California Local Elected Officials

Tips for Negotiating with Public Sector Unions

You’ve just been elected to the city council. You’re 34 years old and you’ve been attending your city council meetings for almost a decade. You’ve served on some civic improvement commissions. You’ve been a concerned activist for most of your life. But the firefighters union contract is being renegotiated this year, and you’re about to go behind closed doors and negotiate.

On the other side of the table are your respected friends who have protected your town for as long as you can remember. But their union is part of a national organization that wields tremendous financial and political power. And sitting across that table, alongside your friends who run the local fire department, are seasoned professionals who have been involved in labor negotiations for their entire careers. You are outgunned. What do you do?

This scenario has played out across California, especially in the smaller cities and counties and school districts. The elected officials charged with managing these smaller jurisdictions work part-time, for little or no pay. They negotiate with career professionals whose unions often are the largest single source for the campaign contributions that got them elected, or can get them defeated in the next election. The result of this situation is that government unions have a huge advantage in contract negotiations. For all practical purposes, they often run these smaller towns and school districts. What do you do?

Here are a few suggestions that can help make a difference:

1 – Use Outside Negotiators:

They will provide greater expertise in the subject matter, they will already know proven negotiation strategies, they will readily understand the contract language, and they offer a valuable independent, third-party perspective.

Of course it isn’t always necessary to hire an outside negotiator, it depends on the complexity of the negotiations and it depends on the financial impact of the contract. If it affects a large percentage of your budget, it makes more sense to hire an independent negotiator.

If you decide to hire an outside negotiator, you also have to be sure you are in compliance with existing codes and state law. Here is sample language to insert into a resolution to hire an outside negotiator:

OUTSIDE NEGOTIATOR – SAMPLE LANGUAGE

The use of an outside negotiator shall apply to all formal meet and confer processes undertaken pursuant to the Meyers-Milias-Brown Act, where either a recognized employee organization or the city, through their respective representatives propose 1) significant changes to contract terms, 2) extensions, or 3) when the employee association negotiates with third party negotiators or legal counsel.

In an effort to avoid inherent conflicts of interest, if an outside negotiator is deemed necessary, the principal representative negotiating on behalf of the city shall, 1) not be an employee of the city, 2) not be a member of any public pension plan under the city, and 3) have a demonstrated expertise in negotiating labor and employment agreements on behalf of municipalities. The city council shall designate one or more management level employees to be present during negotiations and to assist the principal negotiator as the city council and/or principal negotiator deem appropriate.

2 – Have an Independent Auditor Analyze the Fiscal Impact:

The first step is to get complete factual information in order to perform an economic analysis of the contract. Here are factors to consider:

Get an actuarial analysis: Preparing and providing an economic analysis of the short and long term costs of every term and condition of employment in the contract is the first way to ensure that 1) city council members have the best data available in front of them to negotiate and make a decision, and 2) the public has the appropriate data to vet the contract and the Council’s proceedings. If these negotiations affect pension benefits in any way, the economic analysis should include both the funded and unfunded actuarial liability that would or may ensue from adoption of the contract.

Use an independent auditor: This will allow city council members, staff, and the
public to benefit from the general level of confidence provided by a thorough and
reliable economic analysis by an external professional. Information from outside auditors should be used in conjunction with information from staff whenever practical.

Make sure the economic analysis includes tangible comparisons: The economic analysis of each term and condition of the contract can and should be viewed in the framework of how it will affect the citizens. Also, utilize tangible examples of comparisons with other programs. For instance, if a contract will cost the city X amount of dollars, contextualize it to show that X amount of dollars is equal to a specific city service or program.

Invest in staff training so they can also perform economic analysis: In addition to the use of an independent auditor, city human resources professionals need the proper resources and training to provide and analyze an economic analysis.

Provide for public review of the proposed new contract: The City should consider making the fiscal impacts of the contract available to the public and the City Council at least two (2) City Council meetings prior to consideration by the City Council of an initial meet and confer proposal.

