In 2003, when it came to contracting out for common public school services, only outsourcing food provision could be considered a rather common occurrence in Michigan. And there was good reason for this: school districts are prohibited from making a profit from their cafeteria, but any deficits created in providing food for students must be covered by general school funds. When deficits occurred, school officials often looked for outside help from food service management companies.
Contracting out for the two other most common noninstructional school services — custodial and transportation services — was rare in 2003. Only one out of 15 districts contracted out for custodial services and even fewer for transportation — one out of 26.
Since 2003, however, there has been an explosion of privatization in these areas. This year, 47.5 percent of districts contract out for custodial services and 24 percent contract out for transportation services.
Districts have largely been propelled to contract out for these services based on a desire to save money. The more efficiently districts can provide these noninstructional services, the more resources they can devote to their core function — providing educational opportunities to students.
In addition to this rationale, spending pressures, created in large part by rising employee health insurance and retirement costs, compelled districts to find ways to stretch dollars further. All school district employees are mandatory participants in the state-run Michigan Public School Employees’ Retirement System. Contribution rates for this program increased from 12.16 percent of payroll in 2001 to 34.54 percent of payroll in 2014.[*] Most private sector employers offer retirement benefits that cost between five to seven percent of payroll on average.
These ever-increasing costs help explain why many districts have begun using employee leasing agencies, which allow employees to be paid at the same rates while districts escape the MPSERS payments. Interestingly, this may be a win-win, as employees get to vest their retirement benefits much earlier than under the MPSERS plan. According to Bellweather Education Partners, less than half of all school employees vest in MPSERS’s pension benefits.[†]
This survey finds that in 2014 more school districts contracted out for food, custodial and transportation services than ever before. However, the rate of annual increase in the number of districts that contract out was less than in previous years. Contracting increased from 66.2 percent of districts in 2013 to 66.6 percent of districts in 2014. The average rate of increase over the last five years was 4.3 percentage points.
There may be many factors contributing to this slowed rate of growth in school privatization. It could be that school support service privatization has topped out. In other words, there may come a time when all the districts that could contract out for quality services while simultaneously saving money have. However, while the percentage of districts grew only slightly from 2013 to 2014, the number of districts in each of the categories surveyed — custodial, food or transportation — that privatized increased at higher rates than the overall number of districts that contract out support services.
[*] This rate includes the “state stabilization” share of contributions for basic/MIP members with premium subsidies. According to the 2013 actuarial valuation, basic/MIP members comprise 87 percent of active members in MPSERS.
[†] Chad Aldeman and Andrew J. Rotherham, “Friends Without Benefits: How States Systematically Shortchange Teachers’ Retirement and Threaten Their Retirement Security,” 2014, http://goo.gl/l6mJfN (accessed Oct. 20, 2014).