Contracting helps schools avoid cuts, offset mounting benefit costs

Reported savings more than $100 per student in some districts

Michigan school districts say they are saving money through private contracting and using the money to mitigate the damage of higher costs for health insurance, retirement and utilities. In interviews with Michigan Education Report, representatives in school districts that have contracted with private companies in the past year for janitorial, transportation or food services said their budget outlook still is not good, but that it would have been worse without outsourcing.

About a third of all Michigan school districts hire private firms through competitive contracting for janitorial, transportation or food services.

Garden City Public Schools estimated it would save $260,000 to $500,000, or up to $100 per student, on custodial costs in the first year of its contract with Grand Rapids Building Services, but most of those savings were eaten up by unemployment obligations to former employees and by a legal settlement between the school district and the Michigan Education Association, a school employees union that had filed an injunction to stop the move.

"Beginning in the second year, we will be saving $950,000 to $1 million," said Sheryl Quinn, executive director of business services. With enrollment at 4,976 in the fall of 2005, that savings would equal up to $200 per student. Even so, the district anticipates a $3.3 million deficit at the end of this year, up from $1.3 million as of June 2006. "Had we still had those (janitorial) costs, you can see what would have happened," Quinn said. Increased utility costs were a major problem last year, as was a 15 percent increase in health care expenses.

However, Quinn said, the district purchased new math textbooks this year and plans to buy social studies books next year. In predicting future costs, it helps that the district has a three-year contract with GRBS and a set price for each year, she said.

Similarly, Hartland Consolidated Schools has a five-year guaranteed price from GRBS for custodial service and is on track to save the amount it estimated, which is $5 million over five years.

"A year ago at this time we were looking at cutting $1.5 million from our general fund budget," said Scott Bacon, assistant superintendent for business and operations. "If we hadn’t done this it would have been another 10 teachers. … We’ve already reduced the easy things."

Schools within the Kent Intermediate School District are saving money by contracting with Dean Transportation to provide bus service for special education students, according to James McLean, assistant superintendent for finance. The KISD handles special education busing for a number of districts in Kent County under three separate contracts. The savings do not go to the ISD, but to the member districts, McLean said. "The money is going back into the basic programs. ... All of the schools in our area have gone through substantial cost reductions. Any cash they can put back in is a blessing for them."

"The real nut of all this is that you’re not paying that 17 percent retirement," he said, a reference to the Michigan Public School Employee Retirement System. School districts must contribute an amount equal to about 17 percent of their payroll to the system each year to cover required benefits for retired school employees. Private companies with private employees avoid that expense, though they may offer their own retirement plans.

The KISD also is using a private firm for substitute teacher services, and is talking with six other intermediate districts about implementing a central accounting system, McLean said. "In just our city we duplicate payroll in 21 locations," he said.

In Kalkaska, the school district is on track to save about $324,000 — equal to about $182 per student — through its private custodial contract, but that has been offset by increased costs for utilities, fuel, health insurance and retirement, district officials said. The district already reduced its teaching staff by 17 this year, said Lee Sandy, interim superintendent.

"When you first outsource, it’s definitely a learning curve," said Romanier Polley, director of business services for the Avondale School District. "We definitely realized savings … at least $250,000." Avondale’s student count in the fall of 2005 was 3,819, making the savings equal to about $65 per student.

That’s less than the $450,000 the district had projected because the contract didn’t specify all the work that needed to be done, she said. The contract included janitorial work but not maintenance for things like the heating and ventilation systems, she explained. "We had [maintenance] things that needed to happen immediately," she said, so the district ended up hiring additional help.

Next year "I think it will be a better year. This was a learning year," she said. The money that was saved this year "is going toward other operating costs," but not a specific item, she said. Avondale is running at a deficit and has filed a deficit-reduction plan with the state.

Brandywine Community Schools also was able to reduce its deficit with savings realized through a private custodial service, according to Sue Furney, director of business and finance. The district signed a two-year contract in January with D.M. Burr Facilities Management of Flint. It hired that firm after ending a contract with Great Lakes Cleaning of St. Joseph. Furney said in a report in the Niles Daily Star that Great Lakes and the district mutually agreed that their agreement "was not a good fit." The new plan is expected to save Brandywine about $170,000, or $118 per student.