Michigan Governor Slams Privatization, Wants More Tax Money

Published July 1, 2007

Just before proposing the largest budget in the history of the state–and a new service excise tax of almost $1.5 billion to pay for it–Michigan Gov. Jennifer Granholm (D) wrote a letter to state employees:

“It is a bitter irony that many of the critics who say we aren’t doing enough are the same ones to suggest we can continue to make cuts,” Granholm wrote in her February letter. “They are wrong. If we are to maintain our standing as one of the best-run states in the nation, then a funded, effective, and committed team of public servants is absolutely essential.”

The governor’s remarks were made as part of a campaign to convince the public the state government has been “cut to the bone.” In fact, it’s barely been scratched, and many opportunities to realize huge savings have been ignored. Among these is the option to pay someone besides government employees to do the work.

For example, the corrections budget accounts for about 30 percent of all state government workers. Private prisons save money in other states, but they have never housed more than 1 percent of Michigan’s inmates.

Private Prisons Save Money

The Rio Grande Foundation in New Mexico examined that state’s prisons in 2001. Its 2003 report, “The Pros of Privately-Housed Cons: New Evidence on the Cost Savings of Private Prisons,” found private guards were watching more than 45 percent of the inmates.

New Mexico’s annual cost per prisoner was 32 percent lower than the national median and $9,600 per prisoner less than in states with no prison privatization.

Numerous other studies have demonstrated that prison privatization nets savings of 5 to 15 percent. Nearly $1.3 billion has been appropriated for Michigan’s prison facility operations in 2007. Cutting that figure by just 5 percent through competitive contracting would save more than $63 million annually, before a single felon is released under a plan proposed by the governor.

In addition, private prisons would pay taxes, like all other businesses, rather than spend them.

Outsourcing can also yield significant savings when a service is shifted to a less-costly level of government. When the city of Mount Clemens closed its 118-year-old police department and hired the Macomb County Sheriff’s Office to do the work in 2005, the city realized annual savings of 38 percent, or about $1.4 million.

Sheriffs Patrol for Less

Likewise, the yearly cost of policing the state’s highways could be reduced by more than $60 million by switching state police patrol duties to local sheriff’s deputies, according to “County Police Can Patrol Highways for Less,” a 2003 analysis by Jack McHugh, a legislative analyst at the Mackinac Center for Public Policy.

Motorists would scarcely notice the color of the highway patrol’s uniforms had changed, the report noted; only the state employees union would. The state police troopers union recently denounced this idea as “foolish” and predicted it would be “extremely unpopular” with voters.

Studies also show public school districts should contract out costly non-instructional services, including transportation, food service, and custodial work. The decision by the Jackson Public Schools in September 2006 to switch to a private custodial company is expected to save the district nearly $200 per pupil each year. (See also “Chicago-Area School District Privatizes Student Bus Service,” Budget & Tax News, June 2007.)

Custodial Outsourcing Cuts Costs

Mackinac Center research shows savings from custodial outsourcing ranges between $100 and $200 per pupil for other schools that have taken this step, but only 63 of 552 Michigan school districts now report doing so.

Cutting annual non-instructional costs by just $150 per pupil at all public schools would save Michigan $255 million per year. Why wouldn’t one of the “best-run states in the nation” encourage–indeed, demand–this reform? Part of the answer is suggested by Granholm’s response when Michigan’s largest public school employee union asked for her opinion on privatizing services:

“I have urged other units of government to think twice before they jump on the privatization bandwagon–the public sector can outperform the private sector with the right supports and management,” Granholm said in an interview in the Fall 2006 issue of Voice, the newsletter of the Michigan Education Association.

But no one is suggesting government employees shouldn’t be allowed to show they can “outperform” private contractors in a competitive contracting process. If government workers submit the lowest price and provide quality service, they will win the contract–and taxpayers will win the best possible deal.

Kenneth M. Braun ([email protected]) is a policy analyst specializing in fiscal and budgetary issues for the Mackinac Center for Public Policy in Midland, Michigan.

For more information …

“The Pros of Privately-Housed Cons: New Evidence on the Cost Savings of Private Prisons,” by the Rio Grande Foundation, is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to http://www.policybot.org and search for document #12247.

“County Police Can Patrol Highways for Less,” by Jack McHugh, http://www.mackinac.org/article.aspx?ID=5373