provide services. One example of this can be found at Baldwin Community Schools, where transportation is contracted with the local Yates Township Dial-a-Ride.[*] Consolidation with other government entities in the provision of support services is not counted as privatization for the purposes of this study. One exception to this guideline is in cases where a school district contracts for the provision of a support service with another unit of government, but that unit in turn contracts with a private firm for the provision of that service. A case similar to this can be found in the Port Hope Community School District. Port Hope contracts for transportation services with the Thumb Area Transit, a nonprofit entity that receives some government funding in addition to a contract for student transportation with Port Hope Community Schools. Because Thumb Area Transit is a nonprofit, this contract is counted as privatization for Port Hope Community Schools.
Some districts share services. Summerfield Schools and Whiteford Agricultural Schools share a Sodexho School Services food service manager. Sharing services with other districts or units of government is commonly known as consolidation and can be a highly effective means of reducing costs.
Another means of reducing costs in districts is employee contracting. In some districts key employees have officially retired only to be hired back through a private company. This strategy allows districts to avoid paying non-salary benefits and making contributions to the Michigan Public School Employees
Retirement System, and it also results in other benefits from allowing private-sector companies to provide staffing services, such as freeing up administrative time from payroll processing.
Districts are also privatizing through attrition. Districts employing this strategy decide to privatize a given service but they do not simply let go of all district employees working in that service area. Instead, as employees retire, leave the district or lose employment for any other reason, they are replaced with contractors. For instance, Baldwin Community Schools has an attrition arrangement for its food service workers. Many consider this form of privatization a less drastic means of creating a smooth transition to private provision of a support service.
To ensure the accuracy of the survey's data, the authors verified all responses using a variety of methods. The most important is the follow-up survey. After every one of the districts is surveyed, Center staff telephone each district that reported contracting for one of the big three services. At that time the district is asked to confirm information provided to the Mackinac Center during the first interview. The Center then cross-references responses with information found in the public domain, such as information provided by the Michigan Department of Agriculture, Michigan Department of Education, and contractor and media accounts. Any discrepancies in the data are clarified with district officials.
[*] Several of these districts contract with a private, for-profit firm for either food or custodial services. Baldwin for example contracts for food service and is currently studying the feasibility of contracting for provision of custodial services next year.
For the fifth consecutive survey, privatization of school support services increased. The 2008 survey shows that 42.2 percent of Michigan school districts contracted for at least one of the three major noninstructional services: food, custodial or transportation. This is an increase of 4.9 percent from last year and an increase of 36.1 percent since the survey's inception in 2001.
Graphic 1: Outsourcing by Michigan School Districts
This year's survey includes only 550 districts. White Pine in the Upper Peninsula was not included this year as there are no students in the district. Detroit Public Schools did not respond to repeated requests for information this year.
This is not the first year the Mackinac Center was unable to receive responses from all districts. In 2001, the initial survey year, only 228 districts responded. The survey received 517 responses in 2003. Surveys in 2005 and 2007 received responses from every district. The 2006 survey eventually reflected all districts after Detroit responded following the deadline of that year's survey.
There are 19 districts in the state new to contracting in 2008 (see Graphic 2).[*]
There were also 42 districts that reported discussing contracting out food, custodial, or transportation services within the fiscal year.
Graphic 2: Districts New to Contracting
[*] This is not the net total for the increase in privatization statewide because eight districts brought services back in-house from 2007 to 2008. A total of 11 districts brought services back in-house, but three of these ultimately contracted for a different function which kept them in the privatization category for the overall tally.
According to respondents to the Mackinac Center's 2008 survey, 29.1 percent (160 districts) reported contracting for food services to some degree. This is a decrease of 2.1 percent from last year.
Graphic 3: Districts Contracting Food Service
There were six districts new to food service contracting this year and nine districts that took the service back in-house.
Districts that contract out for food service may continue to employ district workers and opt to have only an outside manager for the program. Except for Webberville, all of the districts that brought services back in-house had management-only contracts.
However, despite the decrease in the number of districts contracting out, food service remains the most frequently outsourced service.
Contracting out for custodial work continued apace from 2007. In 2008, 97 districts contracted out this service, an increase of 21.7 percent from the previous year and an increase of 168.2 percent since 2003.
