Fire the Teachers and Police and Re-hire Them?

Highland Park, Michigan, has three schools responsible for educating 1,000 students, but its education budget deficit has ballooned to $11.3 million. (Source: Wall Street Journal, August 2, 2012.)

After many attempts at deficit cuts, the school finally had to concede budget deficit defeat and turn its three schools over to a private school company. In a five-year deal, Leona Group will take over the schools from the district of Highland Park, promising to improve student performance.

So even though Leona Group is not responsible for the budget deficit, how does it prevent itself from falling into the same budget deficit trap as themunicipalityofHighland Park?

It lays off all the workers in the three schools—voiding any union deals that come with generous pay and benefits that these workers had—then rehires most of them under new terms of agreement with less pay and benefits. That is one way to achieve deficit cuts.