District Outsourcing

The Mackinac Center for Public Policy’s fifth survey of Michigan’s 552 conventional public school districts found that the privatization rate of the "big three" support services (food, janitorial and busing) has increased again. More than 40 percent of districts statewide now contract to some degree for management or operation of at least one support service. This figure is expected to grow.

The rate of increase over 2006 was an impressive 7.6 percent, driven primarily by the large expansion in custodial contracting.

Competitive contracting continues to be a popular management tool for improving services and for saving money, which can then be reinvested into classrooms. All indications are that it will continue to grow in popularity.

The rate at which districts now contract for custodial services is up an impressive 26.8 percent (17 districts) over last year’s total, which increased by 26.2 percent over 2005. As of June 30, 14.5 percent of Great Lake State school districts were contracting for custodial services. Estimated savings from new custodial contracts range from $90 per-pupil per year in Midland to $123 per-pupil per year in Gwinn.

Food service contracting remains the most popular single area among the big three support services statewide. A total of 164 districts, or 29.7 percent, contract for either management or operation of their food services. This is up 3.6 percent (six districts) from last year but still more than slightly double the rate of custodial contracting. It is also more than twice the rate of the national average for food service contracting.

In early 2007 the Center surveyed all 50 state education departments which keep track of the degree to which institutions participating in the National School Lunch Program contract with Food Service Management Companies and found that only 13.2 percent of conventional school districts nationwide do so. Michigan is among the national leaders in food service privatization, ranking fourth behind Rhode Island (86.1 percent), New Jersey (64.4 percent), and Pennsylvania (36.7 percent).

By contrast, when it comes to competitive contracting for busing services Michigan is a bit of a laggard. Statewide, only 4.3 percent (24) of districts contract with private firms. Nationwide approximately 31 percent of districts may contract for busing services. This number is probably skewed higher by the degree to which some eastern states contract for transportation. More than 90 percent of students (which include private and parochial students) who ride the bus to school in Connecticut and Massachusetts ride on privately owned or operated buses. The Mackinac Center survey excludes all contracts for special education busing. It also excludes districts that have gotten out of the busing business altogether (there were three in the 2007 survey) or those that contract with another unit of government. In 2007 the Mackinac Center identified six districts that contract with some form of a transit authority.

Competitive contracting is not necessarily a technique that is maintained over time in districts, although several district-vendor contracting relationships go back 30 years. Since completion of the 2006 survey last August, eight districts brought services back in-house. Some did so because officials believed it would be less expensive; another brought its busing management back in-house by promoting an employee internally.

Despite a modest number of districts returning to district provision of services, a striking 77.9 percent of respondents reported that their district had achieved financial savings thanks to competitive contracting. Another 18 percent were unsure about whether or not they had saved money. Only 4.1 percent reported no savings as a result of privatization.

Of districts contracting for one of the major noninstructional services, 89.2 percent reported being satisfied with the experience. Less than 1 percent reported being dissatisfied and the remainder were as yet unsure.

When the Mackinac Center concluded this year’s survey on June 30, another 42 districts reported still being in the process of deciding whether or not to privatize one of the big three support services, two of which — Howell and Marshall — recently voted to privatize custodial services. These are not included in the 2007 survey totals. In addition, 18 other districts reported being in the early stages of investigating support service contracting for the fiscal 2009 school year.

Competitive contracting continues to be a popular management tool for improving services and for saving money, which can then be reinvested into classrooms. All indications are that it will continue to grow in popularity.

For more on the subject of school support service privatization, see the Mackinac Center book "A School Privatization Primer."

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Michael D. LaFaive is director of fiscal policy for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Daniel J. Smith is an adjunct scholar with the Mackinac Center and a Ph.D. candidate in economics at George Mason University. Permission to reprint in whole or in part is hereby granted, provided that the authors and the Center are properly cited.

Summary

More than 40 percent of conventional public school districts in Michigan report contracting for one of the three major noninstructional services — food, custodial or transportation — in 2007, and dozens more are considering the cost-saving measure over the next two years.

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