The rising costs of employee benefits are prompting a growing number of Pennsylvania school districts to shed the weight of having to pay for retirement and health care associated with food service workers.
Carlisle Area School District is the latest to outsource the management of its food service operation to a private contractor in an effort to cut costs and reverse an operating deficit.
The school board in April agreed to have Chartwells of North Carolina manage district cafeterias for at least one year effective July 1. This decision came about two years after the Big Spring School Board voted to outsource to Chartwells and almost a year after South Middleton School District made the switch to Aramark.
Companies such as Chartwells and Aramark say they can save money through improved efficiencies. Better marketing efforts also will increase the number of students who buy lunches, the companies say. The school districts are freed from paying wages and benefits to the lunchroom employees.
Ten years ago, up to 75 percent of school districts statewide had self-operated food service departments, said Jay Himes, executive director of the Pennsylvania Association of School Business Officials. Today, that percentage has shrunk to just more than 50 percent of the 500 school districts.
“It has clearly fallen and fallen rather significantly,” Himes said. The districts have shed a combined total of 23,000 jobs in calendar years 2011 and 2012 according to the federal Bureau of Labor Statistics.
While not all these jobs were in food service, the outsourcing of cafeteria management is a growing trend being driven by a combination of more stringent school lunch nutrition standards, higher health care costs and an ever-growing increase in the annual contribution school districts must make to PSERS, the Public School Employees’ Retirement System.
“The minus 23,000 jobs is a reflection of the state of school budgets which, for the past four years, has not been a pretty financial picture,” Himes said. “In an effort to reduce costs, one of the major areas is personnel because it provides immediate and predictable savings.”
Knowing up-front what the savings would be makes the notion of outsourcing appealing to districts given all the fiscal uncertainty, Himes said.
At least 75 percent of Pennsylvania school districts outsource at least one element of their operation formerly performed by district employees, said Steve Robinson, a spokesman for the Pennsylvania School Board Association. “We don’t have a breakdown of what is being outsourced, but over the years it has been increasing.”
What outsourcing does is to remove entire categories of school district workers from the PSERS rolls. In the majority of cases, these workers are no longer able to accrue further retirement years under the system.
Often the management companies are not obligated to rehire these workers at full-time wages nor are they required to pay health benefits or retirement, said Valerie Nartowicz, current president of the School Nutrition Association of Pennsylvania. “With the retirement system skyrocketing the last three to five years, school food service departments have been in turmoil.”
Carlisle Area School District is expecting to turn a $500,000 annual operating deficit into a $200,000 surplus in the first year of its contract with Chartwells, said Shawn Farr, district director of finance.
Every year since 2009-2010, Carlisle has transferred about $500,000 from its general fund to the food service fund to cover an annual operating deflect, Farr said. He explained how much of the anticipated $700,000 swing from deficit to surplus will be from savings from not having to pay the food service workers retirement and health care benefits.
“The cost of labor applied to food service is more expensive than we can afford for something that is outside the core of instruction,” Farr said.
South Middleton School Board recently approved a one-year contract renewal with Aramark for the period July 1, 2014 to June 30, 2015. Business Manager Rick Vensel said South Middleton outsourced its food service department in an effort to not only reduce costs and reverse its operating budget but to improve the quality of the program while keeping pace with the new nutritional standards being handed down by the federal government.
“The retirement costs in Pennsylvania are driving a lot of school decisions,” Vensel said. “Unfortunately, it is making the decisions less educational and more financial.”
Big Spring officials in May 2012 said the decision to outsource its cafeteria management to Chartwells was so the district could save money in its retirement contribution by cutting food service workers out of the equation.
Another factor is the potential effect the Affordable Care Act will have on personnel costs. Under Obamacare, employees working at least 30 hours a week will be classified as full-time instead of part-time workers for the purpose of providing health insurance, Nartowicz said.
Aside from being president of the school nutrition association, she is director of food services with the Upper Perkiomen School District located about 40 miles northwest of Philadelphia in Montgomery County. Rather than pay the extra costs associated with reclassifying her four assistant managers and coordinators, that school district has opted to reduce their time below the 30-hour threshold.
It is likely that more school districts will chose to outsource their food service operation instead of taking on the costs of paying health care benefits to workers who used to be classified as part-time, Robinson said.
Aside from South Middleton, Aramark has added six Pennsylvania school districts to its list of partnerships bringing the total number of contracts statewide up to 45, said Karen Cutler, director of corporate communications for Aramark.
While Cutler acknowledged that fiscal challenges are helping to drive the trend, she said the increase in outsourcing has more to do with districts wanting to provide a high quality food service program in which students want to participate.
“Managing these programs in-house often becomes very burdensome and unrealistic,” Cutler said. “With so many changes each and every year, it is much easier for a district to rely on the expertise of a professional company as opposed to managing it in-house.”
Rachel Kuna, a spokeswoman for Chartwells, said the primary benefit of outsourcing food services is that it allows district administrators to focus more on the business of education. “Food is what we do ... Education is what school districts do,” Kuna said.