INDEPENDENT AUDITOR – SAMPLE LANGUAGE

An independent auditor, a certified public accountant, or an actuarial accountant, shall prepare a study and supplemental data upon which the study is based, that identifies the fiscal impacts attributed to each term and condition of employment made available to the members of all recognized employee organizations.

The first analysis shall be of existing contract costs and of each thereafter.
The above report and findings of the independent auditor shall be completed and made available for review by the city council and the public at least two (2) City Council meetings before consideration by the city council of an initial meet and confer process.

The above report shall be regularly updated by the independent auditor to itemize the cost and the funded and unfunded actuarial liability which would or may result from adoption or acceptance of each meet and confer proposal. These measurements shall display the fiscal impacts of the employee association and or/city proposals. The report shall be prepared to include all benefit and pay aspects of each MOU, and shall include written council member acknowledgement that the report has been read and considered by the signing councilmember.

3 – Consider Transparent Discussion of Offers and Counteroffers

California’s current open meeting laws provide that a City Council can meet in closed session to provide its bargaining unit representatives with instructions and parameters for negotiation in the meet and confer process. Closed sessions allow City Councils to speak privately regarding their bargaining parameters without disclosing these parameters to labor representatives.

Additionally, the meet and confer process provides the opportunity for city representatives and labor representatives to bargain in good faith in order to reach an agreement on the proposed labor contract. Here are factors to consider:

Report the Facts: Transparency may result in more realistic counters or counteroffers. Broad dissemination of offers and counteroffers provides a progress report and clearer understanding for both the public and bargaining unit members.

Exercise discretion: Disclosure of offers and counteroffers may result in additional public posturing and increased politicization, which can affect negotiations. All parties involved in negotiations should use caution and clear communication when reporting out of closed session.

TRANSPARENCY – SAMPLE LANGUAGE

The city council shall report out the details of all formal offers that have been rejected at the time of the counteroffer rejecting each proposed term. City council labor negotiators shall have the duty to advise the city council during any closed session of all offers, counteroffers, information, and/or statements of position discussed by the labor negotiators taking place in the meet and confer process since the last such closed session.

4. Require Disclosures of Private Communications

Having city council members disclose communication contacts that were had with any labor representative is another way to bring transparency to the negotiation process and to build faith with the public. A careful value judgment can be made to what type of conversation is appropriate to report to the public. Factors to consider:

Disclose communications: While this principle may be contentious for some city council members, it can be viewed as a disclosure requirement, not a “no-deal” requirement. The communication that is disclosed may simply be that the conversation occurred.

Consider the impact on the process: There is some historical context that private meetings, without the disclosure of names, have been the environment needed to reach an agreement. However, a balance can be found to reconcile transparency with private communications. If a council member is going to meet with the employee group they should remember their closed session obligations and just listen. Council members that talk to employee groups outside of formal negotiations may undermine the negotiation process.

Preserve the ongoing relationship: All parties should approach the process in a respectful and sensitive way that will assist in building long-term working relationships that survive the sometimes difficult negotiation process.

DISCLOSURE – SAMPLE LANGUAGE

Each city council member shall disclose both publicly and during closed sessions, the identity of any and all employee association representatives with whom the city council member has had any verbal, written, electronic or other communication(s) regarding a subject matter of a pending meet and confer process.

5 – Allow Time for Public Comment

Disclosing the MOU and making it subject to more than one (1) city council meeting provides the opportunity for the public to effectively weigh in on the matter. Factors to consider:

MOU negotiations should have time for public comment consistent with other ordinances: 1st and 2nd readings at City Council meetings is standard practice for normal ordinances, and this seeks to put labor negotiations under that standard.

Be sure to get the timing right: Cities must remain in compliance with AB 537 (Chapter 785, Statutes of 2013)3 which requires that if a tentative agreement is reached by the authorized representative of a City and a recognized bargaining unit, the city council must vote to accept or reject that agreement within thirty (30) days of 1st consideration at a noticed public meeting.

