A 2003 Mackinac Center survey of Michigan school districts suggested that about 34 percent of them had privatized food, busing or janitorial services. The most common reason those districts gave for outsourcing was the desire to save money.
Today about 5,000 Michigan educators, parents and
school administrators are expected to rally at the state Capitol to urge
lawmakers to support
Senate Bill 246 and
House Bill 4582. These bills would legislate an annual state budget increase for primary, secondary and higher education of either 5 percent or the rate of inflation, whichever is less.
The desire to improve education is laudable. What remains in doubt is the cost-effectiveness of this approach to the issue.
For example, these bills would take effect in fiscal 2006, but the spending increase would be retroactive to fiscal 2003. The legislation therefore would require a one-time state payment of $1.5 billion, according to Michigan Senate Fiscal Agency Director Gary Olson, whose Senate testimony was cited on June 16 by the Lansing-based Michigan Information & Research Service. Olson projected that the one-time payment alone would force major cuts in other budget areas or sizable tax increases — either hiking the 3.9 percent state income tax to 4.75 percent, or raising the 6 percent state sales tax to
In contrast, the Mackinac Center has encouraged educators to improve
primary and secondary schooling by consistently putting children first. A
2003 Mackinac Center survey indicated that only about one-third of Michigan
public school districts "outsource at least one noninstructional service" among
busing, janitorial and food services. More than 63 percent of the districts that did privatize said they were saving money (33 percent were unsure), and about 88 percent said they were satisfied with the quality of the services they received from their private contractors.
In a recent case, Grand Rapids Public Schools hired
Dean Transportation to provide bus services for the next five years. The
Grand Rapids Press noted, "Because the private company doesn’t have to
pay into the state retirement system or use a union-affiliated insurance
carrier, the company projects the district can save $18 million over the
(5-year) duration of the deal." The
Michigan Education Association reported that Grand Rapids may cut noninstructional costs further by
accepting concessions of more than $2 million annually from union custodians
following the school board’s exploration of privatizing custodial services.
Privatization has had longstanding potential to lower
school districts' noninstructional costs. In 1993, for instance,
the Center surveyed seven school districts and found that the East Lansing schools
paid about $1.49 more per square foot for custodial services than Sears stores
in the same area. We calculated at the time that if district officials hired a
private custodial firm, they could save more than $1 million — a figure then
equal to 30,000 new textbooks, 500 new computers or 20 new teachers.
Strategies like these are far more focused than
legislation that would require annual increases and a one-time bill of $1.5
billion. As Mackinac Center President Lawrence W. Reed noted in his January speech "Michigan
at the Crossroads": "In the
schools, we don’t have a funding crisis so much as we have a management crisis.
And it’s not Proposal A that needs to be tweaked. What needs to be changed are
tired, old ways of business-as-usual."
This "business-as-usual" would have to include education
funding hikes that preclude full consideration of every budgetary option. The
Legislature’s ability to restrain education spending during the past few years
seems worth retaining in light of state revenue constraints and the potential
savings that school districts have not tapped yet. These untapped savings include not just privatized noninstructional services, but fully competitive bidding of employee health insurance services and a repeal of Michigan's costly "prevailing wage" act for school construction services.
I hope that the rally will feature a more nuanced agenda
than simply calling for more money. In that spirit, I have inserted below a commentary written by Michael D. LaFaive, our director of fiscal policy, and Robert P. Hunter, our senior fellow in labor policy.
Although the piece was written in 2003, it is timely — especially for the reportedly 51 percent of Michigan districts surveyed by the
Michigan School Business Officials that say they may have to lay off employees next year. In the end, policies that give priority to the classroom are more likely to find support in the state budget than bills that try to tie legislators' hands.
Ryan S. Olson is director of education policy at the
Mackinac Center for Public Policy, a research and educational institute
headquartered in Midland, Mich. Permission to reprint in whole or in part is
hereby granted, provided that the author and the Center are properly cited.
* * *
(The piece below was originally published in June 2003.)
Contract Out School Services Before Laying Off Teachers
The Dearborn school district intends to lay off 12 percent
of its teachers to help close an anticipated $4 million to $7 million budget
deficit. As reported in April, this amounts to 160 teachers who will lose their
jobs — teachers who won’t be there for the 17,000 children in Dearborn
classrooms after summer break.
