Competitive contracting spreading

More public schools privatize services

On the Rise chart

Competitive contracting continues to be an increasingly popular option for public school districts across Michigan to save money.

The Mackinac Center for Public Policy’s 2006 privatization survey shows that 212 districts, or 38.5 percent, have a competitive contract in place for one of the three main non-instructional services: janitorial, food service or transportation.

Survey results in 2001 showed 31 percent of public school districts contracted out for one of the three major non-educational services. That rose to 34 percent in 2003 and to more than 35 percent by 2005. All 552 public school districts in Michigan were contacted for the survey. All but one district, Detroit Public Schools, responded. Of those saying that they do outsource one or more services, some 93.3 percent reported being satisfied with the process, a figure that has increased with each survey. Of the 208 districts, 162 said they saved money, while seven districts that said they did not. Some 44 districts reported they were unsure.

The most popular item schools contract for continues to be food, with 158 districts. An additional five schools have privatized busing compared to 2005, increasing from 21 to 24. Janitorial contracts saw an increase from 50 districts to 63.

Savings are Undeniable

The Avondale School District, in Oakland County, had already privatized food services, as well its bus maintenance program. Assistant Superintendent Tim Loock told The Detroit News that the food services program lost more than $100,000 the year before it was contracted out, but is now profitable. The bus maintenance program is expected to save $65,000 a year. A competitive contract for custodial and maintenance work, which took effect July 1, will save the district more than $500,000 a year.

The amount of money schools can save by hiring private firms to handle janitorial work far outpaces many of the other services that can and have been privatized. Muskegon Reeths-Puffer said it will save $480,000 a year with private custodians. Hartland Consolidated Schools said it will save $5 million over five years with a competitive contract for maintenance. Lakeview Public Schools, in Macomb County, was able to reduce its janitorial budget by $1 million after privatizing that service. Kalkaska reported it will save $324,000 with a competitive contract for custodial work, while Battle Creek Lakeview expects to reduce costs by up to $300,000 over 18 months by doing the same.

Greater savings can be realized in custodial work because of the gap between what it costs schools and what it costs the private sector,” Dean Van Zegeren, assistant superintendent for business and operations at Reeths-Puffer, told Michigan Education Report.

Van Zegeren said he thinks busing has seen relatively few districts move toward privatization because there is little difference between what the schools pay and what the private sector pays.

“It’s a more specialized job,” he said. “They have to be certified, pass rigorous tests for the state to license them. They’ve got 80 kids behind them, yelling, while they’re paying attention to road conditions and trying to maintain order.”

The amount of savings is substantial because of what administrators call “legacy costs,” meaning retirement and health insurance.

“For the last four years, the amount of revenue from the state has been the same amount, or slightly increased, depending on who you listen to,” Loock told The News. “But our health benefits and retirement funds have seen double-digit increases over the past four years.”

The amount school districts must contribute to the Michigan Public School Employee Retirement System has increased to 17.75 percent. Because the system is set up as a defined-benefit plan, whereby the state is required to pay a certain dollar amount to retired school employees, schools must pay a higher percentage of payroll costs each year to meet increasing costs. This differs from most other retirement plans, which are usually run as a defined-contribution plan, the most common name of which is a 401(k). Under the latter system, the employee is free to decide how much of their pay to set aside for retirement needs, with a matching amount put in by the employer up to a threshold.

In the Gull Lake schools, for example, salary and benefits make up 81 percent of the district’s $24 million budget. School board member David Krueger told The Kalamazoo Gazette those personnel costs will increase by $1 million in the next year, even if there is no salary increase.

“We offered our custodians a package where they could have kept their jobs,” Van Zegeren said. “It would have reduced wages by about 30 percent, down to what’s more in line with the market, and it asked for less expensive insurance and a pro-rated pay for hours worked.”

Van Zegeren said food services at Reeths- Puffer is not privatized because it actually makes money for the district’s general fund.

“We have a great supervisor who really runs a tight ship,” he said. “We have only the amount of staff needed, and they’re very efficient and careful with the use of food.”

Rick Simpson, a regional sales director with Chartwells Food Service, said that although is company works with 130 school districts in the Great Lakes region, most of those districts continue to employ their own cafeteria workers, opting to contract out for management services.

“We generate $125 million in revenue for our schools,” Simpson told Michigan Education Report. In food services, privatization doesn’t always mean all the employees work for us. Sometimes it’s just a manager on-site to oversee the paperwork, make sure the USDA guidelines are being met.”

Schools Get Creative

Districts have moved beyond busing, food services and maintenance when it comes to competitive contracting. Creative ways of saving on non-instructional costs have spread to other areas of school budgets, allowing districts to devote more of the increases in state spending they receive on teachers and students.

Cass City, for example, is able to save $32,000 a year by contracting for secretarial services. Ypsilanti estimated it could save about $130,000 by privatizing its top three administrative positions, and Ithaca has reduced costs by outsourcing its counseling services.

The next big wave of cost savings could come through a competitive bidding process for the oversight of substitute teachers. Fennville, Grand Rapids, Houghton Lake and the Kent County Intermediate School District have already taken that step, and many more school districts are studying it. By contracting out for substitute teaching, districts save money because they no longer have to pay retirement costs for a line of work that is not meant as a lifelong occupation, nor do schools have to spend money on paperwork, daily phone calls or other administrative matters.

Competitive contracting is not limited to just K-12 public schools, either. Several of Michigan’s 15 public universities have turned to competitive contracting for services ranging from food and custodial to laundry, legal, vending and book store operation. One of the more successful examples recently was a custodial agreement Western Michigan University signed with a company that is expected to save the school $1.5 million a year. The school took bids from five firms, as well as the 60-member union that represented the employees previously working in maintenance. The winning bidder, Commercial Sanitation, is able to provide the services at a cost $1.1 million less than the union said it could.