Late this May, the 2007 state budget was showing an $800 million gap between the money Michigan lawmakers had planned to spend and the money that was actually coming in. Seemingly faced with a choice between raising taxes and cutting spending, lawmakers chose neither path, as described in this excerpt of an article on the subject by Mackinac Center Legislative Analyst Jack McHugh:

"Rather than address the real problems, the Legislature and governor entered a bipartisan deal with the devil to paper it over with debt, shortchanging pension contributions, raiding so-called ‘restricted funds’ and pushing disbursements into the next year.

"... The Legislature decided to borrow $410 million against future revenue from the 1998 tobacco company lawsuit settlement, and also use another $100 million from a fund that borrows money to provide college loans. In addition, using an accounting gimmick that would probably mean jail time for a private-sector pension manager, they will shortchange by $220 million the already inadequate annual contribution to cover state and school retiree benefits promises.

"All told, it’s more than $700 million of stealing from the future to sustain excessive spending today."

There were other alternatives considered. Both chambers of the Legislature voted on a modest package of spending reductions earlier this spring. The centerpiece of the plan would have cut approximately $250 million from government spending appropriated in scores of line items. Among the cuts were $11 million from welfare spending; $40 million from state revenue-sharing; $14 million in public transportation; $3.6 million in arts grants; money for community corrections programs, loans to parolees and to a prison union leave bank; and many others. Overall state government spending is budgeted at approximately $42 billion in fiscal 2007.

On March 22, 2007, this spending plan was approved by the Michigan Senate on a strictly partisan vote of 20-17, with all Republicans approving and all Democrats opposing. On April 17, the same plan was rejected by the Michigan House of Representatives on a vote of 60-49, with two Republicans joining 58 Democrats in rejecting the cost containment measures.

In describing this vote and the alternatives facing lawmakers, Mackinac Center Policy Analyst Kenneth M. Braun pointed out that these cuts and many, many others remain on the table and should be considered in future budget discussions:

"The Legislature will soon shift its attention to writing and paying for the 2008 budget. The sensible spending restraint ideas that were tried last March and countless others remain as fiscally sound alternatives to yet another borrowing binge (or perhaps even a major tax increase). Lawmakers must not put taxpayers on the hook for more future spending or taxes. Michigan deserves a less costly tomorrow."

McHugh’s description of the deficit-financing measure that was ultimately approved can be read in its entirety at www.mackinac.org/8630, while Braun’s companion commentary is posted at www.mackinac.org/8631. Finally, the Mackinac Center’s roadmap of nearly $2.0 billion in additional spending reform ideas available to lawmakers appears at www.mackinac.org/8798.

The MichiganVotes.org tally for the spending cuts package that was defeated is provided below.

While a majority of Michigan’s local public school districts do not report privatizing noninstructional services — such as transportation, student meals and custodians — the growing minority who do privatize these services often report substantial savings. Contracting out custodial services has yielded some of the biggest winners. Recent examples reveal that the Muskegon Reeths-Puffer district signed a contract to save $480,000 annually — about $114 per student; Avondale in Auburn Hills plans to save $490,000 annually — $128 per pupil; and the Jackson Public Schools would trim their annual custodial costs by $1.3 million, or $193 per pupil.

For 2006, just 63 of 552 local school districts reported private contracts for custodial services. Yet, if all of the other districts took the privatization plunge for only custodial services and saved an average of just $100 per pupil, the minimum annual savings statewide for Michigan public schools would exceed $150 million.

On May 22, 2007, the Michigan House of Representatives approved House Bill 4592 — legislation that would require school districts to create a plan to transfer their procurement, human resources, busing, contracting activities and other noninstructional services to their intermediate school districts. Just prior to the House’s final vote on this bill, State Rep. Judy Emmons, R-Sheridan, introduced an amendment that would have also required the consolidation plan to include opportunities for cost savings that may be achieved by seeking competitive bids and privatizing noninstructional school services like busing, food service and custodians. Six Republican lawmakers joined 56 Democrats in rejecting the Emmons amendment, and it failed 62-46.

As eventually passed by the House, the final bill encourages, but does not require, districts and ISDs to act on the support service consolidation plans, or to make plans to seek competitive bids on the services, as suggested by the Emmons amendment.

In a 2007 survey of competitive contracting at Michigan’s public schools, Michael D. LaFaive, the Mackinac Center for Public Policy’s director of fiscal policy, and Mackinac Center Adjunct Scholar Daniel J. Smith found that 40.2 percent of districts outsourced at least one noninstructional service and that the trend toward privatization was growing (up from a revised 37.4 percent the prior year). However, the authors also point out that despite annual cost savings that can exceed $100 per pupil, there are political impediments to competitive contracting.

The Michigan Education Association, the state’s largest public school employee union, is identified as one such obstacle by a school official whose district outsources for its food and transportation services: "The contracts certainly make us more efficient and provide a level of expertise that (the district) could not otherwise expect. We are currently satisfied with both of our contractors. In my opinion the largest barrier to privatization is the highly effective MEA campaign against contracting. I think that good arguments can be made for contracting and that efficiencies can be achieved, but it is a hard sell against the MEA public relations machine."

Samples of the MEA’s opinions regarding competitive contracting are summarized in the "Alternative Views" appearing nearby.

A summary of the Mackinac Center’s 2007 research on public school competitive contracting is located at
www.mackinac.org/8881. To keep up to date regarding privatization of government services across Michigan and the nation, see the biannual Michigan Privatization Report at www.mackinac.org/pubs/mpr/.

The MichiganVotes.org tally for the school contracting amendment that was defeated appears below.