When Howell Public Schools Superintendent Ron Wilson speaks of the nearly $3 million his district has saved by privatizing custodians, transportation and other services, he says that it is a bit of a “double-edged sword.” Wilson says one of the downsides of privatization is that with fewer current employees supporting current retirees, school districts will need to make higher contributions to the Michigan Public School Employees Retirement System (MPSERS) for pensions and retiree health care.
Next year, contributions from districts will rise from 20.66 percent of payroll to 24 percent. Wilson said every 1 percent increase costs his school $380,000.
“The more districts that privatize, we’ve seen that retirement rate grow,” Wilson said. “I believe that is a contributing factor.”
But Michael Van Beek, policy education director of the Mackinac Center, said the benefits of privatization far outweigh the negatives.
"The heart of the problem isn’t that fewer employees mean higher payments for school districts; it’s that the system is unsustainable — especially in an environment of shrinking school enrollment," Van Beek said.
And Van Beek said reducing the number of employees is a necessity, since there are fewer students in Michigan.
“Fewer students means you hire fewer employees,” Van Beek said.
And long term, the state benefits greatly from these privatized employees' no longer being in MPSERS, which reduces future financial liabilities for the school districts.
Van Beek said the Michigan Education Association’s lawsuit over its employees' having to pay 3 percent to the MPSERS retiree health care fund has a much larger impact on the recent increases in contributions than an individual school district’s decision to contract out for noninstructional services. The Mackinac Center estimates that the lawsuit — which overruled the 3 percent contribution — means that schools have to set aside an additional $187 per pupil for MPSERS.
Providing retiree health care to employees who no longer provide services is a rare fringe benefit in the modern American workforce. Looking at employers who have 200 or more employees and who provide a health insurance benefit for current employees, the Kaiser Family Foundation reports that just 28 percent of them provide the same benefit for their retired workers, while 66 percent did so as recently as 1988. And the figure is even smaller for small employers with 200 or fewer workers: Only 3 percent of them offered retiree health care.
The official MPSERS handbook refers to it as “one of the best public pensions around.”