Still one more empirical study finds that privatization costs taxpayers dearly. This time the issue is school bus transportation. In a new report, Runaway Spending: Private Contractors Increase the Cost of School Student Transportation Services in Pennsylvania the Keystone Research Center concludes, “Contracting out substantially increases state spending on transportation services. We estimate that if all districts switched to the self-supply of transportation services, total spending on student transportation services would fall by $78.3 million dollars…”
Why does contracting out cost more? The report offers several reasons:
private contractors do not provide efficiencies sufficient to compensate for increases in costs associated with contracting out. These increases include contractor profits, the higher salaries of private contractors at the managerial and executive level, and the cost to school districts of monitoring contractors. Contracting can also be expensive because of lack of competition within the private industry in some areas. In addition, once a contract is in place, switching contractors or in-sourcing services may be disruptive, create managerial headaches, or impose financial transition costs. These transition costs give current contractors leverage when charging for unanticipated additional services or bargaining over contract renewal terms.
The report covers the period from 1986 to 2008. During that period the proportion of Pennsylvania school districts contracting out rose from 62 to 72 percent.
Why do school districts continue to contract out if it costs more? One key reason in Pennsylvania is that it doesn’t cost more to the school district itself. This is a result of a highly unusual 1970 provision of the Pennsylvania School Code that reimburses school districts that contract out at a higher rate. Thus although total costs increase, the state subsidy maintains or even slightly decreases the costs to the local school district.
Put the Pennsylvania study on your bookshelf, along with other studies of public school transportation like the Ohio study that found the median cost per mile and cost per pupil were significantly higher in districts that contracted out than in districts with in-house transportation systems. Or the Oregon study that found that promised savings from privatization were initially overestimated by contractors and followed later by price increases while the quality of services decreased as did the quality of worker pension and health benefits and the level of employee morale.