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I. Contracting for Pupil Transportation in Ohio (internal links)

This section examines the simple question, "What role do contractors play in the provision of public transportation services in Ohio?" The discussion examines changes in the number of pupils transported, by type of student (public vs. private) and by type of service (in-house, contractor, municipal bus or parent). A second part of the discussion focuses attention on the number of districts that contract for services, where they are located and how their composition has changed over time.

Contractor Usage Grows But Most Pupil Transportation Is Done In-House

Even though the vast majority of school districts provide their pupil transportation in-house, during the past five years there has been an increase in the overall use of private contractors. Districts that operate their own transportation system are making greater use of contractors. And there has been an increase in the number of districts that have opted out of pupil transportation altogether. At the same time, the overall share of pupil transportation covered by contractors remains extremely small (about 2.3 percent).

The number of children transported by private contractors increased 57 percent from 1994 to 1998. In 1994, there were 38,849 pupils bused by contractors. Five years later the number had increased to 60,837. An increase in the number of transportation alternatives in use by the school district helps to account for this change.

School districts can consider three basic options: to rely exclusively on contracting, to use a contractor to transport a subset of eligible pupils, or to use no contractor at all. They also sometimes pay parents to transport their own children to school, or provide bus passes for use on city buses or other public transportation systems. Since 1994, there has been a 32 percent increase in the number of districts that rely on some form of contracting and a 57 percent increase in the number of districts that rely primarily on private contractors for the transportation of pupils. Table 1.1 reports on the change in contractor activity by district type.

 Table 1.1
School districts and contracting 1994-1998

 

 1994

1995 

1996 

1997 

1998 

  Percent change
1994-98

 Number of districts that use no contracting

 576

569

559 

567 

561 

-2.6% 

 Number of districts that use some contracting

 22

23 

30 

24 

27 

22.7% 

 Number of districts that use only contractors*

 9

11 

13 

13 

14 

55.5% 

*Includes districts that own their own buses but contract for services
Source: Ohio Department of Education, T1 Reports 1994-1998. The data excludes districts that did not report any in-house or contractor busing activity.

 

 

 

 

 

 

 

 

A further finding is that districts that rely only partially on contractor services are using those private services primarily to transport non-public school pupils. In 1998, for example, 27 school districts purchased some type of contractor service (up from 22 in 1994). The services were used to transport 2,960 pupils to private schools and 709 students to public schools. Moreover, the number of pupils transported by the private vendor was small. The median number of children transported by contractors in districts that use some contracting was 23. Partial users of contracting services, thus, appear to use them as an option to deal with the burden of having to transport small numbers of non-public school pupils to different private schools.

While interest in them has increased, the overall role contractors play in Ohio remains extremely small, as Figure 1.1 shows. In 1998, less than 5 percent of students in Ohio were transported by private contractors. In terms of districts relying exclusively on contractors, the percentage is less than half that. Of the 602 school districts in the state that provide busing, less than 3 percent rely exclusively on contractors and less than 5 percent make partial use of contractor services.


Figure 1.1
Ohio School District Use of Contracting, 1998

Ohio School District Use of Contracting, 1998 Pie Chart
Source: Ohio Department of Education, T1 Reports 1994-1998. The data excludes districts
that did not report any in-house or contractor busing activity.

Contracting Districts Are Larger Than Average

An important question is whether contracting districts differ in important ways from non-contracting districts. There are a number of variables with which one could compare districts. Given data and time constraints, however, this study compares districts in terms of the number of miles driven and students transported. The results of the comparison of pupils transported are presented in Table 1.2. Mileage comparisons reveal similar results to those presented in Table 1.2.

 Table 1.2
Median Number of Students Bused
Per District per Day, by District Type 1994-1998

 

 1994

1995 

1996 

1997 

1998 

 Type 1: In-house Districts

 1,404

1,401 

1,382 

1,197 

1,419 

 Type 2: Mixed Districts

 2,358

2,162 

2,255 

1,932 

2,277 

 Type 3: Contracting Districts

 1,334

2,899 

2,335 

2,485 

2,338 

Source: Ohio Department of Education, T1 Reports 1994-1998. The data excludes districts that did not report any in-house or contractor busing activity. Contracting districts include districts that own their own buses but contract for services.
 
