February 13, 2011

Michigan & privatization of school food

Here is another link from Mackinac Center regarding the privatization of food services for the Michigan Schools.   Here is a key line:

"According to the Mackinac Center's 2010 School Privatization Survey, 48.8 percent of Michigan school districts contracted out for one of the three main noninstructional services, an 8.0 percent increase over 2009. Privatization of these services has increased by 57.5 percent since 2001."

The three are:
  1. Food
  2. Custodial
  3. Transportation
 Here is another key line:

"Pension costs are a financial drain on school districts. Districts must pay about 19 percent of payroll to support retirement benefits of public school employees. This is one reason why contracting out with employee leasing services for noninstructional services is attractive to districts. The companies usually offer retirement savings benefits through 401(k) plans, which can save the district up to 10 percent. "

Closer to home Boston is looking into it, link,  Duxbury has, link, and even closer to home I believe this has occurred in Leominster, link.     Just like the City of Worcester should not be in non-essential core services like the gold course and airport.  Maybe the School Department should not be any of the noninstructional services?    The cost of benefits to have employees in these departments has just become too expensive and it only makes sense to outsource. 

15 comments:

Brendan Melican said...

Can you offer any examples of long term cost savings via privatization? I used to be a big proponent of this school of thought, but now that it's commonplace it kind of seems like the worst idea ever.

Just to clarify what I'm getting at, if you were looking for an honest debate on the value you of Title I and the mandates that go along, I could get into that. Should the schools be in the food service business? Personally I think they should, but I'm willing to be proved incorrect. But if the idea is to bring Aramark in to handle food service and plant management to save us money, I've yet to see an example of this having the desired result. Privatized state prison systems are probably the best example. Privatized prisons only work, like any business, with growth. So to turn an increase in profits you need either more prisoners or decreased services. Either way the value to the taxpayer decreases while on a long timeline the costs go unchanged.

I agree there are plenty of sectors unfit for government involvement, but in my mind that means there's actually no government involvement. Not just a shifting of labor to the private sector while municipalities continue to foot the bill.

Bill Randell said...

Brendan:

I thought I did give you some examples.

Springfield for one has saved alot of money privatizing their custodial services. Maybe we should find out how much Leominster has saved. I will tried to find an exact figure, although the Worc Municipal Research Bureau i though did a study also on this?

Food services is a new one to me, but when you think of it all the colleges outsource their food services so they must do it for a reason.

Brendan, it it the cost of benefits. Pension and healthcare costs is going to break the bank. Any way we can shift these costs, we need to do it.

Mainly I was just coming up with ideas for the school department to save money. I see a huge deficit on the horizon for the school department.

Bill

Brendan Melican said...

I wasn't picking a fight, promise!

The short term savings are obvious and look great but I'm trying to find the long term savings, that's the part that concerns me. Sure Springfield saves some cash in year one, maybe they save cash through year 5. But if the private sector still functions the way they used to teach it, at some point the need to drive profits will outstrip the original savings. I'm not saying your wrong, I'm just suggesting it's uncharted territory and long term savings in the sectors we do have examples for (military, prisons) are difficult to identify.

Fully aware of pension liabilities and healthcare costs, just not sure this is the fix. So we take 100 people off the roles for municipal HC coverage, does the new private employer offer insurance, if not are these now medicare recipients like so many Wal-Mart employees? Are the wages on par? If not what happens to the Holden tax base when there are no more Worcester employees to fill those homes and they all move back to three deckers. My point is simply that costs don't really just evaporate, they get shifted. The private sector is much better equipped to rapidly shift costs to turn profits in the short term, but when the private sector is reliant on fixed municipal budgets for long term growth the savings only get you so far. Same for pensions, those are funded by employee contributions. The issues come from poor planning and fund management on the PRIVATE SIDE. The same people managing 401ks. The only difference is the municipal sector is legally required to pay and the private sector can shrug and say 'sorry, bad year. your money is gone.' Which is fine until we have a generation with neither a pension or a SS package.

