[Photo of James M. Hohman]

James M. Hohman

Assistant Director of Fiscal Policy

James M. Hohman is assistant director of fiscal policy at the Mackinac Center for Public Policy. He holds a degree in economics from Northwood University in Midland, Mich.

Michigan School Privatization Survey 2014

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Introduction


In 2003, when it came to contracting out for common public school services, only outsourcing food provision could be considered a rather common occurrence in Michigan. And there was good reason for this: school districts are prohibited from making a profit from their cafeteria, but any deficits created in providing food for students must be covered by general school funds. When deficits occurred, school officials often looked for outside help from food service management companies.
Contracting out for the two other most common noninstructional school services — custodial and transportation services — was rare in 2003. Only one out of 15 districts contracted out for custodial services and even fewer for transportation — one out of 26.
Since 2003, however, there has been an explosion of privatization in these areas. This year, 47.5 percent of districts contract out for custodial services and 24 percent contract out for transportation services. Districts have largely been propelled to contract out for these services based on a desire to save money. The more efficiently districts can provide these noninstructional services, the more resources they can devote to their core function — providing educational opportunities to students.
In addition to this rationale, spending pressures, created in large part by rising employee health insurance and retirement costs, compelled districts to find ways to stretch dollars further. All school district employees are mandatory participants in the state-run Michigan Public School Employees’ Retirement System. Contribution rates for this program increased from 12.16 percent of payroll in 2001 to 34.54 percent of payroll in 2014. Most private sector employers offer retirement benefits that cost between five to seven percent of payroll on average.
These ever-increasing costs help explain why many districts have begun using employee leasing agencies, which allow employees to be paid at the same rates while districts escape the MPSERS payments. Interestingly, this may be a win-win, as employees get to vest their retirement benefits much earlier than under the MPSERS plan. According to Bellweather Education Partners, less than half of all school employees vest in MPSERS’s pension benefits.
This survey finds that in 2014 more school districts contracted out for food, custodial and transportation services than ever before. However, the rate of annual increase in the number of districts that contract out was less than in previous years. Contracting increased from 66.2 percent of districts in 2013 to 66.6 percent of districts in 2014. The average rate of increase over the last five years was 4.3 percentage points.
There may be a many factors contributing to this slowed rate of growth in school privatization. It could be that school support service privatization has topped out. In other words, there may come a time when all the districts that could contract out for quality services while simultaneously saving money have. However, while the percentage of districts grew only slightly from 2013 to 2014, the number of districts in each of the categories surveyed — custodial, food or transportation — that privatized increased at higher rates than the overall number of districts that contract out support services. … more

Proposal 1 of 2014: Summary and Assessment

Download the full study here.
On Aug. 5 Michigan voters will be asked to approve or reject Proposal 1, which would modify the state’s personal property tax. The legislation that would go into effect if Proposal 1 were approved by voters creates three new exemptions for certain businesses that are currently subject to the personal property tax; it does not eliminate the personal property tax. Commercial and industrial businesses with less than $80,000 of personal property will be exempt, and, eventually, all manufacturing personal property will be exempt. These exemptions amount to an estimated $600 million tax cut when fully implemented.
The package of bills includes a mechanism for reimbursing local government units for the revenue lost from these new exemptions. The state would set aside a portion of the statewide Use tax revenue, and use this revenue to reimburse local governments. It is estimated that local governments will be reimbursed for the entirety of the revenue lost due to the personal property tax cuts.
The state would also levy a new, but relatively small, tax on manufacturing personal property that qualifies for one of the exemptions described above, except the small parcel exemption. The state estimates this to raise $117.5 million, making the overall net tax cut of the legislation package worth about $500 million. … more

Michigan School Privatization Survey 2013

Michigan’s school districts have saved money by turning to the private-sector to provide support services. This 2013 survey shows that 65.5 percent of districts now contract out food, custodial or transportation services to private-sector vendors. This is an increase from 31.0 percent in 2001. The survey covers the three services, satisfaction and insourcing among Michigan’s public school districts and has been performed in 2001, 2003, and annually since 2005. … more

Benefits in Balance: Benchmarking Public Sector Employee Benefits in Michigan

This policy brief reviews the growth of Michigan’s state and local government expenditures from 2000 to 2010 and finds that government employee contributions, particularly the cost of employment benefits, were a primary contributor to the increase in spending. This brief explores the kinds of employment benefits that can be received by employees, as well as the recent changes made to benefits in the government and private sectors. It finds that bringing benefits in line with private-sector averages would save Michigan $5.8 billion and provides recommendations for implementing this policy. … more

Michigan School Privatization Survey 2012

Proposal 1 of 2012: The Referendum on Public Act 4

The Mackinac Center for Public Policy recently published “Proposal 1 of 2012: The Referendum on Public Act 4,” which addresses Proposal 1 on the Nov. 6, 2012 ballot, also referred to as the “emergency manager” referendum.
The study examines the claim that local control will diminish if Proposal 1 passes and Public Act 4 is nullified. Public Act 4 had provided expanded powers to state-appointed emergency managers of local governments and school districts that are in a state of serious “fiscal stress or “fiscal emergency.” The study determined that the question in Michigan has not been whether state-appointed managers or court-appointed receivers may replace local elected officials in running a local unit of government; they have been able to do so for decades. The only question is whether state government will participate in the effort to avoid local fiscal insolvency and how it will do so.
The Policy Brief was authored by James M. Hohman, assistant director of Fiscal Policy for the Mackinac Center for Public Policy.  … more

Proposal 2 of 2012: An Assessment

The Mackinac Center for Public Policy recently published “Proposal 2 of 2012: An Assessment,” which addresses Proposal 2 on the Nov. 6, 2012 ballot, also referred to as the “collective bargaining” amendment.
The study examines how the proposed constitutional amendment would enshrine collective bargaining in the state constitution, which would allow government union collective bargaining agreements to invalidate numerous state laws meant to improve the quality of public services and would likely negate a projected $1.6 billion in annual taxpayer savings.
The Policy Brief was co-authored by Vernuccio and other Mackinac Center analysts: Senior Legal Analyst Patrick J. Wright, Executive Vice President Michael J. Reitz and Assistant Fiscal Policy Director James M. Hohman. Also co-authoring was Paul Kersey, director of labor policy at the Illinois Policy Institute. … more

Five Options for Addressing ‘Transition Costs’ When Closing the MPSERS Pension Plan

Michigan Public School Employee Retirement Plans
in Need of Reform

This study considers the supposed ‘transition costs’ that would be effected by a state switch from a defined-benefit to defined-contribution retirement system. In it, the “transition costs” are found to be nonbinding and discretionary. In addition, the study offers the state a series of reforms that would diffuse such costs, as well as consideration for the long-term fiscal improvements that would arise from payment of the pension’s unfunded liabilities. … more

Michigan School Privatization Survey 2011

Majority of Michigan school districts currently contract food, custodial or transportation services
Despite increased spending in Michigan public schools, districts regularly face tough choices allocating their resources. This study surveys the privatization of the three major noninstructional services: food, custodial and transportation services. The findings are that over half of public schools have privatized at least one of these services; what is more, about 93 percent report satisfaction with the private-sector services they receive, which spells progress towards improving services while spending less. … more