Custodial outsourcing at Portland schools proves costly mistake
By DON McINTOSH
Associate Editor
When the Portland Public School
Board voted July 8, 2002 to fire the
district’s 300 custodians and contract
out, district officials said the move
would save $4.5 million a year. Five
years later, it’s becoming clear how far
off the mark that was.
Far from saving money, the deci-
sion may have ended up costing the
district somewhere in the neighbor-
hood of $10 million. Flaws in the orig-
inal cost savings analysis decreased the
actual savings, and legal expenses and
other items increased the costs.
Attorneys did very well by the
board’s 2002 decision, because the dis-
trict ended up paying to fight several
complicated lawsuits over a five-year
period, one of which went all the way
to the Oregon Supreme Court and be-
yond. By April 2007, the district had
paid $639,530 to Miller Nash LLP to
represent it in the lawsuits related to
the outsourcing. At district expense,
Miller Nash also contracted with eco-
nomic expert Morones Young Valua-
tions LLC for $33,080, and Indepen-
dent Actuaries for $18,365. And the
district paid $200,000 to a specialist
law firm, Resolution Counsel, to help
settle one of the cases, a class-action
lawsuit by the fired custodians. As
spelled out in the class-action settle-
ment, the district also paid the lawyers
representing the custodians —
$3,625,000 in attorney fees and
$140,000 in out-of-pocket costs. Alto-
gether, that’s $4,655,975 of taxpayer
money that went to attorneys and fi-
nancial experts as a result of a decision
Portland School District implements contract on DCU
Portland Public Schools (PPS) imposed its final con-
tract offer June 11 on about 119 maintenance workers. The
workers belong to a multi-union bargaining unit known as
the District Council of Unions (DCU). They had been
working without a contract for 18 months, since their pre-
vious one expired Jan. 1, 2006.
Negotiations failed to produce a contract the union side
would agree to, so after a failed attempt at mediation and
a 30-day “cooling off” period, the district implemented its
own terms. Those include:
• Continuation of a wage freeze that has been in effect
since 2004;
• Ending early retirement benefits as of 2014;
• No pay on days when school is closed because of
snow, though workers can use vacation days.
The District raised its monthly health insurance contri-
bution by $15, to $779. Employees must pay any premium
over that amount.
PPS spokesperson Matt Shelby said the DCU is the
only group of District employees that is not slated for a
wage increase. The District’s justification, Shelby said, is
a market survey that found the majority of DCU members
salaries were 10 to 15 percent above the market rate.
In a letter to DCU members, PPS director of labor re-
lations Thomas Gunn reminded DCU members that if
they strike the District has contingency plans to do their
work. Gunn said the District would stop paying health and
vacation benefits, scheduled vacations would be canceled,
and members of other School District unions would be
forbidden by law from honoring their picket lines. In De-
cember 2005, members ratified the contract after it had
been unilaterally implemented by management. The DCU
can go on strike, with 10 days’notice, but as of press time,
it wasn’t clear what action, if any, the DCU would take.
Many DCU members are at or near retirement age.
“The ball is in their court,” Shelby said.
that was supposed to save $4.5 million
a year.
After attorney fees and costs, the
class-action settlement totaled $10.73
million. That included payments of
about $37,000 each to 280 fired custo-
dians, and $370,000 to reimburse cus-
todians who were hit the hardest by
out-of-pocket health costs.
There were also one-time costs at-
tached to the decision to outsource, and
then to rehire an in-house staff. The fir-
ings caused the district to have to pay
about $2 million extra in unemploy-
ment insurance the first year. To over-
see the transition back to an in-house
custodial workforce, the district paid
$27,000 to management consultant
Jim Christiansen. The district also had
to hire additional human resources
staff to help with the hire of 300 custo-
dians. And it had to purchase new
cleaning equipment, such as floor
washing and polishing machines. The
district has budgeted $1.2 million to
buy new cleaning equipment this sum-
mer. After it contracted out, PPS sold
its previous equipment to the contrac-
tor for about $200,000. The equipment
has a useful life of about five years, and
PPS Facilities Director Brian Winches-
ter says most of the equipment sold to
the contractor was near the end of its
life cycle, because tight budgets had
prevented its replacement.
The district didn’t want to pay the
$14.5 million class action settlement
all at once out of reserves, so it hired
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Electricians, Carpenters, Laborers, Glaziers, Sheetmetal Workers, Floorcoverers, Bricklayers, Cement Masons, Roofer, Asbestos Workers, Family, Millwrights, Painters, Elevators, Plasterers
Electricians, Carpenters, Laborers, Glaziers, Sheetmetal Workers, Floorcoverers, Bricklayers, Cement Masons, Roofer, Asbestos Workers, Family, Millwrights, Painters, Elevators, Plasterers
Carpenters, Electricians, Laborers, Glaziers, Sheetmetal Workers, Floorcoverers, Bricklayers, Cement Masons, Roofers, Asbestos Workers, Family, Millwrights, Painters, Elevators, Plasterers
Glaziers, Carpenters, Laborers, Electricians, Sheetmetal Workers, Floorcoverers, Bricklayers, Cement Masons, Roofers, Asbestos Workers, Family, Millwrights, Painters, Elevators, Plasterers
JUNE 15, 2007
NORTHWEST LABOR PRESS
attorney Harvey Rogers, a municipal
finance specialist and partner in the
K&L Gates law firm, for advice on fi-
nancing options. Those options were
presented to a School Board commit-
tee June 13. Depending on interest rate
and length of repayment, the district
could pay $2 million to $10 million in
interest. At 6.5 percent interest, repay-
ing over four years would mean over
$4 million in interest the district would
pay a bank or other lender.
All of the above expenses stemmed
from the decision to contract out —
and the fact that the decision ultimately
ran afoul of a state civil service law.
But another factor casts doubt on
the district’s estimate of the savings.
In an e-mail to district employees
last May, PPS Chief Operating Officer
Cathy Mincberg said Portland Public
Schools saved more than $5 million a
year by contracting for custodial serv-
ices with the Portland Habilitation
Center.
“That is a significant sum in a time
of tight budgets,” Mincberg wrote, “the
equivalent of at least one teaching job
in every school, every school year.”
But that $5 million a year savings
figure — roughly what the district esti-
mated all along —never took into ac-
count the custodians’willingness to cut
their own wages and benefits to save
their jobs. Under the gun from the
threat of contracting out, the union bar-
gaining team agreed in Spring 2002 to
$2.4 million in concessions. The dis-
trict held to its demand for $4.5 mil-
lion, and no deal was reached.
Any claim of savings has to be
modified by the concessions the dis-
trict passed up, especially because the
district’s negotiating history with every
other union group in the last five years
suggests the custodians wouldn’t have
been able to bargain back their old
salaries.
The district’s annual custodial
budget was $15.6 million before con-
tracting out; with the concession it
would have been $13.2 million.
In the first year of contacting out,
custodial expense came to $12 million,
for management, supplies, and pay-
ments to the janitorial contractor. All
told, PPS payments to the private con-
tractor, Portland Habilitation Center
(PHC) totalled just under $48 million
by late May 2007. PHC’s initial bid
was $9.6 million, and billings rose only
slightly in subsequent years, to $10.8
million the year before in-house custo-
dians began returning. That was
cheaper than the in-house staff would
have been.
But with the concession figured in,
the district ended up saving just $2.5
million a year, or maybe $13 million
over five years. And those savings were
than offset by the $14.5 million settle-
ment, the $4 million in interest it will
cost to pay that out over time, and up to
$3 million in other costs.
In the end, the district lost, but so
did the custodians, and the taxpayers.
PAGE 3