School districts in Michigan, like others across the country, are struggling financially, says Atherton Athletic Director Ralph LaDuke. When revenue is declining and the demand for services is increasing, you canít bury your head in the sand. You have to weigh the pros and cons of every new idea. We wanted to look at ways to save money without affecting any of the programs, so we started thinking outside the box.

Through his research, LaDuke learned that more and more Michigan schools are privatizing their support services. Of the 552 school districts in the state, more than 40 percent now contract with outside companies for food, transportation, or custodial services. A much smaller percentage of schools have privatized their coaches, but the practice seems to be gaining ground, says John Johnson, Communications Director for the Michigan High School Athletic Association.

In the U.S., both employers and employees separately contribute to Medicare and social security. Before privatization, Atherton paid its coaches salaries directly and paid the government an additional 18 percent of the gross amount for social security, Medicare, unemployment, and the state retirement fund. As regular district employees, coaches also had money deducted from their checks to cover state and federal income taxes, social security, and Medicare.

With privatization, coaches are considered self-employed and treated as independent contractors. They don't receive benefits and don't have any money deducted from their paychecks, but they are responsible for reporting their income and paying self-employment taxes when they file their tax returns.

With this system, coaches receive their paychecks through a contract management company called PCMI West, which is paid by the district. As independent contractors, coaches see a slight increase in their take-home pay and a slight increase in the taxes they owe at the end of the year. The school retains the ability to hire, fire, and supervise its coaches. Atherton saves the 18 percent it would have otherwise paid to the government, and after paying PCMI West, the district expects to net about $5,000 at the end of the school year.

Quite frankly, I thought it was a no-brainer, says LaDuke. Coaches get a 3.5-percent raise in actual take-home pay and the school gets $5,000 to spend on equipment. For a small district like ours, $5,000 can go a long way. Itís a win-win situation.

Not everyone agrees. Although the switch results in a short-term savings for the district, the teachers union argued it would decrease the amount of money going to the state retirement system, which would likely add to taxpayer costs in the future. A union official told the Flint Journal the school was cutting off its nose to spite its face, and the union filed a grievance with the Michigan Employment Relations Commission, claiming Atherton violated its contract by removing coaching positions from the bargaining unit.

Faculty coaches complained that being hired as independent contractors would reduce their pensions, which are based on gross salaries. (In response, the district proposed a rules change to count both teaching salary and coaching wages toward the total gross.) Three teachers who also coach initially refused to go along with the new system. The two fall sport coaches were replaced, and the third has since agreed to coach this spring as an independent contractor.

LaDuke strongly believes he made the right choice, but he wishes he had communicated a bit better before the change went into effect. Before school started, I had the company come in and explain the program to the coaches, says LaDuke. At the time, no one had any problems with it. I sent a letter to the union president to request a meeting, but she never got back to me. I thought we handled things pretty well, but if I could do it over again, I would demand better communication between the parties from the start.

Okemos (Mich.) High School has also turned to privatizing coaches pay in an effort to cut costs, but uses a hybrid plan, which avoids some of the pitfalls Atherton faced. Okemos's faculty coaches, who account for about two-thirds of the coaching staff, will remain on the department payroll and continue to receive complete benefits. Non-staff coaches will be subcontracted through PCMI West. By using a third-party payer, we're able to save the district between $17,000 and $20,000 a year, says Okemos Athletic Director Keith Froelich. Because of this plan, we don't have to cut any teams or coaching staff, and when we explained this to our non-staff coaches, they were very supportive.

Six months into the change, the transition has been seamless, Froehlich continues. There's a little more paperwork, but with the cost savings we've had, I'm more than willing to deal with it.