Education Week - April 24, 2013 - Special Report - S14

S14

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EDUCATION WEEK APRIL 24, 2013
Industry & Innovation > www.edweek.org/go/i&ireport
n

Privatization Choices

Decisions
about whether
to contract out
support
services or
keep them
in-house are
influenced by
many factors

BY
SEAN CAVANAGH

S

chool districts face constant pressure to provide
reliable support services in areas like transportation, student meals, and janitorial work – and do
it as cheaply as possible. That leaves them with
a decision to make: Should they use their own
employees to perform those duties, or hire outside
contractors who may be able to do the job for less?
In some cases, districts find that they can reduce expenses, especially in salary and benefits,
or secure specialized services that would be hard
to provide in-house, by seeking bids and selecting private companies to
do the work.
In other circumstances, districts may find that outside businesses’ costs
are too high, and that their ability to provide the exact services needed
are lacking, so they choose to have the work done by the people already
on the payroll.
Districts’ decisions about whether to contract out services or keep them
in-house are influenced by myriad and often competing factors. School
leaders want to cut expenses, while protecting money going to classroom
instruction, and the pressure to trim cost was particularly strong during
the Great Recession, from which states and districts only recently have
begun to emerge.
At the same time, many districts are among the largest employers in
their communities, and few school officials are eager to lay off workers
they know, even in the name of reducing costs.
“Every district wants to be a good employer and make sure that their
employees are treated well,” said James M. Hohman, the assistant director of fiscal policy for the Mackinac Center for Public Policy, a Midland,
Mich., think tank that advocates free-market policies. The center sees
contracting out for services, when that work can be performed effectively,
as an “established way” for districts to save money, he said.
But unions representing support-service workers view many efforts to
privatize services with skepticism.
“Privatization moves quality control away from the parents of the
children these services are intended to support,” said Ruby J. Newbold,
an American Federation of Teachers vice president, in a statement to
Education Week, when asked about districts’ decisions to contract out
services. She is also the president of the Detroit Association of Educational Office Employees.
Estimates of cost savings through privatization are often exaggerated, Ms. Newbold argued. “Today’s privatization bargain,” she said,
“quickly becomes tomorrow’s increasingly costly contract that features
less control and oversight.”
National data on districts’ contracting out for support services are lim-

ited, and the information that does exist offers a mixed picture.
A survey of state education departments, conducted in 2007 by the
Mackinac Center, found that 13 percent of public school districts taking
part in the federal National School Lunch Program contract meal services out to private companies, though the portion of systems doing so in
each state varies enormously.
About 10 percent of districts said they outsourced custodial or maintenance services during the 2011-12 school year, according to a survey by
the American Association of School Administrators, based in Alexandria,
Va. The association also found that a greater number of districts, about 20
percent, said they were considering taking that step in 2012-13.
In Michigan, 61 percent of the state’s 549 school districts reported they
had privatized one or more support services, a number that has increased
steadily from 31 percent a decade earlier, according to a Mackinac Center
report released this year. The increases in contracting out were pushed
along by changes in state policy from the 1990s to today that have made
it easier for districts to privatize certain services, Mr. Hohman said.
Those policies included a 2011 law signed by Gov. Rick Snyder, a Republican, that offered districts financial incentives to obtain competitive
bids on noninstructional services.
Even so, the decision to privatize services can be an agonizing one, as
was the case in the Lake Orion Community School District, a 7,600-student system north of Detroit, where the school board voted last year to
contract its custodial services out to a private company.
The district has seen its tax base shrink by roughly one-third over the
past six years or so, with job losses in the auto industry and other businesses, and it has been forced to cut spending, said John Fitzgerald, the
system’s assistant superintendent for business and finance.
Felicia Hicks, a field staff representative for Council 25, the Michigan
affiliate of the American Federation of State, County, and Municipal Employees, which represented the district custodial workers, argued that
the district’s estimates of savings from privatization were overstated,
because a contractor could not match the breadth of services provided
by the public employees at a lower cost. The decision was not based on
realistic “dollar for dollar” and “work for work” comparisons, she argued.
“It was a totally misguided decision,” she said.
About 50 custodial workers—many of whom handled multiple duties
as “jacks of all trades”—lost their jobs, though they were invited to reapply with the private company, said Mr. Fitzgerald.
“It was probably the most dramatic decision the board had made in
decades,” Mr. Fitzgerald said of going with a private contract. “It was an
extremely stressful time. ... These are all people we see every day. These
are people the board members are seeing at the grocery store, at the
movie theater.” u

EMBRACING A PRIVATE OPTION
EMBRACING A PUBLIC OPTION
DISTRICT:
Kent City
Community
School District,
a 1,400-student
system north of
Grand Rapids,
Mich.

CONTEXT: The district, with a $12 million general fund, has been forced to
make repeated budget cuts over the
years, laying off staff and privatizing services. The school system has
made especially large cuts over the
past four or five years, including
layoffs of employees.
DECISION: The school board voted
two years ago to end its contract for
food service with a private company,
Chartwells School Dining Services,
reasoning that the school system
could save money by cutting off the
fees it was paying and bringing those
services in-house.

OUTCOME: The district expects to at
least break even or turn a profit this
year, said Superintendent Mike Weiler.
It uses the same number of employees—15 to 17—and it has not increased
the prices of meals. Some of the
savings have come from the district’s
having more flexibility in purchasing
than it had through the private company, the superintendent said.
PERSPECTIVE: The decision to move
services back in-house amounts to a
“small victory” in driving down costs,
Mr. Weiler said. “It shows it can be
done.When you take the for-profit
motive out, that’s probably 80 percent” of where savings come from,
he said.

CONTEXT: The district has struggled
financially as the local economy has
sagged; the tax base has dropped
significantly from seven years ago.
The district, which has a $79 million
general fund, had an operating
deficit in fiscal 2011 of $1.8 million,
said John Fitzgerald, an assistant
superintendent.
DECISION: The school board put out
a request for proposals for a threeyear contract to take over custodial
services. Five bidders submitted
proposals, including the union representing the workers, AFSCME, which
offered concessions, including a
reduction in wages. DM Burr, based in
Flint, Mich., won the contract. Its bid
was not the lowest, but the school
board regarded the company as “the
best fit,” Mr. Fitzgerald said.

OUTCOME: About 50 district employees lost their jobs. Those workers
were offered severance packages and
were invited to apply for jobs with
the outside contractor, at a lower
salary; some were rehired. The district
expects to save more than $3.5 million on salaries, benefits, and other
costs over the course of a three-year
contract. The district has been “very
satisfied” with the services provided
by the company, Mr. Fitzgerald said.
PERSPECTIVE: While district leaders
struggled with the decision to contract
out services, they ultimately believed
it was the right one. “It’s something
we had to do,” Mr. Fitzgerald said. The
district was determined to avoid cuts
that undermined instruction, he said.
“Protect the classroom, protect your
teaching philosophy,” he said. “And
then streamline everywhere else.”

DISTRICT:
Lake Orion
Community
School District,
a 7,600-student
system north of
Detroit
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