An Interest Arbitration Hearing: Background: Dry Gulch is a small community of almost 14,000 peo- ple. The City has 67 employees who are divided into three groups. The Public Servants Union (PSU) Local represents 35 employees in a variety of jobs. A second group of 15 employees are not represented by a union. The third group of employees consists of 17 commis- sioned law enforcement officers through the rank of sergeant, represented by the Western Police Officers Association. Dry Gulch pays a neighboring town for professional firefighting services. The Western Police Officers Association (the Association) and the City of Dry Gulch (the City) did not agree on all of the terms of a new collective bargaining agreement, despite the assistance of a state mediator. Consequently, the parties submitted two items in dispute to conventional interest arbitration as specified in state law. Duration of the Contract: The first unresolved certified issue relates to Article 2 (Term of the Agreement). The City proposes a two- year contact. The Association seeks the status quo of a three-year contract. Position of the City on Article 2: The City argues that a two year contract will enable it to work with greater efficiently. A two-year contract term will enable the City to bargain with all employees in one year rather than bargain with the PSU local one year and the Association a different year. The City pre- fers to negotiate with all unions under the same cir- cumstances and the same economic environment. The second reason the City requests a two year contact is because the current health care plan (Plan A) will no longer be offered by the local Health Main- tenance Organization (HMO) two years from now. The discontinuation of Plan A was announced early by the HMO. This was so that parties with collective bargain- ing agreements would have a chance to negotiate a new health care provision consistent with the new coverage (Plan B) offered by the HMO prior to the date of the transition. The parties have already agreed to switch to Plan B coverage at the appropriate time. The City argues that with the anticipated change in health care coverage it is important to the City to bargain with both union groups at the same time to insure consis- tent contract language in the new collective bargaining agreements. Position of the Association on Article 2: First, given the amount of time that has elapsed since the expiration of the contract, a two-year contract would actually be several months shorter than two years. Second, the last four contracts have all been three-year agreements. If one side wants to change the status quo, that side bears the burden of convincing the arbitrator, and the City has not met such a burden. The PSU group has no relevance to the Associations negotiations: the issues that relate to the two bargaining groups are different because they are in different types of jobs, and PSU is never a party to the Associations interest arbitration. The Association further argues there is sufficient time for the parties to bargain on issues related to the change in health care plans. Wages: The second unresolved issue concerns Article 13 (Wages). The City proposes a 2 percent increase for YEAR 1 and a 1.6 percent increase for YEAR 2. The Association proposes a three (3) year contact with a 3.0 percent increase in YEAR 1, a 3.5 percent increase in YEAR 2, and a 4.0 percent increase in YEAR 3. Position of the City on Article 13: The City notes that in the early part of the last decade the City experienced significant growth. However, in 2008 the great recession hit the community: two major employers had massive layoffs, construction came to a halt and the population declined by 11 per- cent. After the recession began, property tax- based-assessed valuation dropped almost 30 percent. This reduced property tax income for the city govern- ment. Meanwhile, sales tax revenue from retail sales also dropped significantly. Ever since 2008, the Citys expenses have outpaced revenue and the City is now facing a structural deficit. The City is recovering from Position of the City on Article 13: The City notes that in the early part of the last decade the City experienced significant growth. However, in 2008 the great recession hit the community: two major employers had massive layoffs, construction came to a halt and the population declined by 11 per- cent. After the recession began, property tax- based-assessed valuation dropped almost 30 percent. This reduced property tax income for the city govern- ment. Meanwhile, sales tax revenue from retail sales also dropped significantly. Ever since 2008, the Citys expenses have outpaced revenue and the City is now facing a structural deficit. The City is recovering from the recession but has not fully recovered. The City asks the Arbitrator to consider these economic realities in assessing the wage proposals of the parties. The City also offers data on sales tax and the Citys relative ability to receive revenue from sales tax. The evidence shows that the City is last among its list of nine comparable cities in terms of sales tax generation capabilities and next-to-last for property tax revenue. For comparable cities, the City uses those within the state that are within a band of approximately 25 percent smaller to 25 per- cent larger in population10,000 to 18,000 people. The City argues that over the past decade, officer wage increases have exceeded the rate of inflation. Asso- ciation members have earned 14.1 percent more with their Collective Bargaining Agreement (CBA) increases than what they would have earned if their wage increases were equal to the Consumer Price Index for Urban Consumers (CPI-U; details