Statewide School Contracting Could Save As Much As $500 Million

This working paper is being revised frequently as new data are collected and as its methodology is fine-tuned. Please check back often for updated versions. — Ryan Olson

When local school districts contract for ancillary services, the districts usually report significant savings. Those savings enable districts to direct more funds to classrooms or toward any programs or staff the district deems important. According to the Mackinac Center’s most recent survey, 40 percent of Michigan districts have contracted at least one of the three major support services: food, janitorial and transportation.

If the remaining districts were to contract with private vendors, Michigan schools could save at least $200 million and as much as $500 million. This quarter billion to half billion dollars in savings could be realized if school districts were required to seek competitive bids for the three major support services.

Under current arrangements, school boards considering competitive contracting often face incredible public pressure and opposition orchestrated by school employees unions. If districts were required to seek bids, they may find that their current service personnel would offer the highest quality for the best price. However, they would also be able to compare their current arrangements with service providers in the private sector, which are usually known for their quality, safety and efficiency.

The estimate of as much as $500 million is based on the average per-pupil savings realized by school districts that reported they had contracted for support services and provided savings figures during the Mackinac Center’s survey research. In a few instances, district savings were supplied by media reports. The average per-pupil savings figure for each service was then multiplied by the total state aid membership of those districts that had not yet contracted for the service.

State aid membership — 25 percent of the previous year’s full-time-equivalent-student count and 75 percent of the current year’s count — is used because most state funding is based on this pupil "count." Furthermore, because enrollment is declining statewide, state aid membership is slightly larger than actual full-time-equivalent pupils, thus making the savings estimates more cautious than they might otherwise be.

Note that savings reports were not available from all districts that had privately contracted for services, including some who said they had saved money. Thus, 18 districts reported that they had tracked savings for janitorial services and could reproduce the annual figure for that particular service, while 13 did so for food services and only three did so for transportation services. Savings figures from districts that had contracted for more than one service and reported only one aggregate figure were not used to ensure that the estimate is not overstated.

The averages were multiplied by the state aid membership of only those districts that have not yet contracted for services. Some of those districts had previously contracted for services that they later brought back "in house," but it is quite reasonable to assume that reissuing requests for proposals and seeking new contracting arrangements would provide such districts the opportunity to establish a good contract and save funds. Alternatively, being required to reopen the bidding process would at least reveal the market price for support services and encourage local bargaining units to align themselves with that likely more realistic cost assessment.

The $500 million total is comprised of approximately $20 million from contracting for food services in those districts that have not yet contracted, about $180 million from janitorial services and about $300 million from transportation services.

Using the average savings for contracting food services — about $20 per pupil — likely yields a low estimate because eight of the 13 districts whose reported savings are used have contracted only for the management of their food service. Districts that contract for both management and labor in their food service departments would likely report larger per-pupil savings. This means that the result of contracting both aspects of food services would probably yield much more in savings than this estimate indicates.

The average per-pupil savings from transportation, about $220 per pupil, seems to be a reliable figure because per-pupil savings are fairly consistent in the three districts that have tracked and reported savings, despite the fact that their enrollment sizes and area in square miles vary significantly.

Were districts required by the state to bid out for support services, the savings for the first year may be as low as $200 million, if current collective bargaining agreements cannot be opened. Some legal experts think that a district cannot open agreements because they have already consented to the contract arrangements for a defined period of time. Other experts think that current agreements’ expiration dates are irrelevant because state law makes support services a prohibited issue in contract negotiations.

These legal questions were discussed in the Mackinac Center’s recent primer on school contracting. The $200 million figure is calculated by taking a third of the maximum savings and rounding up. The one-third figure is relevant here because collective bargaining agreements typically expire after a three-year period. However, when given the chance in court proceedings to make the argument for keeping collective bargaining agreements closed to the consideration of private contracting, the MEA has backed away each time. Their reticence may indicate that the MEA’s own counsel has determined that current collective bargaining agreements are not a constraint to contracting with a vendor for support services.

Below is a table listing each district whose per-pupil savings report was used. Similar savings would likely be achieved — to the tune of $500 million — in the remaining Michigan local school districts if they were required to bid out the three major support services.

Food Service Contracting in Districts That Tracked and Reported Savings†

Janitorial Service Contracting in Districts That Tracked and Reported Savings†

Transportation Service Contracting in Districts That Tracked and Reported Savings†

† Savings figures obtained by Mackinac Center survey research.

‡ Savings figure based on media reports.