The Pro's and Con's of Privatized Transportation.

Editor's Note: About 30 percent of all public school students who receive transportation are served today by private bus firms. That percentage has increased only slightly over the past four years.

But leaders in the private transportation field expect their share of the business to grow as more superintendents and school boards, faced with less state aid, try to funnel as much money as possible in the classroom and as little as possible into ancillary services. Boards also must decide what to do about their aging bus fleets.

The School Administrator asked central-office administrators in two school districts--one that contracts out for transportation and one that continues to run its own bus fleet after formally studying contract services--to debate the merits of privatizing a school district transportation program.

Bus Contracting: A Partnership That Works

TUCKER L. SELF

Contracting student transportation is a responsible remedy for a variety of problems more and more school districts face today.

When I became superintendent in 1992, the district was $5.4 million in debt and had relied on the state loan fund for financial relief for most of the previous 12 years. My need to contain administrative costs, replace aging buses, and move the district back to financial health led me to explore this option. It has proven to be a public-private partnership that works.

Ripe for Change

Here is the difficult set of circumstances our district was facing before we considered contracting for our student transportation.

Sixteen of the 29 buses in our fleet were more than 10 years old. These high-mileage, breakdown-prone buses were expensive to maintain. Ohio state guidelines recommend that school bus fleets average five years of age, yet for us, replacing even two buses a year was difficult. At the rate we were going, each bus would be 20 years old before it was replaced and have none of the state-of-the-art features, including greater reliability and safety, available in new buses.

In 1993, Ohio's department of education replaced lump-sum reimbursements with payments over the useful life for most bus purchases, creating a cash flow burden for many school districts. With finances so tight, accelerating our bus replacement schedule was out of the question. However, that same year, school districts, by law, became eligible for reimbursements whether they contracted or owned and operated.

The district's operating budget for transportation (excluding capital expenditures) had been increasing 7 percent a year. Personnel benefits consumed the lion's share, increasing 17 percent per year. If we did nothing, benefits would have overtaken wages by the 1996-97 school year.

Our transportation supervisor had no specific background in school transportation. Our drivers received only the state-required minimum four hours of in-service training. Our mechanics worked frantically once a year to get buses ready for summer state inspections. While this was a shortsighted way of running the operation, the district could not afford to invest more in these employees.

In talking with private contractors, we sought four things: an offer of employment to our drivers at comparable wages and benefits; immediate replacement of our old buses; an established track record; and a partnership philosophy. We evaluated two proposals and chose Settle Service, a division of Laidlaw Transit Inc., for approval by the board of education. The other proposal could not match benefits as we required.

Our Solution

Two years later, the advantages of contracting are undeniable:

* Our kids are safer.

Seventeen new buses, all maintained on a schedule, are giving parents and school officials greater peace of mind. Our drivers receive monthly, paid in-service training--three times what the state requires.

* We are saving money and controlling costs.

The fixed annual cost increases of our contract have led to a $215,000 savings during the first two years. Laidlaw's resources afford us buses, equipment, parts and a meaningful level of insurance cost effectively.

* Our former employees find the private sector to their liking.

The bus drivers credit the company's family atmosphere, ongoing training, the opportunity to advance, and performance-based incentives for their high morale. They have no desire to return to school board employment.

* The board retained oversight of the transportation function.

We still approve routes, new employees, and field trips. But the time spent day to day on labor relations and compliance with a growing web of government regulations (environmental, worker safety and health, and drug testing being the most notable) is now devoted to meeting urgent classroom needs.

Informed Process

One of the biggest challenges in converting to private-firm management was maintaining control of the public communication process. Once public debate over contracting begins, news media coverage typically focuses on the most sensational aspect--an outsider providing service at taxpayer expense.

The agenda of these critics can overpower the communication process and mask the legitimate reasons school districts consider contracting.

To overcome this, I communicated with my school board members early and continuously and reached out extensively for community support as well.

My philosophy with the board was that I could not communicate with them too much. Ultimately they would take the heat from the voters for their decision. Even when members thought they had heard all the answers, they still had questions. Laidlaw was always available for clarification and found solutions to our specific needs.

In the community, I emphasized why contracting was the responsible strategy at that point in our district's history. I reached out in writing and personally to business an civic leaders, parents' groups, the teachers' association leadership, local elected officials, the news media, and voters.

In retrospect, I don't recommend examining this issue toward the end of a bus driver contract if the district is unionized, as we were. Had we approached this a year, instead of six months, prior to contract expiration, it would have been a matter only of negotiating the effects of conversion (guaranteed employment by contractor and comparable compensation), not the economics.

But we were the first district in Ohio's populous northeast region to consider conversion to an outside firm, so the union's statewide leadership was unusually tenacious in urging the local bargaining unit to maintain a militant stance. Thus everything was put on the table at once, making us vulnerable to a strike when the school board voted to privatize.

And the drivers id strike--for four days. But the strike was weak and ineffective, with drivers picketing only during school hours. The drivers lost pay and community sympathy. By this point voters were aware how generously tax dollars were compensating drivers.

Although contracting divided our community for a time, I was convinced it was the right thing to do. I believed we would get extra value we couldn't afford to provide, we could offer employment to our experienced drivers, and we would save money--all at the same time.

All were true then and still are. Because we are managing the non-educational aspects of our district more like a business, we fin that we have more money available for debt service (our state loan is paid off!) and the classroom.

BUDDY PULLEN and CARROLL PITTS JR.

Our school district transports 61,000 students to 88 schools on 763 buses daily at an annual cost of $16 million. Our publicly owned and operated transportation system has maintained an enviable record and exemplary national reputation.

