Around the State - Introductory Report

Contents of this issue:

  • Dear Reader

  • CPA Broaches Privatization with Houghton Board of Education

  • Ambulance-Township Partnership to the Rescue, Officials Face Recall Vote

  • Albion Schools Privatize Custodial Services

  • Cedar Springs Schools Contracts for Custodial Services

  • Smooth Transition to Privatized Bus Service in Grand Rapids

  • State May Finally Dispose of Northville Psychiatric Hospital Property

Dear Reader

Welcome to the first edition of "Around the State," an occasional electronic update of privatization initiatives, controversies and news about privatization. If you do not wish to receive this electronic digest in the future, simply click the reply button and type the word "remove" in the body of the email and we will remove you from the list of recipients.

If you know of current privatization stories in your geographic area that you believe deserve coverage in this Digest or in the Mackinac Center for Public Policy's Michigan Privatization Report, please do not hesitate to contact me at


Michael D. LaFaive
Senior Managing Editor

CPA Broaches Privatization with Houghton Board of Education

According to the Houghton Lake Resorter, the fiscal 2006 school budget for the Houghton Public Schools is more than $600,000 in the red and will effectively wipe out the district's positive fund balance if drastic steps are not taken. In a special Sept. 12 meeting with the school board, Certified Public Accountant Steve Smaka recommended that the board consider privatizing its busing and food services.

One audience member took issue with the recommendation, noting that she had heard privatization may be more costly in the long run. The Mackinac Center for Public Policy has noted that this is a common contention among opponents of privatization. "It's a beguiling argument simply because it is so sweeping and generalized," said Mackinac Center director of fiscal policy Michael LaFaive, who has been following privatization in Michigan for 10 years. LaFaive argues that if privatization were more expensive over time, then it would be likely that districts would increasingly abandon privatization; yet we've seen growth in competitive contracting, not a decline.

Smaka, a retired state employee and former school board member told MPR that the union's demands were simply too high. "The MEA is going to have to come to grips with the fact that the district cannot afford the contract which it agreed upon several years ago. If the contract isn't modified the district could be facing bankruptcy," he said.

The Resorter published a lengthy account of the board's meeting. Other ideas discussed at the meeting included competitive bidding for health care benefits to reduce costs incurred for current MESSA benefits; establishing a long-term plan for replacing buses and improving facilities; closing unnecessary facilities; and less use of overtime.

Ambulance-Township Partnership to the Rescue, Officials Face Recall Vote

OWOSSO — The Owosso Township Board voted 5-2 in late August to contract out for ambulance service. The vote follows months of arguments on both sides of the issue.

According to the Flint Journal, the Board's action calls for a subsidy of $102,000 to the new contractor, equaling the assessment charged to township households. Saving township resources appears to be less important than maintaining a high level of service.

In September those opposed to ambulance privatization began collecting signatures to remove Township Supervisor Richard Gute and Clerk Judy Gute from their positions. Both of the two officials voted in favor of the privatization. The Flint Journal reported that three other trustees who voted to change services are not included on the recall petition. The recall vote is slated for February 28, 2006.

The Mackinac Center for Public Policy has written on the subject of ambulance privatization for years. For further reading, see "Ambulance Wars" on the Mackinac Center's Web page at or "Privatization: A Cure for What Ails Detroit's Emergency Medical Services?" at

Albion Schools Privatize Custodial Services

The Albion Board of Education has voted to privatize its custodial services by hiring a private firm, a move which is expected to save $250,000 per year. According to the Albion Recorder, the vote was 6-1 and followed public input, some of which implored the board not to adopt the proposal. The argument in favor of privatization ultimately prevailed because administrators were facing a financial problem. "The bottom line is dollars," board Vice President Kirk Lee said, according to the Recorder. The firm hired by the Board was Grand Rapids Building Services, which began its work in September.

