Reforming Binding Arbitration

The City of San Jose was a pioneer in reforming their rules governing binding arbitration, rules that may seem obscure and complex to the uninitiated, but which have profound consequences. Until the San Jose city council put arbitration reform on the ballot in 2010, unelected arbitrators could end labor negotiations with decisions that were devastating the city’s finances.

In 2007, an outside arbitrator granted a pension increase to firefighters, extending a process of granting financially reckless concessions. Between 2000 and 2010, the city’s payments for retirement benefits tripled, while at the same time budget cuts forced a 20% reduction in overall city employees.

A 2009-2010 Santa Clara County Grand Jury report entitled “Cities Must Rein In Unsustainable Employee Costs,” concluded the arbitration process in San Jose “has resulted in wage and benefit decisions that have been greater than the growth in basic revenues sources.

For these reasons, in 2010 the San Jose City Council placed a measure onto the November ballot designed to reform the arbitration process. The measure, which voters approved by a margin of 66% to 34%, among other things, placed important limitations on what an arbitrator could do. Crucially, by reforming the arbitration process, it was no longer possible during negotiations for the unions representing city employees to coerce the city into accepting a bad deal because the arbitration process would likely result in an even worse deal. Here are highlights:

1 – If the two sides cannot agree on the neutral arbitrator, then either party may request the Santa Clara County Superior Court to appoint a retired Superior Court judge as the neutral arbitrator. Previously the third appointed arbitrator, the tie-breaker, would come from a from a list provided by the State of California Conciliation and Mediation Service.

2 – Arbitration hearings would be open to the public and documents submitted would be public records, unless provided otherwise by law.

3 – The city’s “ability to pay for employee compensation from on-going revenues without reducing City services” would become the primary factor that the Arbitration Board must consider when making a decision.

4 – Specific criteria was added to give weight to the obligation of an arbitration board to consider how their decision would impact the financial condition of the city. For example, the arbitration board could not approve a new deal that would:

  • increase the projected cost of compensation at a rate that is more than the 5-year average increase for sales tax, property tax, utility tax, and telephone tax,
  • retroactively increase or decrease compensation (other than base wages) for service already rendered,
  • create a new unfunded liability for the City, or,
  • interfere with the discretion of the Police or Fire chiefs to make operational or staffing decisions.

Critical to the success of San Jose’s arbitration reform was the support from a bipartisan coalition of city council members, lead by Mayor Chuck Reed, along with influential members of the community including the president of the San Jose Silicon Valley Chamber of Commerce, a local School District Superintendent, the president of the Santa Clara County Taxpayers Association, and small business owners.

ARBITRATION REFORM – SAMPLE LANGUAGE

EXHIBIT A TO RESOLUTION NO. ____
OF THE CITY OF SAN JOSE

That Section 1111 of the City Charter be amended to read as follows:

SECTION 1111. Compulsory Arbitration for Fire and Police Department Employee Disputes.

(a) It is hereby declared to be the policy of the City of San Jose that strikes by firefighting and peace officers are unlawful in the state of California and not in the public interest and should be prohibited, and that a method should be adopted for peacefully and equitably resolving disputes that might otherwise lead to such strikes.

If any firefighter or peace officer employed by the City of San Jose willfully engages in a strike against the City, said employee shall be dismissed from his or her employment and may not be reinstated or returned to City employment except as a new employee. No officer, board, council or commission shall have the power to grant amnesty to any employee charged with engaging in a strike against the City.

(b) The City, through its duly authorized representatives, shall negotiate in good faith with the recognized fire and police department employee organizations on all matters relating to the wages, hours, and other terms and conditions of City employment, including the establishment of procedures for the resolution of grievances submitted by either employee organization over the interpretation or application of any negotiated agreement including a provision for binding arbitration of those grievances. Unless and until agreement is reached through negotiations between the City and the recognized employee organization for the fire or police department or a determination is made through the arbitration procedure hereinafter provided, no existing benefit or condition of employment for the members of the fire department or police department bargaining unit shall be eliminated or changed.

(c) All disputes or controversies pertaining to wages, hours, or terms and conditions of employment which remain unresolved after good faith negotiations between the City and either the fire or police department employee organization shall be submitted to a three-member Board of Arbitrators upon the declaration of an impasse by the City or by the recognized employee organization involved in the dispute. All issues concerning the scope of the Arbitration Board’s authority, jurisdiction or powers shall, upon the request of either party, be resolved by petition to the Superior Court.

(d) Representatives designated by the City and representatives of the recognized employee organization involved in the dispute, controversy or grievance shall each select one arbitrator to the Board of Arbitrators within three (3) days after either party has notified the other, in writing, that it desires to proceed to arbitration. The third member of the Arbitration Board shall be selected by agreement between the two arbitrators selected by the City and the employee organization, and shall serve as the neutral arbitrator and Chairman of the Board. In the event that the arbitrators selected by the City and the employee organization cannot agree upon the selection of the third arbitrator within ten (10) days from the date that either party has notified the other that it has declared an impasse, then either party may request the Superior Court of the County of Santa Clara to appoint an arbitrator who shall be a retired judge of the Superior Court.