Jahn said...

Brendan, I know what Title V is and I know what Title IX is and I know what A Titleist is (& a 3 wood) :) But is Title I?

Aramark wouldnt be in business if they couldnt deliver re: their food services business. I mean doesnt (or didnt) Aramark handle Fenway Park FS's.


Brendan said: "Privatized prisons only work, like any business, with growth"

Brenda a busines doesnt have to be in an industry that is growing in order to be successful. Years ago cars needed new spark plugs every year and a muffler every 3 years. Nowadays car spark plugs and mufflers last 100,000 miles ( many years) easily, yet Autolite & Champion Spark Plug Co's continue to thrive, as well as Midas Muffler Shoppes and the like. Industry knows how to adapt to changes in the market place like NO Lead gas

GOVT DOES NOT KNOW HOW TO ADAPT........Witness the fire fighting "business".....structures fires are down 93% in Worcester over the last 14 years yet, we still run the Fire Dept like it was 1958 when on average a 3 decker and factory had major fires every other day......advances in building codes & designs and sprinkler systems have significantly reduced commercial fires too.

Brendan, as you rightfully point out there are sectors the govt shouldnt be involved in, may I ask which sectors?

Did you know that eons ago insurance co's ran their own firefighting operations? You bot house ins. and if your casa had a fire the ins. co's FF'ers responded. Hardly any kinda rocket science.

Then also years ago a man named Jake Obuma came along and faster then a balloned framed 3 decker could burn to the ground .....we had Obama-Fire (not to be confused with Water Fire in Prov.)

You mention privatized prisons. Are you telling me the # of prisoners is decreasing?? I believe I had read that Texas has (or had?) Corrections Crop of America (CCA) run prisons in Texas. CCA was so succesful that Mass (under Weld?) started sending prisoners down there b/c it was cheaper. And even if the number of prisoners is decreasing (i tend to doubt it) don't we also have to look at lenghth of stay in assessing prison growth or non growth?

Here's a question for all to answer: Why does Worc use privatized recyclables collection and yet use muncipally employed trash collectors? Why do Worc's municaplly employed trash collectors work 4-5 hours per day and WOrc's privately employed recyable guys work 8-9 hrs a day ?
HintL allegedly has to do which the contract to dump city trash at teh Rte 20 incinerator ( Wheelabrator [?})

And why does the state need a separate prison(?)in each county? So the gang bangers friends & relatives have easier visiting access to their bad boy ASSOCIATES and so that each county sheriff has beaucoup patronage jobs to hand out?

Bill Randell said...

Brendan:

You and I don't always agree, but I appreciate the comments. Especially the part where you put your name and dont hide anonymously.

Maybe because we are in the benefits business, but I promise you that the cost of the health isnurance and pensions is killing the school department budget. Anything that we can outsource and avoid these obligations have big savings short and long-term.

If it didn't why don't we have our city bus drivers versus biddding it out. This is the exact type of discussions, our new school superintendent wshould be having as we approach what I think is going to be a budget crisis.


Bill

Brendan Melican said...

J:Title I?

Google will be your friend on this one, Title I of the Elementary and Secondary Education Act of 1965. It's the funding system designed to aid areas with low income levels.

J:Aramark wouldnt be in business if they couldnt deliver ... Fenway Park FS's.

Fenway has a fixed number of potential customers, right (#games x #seats = potential customer base)? So it's very predictable like a municipal budget. With that, when was the last time you saw Aramark lower their concession prices? Or Fenway lower their ticket prices? They can't and wont, so we see the park going mixed use to increase revenue for concerts, etc; but even that has a ceiling. This is ultimately my point, we don't have many examples of the private sector lowering prices even in a perfect demand/supply system. So immediate savings just can't last based on the evidence on hand.

J:..a busines doesnt have to be in an industry that is growing in order to be successful...

