Debate on state and local education finance policy over the past few decades has focused on expending increasing amounts of money for education. Here in Michigan, as in the rest of the country, school budgets have ballooned over time. In the 1969–70 academic year, Michigan spent $3,665 per student for elementary and secondary education (in constant 1998–99 dollars). By the end of the century, the average per-pupil expenditure had more than doubled,[1] leaving many to wonder why school budgets have swelled so significantly.

Even though per–pupil public school spending has increased every year, many districts are facing budget shortfalls. 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. Although these districts are experiencing very real problems, some are needlessly laying off teachers or other essential staff rather than analyzing their overhead and other non–instructional budgets.

Parents, school boards, and district administrators should take a hard look at their local public school district’s budget to make sure that the maximum amount of public school funds are spent on classroom instruction instead of non-instructional overhead. Effective management of school resources is especially needed as public school districts are competing for students, not only with private and parochial schools, but now with other districts in the public schools–of–choice program and with public charter schools.

Providing non–instructional services has taxed many a public school district budget. Public school districts now are offering more busing/transportation services, food services, counseling/social services, and staff benefits than ever before. In recent years, the amount of money expended on these non-instructional expenses has begun to eclipse classroom expenses. Michigan is now only one of seven states that employ more non–teachers than teachers.[2] Consequently, the state spends less than 50 cents of every education dollar in the classroom (see Figure 1), less than the national average.


Figure 1: About 48.3 Percent of Michigan’s Education Budget is Spent on Teachers


Total Expenditure

Per $1000 Spent




Total Spending, All Types



Total Capital Spending






  Land and Existing Structures



  Instructional Equipment



  Other Equipment



Interest on Debt






Total Current Spending



Total Instructional Spending



  Instructional Salaries and Wages



  Instructional Employee Benefits



  Other Instructional



Total Support Services Spending



  Pupil Support Services



  Instructional Staff Support Services



  General Administration



  School Administration



  Operation and Maintenance



  Pupil Transportation



  Other/Nonspecified Support



All Other Functional Spending






Total Other Spending



Source:  U.S. Census Bureau, Annual Survey of Local Government Finances (1999-2000 Academic Year)


Two issues are central to this discussion of financing non–classroom expenditures. First, how are these goods and services provided? Historically, most schools and districts have provided these services themselves; for example, they have purchased their own school buses and hired their own drivers. They have sold their own municipal bonds and have built their own buildings. They have built their own central kitchens and cooked their own lunches.

Alternatively, school districts could outsource these services to private companies who specialize in transportation, food services, or janitorial services. In many cases, this simple task of re–assigning who performs these functions – the public school district or a private company – can save the public school district from a few thousand to several millions of dollars per year, depending on the size of the district. The Michigan Legislature in 1994 gave school districts broad latitude to make unilateral decisions on outsourcing these non-instructional services by enacting Public Act 112.[3]

Second, and perhaps more importantly, are there institutional impediments to reform in school districts? Collective bargaining agreements with school employees unions can hamper effective reform because the unions may object to any change in the status quo. Also, school districts that limit local competition for students may be slow to reform because of a lack of incentive to do so.

Public school districts of all sizes are experimenting with innovative ways of managing their schools, their contracts, their benefits, and their services. This report will highlight the best examples of innovative programs and solutions to common non–instructional problems districts face. From this research, six broad “habits” emerge that school districts should adopt to be fiscally responsible with their allocated tax dollars.

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.

The following case studies document some of the experiences of schools and school districts in adopting these habits. The financial penalties for not following these practices are also discussed. This report will show how these habits can be applied to all Michigan school districts so that more money can be freed up and returned to the classroom.