Any arbitration convened pursuant to this section shall be conducted in conformance with, subject to, and governed by Title 9 of Part 3 of the California Code of Civil Procedure to the extent that such procedures do not conflict with this Charter Section. Unless otherwise mandated by state or federal law, all arbitration hearings shall be open to the public and all documents submitted in arbitration shall be public records. Notwithstanding any other provision of this Charter to the contrary, the authority, jurisdiction and powers of the Board of Arbitrators are limited by the provisions of this Section.

(e) At the conclusion of the arbitration hearings, the Arbitration Board shall direct each of the parties to submit, within such time limit as the Board may establish, a last offer of settlement on each of the issues in dispute. The Arbitration Board shall decide each issue by majority vote by selecting whichever last offer of settlement on that issue it finds by the preponderance of the evidence submitted to the Arbitration Board satisfies section (f) below, is in the best interest and promotes the welfare of the public, and most nearly conforms with those factors traditionally taken into consideration in the determination of wages, hours, and other terms and conditions of public and private employment, including, but not limited to, changes in the average consumer price index for goods and services, the wages, hours, and other terms and conditions of employment of other employees performing similar services, and the financial condition of the City and its ability to meet the cost of the award.

(f) In all arbitration proceedings conducted pursuant to this section, the primary factors in decisions regarding compensation shall be the City’s financial condition and, in addition, its ability to pay for employee compensation from on-going revenues without reducing City services. No arbitration award may be issued unless a majority of the Arbitration Board determines, based upon a fair and thorough review of the City’s financial condition and a cost analysis of the parties’ last offers, that the City can meet the cost of the award from on-going revenues without reducing City services. The arbitrators shall also consider and give substantial weight to the rate of increase or decrease of compensation approved by the City Council for other bargaining units.

“Compensation” shall mean all costs to the City, whether new or ongoing, for salary paid and benefits provided to employees, including but not limited to wages, special pay, premium pay, incentive pay, pension, retiree medical coverage, employee medical and dental coverage, other insurance provided by the City, vacation, holidays, and other paid time off.

(g) Additionally, the Board of Arbitrators shall not render a decision, or issue an award, that:

1. increases the projected cost of compensation for the bargaining units at a rate that exceeds the rate of increase in revenues from the sales tax, property tax, utility tax and telephone tax averaged over the prior five fiscal years; or

2. retroactively increases or decreases compensation, including, but not limited to, enhancements to pension and retiree health benefit for service already rendered, but excluding base wages; or

3. creates a new or additional unfunded liability for which the City would be obligated to pay; or

4. deprives or interferes with the discretion of the Police Chief or Fire Chief to make managerial, operational or staffing decisions, rules, orders and policies in the interest of the effective and efficient provision of police and fire services to the public.

(h) Compliance with the provisions of this Section shall be mandatory and enforceable pursuant to section 1085 of the Code of Civil Procedure; failure to comply with these provisions shall also constitute an act in excess of jurisdiction.

(i) After reaching a decision, the Arbitration Board shall mail or otherwise deliver a true copy of its decision to the parties. The decision of the Arbitration Board shall not be publicly disclosed and shall not be binding until ten (10) days after it is delivered to the parties. During that ten-day period the parties may meet privately, attempt to resolve their differences, and by mutual agreement amend or modify any of the decisions of the Arbitration Board. At the conclusion of the ten-day period, which may be extended by mutual agreement between the parties, the decision of the Arbitration Board together with any amendments or modifications agreed to by the parties shall be publicly disclosed and shall be binding upon the parties. The City and the recognized employee organization shall take whatever action is necessary to carry out and effectuate the award.

(j) The expenses of any arbitration convened pursuant to this section, including the fee for the services of the Chairman of the Arbitration Board, shall be borne equally by the parties. All other expenses which the parties may incur individually are to be borne by the party incurring such expenses.

(k) This Section shall be effective immediately upon passage by the voters, and shall apply to any arbitration in which hearings commence after November 2, 2010.
Council Agenda: 8-3-10

(l) The voters declare that the provisions of this Section are not severable, and none would have been enacted without the others. Should any portion of this Section 1111 be enjoined or declared invalid, all provisions shall be deemed invalid and inoperative and there shall be no compulsory arbitration for fire and police department employee disputes.

REFERENCES

Ballotpedia – San Jose Repeal of Binding Arbitration, Measure V (November 2010)
https://ballotpedia.org/San_Jose_Repeal_of_Binding_Arbitration,_Measure_V_(November_2010)

City of San Jose (via Wayback Machine) – San Jose Repeal of Binding Arbitration, full text of original council resolution
https://web.archive.org/web/20120729115037/http://www.sanjoseca.gov/clerk/elections/2010Election/novembermeasures/arbitrators.pdf

City of San Jose (via Wayback Machine) – Informational summary of Ballot Measure V
https://web.archive.org/web/20161222144644/http://www3.sanjoseca.gov/pdf/BallotMeasureVFactSheet.pdf

City of San Jose (via Wayback Machine) – Impartial analysis of Measure V by City Attorney
https://web.archive.org/web/20101011225511/http://www.sanjoseca.gov:80/clerk/elections/2010Election/novembermeasures/caoiameasurev.pdf

California Policy Center – average pension for post 2000 retiree from San Jose police or fire is $130,000 per year (ref. Table 4-B)
http://californiapolicycenter.org/what-is-the-average-pension-for-a-retired-government-worker-in-california/

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.

 

 

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