All still in business, yes. Now go get me some salary/benefit stats for the same industries. Since the '70's the American middle class has seen negative economic growth. My generation, doing the very same jobs makes far less than your generation. If the goal is to keep business in business, then we're winning. If the goal is a healthy working class, then we're lagging behind nearly every developed nation.

J:GOVT DOES NOT KNOW HOW TO ADAPT...

No argument here.

J:may I ask which sectors?

Sure, the entirety of the US oil industry is propped up on subsidies. I'd rather $10/gal gas than ensuring Exxon pays no taxes on billion dollar margins.
Farming subsidies? Kill em.
I could go on, but don't want to bore you.

J:Did you know that eons ago insurance co's ran their own firefighting operations?...

And police originally served in a similar fashion providing security only to the wealthy. Income taxes changed much of this requiring services be not only for land owners. As did our concept of a 'social contract' by where we don't just let people go homeless or get murdered without an investigation due to ones inability to pay.

Brendan Melican said...

J:You mention privatized prisons. ...

We currently have the largest number of prisoners on the planet, that's quite an accomplishment. Rick Perry in Texas recently announced they're moving to downsize the prison system for the simple reason that it alone would be larger than the total state budget in about another decade. Wisconsin is in the process of activating the National Guard to work prison security because they can't afford to pay guard salaries. The social benefits of incarceration vanish when you look at monetary costs. Treatment/counseling, whatever you want to call it always costs less (including social costs). Insert your 'bleeding heart liberal' jokes here, but privatization doesn't make any sense when growth is needed and the only growth comes from higher incarceration rates; the customer base in this case being unwilling participants in a system they have little control over.

J:Here's a question for all to answer...

Great question. Even better question, why do we regularly switch contractors on the private side if it's so easy to manage costs?

J:And why does the state need a separate prison(?)in each county?...

I think you're confusing the prison system with the jail system. Two very different things with two very different purposes (but both could use a rethinking). In your world the guy who gets jammed up on a 21a on a false claim spends the weekend in a Maximum Security center, before a trial? Is your middle name Vissarionovich by chance?

If you want to take a look at something interesting, check out how many prisoners 'free states' with low tax bases to our north are sending MA prisoners because they can't afford it. While I understand the urge to joke about things like visitation and perks. If you have any hope for prisoners being released back into society as human beings, you might want to fight the urge. Our recidivism rate is linked directly to our treatment of prisoners. Especially those who don't actually pose a threat to society. As soon as you're in the door, your income earning potential drops to %60 it's previous self. You want to save cash? Start by treating people better than we treat animals at the zoo.

Those Weld era savings were the immediate kind I'm talking about and don't dispute. But they vanish quickly as the private sector MUST provide yearly increased profits for their boards/shareholders.

Brendan Melican said...

Bill: I hear you on the pension/HC cost front and agree this is the likely cost that will eventually sink the ship. Where I do disagree is the the private sector being the long term solution. Regardless of who is paying for the insurance coverage or savings plan, the cost of an MRI or retirement doesn't change. So all we're really discussing is a shifting of the burden. Eventually someone does have to pay up and that almost always ends up being the government.

Want a privatized food service system like Clark? The one that was trying to unionize because they get paid less than McDonalds employees? That's reminiscent of Wal-Mart and the number of employees kept at PT hours so they'll stay in the 'working poor' category and be eligible for medicaid, reliving Wal-Mart of the insurance burden; but freeing them up to offer lower prescription drug prices for; it's giant exercise in circular logic. If we did that, we'd save cash on a budgetary line item and end up spending even more as taxpayers, going from %80 of an insurance plan to %100 of medicaid coverage. Never mind the impact that lowering social class has on the overall economy. Someone needs the cash to buy all this junk we sell. And someone needs the incomes to pay taxes so we can contract these services...
As I mentioned up thread, the private sector middle class has been in a death spiral since the '70's; it's not overpaid pubic employees causing the problem, but underpaid private. All one has to do is look at profit margins to see where the game is being rigged.