Graphic 4: Districts Contracting Custodial Service
The following 18 districts entered into new privatization arrangements for custodial services.
Graphic 5: School Districts New to Custodial Service Contracting
Outsourcing custodial services continued to show impressive savings for districts, including:
Southfield Public Schools custodial services expects to save between $2.5 million and $3 million over the next three years.[*] This is roughly equal to between $94 and $114 per pupil per year.
Kalkaska Public Schools saves between $275,000 and $300,000 a year. That means it is saving between $158 and $173 per pupil per year for its 1,736 students.
Garden City Public Schools saves just over $1 million a year, or $184 per pupil per year.
[*] Southfield also contracted for food and transportation services. The district expects to save between $1.5 million and $2.3 million on transportation costs and approximately $550,000 on food service costs over the next 3 year. By privatizing all three services, officials expect over the next 3 years to save a total of $14.7 million and $21.5 million. This is between $557 and $814 per student per year, which is by far the largest per-pupil savings encountered by the Mackinac Center to date.
In 2008, 5.5 percent of respondents (30 districts) were contracting for the management or operation of their transportation systems with private vendors. Per the definition of contracting listed in the methodology, this figure does not include special-education busing.
Though the privatization of transportation services is by far the least utilized method of privatization as compared to food and custodial services, it is a growing trend. Privatization of transportation services has grown 15.8 percent since 2007 and 36.6 percent since 2006.
Graphic 6: Districts Contracting Transportation Service
Graphic 7: Districts New to Transportation Contracting
Districts also choose to end contracting arrangements. This year, there were eight districts that had used contractors for providing one of the three main noninstructional services but now have complete in-house provision. This is identical to the trend of last year when eight districts took services back in-house as well.
Graphic 8: Districts that Brought Services Back In-House
Litchfield, Parma-Western, and Watervliet each moved their services in-house in the hopes of saving money in the coming fiscal year. Wayland and Webberville decided to hire an in-house food manager. Potterville was contracting for only one bus route and, after restructuring transportation services, no longer required the route for which the district originally contracted. Mayville cited political pressure on the school board as the paramount reason for hiring an in-house food service manager.
An important note of explanation regarding insourcing of a formerly privatized support service should be said for the Watersmeet district. At the deadline for this survey, Watersmeet had allowed a contract for custodial services to expire and had not yet decided whether to sign a new contract with a custodial firm or hire two new employees to take over custodial duties. Though at the survey's deadline the district was not counted as having custodial privatization, it may very well continue with a contractor for custodial services this year, just as last year. Watersmeet is still included in the count of districts employing privatization because of the third-party provision of transportation services it continues to utilize throughout the coming fiscal year.
Lastly, Dryden and Lake Fenton chose to insource some services this year but have kept private provision of other services.
An important facet of privatization that was shared by numerous superintendents in the course of data collection for this year's survey was the impact privatization has on negotiations with existing bargaining units. Competition in the provision of services allows districts to gain more control over their budgets and provide the best quality support services at the lowest cost.
According to one superintendent who requested anonymity, "If you're willing to put privatization on the table, it changes the dynamics of negotiations." He clarified, "It's not to be used as a threat or ploy but privatization creates an environment for negotiations that is not present in teacher negotiations. Unions realize the realities of budgetary situations."
The number of districts reporting savings from privatization rose this year to 81 percent (188 of the 232 districts that contract), up from 77.9 percent last year.
23 districts (10 percent) reported that they were unsure of whether privatization created savings while 14 districts (6 percent) declined to comment on whether they were realizing savings.
Graphic 9: Savings from Outsourcing
The number of districts reporting they had "no savings" as a result of privatization was only seven districts (3 percent), down from nine districts (4.5 percent) last year. But even when the contracting did not provide savings to the districts, some still reported being satisfied with the contractor. Of the seven districts, six reported satisfaction with their respective third-party contractor. Only one district, Richmond, reported not being satisfied with services from a private firm.
Six of the districts that reported no savings were contracting for food service, the seventh for transportation. Two of the food service contracts were for management and labor, the other four were for food service management only.
Of the districts contracting for food, transportation or custodial services, 209 of 232 (90 percent) reported being satisfied with their respective contracting experiences, while only three districts (1.3 percent) reported not being satisfied. The remaining 20 districts were either unsure of their satisfaction or refused to answer the question.
