Governments Finally Outsourcing
by Gary Jason | Posted September 01, 2012
A report out on a small Michigan city points the way for other school districts to deal with their looming fiscal problems.
The city is Highland Park, which faces a major problem with its school district, consisting of three schools and 1,000 students. The system ranks near the bottom in the state academically, and it is facing a fiscal fiasco.
In fact, only a wretched 22% of the system’s third-grade students passed the state’s reading exams, and a pathetic 10% of them passed the math exams, last year. Only 10% of its high school students tested proficient on reading, and 0% — yes, precisely none of them — tested proficient in math.
This, in a district that last year spent over $16,500 per student, which is 80% more than the average per student expenditure for the state (which last year was about $9,200 per pupil)!
Moreover, despite the fact that its student population has plummeted by two-thirds in the past five years, the district’s deficit has exploded — reaching over $11 million last year.
So the Highland Park school district has taken a bold step: it is borrowing a tool commonly employed in private industry, outsourcing — the process by which one company hires a second company to handle some part of its operations. For example, a major retailer (such as Walmart or Costco) will often hire industrial janitorial firms to handle the cleaning of their stores, rather than hiring janitors within their own companies.
Outsourcing has a number of benefits, most importantly improving efficiency and increasing accountability. It improves efficiency because the company that outsources operations will be able to hire a company that specializes in that aspect of business. It improves accountability, because if the company outsourcing doesn’t see an improvement in that aspect of its business, it can terminate the service and hire another contracting firm to do the job. This puts pressure on the contracted company to do the job properly and within the price negotiated.
Highland Park is outsourcing its entire school system to the charter school company Leona Group.
The Leona Group runs 54 schools in five states. While almost half the students in them don’t score at standard levels, that is on average better than the public schools they replace. And in Michigan, 19 of 22 schools that Leona runs do meet state standards. Moreover, Leona’s contract is for five years, so if it doesn’t dramatically improve student outcomes, it can easily be replaced. That is the missing factor in district-run schools: accountability.
Charter schools have some major advantages over district-run schools. While the charters are overseen and funded by the district, they have substantial freedom when it comes to setting union contracts, curricula development, and teacher standards. And precisely because they are not controlled by teachers unions, they are usually much less costly to the taxpayer.
Indeed, Leona Group will charge the district only $7,100 per student, plus an annual management fee of $780,000 — dramatically less than what the district is currently paying.
Public school outsourcing is a growing trend. Highland Park is the second district in Michigan to outsource its schools to charter schools. Several districts in Georgia have also done the same thing. Of course New Orleans has already converted most of its schools to charters (which has already produced a dramatic increase in graduation rates) and even allows its students to use the newly issued state educational vouchers.
Other districts are now eyeing this novel idea — novel, that is, only in the world of government; it has been a staple of private industry management forever. In Michigan alone there are 48 districts in fiscal peril (with a collective $429 million in annual deficits).
Naturally, the teachers unions are fighting outsourcing fang and claw, but given the looming financial disaster, the pressure for extensive education outsourcing is increasing rapidly.
Outsourcing district-run schools to charter school companies is a tool that many districts can and should consider, especially as more and more of our cities declare bankruptcy.
Gary Jason is a philosopher and senior editor of Liberty, and the author of Dangerous Thoughts.
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