PUBLIC COMMENT – SAMPLE LANGUAGE

Any agreed upon memorandum of understanding shall be introduced for first reading at a regular city council meeting and presented for approval at the next regular city council meeting in the same manner as a the first and second reading of an ordinance.

REFERENCES

To read Assembly Bill No. 537 (Chapter 785, Statutes of 2013) please click the following link:  http://www.leginfo.ca.gov/pub/13-14/bill/asm/ab_0501-0550/ab_537_bill_20131013_chaptered.htm

ACKNOWLEDGEMENTS

These suggestions were originally crafted by a committee of experienced local elected officials, city staff and thought leaders through a policy committee at the Association of California Cities -Orange County.

 

 

It’s time for your community to create a municipal audit

The San Diego District Attorney last week charged John Collins with misuse of hundreds of thousands of dollars over several years as superintendent of Poway Unified School District.

The allegations would be shocking if they weren’t so common. In Placentia, Bell, Compton, Pasadena, Beaumont, and elsewhere, California cities have needlessly lost millions, and for a time, nobody knew. Accounting is boring. Until it isn’t. Just as the devil is in the details, the financial fate of public agencies is buried in the numbers.

Whether it’s via corruption or incompetence, without vigilant oversight, millions can be lost. Even in wealthy suburban cities with surplus funds, it’s still necessary to verify that internal controls are in place. In larger cities with limited funds and urgent needs for public services, it’s even more important. No matter what sort of city you live in, things can go terribly wrong.

If you’re a concerned citizen or an elected official charged with responsible management of your city’s finances, the annual audit can be extremely helpful. But instead of bringing in a CPA firm merely to verify the balances on your financial statements, you have an opportunity to do much more. Here are some ideas for getting the most out of your audit.

One recommendation, coming from Linda Lindholm, who served for fourteen years on the city council of Laguna Niguel and was mayor twice, is to change audit firms every five years. Let them know when they’re hired that it will be for a five year engagement. This policy helps ensure against the slight but very real possibility that an overly cozy relationship might develop between members of the city’s permanent staff, and the audit partners. A firm that is on a limited term of engagement will have far less motivation to smooth over bad news to keep the account.

Lindholm also recommended keeping an arms-length relationship with the auditors throughout the audit process. Once they’ve been given their instructions, as a matter of policy, council members should leave them alone until their report is completed. This prevents any elected official from attempting to influence the auditors.

So what more should a city have their auditors do, beyond just checking over the financial reports? To answer this we talked with several public accountants who have audited local agencies. Rich Kikuchi, a managing partner at LSA CPAs, makes the distinction between a “financial audit” and an “internal audit,” where the internal audit, or “watchdog audit,” represents this extra work. Other people we spoke with viewed this process as an extension of the normal audit. Some called it a “secondary audit.” Whatever it is called, here are a few of the specific things an elected official can instruct their auditors to add to their regular annual work:

  • Are funds being spent in compliance with the terms of the grants under which they were awarded?
  • Are what are the terms of capital improvement bonds, interest rate, payout timeline, use of funds?
  • Are there any irregularities in city investments?
  • Are the city’s employee payroll and benefits records consistent with what the city council authorized?
  • Are there always two signatures on all outgoing checks from the city?
  • Are all transfers in and out of the city’s bank accounts consistent with authorized city budgets?

Remember. Not boring. Millions of dollars of taxpayers money can be lost when questions like these aren’t proactively answered. In larger cities, hundreds of millions.

Depending on how much extra work auditors get assigned, the added costs to the CPA firm can add up. But often these additional fees are not significant when the work is performed at the same time as the auditors are on-site anyway to do their conventional audit. And of course if these auditors end up uncovering a significant problem in the course of this extra work, the savings realized by solving the problem could dwarf what it cost to get it discovered.