Yet our district seeks better than the status quo. Two years ago, the Cobb County Board of Education asked the central administration to complete a study of the possible advantages and disadvantages of bus privatization at the same time the accounting firm of Peat Mar-wick was in the process of analyzing the efficiency of our transportation services as part of its systemwide audit.

The school board's request came as a result of the system experiencing reduced state funding, a maximum millage rate on local property taxes, and projected growth of 3,000 students a year for the next several years in our county.

Our Priorities

The priorities developed by the school district for use in implementing the study were:

* Children must be transported safely and in a timely manner using schedules and stops established by the district.

* All current employees in good standing would retain their jobs with their current salary schedule and equitable benefits. Any new employees hired by a private transit company would meet or exceed current requirements, including legal requirements.

* Private vendor must provide effective and efficient service consistent with current level of service.

* Guaranteed long-term savings of taxpayers' dollars.

In conducting the study, the administration completed the following tasks:

* Met with four private transportation carriers who were seeking the school district's business and were willing to meet the standards and requirements established by the district.

* Interviewed five school districts that demonstrated a successful private carrier history for at least five consecutive years.

* Interviewed five school districts whose records indicated unsuccessful use of a private carrier for less than five years.

What We Found

Over three months, the administration conducted an intensive, comprehensive, and systematic study of privatization. From the research several observations emerged:

* Private involvement in providing public services probably would improve effectiveness and efficiency;

* Privatization is management technique that may need to be considered for pupil transportation at some time in the future;

* The responsibility for control, monitoring, and the quality of service must remain in the hands of the school district.

In considering privatization, the school district had to be deliberate in identifying, evaluating on site, and implementing any plan. Throughout the process, education, communication, and public perceptions we re as critical as the stringent cost analysis.

Our research indicated that more often than not private carriers tend to target systems with older fleets, poor facilities, and high labor costs. In such cases, significant savings and/or improved services can quickly.

However, in Cobb County 50 percent of our fleet was less than three years old. We have excellent shop facilities, and current labor costs are in line with metropolitan Atlanta wage comparisons. All regulations of the Environmental Protection Agency and the Occupational Safety and Health Administration were being met or exceeded in our current operation.

An important area of consideration was the safety record of our current transportation system, which has been above average and highly regarded. This factor made it an attractive opportunity for prospective private carriers. Accident reports and statistical data maintained by our insurance carrier verify the exemplary status. Our training and safety programs exceed state minimums. Our safety record is due largely to our veteran staff of drivers, office staff, and leadership personnel.

Audit Conclusion

One of the most difficult obstacles in the privatization process is that of employee resistance. During the three months of study, our drivers became affiliated with a labor union in an attempt to improve their position in protecting wages and fringe benefits. Since Georgia is a right-to-work state, a school district does not have to recognize a union. However a private carrier probably would.

Our study revealed that an intensive self-analysis leads to changes in efficiency, which usually result in cost savings. This was confirmed by Peat Marwick's operational audit conducted concurrently with the administration study.

The outside audit did provide a number of suggestions for improved efficiencies in our busing operations that would lead to savings. These were contained in their final report to the board of education, which recommended the school system not privatize its transportation department.

The final administration report to the school board also recommended that the district not pursue private contracting. The report asked the district to continue to look internally for areas of improvement and ways to be more efficient and effective. The school board voted 6-0 to discontinue its consideration of privatization for the Cobb County pupil transportation system.

Buddy Pullen is executive director for auxiliary services and Carroll Pills Jr. is director of transportation in the Cobb County School District.

Eleven Leading Firms in School Transportation

The school transportation business is crowded and competitive. More than 300 private bus firms today operate in the public school marketplace, vying for contracts to provide student transportation services. Last year, the 50 largest firms ha contracts with 3,000 school districts across to the country, according to the trade journal School Bus Fleet.

In its annual report this summer on the state of privatization, the magazine concluded that as a result of the recent frenzy of mergers and acquisitions among contractors the business "has evolved into a rugged competition for contracts that promise diminishing profits while demanding high performance."

The industry leader, Laidlaw Transit Inc., acquired Mayflower Contract Services earlier this year and now operates in a league of its own with nearly a thousand school districts. Most private firms though, remain small, contracting with fewer than two dozen districts and operating locally or statewide.

The School Administrator compiled brief sketches, including contact information, about 11 school bus firms operating in two or more states. (A few firms failed to respond to requests for information.) Th companies were identified by the National School Transportation Association. The data below was provided by the companies and School Bus Feet.

Atlantic Express Transportation Group

7 North St.

Staten Island, N.Y. 10302

Contact: Noel Cabrera

Phone: [phone]

Atlantic Express has contracts with 48 school districts in five states, ranging in size from New York City to Ridgefield, Conn. The firm operates 2,300 buses. It started in the school transportation business in 1968.

Durham Transportation

9011 Mountain Ridge Drive, Suite 200

Austin, Texas 78759

Contact: John R. Edeny

Phone: [phone]

Durham Transportation contracts with 82 school districts in California, Texas, and Washington. The districts range in size from New Hope, Texas (203 students) to Lubbock, Texas (31,000 students). The firm, which entered the school transportation business in 1952, operates 2,700 buses and transports 200,000 students.

George Krapf Jr. & Sons School Transportation

313 Springton Road

Glen Moore, Pa. 19343

Contact: Dale N. Krapf

Phone: [phone]

George Krapf Jr. & Sons provides service to five public school districts, ranging in size from Twin Valley, Pa. (2,800 students) to West Chester, Pa. (14,300 students), in two states. The firm, which began operations in 1942, operates 517 buses and transports 39,000 students.