The data reveal that in 1994 the number of pupils bused by the median school district that relied exclusively on contractors was somewhat smaller than those that provided services in-house or made only selective use of contractor services. Over the period of time covered by the study, however, several large districts began contracting services. In 1998, for example, pupil transportation numbers for the median districts had changed positions. The median number of pupils bused by exclusively contracting districts was 2,338, whereas the median for partial and non-contracting districts was 2,277 and 1,419, respectively. Districts that purchase contract services, therefore, tend to be larger in terms of the number of students they are required to transport.10

There are several possible explanations for this. Referencing an earlier point, one reason is simply that larger districts are typically required to transport more pupils to more non-public institutions. If this means that large districts are transporting pupils to multiple private schools off the main public school routes, it may explain why larger districts might be more inclined to purchase services. Another reason may be the perceived administrative costs associated with running a large transportation system, particularly the time costs to school finance officers, treasurers and superintendents. Finally, larger districts may exist in markets with a greater number of contractor choices.

Contracting Concentrated in the Southwest

While there has clearly been an increase in the number of districts using contractors for the provision of bus services, most of the activity remains concentrated within a handful of counties. Only 6 counties, out of 88 in the state, have districts that have opted to contract out all of their pupil transportation. Two school districts in Butler County, 3 in Clermont, 1 in Fairfield, 4 in Hamilton, 2 in Lorain and 2 in Summit County selected this option. Nine of these districts (Butler, Clermont and Hamilton counties) are clustered around the city of Cincinnati, in the southwest corner of the state. The 4 districts in Lorain and Summit counties are in the northeast part of the state. The 26 districts using just some contracting were more widespread, but were also concentrated in 18 counties, which included 1 district in Butler County, 4 in Miami County and 3 in Stark County, which adjoins Summit County in northeast Ohio.

Contracts Vary Widely

There is a common perception that school districts that opt out of the provision of bus services are left in a vulnerable position once their original contract must be renewed. The general view is that districts that relinquish bus ownership and operation to a contractor lose the option to re-enter the transportation business at a later point. In theory, districts always retain the option. In practice, however, fiscal and political costs may be prohibitively high, which in turn, leaves districts with less leverage when bargaining with a contractor.

In order to assess any difference over time, the study examined and compared several sets of contracts - most recent with previous - between vendors and districts that relied exclusively or almost exclusively on contracting. It should be noted that the study did not undertake a comprehensive time-series comparison of all contracts between districts and vendors. To compensate, different types of districts in different geographic regions of the state are compared to maximize variation. The districts selected include:

  • Madeira City School District, a small suburb of Cincinnati. Contracts signed in 1997 and 1991 were compared.
  • Talawanda School District, a rural district in the southwest corner of Ohio. Contracts signed in 1999 and 1995 were compared.
  • Lorain City Schools, a large urban district in the northeast part of the state. Contracts signed in 1999 and 1993 were compared.

In each case, the study compares compensation and bus provision clauses and determines whether or not the contract was put out to bid in the most recent round. Tables 1.3 through 1.5 present the comparisons for each district.

For the most part, not enough information was available to determine whether districts that contracted lost bargaining power over time. In two districts, Talawanda and Madeira, cost for regular service and non-routine miles remained fairly consistent over the two contracts with the exception that under the recent contract, the vendor received compensation on days when schools were closed. Lorain’s 1993 and 1999 contracts, however, differ so dramatically in the way the district is charged for regular and non-routine service that it is difficult to undertake a fair comparison.

