Competitive contracting continues to be an increasingly popular option for public school districts across Michigan to save money.
The Mackinac Center for Public Policy’s 2006 privatization survey shows that 212 districts, or 38.5 percent, have a competitive contract in place for one of the three main non-instructional services: janitorial, food service or transportation.
Survey results in 2001 showed 31 percent of public school districts contracted out for one of the three major non-educational services. That rose to 34 percent in 2003 and to more than 35 percent by 2005. All 552 public school districts in Michigan were contacted for the survey. All but one district, Detroit Public Schools, responded. Of those saying that they do outsource one or more services, some 93.3 percent reported being satisfied with the process, a figure that has increased with each survey. Of the 208
districts, 162 said they saved money, while seven districts that said they did not. Some 44 districts reported they were unsure.
The most popular item schools contract
for continues to be food, with 158 districts.
An additional five schools have privatized
busing compared to 2005, increasing from
21 to 24. Janitorial contracts saw an increase
from 50 districts to 63.
Savings are Undeniable
The Avondale School District, in Oakland
County, had already privatized food
services, as well its bus maintenance program.
Assistant Superintendent Tim Loock told
The Detroit News that the food services program
lost more than $100,000 the year before
it was contracted out, but is now profitable.
The bus maintenance program is expected to
save $65,000 a year. A competitive contract
for custodial and maintenance work, which
took effect July 1, will save the district more
than $500,000 a year.
The amount of money schools can save
by hiring private firms to handle janitorial
work far outpaces many of the other services
that can and have been privatized. Muskegon
Reeths-Puffer said it will save $480,000
a year with private custodians. Hartland
Consolidated Schools said it will save $5
million over five years with a competitive
contract for maintenance. Lakeview Public
Schools, in Macomb County, was able to
reduce its janitorial budget by $1 million
after privatizing that service. Kalkaska
reported it will save $324,000 with a competitive
contract for custodial work, while
Battle Creek Lakeview expects to reduce
costs by up to $300,000 over 18 months by
doing the same.
Greater savings can be realized in
custodial work because of the gap between
what it costs schools and what it costs the
private sector,” Dean Van Zegeren, assistant
superintendent for business and operations
at Reeths-Puffer, told Michigan Education
Report.
Van Zegeren said he thinks busing has
seen relatively few districts move toward
privatization because there is little difference
between what the schools pay and what the
private sector pays.
“It’s a more specialized job,” he said.
“They have to be certified, pass rigorous tests
for the state to license them. They’ve got
80 kids behind them, yelling, while they’re
paying attention to road conditions and trying
to maintain order.”
The amount of savings is substantial
because of what administrators call “legacy
costs,” meaning retirement and health insurance.
“For the last four years, the amount of
revenue from the state has been the same
amount, or slightly increased, depending on
who you listen to,” Loock told The News.
“But our health benefits and retirement funds
have seen double-digit increases over the past
four years.”
The amount school districts must
contribute to the Michigan Public School
Employee Retirement System has increased
to 17.75 percent. Because the system is set up
as a defined-benefit plan, whereby the state
is required to pay a certain dollar amount to
retired school employees, schools must pay a
higher percentage of payroll costs each year
to meet increasing costs. This differs from
most other retirement plans, which are usually
run as a defined-contribution plan, the
most common name of which is a 401(k).
Under the latter system, the employee is
free to decide how much of their pay to set
aside for retirement needs, with a matching
amount put in by the employer up to
a threshold.
In the Gull Lake schools, for example,
salary and benefits make up 81 percent of the
district’s $24 million budget. School board
member David Krueger told The Kalamazoo
Gazette those personnel costs will increase by
$1 million in the next year, even if there is no
salary increase.
“We offered our custodians a package
where they could have kept their jobs,” Van
Zegeren said. “It would have reduced wages
by about 30 percent, down to what’s more
in line with the market, and it asked for less
expensive insurance and a pro-rated pay for
hours worked.”
Van Zegeren said food services at Reeths-
Puffer is not privatized because it actually
makes money for the district’s general
fund.
“We have a great supervisor who really
runs a tight ship,” he said. “We have only
the amount of staff needed, and they’re very
efficient and careful with the use of food.”
Rick Simpson, a regional sales director
with Chartwells Food Service, said that
although is company works with 130 school
districts in the Great Lakes region, most of
those districts continue to employ their own
cafeteria workers, opting to contract out for
management services.
“We generate $125 million in revenue
for our schools,” Simpson told Michigan
Education Report. In food services, privatization
doesn’t always mean all the employees
work for us. Sometimes it’s just a manager
on-site to oversee the paperwork, make sure
the USDA guidelines are being met.”
Schools Get Creative
Districts have moved beyond busing,
food services and maintenance when it comes
to competitive contracting. Creative ways of
saving on non-instructional costs have spread
to other areas of school budgets, allowing
districts to devote more of the increases in
state spending they receive on teachers and
students.
Cass City, for example, is able to save
$32,000 a year by contracting for secretarial
services. Ypsilanti estimated it could save
about $130,000 by privatizing its top three
administrative positions, and Ithaca has
reduced costs by outsourcing its counseling
services.
The next big wave of cost savings could
come through a competitive bidding process
for the oversight of substitute teachers.
Fennville, Grand Rapids, Houghton Lake
and the Kent County Intermediate School
District have already taken that step, and
many more school districts are studying it.
By contracting out for substitute teaching,
districts save money because they no longer
have to pay retirement costs for a line of
work that is not meant as a lifelong occupation,
nor do schools have to spend money
on paperwork, daily phone calls or other
administrative matters.
Competitive contracting is not limited
to just K-12 public schools, either. Several of
Michigan’s 15 public universities have turned
to competitive contracting for services ranging
from food and custodial to laundry, legal,
vending and book store operation. One of
the more successful examples recently was a
custodial agreement Western Michigan University
signed with a company that is expected
to save the school $1.5 million a year. The
school took bids from five firms, as well as
the 60-member union that represented the
employees previously working in maintenance.
The winning bidder, Commercial
Sanitation, is able to provide the services at
a cost $1.1 million less than the union said
it could.