Another tip: When elected officials meet with the audit firm to identify and assign additional work, sometimes it makes sense to keep the additional assignments confidential. If a cover-up is occurring, there’s no benefit in announcing to staff where the extra scrutiny is going to fall.

California’s cities and counties face unprecedented financial challenges. The obvious one, mandatory payments to the pension systems that increase every year, is not going away. Other budget items that may have been neglected such as maintenance and upgrades of roads and other public works, eventually have to be faced, possibly at great cost. The last thing your city needs is to see money being wasted through misuse of funds. Especially when there is an annual opportunity to dig deep, expose the problem, and save that money.

References:

State Controller’s Office, Internal Control Guidelines for Local Agencies, 2015 (Betty Yee)
http://www.sco.ca.gov/Files-AUD/2015_internal_control_guidelines.pdf

“Watchdog Audit” Checklist – courtesy of LSA CPAs:

Public Safety
– Cash receipting/fee schedule
– Purchasing – ordering/receiving – approval
– Invoice approval
– Credit card use
– Budget monitoring
– Inventory control
– Fuel usage
– Fleet management
– Capital asset controls – purchasing/receiving/observation & inspection
– Payroll – timekeeping & review procedures
– Grant management (application, award, reporting, compliance, communication, G/L tracking)
– IT & systems analysis
– Revenue and expenditure accrual – period end reporting
– Cost allocations
– Customer complaints
– Other significant revenue sources

Community Development/Planning
– Inspections
– Permitting process and fee determination
– Revenue recognition & accounting for deposits
– Segregation of duties and supervision
– Use of City vehicles & fuel usage
– Cash receipting/fee schedule
– Purchasing – ordering/receiving/ – approval
– Invoice approval
– Credit card use
– Budget monitoring
– Capital asset controls – purchasing/receiving/observation & inspection
– Payroll – timekeeping & review procedures
– Grant management (application, award, reporting, compliance, communication, G/L tracking)
– IT & systems analysis
– Revenue and expenditure accrual — period end reporting
– Housing compliance and monitoring
– Review of any management companies used including controls, compliance, monitoring
– Child development program
– Cost allocations
– Customer complaints
– Other significant revenue sources

Parks & Recreation
– Cash receipting / fee schedule
– Revenue recognition & deposits accounting Class/event enrollment procedures
– Purchasing – ordering / receiving – approval Invoice approval
– Credit card use
– Credit card procedures & online payments Budget monitoring
– Inventory control
– Capital asset controls — purchasing/receiving/observation & inspection
– Payroll — timekeeping & review procedures
– Grant management (application, award, reporting, compliance, communication, G/L tracking) IT & systems analysis
– Revenue and expenditure accrual — period end reporting
– Use of City vehicles & fuel usage
– Cost allocations
– Customer complaints
– other significant revenue sources

Public Works
– Capital project controls
– Developer agreements
– Purchasing – ordering / receiving – approval
– Invoice approval Credit card use
– Budget monitoring
– Inventory control
– Land management
– Street management
– Cash flow
– Long-term expenditure planning and capital asset replacement/maintenance on major assets
– Fuel usage
– Fleet management
– Capital asset controls — purchasing/receiving/observation & inspection, fair value assessment/Developer contributed assets
– Payroll — timekeeping & review procedures
– Grant management (application, award, reporting, compliance, communication, G/L tracking)
– IT & systems analysis
– Revenue and expenditure accrual — period end reporting
– Segregation of duties and supervision
– Revenue recognition & accounting for deposits
– Cost allocations
– Customer complaints
– other significant revenue sources
– Debt compliance

Golf Course, Theatre (other enterprise activities managed by 3rd party)
– Management company compliance, report preparation & management fee verifications
– Fee schedule
– Cash receipting, revenue recognition (all revenue sources)
– Purchasing – ordering / receiving – approval
– Expenditure reporting
– Financial controls over accounting
– Cash & reconciliation procedures
– Financial period close & reporting
– Interim & monthly reporting
– Communication with the City
– City oversight
– Inventory control
– Capital asset controls — purchasing/receiving/observation & inspection
– Segregation of duties and supervision
– IT & systems analysis
– Credit card procedures
– City oversight
– Budget development and monitoring
– Debt/lease management
– Cost allocations Customer complaints
– other significant revenue sources

