Michigan Privatization Digest - January 10, 2008

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Contents of this issue:

  • Policymakers reject expanded foster care privatization

  • Detroit approves private incinerator deal

  • Judge rescinds Friend of the Court privatization request

  • Port Huron looks to privatize recreation center and marinas

  • City of Dearborn to sell apartment building in Florida

  • Temporary employees hired to prevent leaf pickup privatization

  • Mental health authority looks to privatization

  • MEA receives injunction that stops aide contracting

  • Howell contracts out custodians and administrators

Policymakers reject expanded foster care privatization

LANSING — Under threat of a gubernatorial veto, legislators passed a Department of Human Services budget in October that excluded a plan to use more performance-based contracting for foster care services. The idea had been proposed as a way to improve services while cutting costs.

When a child is placed in foster care, a DHS field office worker determines whether to use a privately organized foster care service, like Lutheran Child and Family Services of Michigan, or one of the state’s registered foster families. Foster families face the same oversight requirements and regulations regardless of whether they are affiliated with public or private agencies.

There are currently almost 19,000 children in foster care, of which only 36 percent go to licensed foster care establishments. Of those, almost 60 percent are supervised by private agencies, according to DHS.

However, under the new budget private foster care providers will now be funded to assist unlicensed foster homes in becoming licensed. When a child is placed in foster care, Human Services tries to find one of the child’s relatives to take care of the child. This is a foster care arrangement, although the home is not licensed.

Also, part of the DHS budget included lowering the number of children at the W.J. Maxey juvenile justice facility in Whitmore Lake by 80. It currently costs $550 a day to house an offender at Maxey, compared to about $225 to $250 a day through private community-based agencies. The move is expected to save the state $1.7 million.

Human Services will also phase in a single rate of compensation for foster care providers.

The Mackinac Center has followed Human Services privatization in Michigan and elsewhere for nearly 20 years and in 1993 published the report, “Child Foster Care In Michigan: A Privatization Success Story,” available at www.mackinac.org/255, which discussed the state use of private foster care going back to 1981. More recently, Michigan Privatization Report senior managing editor Michael D. LaFaive published the essay “Relying on Private Agencies Has Track Record of Saving Money” in the Oct. 31, 2007, edition of The Detroit News.

“Senate approves Department of Human Services budget” Sen. Bill Hardiman Press Release, Oct. 31, 2007. www.senate.michigan.gov/gop/readarticle.asp?id=889&District=29
The Detroit News, “Relying on private agencies has track record of savings money,” Oct. 31, 2007

Detroit approves private incinerator deal

DETROIT — The Detroit City Council has approved a proposal to change its sewage incineration, a move that could lead to decreased costs and reduced emissions, according to the Detroit Free Press.

The proposition would save the city $5 million annually, according to The Detroit News. The city’s own incinerator costs $52 million per year to operate and would require $125 million in upgrades to bring it up to federal standards.

In 2001, the city entered into a contract with a company to build a new incinerator, but the company had financial trouble, according to The News.

The city plans to shut down its incinerator once a new plant is built. Current employees would be transferred.

The Winter 2001 edition of Michigan Privatization Report suggested that the city should get out of the waste business altogether. In his article “Detroit Could Collect Savings from Privatized Garbage Pickup,” adjunct scholar Steve Thomas pointed out that municipalities across the nation have contracted for private refuse collection and disposal. He cited different reports showing savings from contracting for garbage collection running between 29 percent and a remarkable 50 percent in one example from Canada. The entire article can be read at www.mackinac.org/3155.

The Detroit News, “City considers private sludge burning deal,” Sept. 18, 2007
Detroit Free Press, “Sludge disposal plan gets council blessing,” Nov. 21, 2007

Judge rescinds Friend of the Court privatization request

DETROIT — Wayne County Chief Judge Mary Beth Kelly in September withdrew her request for privatized Friend of the Court functions, according to the court Web site. As chief judge, Kelly has the responsibility of operating the circuit court.

Friend of the Court collects and distributes child support money and works to enforce court orders on child custody. Judge Kelly wanted a 33 percent increase in staffing levels for the service while maintaining an overall budget of $28 million for the service. There are currently 169 employees in the court’s FOC office, according to Gongwer News Service.

The court’s labor unions rallied against the move and in order to negotiate with the bargaining unit, the request was rescinded, according to Judge Kelly. In November, Kelly announced she would not seek reappointment as chief judge of the Wayne County Circuit Court after her term ends. Kelly, who served three terms in that position, told the Detroit Free Press that anonymous threats and a rumor campaign contributed to her decision.

Gongwer News Service, “Wayne Co. privatization controversy mimics foster care arguments,” Sept. 12, 2007
Third Judicial Circuit Court of Michigan Web site, “Withdrawal of Request for Proposal for Friend of the Court Services,” www.3rdcc.org
The Detroit Free Press, “Wayne Co.'s Mary Beth Kelly resigns as chief judge,” Nov. 13, 2007

Port Huron looks to privatize recreation center and marinas

PORT HURON — The city of Port Huron projects it will overspend its budget by $42 million over the next five years if it doesn’t act to improve its finances, according to The Port Huron Times Herald.

The city has been providing an annual subsidy of $350,000 to its ice arena and recreation center, McMorran Place, according to city attorney John Livesay. The facility was built in the 1950s and is operated by the McMorran Authority. The agreement to operate the facility is set to expire in 2008, so the city is looking into whether a private-sector firm can manage the facility more efficiently. Officials would like the center to operate without a subsidy.

City council members in November advised the city manager to prepare a request for proposals to operate the facility. The general manager of the facility stated that he had been approached by two companies to manage the center, the Times Herald reported.

