The Financial View of Privatization

Contrary to conventional wisdom, privatizing public school support services does not necessarily yield cost savings. Paying less for custodial, transportation and food services most often results in a reduction in the quality or quantity of those services. In some cases, privatization actually results in higher expenditures for those services.

Earlier this decade, the rhetoric regarding the “benefits” of privatizing public school services in Michigan was been subdued. Most school boards, after weighing the costs and benefits of privatization, chose to keep support services in-house. However, more recent freezes in school funding sparked renewed interest in privatization.

The appeal of privatization is based on the flawed economic assumption that private companies can provide the same services as public school employers at lower costs. Theoretically, a good contract with a private firm could provide the same services with the same quality, responsiveness and accountability as an in-house operation. The problem is that to achieve this, a private contractor is very likely to charge more than it costs to provide the service in-house. Private contractors need to earn profits, finance corporate overhead and pay taxes. These factors drive the cost of the contract up and/or the quality and quantity of the service down. Time after time, districts that try to save money by hiring private contractors end up with inferior service, higher costs or both.

The driving force behind privatization seems to be the marketing of the privateers themselves. There is little wonder why private companies are interested in Michigan schools — there is a lot of money to be made. For example, Michigan schools serve 120 million lunches every year, bringing in revenue of more than $350 million. In 2003, school districts spent $487 million on transportation and $1.2 billion on operations and maintenance.

One positive result of the interest in privatization is the discovery that, given input on operating decisions, school district employees are often able to reduce costs and improve service quality.

Updated: February 19, 2009 6:21 PM