Executive Summary

Michigan’s public education system is now forever changed because of a new, competitive environment. Not only are many school districts losing enrollment because of demographic changes in their communities, but parents are increasingly able to select alternative education options such as cross-district public schools, charter schools, private schools, and home schooling.

At the same time, the business of operating public schools in Michigan has changed substantially, with public schools steadily increasing the number of services they provide to students outside the classroom. Today, school districts across the state operate kitchens and cafeterias, buses and comprehensive maintenance services that have little to do with the direct education of children. Further, school districts must perform a host of administrative activities, such as negotiating contracts, acquiring school buildings, and managing employee benefit programs.

Without commenting on whether or not school districts should be engaged in all of these ancillary duties and occupations, this study details how to manage effectively and efficiently the non-instructional aspects of public education while remaining competitive in this new school choice environment. To that end, public school districts can be fiscally responsible in providing these ancillary services by following the six “habits” outlined in this study.

Habit 1: Minimize Administrative Costs. The first hallmark of fiscal responsibility starts with front office functions. Many school districts employ a small phalanx of consultants, administrators, assistant superintendents, etc. Does the existence of this sometimes-extensive front office staff help educate children, or could this money be better used in the classroom?

Habit 2: Take Advantage of Cost Savings from Outsourcing Non-Instructional Services. Most schools currently run a broad range of non-instructional services, such as janitorial, food, transportation, etc. When these services are opened up for competitive bidding, many school districts find they can either improve the quality of the services, save money on comparable services, or both.

Habit 3: Manage Employee Health Benefits Effectively. The cost of staff and teacher health benefits has skyrocketed over the past few decades for a number of reasons. First, some districts have allowed the Michigan Education Special Services Association (MESSA), a third-party insurance administrator controlled by the Michigan Education Association, to administer insurance benefits without a competitive bidding process. Second, the negotiated union health benefit structure is far superior to other locally available health plans. Even the most generous corporate benefits do not compare with the ones typically enjoyed by school employees. School districts that have reformed their benefit structure have saved millions of dollars while offering high-quality benefits for their employees.

Habit 4: Structure Capital Costs Effectively. With many districts needing new school facilities to cope with growth or to replace substandard ones, now is the ideal time to consider innovative and fiscally responsible ways to acquire classroom space. Instead of constructing new school buildings, some schools have opted to lease facilities, which can save the schools money in the long run, while leaving maintenance and major repair expenses to the private owners.

For those schools that decide to purchase or construct new buildings, more effective debt management and bonding policies would allow them to save money on their debt service.

Habit 5: Participate in Michigan’s Schools-of-Choice Program. Participation in schools-of-choice provides the proper incentives for school districts to adopt reforms, because it spurs inter-district competition. Additionally, public schools that can successfully attract and retain students through Michigan’s schools-of-choice program can see more funding flow into their district.

Habit 6: Reform Collective Bargaining. School employee unions can and often do limit the ability of school districts to enact needed reforms. Schools should have more authority to hire and fire teachers, remove mandatory support/exclusive rights to bargain clauses, and strengthen other management rights that are often unwittingly ceded to the unions.

School districts that can effectively incorporate these six habits into their overall strategies will see cost savings in their programs, savings that can be used to alleviate budgetary shortfalls, improve instructional programs, or return funds to the taxpayer. Implementing these sound business ideas is a way to return a large portion of school budgets to the classroom, and thereby improve public education across the state.