Moreover, even where rates are quoted, it is unclear how expenses are actually being charged to the district. For example, although Talawanda was charged a fixed amount per hour during its first contract for non-routine miles, the actual cost per non-routine mile increased dramatically over the course of the contract. In the first year, 1994-95, Talawanda spent approximately $1.90 per non-routine mile. A year later the figure increased to $3.60 per non-routine mile. By 1998-99, the contractor was charging Talawanda approximately $4.09 per non-routine mile.11

In short, rate figures over the course of two contracts by themselves do not provide enough information to determine whether a district has gained or lost leverage as a result of losing the ability to re-enter the bus transportation service quickly. Although school administrators felt generally at ease with contracts, they also acknowledged that their district was vulnerable to fluctuations in the number of potential contractors. There was a clear sense that their district could face difficulties down the road if the contracting market shrunk, the number of bidders decreased and the district was forced to take offers from only one or two companies.

Although this research focused on comparisons within districts across contracts, an indirect finding was the enormous variation in the types of contracts among districts.

Differences Among Districts

There is great variation in how contractors charge for services. While the type of service demanded is fairly similar — regular and non-routine bus services — the compensation arrangements are dramatically different. In two districts, Madeira and Talawanda, the contractor charged a per bus per day fee for regular service, while Lorain was charged a single lump sum for the year.

All three districts had very different automatic cost increases built into their contract: 4.5 percent automatic increase in Madeira; 2 percent in Lorain; and CPI-adjusted (capped at 4 percent) in Talawanda. Also, compensation for days cancelled varied across districts. Although no district was required to pay compensation during the earlier contract, the terms under the new contracts required Lorain and Madeira to pay 100 percent on days canceled, and Talawanda 40 percent.

Compensation for non-routine mileage also differed dramatically among districts. In most cases, contractors charged a fee for each hour driven plus a mileage rate. However, Lorain’s initial contract included a fee schedule for the location of each specific field and athletic trip. Hourly and mileage costs also differed across districts for non-routine activities. For example, Madeira’s 1997 contract charged the district $11.91 per hour plus $0.84 per mile. Talawanda, located near Madeira, was charged $23.50 per hour for driving time and $14.25 per hour for "down time." And Lorain’s 1999 contract charges the district $20 per hour plus $0.50 per mile for non-routine miles.

Provision of buses varied across districts. In Lorain and Madeira, the contractor owns and operates the buses. In Talawanda, the contractor and the district both own some of the buses. Over time, however, district buses are replaced with contractor buses at the rate of four buses per year. What is interesting about the arrangement is that Talawanda’s contract requires the district to pay approximately $6,200 per new bus per year for ten years in a kind of lease agreement. This fee is on top of the per-bus, per-day fee that is similar to the Madeira district.

Finally, only one of three districts, Lorain, issued a request for proposal (RFP) at the close of the earlier contract. In the ideal world of the market, each contracting district should put out an RFP after each contract to determine the market equilibrium point. Otherwise, it is difficult to know whether the district is getting the best possible deal. However, there are significant transaction costs associated with issuing an RFP. School and state administrators noted that the issuance of the RFP can create enormous tension among school board members, school board and staff, and in particular, between the vendor and the district. Moreover, after a district decides to use a different vendor there are additional transaction costs associated with the transition to a new company, such as the hiring and training of new personal.

One school treasurer in a district that chose not issue an RFP but instead renegotiated with the same vendor offered three explanations for the decision: 1) Putting the contract out to bid again would have introduced a great deal of tension between the district and the community; 2) he was satisfied with the vendor’s performance during the first five years; and 3) he had kept up enough with what other districts were being charged to know that his district was getting a good deal.

In sum, the information presented, while incomplete, does present a strong case for the need to further examine contracts, size of contractor markets and the transaction costs associated with relying on market mechanisms to manage school transportation policy. The need is especially great given the variation of contract types, coupled with the strong reluctance among districts to return periodically to the open market.


10A similar relationship holds true for miles driven. In 1998, Type 3 districts drove more than 1,000 more bus miles per day than Type 1 districts.

11This was calculated using the amount of non-routine miles reported by the district to the state and amount of money the district reported that it spent on "Activity Routes." The report was part of a document prepared by the district in January 1999 entitled, "Analysis of Laidlaw Contract."