Many Michigan school districts face declining student enrollment. Between fiscal 2007 and fiscal 2008, state budget officials recently projected a loss of 15,575 students statewide, a decline of 0.93 percent.[17] Since the primary mechanism for financing operating expenditures in Michigan’s elementary and secondary schools is the per-pupil foundation allowance, fewer students usually means fewer dollars. In addition, the rate of increase in the state’s basic foundation allowance has declined somewhat in recent years.[i]

State school finance trends and the high number of school support service workers have led many districts to consider privatization of noninstructional functions. A 2006 survey of Michigan’s conventional public school districts[ii] by the Mackinac Center for Public Policy found that 37.7 percent of the districts had contracted bus, custodial or food services.[18]

The most common form of school privatization is “contracting,” which occurs when a school district signs a contract with a for-profit or nonprofit firm to provide services the district once produced.[iii] Typically, such a contract will precisely outline the contractor’s responsibilities, the length of the contract and the method of compensation.[iv] Before signing a contract, districts will typically seek competitive bids from firms or organizations that wish to provide the services, a process known as “competitive contracting.”

[i] It should be added, however, that state of Michigan payments from the state’s school aid fund, which is the primary source for state financing of Michigan elementary and secondary schools, have generally increased, rising by about $1 billion above inflationary growth between 1994-1995 and 2005-2006: see Gary S. Olson and Katherine Summers-Coty, "Analysis of K-16 Funding Initiative," (Michigan Senate Fiscal Agency, 2006), 19,, (accessed June 6, 2007).

[ii] I use the phrase “conventional public school districts” to distinguish school districts with publicly elected school boards and conventional school district boundaries from charter schools, which have no publicly elected board and no local tax base, but are also considered school districts under Michigan law.

[iii] Privatization could also include a school district’s choosing to no longer provide certain services, such as bus or food services. In such instances, parents would become responsible for providing student’s food and transportation.

[iv] The contracting process will be discussed in greater detail in “Requests for Proposals, Contracts and Monitoring.”