This drastic step, which takes effect June 30 and is
expected to save the district $6 million, was unanimously supported by
Dearborn’s Board of Education. Similar layoffs reportedly are scheduled or being
contemplated in Livonia, Plymouth-Canton, Utica, Taylor and other Michigan
Any decision to lay off teachers begs the question of
whether every cost-saving alternative was explored before choosing the one that
arguably hits children the hardest.
The Mackinac Center for Public Policy has long encouraged
school districts to consider the savings that can be gained by contracting with
private companies for food, transportation, custodial and other
noninstructional services, such as technology and security.
Districts that do it right — write tight contracts, seek
competitive bids and closely monitor the performance of the contractor — almost
invariably find they are paying significantly less money for higher quality
service. In a noncomprehensive 2001 Mackinac Center survey, over 80 percent of
responding school districts reported saving money through outsourcing. The money
saved can be put back where it belongs: in the classroom, keeping good teachers
instead of laying them off.
Bob Cipriano, director of business services for Dearborn
Public Schools, said a private company provides the district’s security
services. But the district has not privatized food, custodial or bus service.
Cipriano said the district looked into privatizing custodial services four or
five years ago, but decided against it. He said he is not sure it has ever
considered privatizing bus service.
Cipriano emphatically contended that his district’s food
service "is run like a business," "is making a profit," and "is not a drain on
the school budget." In fact, a number of Michigan schools are taking this route:
As a last-ditch effort to resist increasing pressure to contract out, they are
actually trying to run their own services in ways that no longer lose money hand-over-fist.
Thus, the mere prospect of privatization is imposing
economic discipline where before there was none, spurring school districts to
run their services more efficiently.
The fact that this argues in favor of privatization seems
lost on the editors of the April issue of the Michigan Education Association’s
monthly magazine, which is devoted exclusively to "fighting privatization."
Calling school districts that privatize "fool-hearty (sic)" and the companies
that provide the services "privateers," the magazine showcases instances in
which private companies have been fired for not delivering lower costs, or
higher quality, or both.
Ironically, the union’s argument supports privatization.
The whole reason privatization is an issue is because schools want to be able to
get rid of services that cost too much, do a poor job, or both. It’s extremely
difficult, nearly impossible, to fire unionized school employees. Schools can
much more easily fire a private company that doesn’t live up to its contract.
The fact that poor-performing private companies have been
fired — a point the MEA makes very clear — doesn’t prove that privatization
doesn’t work. It proves that it does.
It’s not as if MEA officials don’t know the benefits of
outsourcing. Not long ago the union itself employed private (even nonunion)
companies — not its own unionized employees — to provide food, security,
custodial and mail service at its East Lansing headquarters.
So why not privatize, if it can enable districts like
Dearborn to retain its teachers? After all, private contractors often hire the
same bus drivers, custodians and cooks who were formerly school employees.
But the union might lose these workers as dues-paying members in the process. Apparently, the union — facing a $10 million deficit this year — is willing to sacrifice a few teachers to ward off potentially bigger losses as privatization gains momentum. Does this display a primary concern for children and teachers?
Schools boards that put teachers and kids first have a powerful law on their side. Michigan law prevents the MEA from making privatization a bone of contention in contract negotiations. This leaves school districts free to save money for teacher salaries through privatization of noninstructional services.
They should do so before laying off a single teacher.
Michael D. LaFaive is fiscal policy analyst and Robert P.
Hunter is director of labor policy for the Mackinac Center for Public Policy, a
research and educational institute headquartered in Midland, Mich. More
information on privatization, education and labor issues is available at
www.mackinac.org. Permission to reprint in whole or in part is hereby granted,
provided the authors and their affiliations are cited.
* * *
William Maze, "Why Does the Michigan House Want Schools to
Michael Mills, "Do Schools Really Need More Money?"
Lawrence W. Reed, "Michigan at the Crossroads: a 'State of
the State' Address,"
HB 4887, Appropriations: 2006 School Aid Budget; HB 4582
and SB 246, Mandate minimum annual school aid funding increase: