Public school districts use private contractors to provide support services in an effort to save money, improve services and better prioritize district resources. The Mackinac Center has surveyed school districts about their use of contractors since 2001. This year’s survey revealed that 69.7% of schools contract out for food, custodial or transportation services.
The portion of districts contracting out for support services increased from 31% in 2001 to a high of 71.1% in 2017. This represents a dramatic change in the operations of school districts: hiring private sector support services grew from a somewhat unusual practice to a commonplace occurrence.
The primary reason schools contract out for these services is to save money. There is a large incentive to take advantage of outsourcing if it can provide the same or better quality of service at a lower price than the district can achieve itself.
This year, 375 school districts used contracted services. This was a small decrease from 2018 when 378 districts maintained private contracts, and the second consecutive year that the number of districts that contract out decreased. Districts that brought services back in-house tend to cite cost-effectiveness or service quality concerns as reasons for ending their third-party contracts.
Fewer districts with contracted services might be an indication of improved fiscal stability. In most circumstances, districts seek bids for private services when there is a strong need to save on costs.
The trend of districts with outsourced services has steadily increased since 2001. There has been a slight decline since 2017, however. State-mandated pension costs may have had an impact on these trends. Contracting with a private provider allows districts to avoid paying the state-mandated retirement system contributions, which now equate to 39% of payroll, though the state pays a little less than a third of these costs. Those “stabilization” payments may have decreased the urgency of contracting out to avoid growing retirement contributions. Pension payments charged to school districts have remained around 25% of payroll since 2014, due to these stabilization payments, and contracting out rates have not increased much since 2014.
There are always multiple options that districts can pursue in order to save money and improve services. At the heart of these decisions is a desire to devote more money towards delivering quality education. Contracting out for support services is one of many decisions made on the margins that could contribute to this goal.