Just look at where we stand today, worst recession in the countries history? Then why are corporate profits higher than they were pre-crash while the u-6 unemployment rate continues to rise and foreclosure rates climb? If the private sector wants to bed down with the public sector it needs to respect the social contracts we have in place and not simply focus on profit margins. But that can't legally happen without ignoring legal responsibilities to shareholders. It's quite the catch-22.

Obviously I'm not suggesting I have all the answers here, just throwing out the possibility of the simple solution not being all that simple.

Bill Randell said...

Brendan:

In the private sector there are things being done to control the costs of health insurance; for example, passing on lower co-pays to employees who use lower costs facilities for their hospitalizations and MRI's. Go to MedCity versus UMASS. Better yet benefitis only for emploees that work 30 or more hours. In the private sector, you can not even find one defined benefite plan, instead everyone has a 401K. On the other hand the public sector is doing none of this, thus the savings to outsource these three services.

Underpaid private? I was an Economics major at Boston College with a computer minor. In a capitlaist society, that is an oxymoron. One's pay is a product of supply and demand. If you feel you are under paid, quit your job. It is called capitalism.


Bill

Jahn said...

Brendan...Good Lord mi' Hombre' !!!!!!!!.........where do I begin.

Maybe tomorrow morning if I have the time and my fingers dont give out due to arthritis or my hand doesnt have a carpel attack.

Brendan Melican said...

Bill: The shift away from DB plans in the private sector is still a relatively recent event. 83% of the Fortune 100 still had them in 2002, down to 17% today. The only real positive for corporations is a shift of burden from the company to the employee. Again, it's not a fix, but a shifting of responsibility. If those 401k's don't pan out due to market forces, who picks up the tab when we have a generation of homeless retirees in need pf a bailout? The government.

I've had quite a few private sector jobs and not once has my salary been tied to supply side economics, you must be one hell of a boss.
My point was less simple than the way I stated, my apologies for that. If you take the entirety of US yearly income, the percentage going to the bottom 90% has been declining steadily since the late 70's, while the percentage going to the top 10% has risen steadily even during the recession. If income was tied to supply/demand, the two would be forever intertwined. Either the countries CEO's didn't take the same Economics classes you did, or the Invisible Hand is playing three card monty with our wages.

Jahn: Don't hurt yourself on my account, I had way too much coffee today.

Bill Randell said...

Brendan

Got out college in 1986 working at State Mutual. In 1986, defined benefits were dead. the shift had already been made to defined contribution.

Brendan, if an employee does not manage thier defined contribution (401k)correctly, they have to bail themselvs out. I know alot of people , who were planningon retirement but lost thier shirts a couple yeouple years back and they had to keep working. Again Brendan this is called capitalism.

Brenda, what do you think your private sector job salary is tied to if not supply and demand? has nothing to do with being a great boss or bad boss. Companies pay employees based on what the market dictates.

Bill

Tracy Novick said...

At the risk of coming (very late) to the party, let me add only this: school nutrition in Worcester breaks even; aka: it doesn't cost us a penny to run.

Jahn said...

Brendan, What i think u may be missing is that public sector jobs have a monopolistic hold their customers & a captive market. Private sector 'ees have to compete in a global market place which is no monopolistic. If the competition can do it for less....well you know what happens.

When your car neeeds new wiper blades do you get them from the dealer for $45 or at the Autozone for $25?

We have to have our trash picked up or house fire doused or kids taught by overpaid city employees who are subsidized partially or in the entirety by our property taxes. I have no real choice. What am I going to? Hire a private rubbish guy....i still have to pay my propery taxes that go toward subsidizing the trash pick up . Dittos for those with kids in private school.

Brendan why do u need so much cawfee on a Sunday? Big Valentines Saturday night? :)

Bill Randell said...

Tracy

Not late at all. If the budget comes in as short as I suspect on the school side, these are the exact things we need to be looking at.

Although food services may not cost us any money, we stilll need to look into whether or not costs could be cut here if we were to privatize.

I wonder how this has fared in Leominster?

Bill