UWS Outsourcing One Year Later
In May of 2014, the University of Wisconsin at Superior announced plans to outsource the campus custodians and grounds keepers as part of budget cutting plans. Throughout 2014 controversy raged about the necessity and wisdom of this action. In the end 27 people were laid off and their jobs were contracted out to a private, out-of-state company. What has been the impact of this action one year later? What happened to the laid off workers? What kind of jobs does the contractor offer? Did taxpayers save money? What has been the impact on Superior and the local economy?
What happened?
When UWS management announced the outsourcing, they said it was necessary to deal with a $4.5 million budget deficit. Other efforts included eliminating degree programs and increasing enrollment to fix the problem. With staff salaries being a large part of the operational costs of UWS, cutting employees was necessary. They expected to save $500,000 per year by contracting out these jobs. The 27 affected employees were given “at risk” notices informing them that their jobs were likely to end. In August, UWS advertised for bids from private companies.
During 2014, the local community reacted to this plan with strong opposition. Demonstrations were held, hundreds of letters and thousands of emails were sent to the chancellor, and an online petition opposing contracting out received almost 4000 signatures. The Superior City Council and the Douglas County Board passed resolutions opposing the action.
People opposed to outsourcing argued that laying off permanent public employees was unnecessary, unfair to good employees, and would hurt the local economy. Outsourcing would replace full time jobs with benefits with part time, lower paying jobs with poor benefits. This would have a ripple effect for businesses in Superior. They also argued that the quality of work would go down. Contract employees often have high turnover rates and little connection to the organization or its goals. They do the minimum while permanent employees take pride in their work and feel connected to the larger organizational goals. And they argued that often contracting out does not save taxpayers money. Sometimes it is even more expensive than using public employees.
In November, UWS announced that a contractor had been chosen and they would begin negotiating the final contract. In January of 2015, SSC Service Solutions began doing the work of the 27 former UWS employees.
The custodians and groundskeepers, of course, were not the cause of the budget problems, since they were some of the lowest paid workers (average hourly wage of $12 – $14). Because of state budget cuts, UWS lost $1.9 million in state support in both the 2012 and 2013 fiscal years. In 2015, UWS was again cut by 5% or $851,000. The 2013 tuition freeze and ongoing falling enrollments have hurt revenues. Ironically top management has had pay raises; for example, the UWS chancellor received a 4.3% raise to $207,500. Many factors have contributed to the budget problems.
What happened to the laid off employees?
In talking with many of the laid off workers, there is a large variation in their individual situations. Everyone had a different situation when they were working and this affected their ability to weather the layoff. Age, financial situation, spouse’s employment, access to healthcare or retirement options all varied. Generally they were worse off but this is not always the case. Several people obtained better paying jobs with other government employers, who continued the same retirement program and similar health care benefits. Most are working lower paying jobs, are unemployed, or have taken early retirements (which results in a lower retirement income than working to full retirement age). One individual was able to go back to school. Some quit or found other jobs prior to the official lay off. Four of them were hired by the contractor and three of those are still working full time at UWS at similar hourly wages but, of course, with lower quality benefits.
All the laid off UWS employees did have the opportunity to interview with the contractor but the company was not required to hire them. Many of them were not interested in working for the new company for a variety of reasons. The cut in benefits and vacation was the most often stated reason. Several expressed anger at the “slap in the face” of having to re-apply for jobs they had been doing faithfully for years. They “loved” working at UWS and felt like they were contributing to something bigger than just a job. They cared about the students and took pride in their work. After many years of service to the public they felt betrayed by UWS.
What about the current workers?
Were full time jobs with benefits replaced by part time no benefit jobs as predicted by the outsourcing critics? According to the local SSC manager the company has 25 current custodial and grounds employees. Only two of these are part time. SSC does offer benefits including health insurance and a 401k retirement program. But these benefits are not comparable to those of state employees. Group insurance plans are available but the employee bears the cost. The retirement is a 401k where the company does a percentage match of what the employee contributes. Obviously workers making $20,000-25,000 yearly cannot afford to contribute much. So the company has much lower retirement costs. Regarding pay the SSC manager said the former UWS employees are making about the same hourly rate. Other employees were making “similar” or less depending on experience. However the company’s bid for the contract listed proposed pay at $8.00 per hour for custodians and $10.55 per hour for grounds staff. Supervisors would be paid more.
Clearly the contractor does have lower labor costs. In their bid proposal SSC lists the “main benefits of transitioning …employees to SSC” as 1) lower “fringe” costs, 2) lower workers compensation costs, 3) lower “human resources overhead.” They say, “the primary financial benefit results” from addressing the “problem” of fringe benefit costs. The bottom line is that the workers are paying for the “savings” of contracting out.
The race to the bottom
The UWS request for bids clearly identifies labor costs as the target and the reason for outsourcing. It was the intention of UWS to cut labor costs, not just achieve better management or more “efficient” operations. As stated in the Request for Proposal (RFP) soliciting bids,
“The University’s general goal is to provide Janitorial and Grounds Keeping Services to the students and institution that lowers the overall operational costs…” (emphasis added). “The goal is to partner with a supplier…to propose/bid a labor rate that is an industry standard that will assist the institution in achieving its budgetary goals” (Attachment 21 of RFP, Questions and Answers).
Needless to say the janitorial “industry standard” for wages is low. UWS management knowingly participated in the dive to the bottom.
What is the impact on Superior?
Private companies have to make a profit. They claim the profit comes from being more efficient. In reality, profits come simply from cutting costs. Wages and benefits, especially health insurance, are the major targets for these cuts.
UWS uses 100% of salary to calculate employee benefit costs for budget purposes. Employees have 7% of their pay contributed by the employer to retirement. Their health insurance is worth about $20,000 a year. So a $12 per hour custodian would have an income of $24,000 a year but total compensation worth about $48,000.This is a family supporting job with a future.
The same $12 per hour job with SSC has a voluntary employee savings program for retirement and employee paid health insurance. The total worth might be about $30,000 (SSC did not respond to inquiries for actual figures). The $18,000 difference is profit. Multiply this times 25 employees and you have $450,000 a year flowing out of the Superior economy.
All 25 SSC employees will have a much reduced retirement income at some point in the future. This will, again, reduce the local economy. The two part time employees may be using public assistance such as Badger Care or food stamps which further impacts local taxpayers.
These “savings” to UWS go to the out-of-state owners of SSC Service Solutions. SSC is wholly owned by Compass Group USA, a subsidiary of Compass Group PLC, a huge British multinational conglomerate. In 2013 Compass Group USA made $1.05 billion on $12.8 billion in revenue. Compass Group PLC made $17 billion British pounds last year. It had an operating profit margin of 5.9% and provided a 10.5% increase this year in stock dividends. The U.S. operations were 48% of the global company’s revenue. All this by squeezing the pay and benefits of some 500,000 employees in 50 countries.
The local economy is worse off because of outsourcing. It many not be dramatic, and it may not be visible because the impact comes in the future, but it is real. The reduction in local income and benefits will trickle down to other local businesses and the community as a whole.
After all the controversy, disruption, and grief did UWS save significant money and solve their budget problems? That remains to be seen and will be the topic of another article.