Finance Final 2

Finance Final Exam Parent 1

Michael Parent

Dr. Osnato

Finance

November 28, 2009

Finance Final Exam

QUESTION #4

There was a rime in American education systems when a school or district pro-

vided the students and faculty with a soup-to-nuts services. Food, maintenance, custo-

dial, transportation, and technology were all services provided “in house”; those who

provided the service(s) were employees of the school or the district and were often

members of the local union and definitely part of the budget payroll. Many of these ser-

vices are now being provided by companies and firms that contract with the school or

district. While these may be fiscal decisions that taxpayers tend to applaud, there exists

now a debate about the privatization of such services.

An editorial piece from the February 2000 edition of American School & Univer-

sity notes that the outsourcing movement has raised serious questions about influence

on students. To what extent do we invite Coca-Cola, Reebok, Apple, Microsoft, or more

localized companies into our buildings? Is the money we are saving costing us in con-

trol? When a private company is brought in to provide a service or offset costs, it often

comes with the consequence of admonishing control of some aspect of the building -

the cafeteria, the soda machines, the fields, or the technology available to the district.


Also, the editorial asked readers to consider who actually wins when a contract

for service(s) is awarded to an outside agency or firm. Indeed, the piece did offer in-

sight into this aspect of the privatizing of school services:

“Merrill Lynch estimates for-profit education companies had revenues of

$70 billion in 1998 and should reach $100 billion by 2001. A recent

com

pany report states, "the education industry represents, in our opinion, the

final frontier in private participation in public programs" (American

School & University, 2000).

And so the privtae/public services relationship seems to be a win-win for both sides (ad-

ministratively speaking).

American Schools & University’s September 1998 edition featured an article that

quoted a New Jersey Superintendent. He outlined his reasons for outsourcing services:

“...the typical reason districts turn to contract services is financial. Districts can save a

significant amount of money because the contractor pays the associated payroll costs

that the schools typically would pay. For example, in Old Bridge, contracting custodial

services saves about $1 million a year, and the change to food-service vendors saves

about $300,000... Consequently, [he] says, the attractive feature of contracting services

is that the district can take non-classroom expenditures and direct them into the class-

room” (Daneman, 1998).

This seems to be the greatest argument for privatizing services that once were

held by district employees. But these decisions to contract services can costs adminis-

trators, politically. Two Bergen County New Jersey school districts recently considered


outsourcing custodial services. The money savings measures made no impact on the

mood of the public. Parents bombarded board members and newspaper with concerns

about the safety of their children, calls for showing humanity for long-time local custodi-

ans, and complaints of fiscal mismanagement. The NJEA and the local unions provided

monetary and solidarity support. In the end, the custodians stayed. The public may not

care so much about saving money as it does about providing “home grown” people with

good jobs where they can keep neighbor’s children safe.

The future of the privatization of services is unclear. It depends upon the political

winds. How much monetary reform can a tax paying public demand of public schools

without the public schools changing the monetary structure of the district? But Ameri-

can School & University (September, 1998) provided readers with a glimpse into the

most common contract services in public schools:

Transportation 40.4%

Food service 21.1%

HVAC maintenance 19.3%

Computer servicing 19.3%

Printing 15.8%

Vending 14.0%

That was eleven years ago. One can argue that these numbers are probably higher by

now. But we can also assume that these numbers, if they are not higher, definitely will

be in the coming years. Districts and schools are much too burdened by payroll, health

benefits, and other monetary absolutes for privatization of services to be “off the table”.

One may even consider that teachers, themselves, may someday be just a contracted

service; no tenure, no long-term employment promises. Perhaps teachers will one day

be contracted much like free-agents in Major League Baseball. Teach for me for these


three to five years, and I will pay you well - as long as you perform. Without the promise

of pay increase or life-time benefits (the albatross of all union contract negotiations),

could privatized teaching be an solution?

Education

Finance Final 2