Shortly before Albion approved the privatization of custodial jobs, the Mackinac Center for Public Policy published its third biennial survey of school privatization. Center researchers found that more than one-third of all school districts in Michigan now contract out for at least one of three major noninstructional items, which include food, custodial and busing services. Of the 552 school districts successfully contacted by the Mackinac Center, 156 contract for food services. 8.7 percent of districts contract out for custodial services, up from 6.6 percent just two years ago. To read more about the Center's findings, visit the Mackinac Center's Web site at

Cedar Springs Schools Contracts for Custodial Services

The Cedar Springs Post reported in August that the local school board voted 5-2 to contract with Grand Rapids Building Services for custodial work at its new middle school. The contract covers a two-year period and is valued at $123,000. It was estimated that the school would need to spend $44,000 more on supplies and worker compensation plus an additional $30,000 on equipment. The West Michigan vendor has been in business in business since 1915 and, according to the Post, is the largest company of its kind in the area.

Smooth Transition to Privatized Service in Grand Rapids

While the first day of school often results in missed and late buses throughout school districts in Michigan and elsewhere, Dean Transportation got high marks for its first day of operation in the Grand Rapids Public Schools system. According to a report in The Grand Rapids Press, school officials reported there were "just 20 transportation-related calls to the district's hotline, far fewer than in recent years."

The Grand Rapids community has been increasingly debating the use of competitive contracting lately as the school system works to reduce deficits. It is estimated that the contract will save the district over $18 million during the 5-year life of the agreement.

In a move unrelated to the quality of services provided by Dean Transportation, the Michigan Education Association filed an unfair labor practice against the company on October 14. The MEA claims that it has a right to represent former district employees now working for Dean. The basis for the claim is the "successor doctrine" which allows a union to continue representing employees after a change in employers. The doctrine dates back to a legal precedent from 1972.

Thomas Washburne, Director of the Mackinac Center's Labor and Education Project argues that the successor doctrine may not apply in this instance. "The issue in Grand Rapids is that the former employer is a public school district, while the new employer is a private company. As such, this is not a case where employees have previously voted to be represented by a private sector union," he said.

State May Finally Dispose of Northville Psychiatric Hospital Property

Privatization comes in a variety of forms, including the sale of government assets to the private sector. The state of Michigan has been looking at selling the 414-acre Northville Psychiatric Hospital property in Wayne County since 2001. The sale price exceeds $30 million.

According to the Sept. 30 edition of Michigan Information Research Service, the Department of Management and Budget tried to auction off the property. Because it received only "one qualified bid" the DMB entered into negotiations with Real Estate Interests Group. The final deal would have REI paying $25 million up front and another $6.5 million at a later date.

This led Grand/Sakwa Properties, a real estate development firm, to file suit on the grounds that REI's bid did not conform to the demands laid out by DMB in its initial specifications, which mandated a minimum $33 million bid. An injunction on the sale of the property was issued by Ingham County Circuit Court Judge James Giddings as a result of the suit.

On Sept. 30, however, Court of Appeals presiding Judge William Whitbeck overturned the injunction. According to MIRS, "the court said that while Sawka may have standing under the Open Meetings Act, they failed to show that the violation of that act would result in irreparable harm." The term standing simply refers to whether or not a plaintiff has the right to make challenges in a court of law.

The case was sent back to Judge Giddings for additional review, but he decided that the court could not grant a preliminary injunction against the sale of the property. Giddings expressed some disappointment in the way the transaction was handled but found no grounds to halt the transaction.

State Rep. Leon Drolet has since created a five-member panel to review the processes involved in state property sales. In an interview with Michigan Privatization Report, Drolet expressed concern over the number of failed attempts to sell the acreage. "The sale — or privatization — of any state asset should be done right the first time," said the Macomb County representative. "While I applaud the good intentions of state officials, the repeated failure to complete transactions is problematic because it gives an important management technique — the sale of assets — a bad name."

Drolet wants to ensure that every step involved in the sale of state properties is completed carefully and thoroughly to ensure that future deals are not stymied by poor process.

Around the State is a service of the Michigan Privatization Report, a twice-yearly publication of the Mackinac Center for Public Policy with a circulation of more than 22,000. The Mackinac Center for Public Policy is a private, non-profit research institute located in Midland, Michigan.