ALL COSTS CONSIDERED III — LERC Report on Contracting

All Costs Considered III: Further Analysis on the Contracting Out of School Support Services in Oregon Gordon Lafer, PhD Bob Bussel, PhD Jaxon Love, MBA Labor Education and Research Center University of Oregon February 2013 Acknowledgement The authors wish to thank the Oregon School Employees Association for providing financial assistance for this report. Table of Contents Introduction . 7 “A Big Impact on Longtime Employees” . 9 Assessing Privatization in Central Point . 17 Conclusion . 55 Appendix: Sources . 57 Introduction to “All Costs Considered III: Further Analysis on the Contracting Out of School Support Services in Oregon” ll Costs Considered III” marks employees working under private an extension of two previous contractors. studies conducted by the Labor “A Education and Research Center Since our previous research in (LERC) that examined the 2004 and 2008, several important transfer of school support services developments have occurred (transportation, custodial, food that have influenced the focus of service) to private operation in the this new study. During its 2009 state of Oregon. In our ongoing session, the Oregon Legislature analysis of contracting out (also passed a law (ORS 279B) known as “privatization”), we requiring that public agencies have been guided by a similar conduct a rigorous cost-benefit set of questions. Does the analysis before they decide to shift from public to private contract out a given service. The management actually deliver law stipulates that budgetary promised or predicted savings savings resulting from this to school districts? What is the administrative transfer cannot This study is an personal impact of contracting come solely from reduced wages extension of two out on workers who provide and benefits for workers employed previous studies school support services, and by a public entity. In other words, conducted by the Labor what is the social impact on the cost-benefit analysis must Education and Research their communities? How does demonstrate privatization will Center (LERC) that contracting out affect the quality save money and that some portion examined the transfer of of service for students and their of the predicted savings derives school support services families? And how can school from efficiencies other than lower to private operation in compensation for employees. the state of Oregon. The districts perform their due focus of this study is on diligence in weighing the potential student transportation benefits and potential costs that We have chosen to focus this new services, which has accompany decisions to privatize study on student transportation perhaps become the support services? In our previous services, which has perhaps most active arena for studies, we found substantial become the most active arena contracting out within evidence that the proposed savings for contracting out within school school districts. from contracting out often failed districts. In the fall of 2007, to materialize. We also found an important development a personal cost to workers and occurred in the student a social cost to communities transportation world when First that resulted from reduced Group, a United Kingdom- compensation and benefits for based transportation company, 7 acquired Laidlaw International, the largest expect that continuing budget exigencies faced school transit company in North America. by school districts, along with the desire of This purchase made First Group’s United private contractors to expand, may prompt States subsidiary, Cincinnati-based First more districts to consider contracting out Student Inc., the nation’s largest provider transportation and possibly other school of school transportation services. According support services. to a 2011 article in School Bus Fleet, First Student now has over 1,500 contracts with It is this changed context that has led us to school districts in the United States. The focus much of this study on the June 2011 company has continued to acquire other bus decision by the Central Point School District contractors throughout the U.S. and is likely to contract student transportation services to expand its efforts to attract outsourced business from school districts. In Oregon, to First Student. Central Point is the first First Student currently has contracts with 39 Oregon school district that elected to privatize of the state’s 198 school districts. The second a service under the provisions of the new largest provider of student transportation state public contracting law. Given the new services, Pendleton-based Mid-Columbia reporting requirements mandated under the Bus Company, serves 31 Oregon districts, 2009 statute, the Central Point experience and eight other private companies also have offers an important opportunity to examine contracts to provide transportation services whether school bus privatization can generate in Oregon. Since our previous study, six new significant savings from sources other than school districts in Oregon have engaged reduced compensation for school employees. private contractors to provide transportation services. Even with these increases, Oregon As we have done in our previous studies, remains close to the national average for LERC researchers conducted interviews with bus contracting, with nearly two-thirds of its bus drivers previously employed by the school transportation remaining under public Central Point School District to ascertain how rather than private management. 1 the switch to a private contractor had affected their working conditions and standard of School districts’ view of support services living. In addition, we conducted a detailed have also been shaped by broader economic examination of the terms of contracting out developments that have occurred since we in Central Point in order to assess the extent conducted our previous study. The deep to which this contract meets the standards set recession of 2008 has had a powerful impact by state law. We also offer additional analysis on many school districts that already were of bus contracting in the Rainier and Lake struggling with budgetary challenges. Because Oswego school districts to determine the costs of the slow economic recovery and much lower tax revenue, districts throughout and benefits of privatization that may only Oregon have grappled with persistent budget become evident over a longer time period. We shortfalls and have had to make painful conclude by offering some recommendations decisions to reduce school days, eliminate to school districts and communities that or trim student services, freeze or lower may assist them in complying with the compensation for school employees, and requirements of the new public contracting sometimes lay off support staff and teachers. law and exercising appropriate due diligence These circumstances are not likely to improve when they consider both the benefits and in the immediate future. Accordingly, we costs of outsourcing. 8 “A Big Impact on Longtime Employees” The Personal and Social Cost of Contracting Out Transportation Services in Central Point hen school boards and school 2004 and 2008, LERC researchers districts weigh the possibility of sought to assess and better contracting out support services, understand this perennial concern: W they often acknowledge the how does the outsourcing of potential impact of outsourcing school support services actually on current employees. This subject affect the lives of bus drivers, emerged repeatedly in the spring custodians and food service of 2011 when the Central Point workers displaced by the shift School District (CPSD) decided from public management to to issue a Request for Proposals private administration? To answer (RFP) for private companies this question, we interviewed to take over its transportation school support employees in services. During its deliberations, Oregon whose jobs had been the school board issued a “brief” outsourced. Our interviews that identified the “strengths” and revealed that workers employed “weaknesses” of four different by contractors typically suffered scenarios for providing student noticeable declines in their Workers employed transportation services. Under the standard of living, including by contractors typically scenario that would completely suffer noticeable declines reduced wages, substandard health shift bus service from the school in their standard of district management to a private and retirement benefits, and living, including reduced the loss or curtailment of other wages, substandard contractor, the brief mentioned benefits that provided workers health and retirement “employee anxiety and disruption benefits, and the loss over outsourcing operations” and their families with a sense of or curtailment of other as a potential “weakness.” After security and well-being. Beyond benefits that provided the CPSD school board voted the personal cost to workers workers and their on June 15, 2011, to contract themselves, we also found that families with a sense of out transportation services to communities incurred a social security and well-being. cost through reduced purchasing Communities also incur First Student, board chair Kerry a social cost through Bradshaw told the Medford power and the loss of other reduced purchasing Mail Tribune that “this was not benefits associated with stable, power and the loss of an easy decision and not one middle-class jobs. These findings other benefits associated board member wanted to do this appeared consistently regardless with stable, middle-class

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