Graphic 10: Satisfaction from Outsourcing
High rates of self-reported satisfaction are consistent with previous years. While self-reporting may include a degree of district bias, the Center believes firmly that the numbers deserve more than passing attention. It would be irresponsible of district officials (and would undermine their work) if they consistently reported high levels of satisfaction for contracting if high satisfaction was in fact not the case.
Private contracts are frequently under scrutiny of district officials and critics whose personal financial self-interest is vested in traditional (and expensive) district employees. Superintendents and business managers — who make up the majority of our respondents — have little incentive to routinely misreport satisfaction for services that have disappointed them.
Poor performance is obvious, and officials find it easier to correct poorly performing employees when those employees are easy to fire. Moreover, contractors are far easier to fire in their entirety, which means intense dissatisfaction can be easily remedied. That's not the case with unionized employees in a collective bargaining unit.
Lastly, while selection bias can exist in more than Michigan-specific surveys, the authors wish to point out that positive satisfaction exists in other privatization surveys. Surveys of Virginia public schools by Barry Yost, New Jersey school districts by Ken May, and large American cities by Rob Dilger, Randy Moffett and Linda Struyk all include self-reported, generally non-negative satisfaction with private service [*]
[*] Yost, Barry D. "Privatization of Educational Services by Contractual Agreement in Virginia Public Schools," Ed.D., Virginia Polytechnic University, 2000.
May, Kenneth P. "An Investigation into the Role of the Privatization of Non-Instructional Services Provided by New Jersey Public School Districts," Ed.D., Seton Hall, 1998.
Dilger, Robert Jay, Moffett, Randolph R., and Struyk, Linda. "Privatization of municipal services in America's largest cities," Public Administration Review, Vol. 57, 1. 1997.
Less publicized privatization of services other than food, custodial and transportation continues to be a major trend in Michigan school districts. In particular, privatization of athletic coaches, substitutes of all types, snow removal, lawn care, secretaries, accountants, school administrators (including principals, curriculum directors, athletics directors and assistant superintendents) continue to be reported with high frequency. Other unique approaches included contracting for psychology services, school nurses, security guards, mechanics and Powell Township School District's contracting out for an art tutor.
As a result of following up with districts that employ nontraditional service providers, the authors have made several corrections to the 2006 and 2007 privatization surveys. For 2006, survey results have been revised upward owing to Inland Lakes' use of a nontraditional service provider. The 2007 survey results also have been adjusted upward to include Armada, Whittemore-Prescott and Cass City, all of which employee contracting services. Also in 2007, Lowell reported one privatized custodian; however, the custodian was contracted for less than the entire school year; the 2007 results have been revised to reflect this. All figures from prior years published in this year's survey reflect these corrections and revisions.
School districts displayed new trends for privatization this year. We have our first incidence of contracting out for a service decreased: Food service contracting declined modestly in net terms by 2.1 percent, though six new contracts were added for the year. Justification for insourcing was varied, ranging from expected savings to political concerns.
Custodial contracting continued its growth pattern, adding 16 new instances of contacting to the tally of districts contracting out for this service, or an increase of 17.6 percent. Transportation also grew this year and now covers 5.5 percent of Michigan districts. Custodial and transportation contracting saw a combined average growth rate of 15 percent (21.7 percent and 15.8 percent, respectively) over last year.
This year's survey again saw districts reporting savings and satisfaction at a very high rate. Some 77.9 percent reported seeing savings in their district (compared to 3 percent who reported no savings; the rest did not answer or were unsure) and 89.7 percent reported that they were satisfied with services (compared to 1.3 percent that reported no satisfaction and 9.1 percent that did not answer or were unsure).
Contracting out support services continues to be used as a way to contain costs and improve services. The 2008 survey has shown that more districts than ever before have taken advantage of privatization opportunities as a method of controlling costs. By saving money, contracting helps districts redirect funds back into the classroom. Additionally, superintendents shared that the powerful effect that competition enabled by the privatization option creates has a cost-cutting effect in negotiating with in-house bargaining units.
An in-depth assessment of school privatization in Michigan can be found in the Center's "School Privatization Primer."
Appendix A
