Habit 1: Minimize Administrative Costs

For public school districts, as with any venture, fiscal responsibility starts at the top. This means controlling administration costs in Michigan’s public schools, particularly since expenditures on administration have risen faster than other budgetary areas over the past three years. According to the S&P School Evaluation Services, central administration costs have increased more than twice as fast as instructional expenses, including teacher salaries.[4] Building administration (principals and school directors), grew at about 5 percent, more than the 3 percent that teacher salaries increased over the same period. Combined, these administrative expenditures make up 10 percent of total annual education spending, or $1.4 billion. This translates to more than $846 per–pupil in administrative spending.

There are ways of trimming administrative costs through outsourcing, while potentially alleviating some of the problems associated with district-run administration. For example, Detroit Public Schools’ payroll system has been fraught with problems, mostly stemming from employees not being paid correctly; outsourcing this to a private company that has a pecuniary interest in its accuracy would likely solve the problem entirely.[5]

School districts of all sizes, though, could benefit from outsourcing administrative functions such as payroll services. The Texas State Comptroller of Public Account’s office (the state auditor) has been conducting school district performance reviews over the past few years.[6] In these performance reviews, the Comptroller’s office estimates how much money could be saved through outsourcing certain administrative functions, among other fiscal recommendations. One example is the Eagle Pass Independent School District in the Rio Grande valley. The Comptroller’s office estimates that the 12,500-student school district could enjoy a net savings of nearly $43,000 per year if they outsourced their payroll functions. Mid–size districts in Michigan could realize similar savings.

Other administrative areas in which school districts should consider outsourcing include records management, benefits administration (flexible spending accounts, some insurance benefits, etc.) and even candidate recruitment.

Another way administrative costs can be reduced is by contracting out administrative functions entirely, which is precisely what happened a few years back in Minneapolis. That city’s school district became the first public school entity to name a private company to the position of school superintendent.[7]

Minneapolis Public Schools (MPS) originally hired Public Strategies Group (PSG), a private consulting firm, in February 1993 to help balance its books. The district was $5 million in debt when PSG was hired. Around that time, MPS also hired a search firm to help locate a new superintendent. The district authorized the search firm to consider nontraditional candidates and even asked PSG if it would be interested in the position.

Peter Hutchison, PSG’s president, took the district’s suggestion to heart and offered himself as a candidate, intending to hold the position of superintendent temporarily. In 1994, the 45,000–student district accepted Hutchison’s proposal, but with a twist. It hired the entire PSG firm to serve, in the district’s words, “in the capacity of superintendent.”

Thus began a unique public–private partnership that ultimately resulted in four contracts between PSG and the district, beginning January 1994 and ending in June 1998. In Minneapolis, an entire firm’s expertise was brought to bear on a school district’s management for a mere $72,000 per year, far less than the average annual superintendent’s salary and benefits.

The Minneapolis school district paid PSG a total of $431,000 for its work during the first contract and its initial extension. This payment included just over $70,000 in base salary, with the rest being bonuses for meeting 60 percent of the school district’s goals. This outcome–based contract allowed the school district to pay most of PSG’s compensation only after the firm had thoroughly proven itself.

Local media also were impressed with PSG’s performance. According to the St. Paul Pioneer Press, PSG “made fundamental changes in a district that was desperately in need of direction and competence. [Hutchison] streamlined some ancient bureaucratic practices and brought about improved test scores in elementary grades.” The editorial continued, “Staff morale has improved, and administrators are encouraged to admit failure as well as success.”[8]

The public–private partnership of Minneapolis Public Schools and PSG contains a lesson for school districts everywhere who wish to improve education while freeing scarce resources for other purposes. As Hutchison told the Minneapolis Star Tribune, privatization gave PSG “a chance to share ... our success and the elements that have gone into that success, so that we can all learn how to get better.”[9]

Clearly, minimizing administrative costs can reap savings for public school districts of all sizes. Districts should therefore analyze their administrative expenditures first when they look to maximize classroom spending.