This research represents an empirical step to understanding the contracting of pupil transportation in Ohio. The research focused broadly on describing contracting rather than trying to explain variations in district usage of it. The research also served to empirically evaluate a number of hypotheses regarding the cost effectiveness of contracting. Drawing on conversations with school administrators and area coordinators for the Ohio Department of Education, potential explanations for why costs in contracting districts appear higher are presented below.
Why do costs differ across district type?
Perhaps the most central question is, "Why does it appear that contracting districts are so much more costly than non-contracting districts?" There are a number of possible explanations, each worthy of further research. The most straightforward explanation is that vendors charge more than what it costs districts to run their own service. In exchange for the administrative freedom to focus exclusively on "instructional services," school districts and communities pay a premium to contractors. Assuming a competitive market of suppliers, the premium is likely to remain stable. If one or two contractors are able to influence the price, or if information concerning market prices diminishes, however, one would expect the premium charged to districts to increase.
A second more complicated explanation for the cost differentials is depreciation. School districts that provide transportation in-house do not recognize depreciation costs as part of their annual expenses. By contrast, private vendors pass along those costs to contracting districts. Presumably, this is a factor occurring only in contracting districts where vendors operate the system and own the bus fleet. The impact such a cost might have depends on the amount of capital owned by the district, including buses, buildings and equipment used in the operation of the bus fleet.
Finally, a third explanation for cost differences may be linked to policy differences. That is, it may be that districts that contract out transportation services have more costly types of transportation policies. For example, they may consume more non-routine miles, or they may transport pupils within a much closer radius to schools than non-contracting districts. In short, there are a number of important and costly policy areas where districts may differ across type.
Apart from the question of cost-differentials, there are a number of additional policy questions triggered by this research.
First, why do districts contract out with private vendors at all? A number of potential administrative reasons are cited in the literature: greater administrative freedom, greater accountability, a newer fleet of buses, cost effectiveness. There may also be strong political reasons, such as the power and ideology of school boards and superintendents who may favor or oppose privatization regardless of administrative rationale.
Second, why do so few districts rely on private contractors to provide transportation? Again there are economic, administrative and political variables that could be considered. A recent dissertation found that the age and background of superintendents made a difference in whether a district is more likely to rely on bus contractors . Specifically, the dissertation found that superintendents who were younger and had taken graduate courses in business administration were more likely to consider contracting.
Third, what are the transaction costs associated with contracting? In particular, what are the costs connected to reissuing an RFP, for example, every five years? Presumably, such a process is necessary for the market to accurately convey to districts whether they are getting the best deal. At the same time, however, such a process is politically and economically costly, which may explain why some districts simply choose to renew a contract with a current vendor rather than return to the market.
Fourth, what is the option cost associated with relinquishing control of a bus fleet? In other words, what does a district actually lose besides its bus fleet if it loses the ability to provide the bus service in-house?
Finally, how do reimbursements matter? This study has focused primarily on costs reported by the districts. Although some attention was given to reimbursement rates for operating expenses, other potential sources of district revenue, such as capital reimbursements from the state, were left unexamined.