Water, Sewer, Electric Utilities
– If applicable -Management company compliance, report preparation & management fee
– Billing
– Fee schedule
– Capital project controls
– Long-term expenditure planning and capital asset replacement/maintenance on major assets
– Fuel usage
– Fleet management
– Capital asset controls — purchasing/receiving/observation & inspection, fair value assessment/Developer contributed assets
– Review of accounting operations
– Financial period close & reporting
– Interim & monthly reporting
– Communication with the City
– Inventory control
– Segregation of duties and supervision
– Budget development and monitoring
– Credit card procedures & online payments
– Credit card use
– Cash receipting, revenue recognition (all revenue sources)
– Cash receipting / fee schedule
– Purchasing – ordering / receiving – approval Invoice approval
– Fuel usage
– Fleet management
– Payroll — timekeeping & review procedures
– Grant management (application, award, reporting, compliance, communication, G/L tracking)
– IT & systems analysis
– Complex accounting — derivatives, swaps, futures, intangibles, etc.
– Cost allocations
– Customer complaints
– Debt compliance

Finance Department
– Payroll
– Purchasing / receiving
– Credit cards
– Travel
– IT & systems analysis — redundancy review
– Grant management
– Capital assets
– Inventories
– Journal entries
– Cash/transfers & bank account activity
– Wire transfers / EFT
– Debt management
– Long-term Cash flow & expenditure forecasting
– Cost allocations
– Customer complaints
– Billing for miscellaneous revenues
– Fraud management
– TOT/UUT/ business license/ other significant revenue sources
– Debt compliance

Governance
– Risk management
– Information & communication
– Credit card use
– Conflicts of interest
– Oversight of financial reporting & management override of controls Fraud hotline and Customer complaints

Transportation
– Management company compliance, report preparation & management fee verifications
– City oversight
– Communication with the City
– Cash receipting / fee schedule
– Purchasing – ordering / receiving – approval
– Invoice approval
– Credit card use
– Budget monitoring
– Inventory control
– Fuel usage
– Fleet management
– Capital asset controls — purchasing/receiving/observation & inspection
– Payroll — timekeeping & review procedures
– Grant management (application, award, reporting, compliance, communication, G/L tracking)
– IT & systems analysis
– Revenue and expenditure accrual — period end reporting
– Customer complaints
– other significant revenue sources

Internal service funds
– Allocation, classification
– Cost analysis

 

 

In Search of Heroes

California is not just any “blue state.” By many measures, California is a blue nation. It boasts the world’s sixth largest economy, isolated from the rest of the nation by mountains and deserts that were virtually impassable before modern times. It is blessed with diverse industries, abundant natural resources, and the most attractive weather in North America. California is nearly a nation unto itself.

And it is an occupied nation. California is ruled by a coalition of monopolistic businesses, public sector unions, and the environmentalist lobby. These Occupiers control a Democratic super-majority in the state legislature, as well as nearly all of California’s major cities, counties and school boards. To enrich and empower themselves, the Occupiers have oppressed California’s dwindling middle class and small business sectors, and condemned millions more to poverty and dependence.

For the average working family, no state in America is harder to live in than California. It has the highest cost-of-living, the highest taxes, the most onerous regulations, one of the worst systems of public education, congested freeways and failing infrastructure.  It will take heroic efforts to turn this around. And heroic efforts require heroes.

In the face of this overwhelming power, this alliance of oligarchs and government bureaucrats that has conned voters into embracing their servitude, where do you begin? What steps can you take? How do you rescue education, cut taxes, encourage new homes and new infrastructure, and save small businesses from crippling regulations?