The city is also looking at contracting out the management of its River Street Marina and selling its Water Street Marina according to the Times-Herald. The city already has a buyer for the former and is looking for proposals to operate the latter. The city’s financial statements show that the city’s marinas and docks cost nearly $1 million a year to operate, but have revenues of only $561,000.

The Port Huron Times Herald, “City, residents face tough budget questions,” Sept. 5, 2007
The Port Huron Times Herald, “City: Marina needs better marketing,” Dec. 4, 2007

City of Dearborn to sell apartment building in Florida

DEARBORN — Dearborn voters in November approved a plan to sell the city’s 88-unit apartment building in Clearwater, Fla., a move that was spurred by city finances. Dearborn Towers was purchased in the 1960s and had been used mainly for senior citizen housing for Dearborn residents with moderate incomes. The proposal to sell the building was supported by 58 percent of voters.

The proposal commits the city to appraise the building and sell it to the highest bidder, but does not set a strict deadline for the sale. According to the Dearborn Press and Guide, the building is mainly self-supporting, but had only $880,000 in reserves, an unacceptable amount in the opinion of Dearborn Housing Director Floyd Addison. In addition, the building is likely to need a new roof in 2008. The sale was proposed and supported by Mayor John O'Reilly, who argued that the cash-strapped city could not afford to hold on to the building.

The Detroit News, “Dearborn voters vote sell apartment towers in Florida,” Nov. 6, 2007
Dearborn Press and Guide, “Question of selling Dearborn Towers may go to voters,” May 20, 2007

Temporary employees hired to prevent leaf pickup privatization

BUCHANAN — Buchanan city officials needed to hire seasonal workers or else use a private company to provide leaf pickup services, according to the St. Joseph Herald-Palladium.

The city typically hires seasonal labor to help full-time staff with leaf removal, but some council members wanted to explore contracting to save money, according to Assistant City Manager Joe Vander Meulen. However, council members voted to stick with seasonal labor this year.

Temporary employees are paid $8 per hour for seven weeks of work as needed. They are also eligible for unemployment compensation at the end of their term.

An analysis performed by Vander Meulen showed that contracting out for this service could have saved the city an estimated 14 percent this year. It would also free public works employees to provide other services around the city, such as maintaining parks, repairing signs and more street sweeping, according to Vander Meulen.

St. Joseph Herald-Palladium, “Privatizing city leaf pickup is off the table,” Oct. 10, 2007

Mental health authority looks to privatization

SAGINAW — The CEO of the Saginaw County Community Mental Health Authority recommended the privatization of its Community Ties North and Community Ties South facilities as a way to save the county $1.1 million annually, according to The Saginaw News. The facilities offer day care and training for the developmentally disabled. CEO Sandra Lindsey recommended that the authority contract with Michigan Community Services Inc. to operate the two facilities, The News reported.

In response, union officials representing the current employees made concessions that would save $700,000 annually. Concessions included switching some full-time employees to part-time, reducing the number of paid holidays and offering early retirement.

Lindsey stated that contracting out is unlikely and that the authority will be exploring other cost-cutting alternatives.

However, the authority did contract out for its skill building and transportation services, which is expected to save $4.47 million over the next three years, according to The Swartz Creek News. “My two most important responsibilities are providing the best possible services for our consumers and managing the long-term fiscal stability of the organization. Outsourcing the skill building program is really the only way we can do both,” Lindsey told The Swartz Creek News.

The Saginaw News, “Outsourcing ‘the right decision,’” Aug. 31, 2007
The Swartz Creek News, “Firm lands contract with Saginaw County,” Oct. 28, 2007

MEA receives injunction that stops aide contracting

HARRISON — The Michigan Education Association school employee union received a court injunction to stop the Harrison Community Schools from contracting its teachers aides, according to the MEA.

Under current labor law, school districts are able to contract out for noninstructional services, but not for instructional employees. The positions in question include recess aides, special education aides and clerks.

The district is appealing the injunction to the Michigan Court of Appeals. The Michigan Employment Relations Committee may also decide on the matter. A ruling from either the court of appeals or MERC can set the precedent for whether teacher aides are noninstructional employees or not.

Establishing a clear precedent will relieve districts of uncertainty in these contracting decisions. If the ruling stands in favor of the MEA, schools would be left without a cost-saving tool.

Mount Pleasant Morning Sun, “Teacher’s aide change leads to suit,” Aug. 2, 2007
Michigan Education Association web site, “Harrison parapros score major victory against school board’s effort to privatize their jobs,” Nov. 6, 2007

Howell contracts out custodians and administrators

HOWELL — The Howell board of education overcame a $2.1 million budget deficit in part by contracting out custodial and administrative services.

Contracting out for custodial service is expected to save the district $400,000 this fiscal year alone. The district’s custodial union offered concessions that would have saved $242,000, but the district went with the private vendor, according to The Detroit News.

The district also contracted out four of its administrators, a move expected to save $135,000, according to The Detroit News. Administrators can retire and draw pension funds in addition to a salary from the contract company by returning to work in their previous capacities. The district will avoid paying pension contributions for the employees and additional payroll costs like Medicare and Social Security, according to The News.

The administrators who retire will be hired by Professional Education Services Group and will start in January as contract employees. The board is also looking at contracting out 38 childcare positions through PESG, which could save the district $82,000 annually, the News reported.

The Detroit News, “District looks at expanding privatization,” Dec. 4, 2007
The Detroit News, “Howell school board may outsource administrators,” Oct. 16, 2007
The Detroit News, “Howell school board lays off 38 custodians,” Aug. 14, 2007
The Livingston Press, “Howell schools’ deficit could affect custodians first,” June 21, 2007
The Livingston Press, “School officials to discuss cuts in budget tonight,” June 19, 2007

Michigan Privatization Digest 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 an independent, non-profit research institute located in Midland, Michigan.

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