Michigan Schools Continue to Privatize

Every week there are reports of new cost-saving developments from around Michigan as public schools try to preserve classroom funding and protect teachers’ jobs by outsourcing non-instructional services.

"I think you’re going to see this happen more and more," said Lisa Brewer, a spokeswoman for Michigan School Business Officials, a professional association of school financial administrators. "It’s been going on for a while now, but it seems people are more aware of it."

Michael D. LaFaive, director of the Mackinac Center’s Morey Fiscal Policy Initiative and senior managing editor of Michigan Privatization Report, could not agree more. "We’re stunned by the amount of contracting activity we’re seeing around the state," LaFaive said. "I’ve been following privatization in Michigan since 1991 and have not witnessed this much activity since the proposed sale of the Accident Fund." The Accident Fund, the state-owned and -run worker’s compensation insurer, was sold to a private company for more than $225 million in 1995.

A biennial study by Michigan Privatization Report found that more than one-third of Michigan public schools now privatize at least one service. That figure has steadily risen, from 31 percent in 2001 to 34 percent in 2003 and 35.5 percent in 2005.

The most common services privatized by schools are janitorial, food service and busing. Some school districts, however, are starting to look at other operations where costs can be cut. Faced with large annual increases in the state-run pension system for school employees and high-cost employee health insurance plans, districts are becoming more creative.

Ithaca Public Schools, for example, now privately contracts for psychological services, a move that saved $32,000 a year. Lakeview Public Schools, in suburban Detroit, is spending $1 million less on operations and maintenance after privatizing its custodial work. The decrease takes into account money not spent on increased wages and benefits, inflationary costs, and equipment and supplies. (Editor’s Note: For more information on the efforts of Lakeview and several of the schools mentioned below, see "Around the State," starting on page 12.)

"We are starting to see this approach in a number of different ways," Brewer said. "Administrators and school board members are focused on how to get the best value out of whatever service they’re looking for."

Among the most creative approaches to privatization is a plan to contract out the jobs of three top administrators in the Ypsilanti Public Schools. The positions of chief financial officer, director of human resources and superintendent were being considered for just such a move, which the district said would reduce annual costs by about $130,000.

Over the past year, school districts have reduced expenses by as much as $250,000, as was the case when Albion privatized custodial services. In Grosse Pointe, a potential $50,000 loss was turned into $90,000 in revenue when food services were privatized.

Cooperative approaches also are being pursued. The Muskegon Area ISD has investigated privatized busing for six local districts that could reduce costs by up to $280,000. Ypsilanti and neighboring districts Willow Run and Lincoln have also joined together to investigate cost reductions through privatized busing.

When considering such a decision, schools can look to the success of Pinckney for direction. Pinckney Community Schools privatized its busing operations in 1994 and, according to The Ann Arbor News, has renewed the contract four times. Linda Moskalik, assistant superintendent for finance, said the contract will be renewed again this year.

Union activists say privatization puts custodians and bus drivers out of work, although in Pinckney’s case, 90 percent of the drivers went to work for Laidlaw Transit, all at the same hourly pay rate they had received from the school district.

Aside from the revenue generated by selling its buses to Laidlaw, Pinckney no longer must deal with the expenses of union negotiations or grievances from transportation staff.

"We’re saving a lot of administrative work," Moskalik told The News.

As Ypsilanti, Lincoln and Willow Run discussed potential savings through privatized busing, the issue of job losses again came up. John Fulton, Ypsilanti’s director of human resources, told The News that such fears were unfounded.

"If they take over three districts, they need to hire drivers," Fulton said. "So they’re going to be looking at the three districts to hire the best drivers."

Ted P. O’Neil is an education research associate with the Mackinac Center for Public Policy.

The following is adapted from Michigan Education Report, a quarterly publication of the Mackinac Center for Public Policy.