As it turns out, a lot has been done in select locales, where heroes stepped up and successfully fought for reforms. And if those reforms could be replicated in other cities and counties, things would begin to change. To borrow a quote from Winston Churchill, if small local reforms began to spread across this great state, it would “not be the beginning of the end, but it would be the end of the beginning.” Here are some examples:

(1) Turning failing schools into charter schools:

As recently reported by CPC general counsel Craig Alexander, in 2015 parents at the Palm Lane Elementary School of the Anaheim City School District turned in far more signatures than needed under the Parent Trigger Law. The goal of the law and the parents at Palm Lane was to convert a public school that had failed their children for over a decade into a charter school. But the district, as a pretext to denying the Parent’s Petitions, improperly disallowed many signatures. It took a few years for parent volunteers and pro-bono attorneys, all of them heroically volunteering their time, to fight in court. But on Friday, April 28, 2017, the Court of Appeals issued a 34-page opinion that upheld in full the trial court’s ruling in favor of the parents and against the Anaheim Elementary School District. The Appeals Court found the trial court’s initial ruling, including the court’s findings of the bad faith tactics of the district, was correct in all aspects. Palm Lane Elementary school will start the 2017-2018 school year as a charter school.

(2) Stopping secret negotiations between cities and counties and public sector unions:

It wasn’t easy, but a few years ago, heroic progress was made. Orange County, Costa Mesa, and Fullerton all adopted so called “COIN” ordinances. COIN stands for “civic openness in negotiations.” This prevented elected officials from approving sweetheart deals with the government unions whose campaign contributions got them elected, all behind closed doors with minimal opportunities for public review. And to explain what happened next, one may borrow a quote from Tolkien: “Sauron’s [the Occupiers] wrath will be terrible, his retribution swift.” California’s union-controlled legislature passed a law they termed “CRONEY” (Civic Reporting Openness in Negotiations Efficiency Act), which mandates government agencies with COIN ordinances make public all negotiations with private vendors involving contracts over $250,000. There’s no comparison, of course. Private vendors disclose proprietary cost information in negotiations, and public entities are already required to take multiple bids in a competitive process. By contrast, public sector compensation, benefits and work rules are by definition not proprietary, they are public. And public sector unions, regrettably, have no competitors.

(3) Reforming financially unsustainable pension benefits:

If someone told you that they were going to invest their money, but if that money didn’t earn enough interest, they were going to take your money to make up the difference, would you think that was fair? Of course not. But that’s how a couple of million unionized public sector workers are treating the rest of us. California’s annual pension costs have risen from 3% of all state and local government revenue (i.e., “taxes”) to nearly 10% today, and there is no end in sight. But heroes are out there. In June 2012 voters in San Diego and San Jose passed pension reform initiatives. In both cases, to borrow some Star Wars terminology, “The Empire [The Occupiers] Strikes Back.” After relentless attacks in court, San Diego’s reforms were left largely intact, and San Jose’s were severely undermined, although some important provisions were preserved.

The people who fought for these reforms are too numerous to mention. They are all heroes. Some of them, like San Jose mayor Chuck Reed, San Diego councilmember Carl DeMaio, Costa Mesa mayor Jim Righeimer, and California state senator Gloria Romero, were elected officials whose courage has earned them the permanent enmity of the Occupiers. Other heroes, far more numerous, were the citizens, parents, and activists who dedicated countless hours to these causes.

Turning California back into a place where ordinary citizens can afford homes and get quality public education is not going to be easy. But there is no chance unless heroic individuals band together and fight the Occupiers, one issue at a time, one city at a time, one school district at a time.

Over the next several months, the California Policy Center intends to find more examples of heroic local reforms. It is our intention to not only compile these stories, but for each of them, distill them to the essential steps that were taken, so that these winning formulas can serve as an example to others.

We are in search of heroes. Contact us. Tell us your story.

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Ed Ring can be reached at ed@calpolicycenter.org.