about the CPI-U at http://www.cpi-u.info/What-Is-CPI-U.aspx). Under the CBA the actual increase for a Top Pay-Step Officers Base Wage was $5,924.00 last year. However, if the CPI-U had been used during this period the officer would have increased by only $5,192.00. The generosity of the City has been rewarded with low turnover. The City has not had difficulty with retention and recruitment of police officers. Turnover data indicate that over the past decade there have been almost no voluntary departures from the Dry Gulch Police Department. Those officers who have left have done so for reasons unrelated to wages and benefits. These facts are undisputed. The City argues that its proposed wage increase of 2 percent increase (YEAR 1) and 1.6 percent (YEAR 2) constitutes a cost of living adjustment that exceeds what has been given to nonrepresented employees and even the PSU local. Of the three employee groups in the City, Asso- ciation members have had the largest overall wage increases over the last decade. The City hopes that the Arbitrator agrees that the City has already been generous with the police officers, and simply cannot afford to acqui- esce to the Associations demands. Further, interest arbi- tration is not a forum where a union should obtain results that are not obtainable through robust good faith bargain- ing. Thus, the City urges the arbitrator to issue a ruling that is closely aligned with the Citys offer. Position of the Association on Article 13: The Association argues that the Citys financial problems have been exaggerated and introduces into evidence: (1) anEmployee Newsletter from last May, (2) three news releases from the past year, (3) a tran- script of last months City Council meeting where City revenues were discussed, and (4) a City website print- out regarding revenue and expenses. All of these exhi- bits indicate that the city is on the road to recovery from the recession and is financially stable. The Association argues that an interest arbitrator should consider the parties bargaining history. The City bargained for the current contract after arguing that there was a recession, the City had financial pro- blems, and the Mayor informed Association members that he was going to disband the police department or privatize it. Consequently, the Association agreed to a contract with low wages. There was a wage freeze three years ago, and only a one (1) percent raise each year subsequently. In this contract the Association made insurance concessions by agreeing to pay more of the insurance costs. This contract was signed three years ago and six months later, when running for re- election, the Mayor proclaimed that the City finances were in the black. Now, the Mayor is saying in inter- views that the City is back from the brink, and on solid financial footing. The City also added another police officer last year. It seems that the City only claims poverty when negotiating labor contracts. However, during the term of the current CBA, three years ago, while Association members received no wage increase, inflation increased 2.86 percent. Last year, inflation increased another 2.31 percent while Association members received a 1 percent raise. This year, inflation increased again by 2.50 percent while Association members received another 1 percent wage increase. According to the Citys own inflation index, Association pay increases fell behind inflation by 5.67 percent during period of the contract. The City and the Association do not agree completely on a list of comparable cities. Using the Citys list we see that if Association members are given a 2 percent wage increase for the first year of the new contract, they will be 2.2 percent below the average wage of the Citys set of comparators. Without the 2 percent wage increase Association members are behind the Citys external comparators by 4.4 percent for the first year. However, we believe that the Citys population band is too narrow and we have used a range of cities within a population band of 50 percent to 150 percent the size of Dry Gulch: 7,000 to 21,000. If we use the Associations set of comparable cities, we see that Association employees are 5.1 percent behind the Associations set of comparators. Regardless of which list is used, a 2 percent raise is grossly inadequate. A 3 percent increase is a minimum first step to begin to close the gap. In our proposal, we have purposely deferred larger wage increases to later years when the City is fully healthy, financially, so that the City can afford to give police officers larger increases to fully close the pay gap with similar cities. Factors to be considered by the arbitrator, as specified in state law: (1) In making its determination, the arbitrator shall be mindful of the legislative purpose of the law, namely, there exists a public policy in the state against strikes by uniformed personnel as a means of settling their labor disputes; that the uninterrupted and dedicated service of such employees is vital to the welfare and public safety of the state; that to promote such dedicated and uninter- rupted public service, strikes shall not be allowed; rather, there should exist an effective and adequate alternative means of settling disputes, namely interest arbitration. As additional standards or guidelines to aid the arbitrator in reaching a decision, he/she shall consider: (1.a.) The constitutional and statutory authority of the employer [Note: The constitutional and statutory authority of the City was not an issue in these proceedings]; (1.b.) Stipulations and agreements of the parties [Note: Other than agreeing that all evidence would be public, there were no stipulations or agreements for these proceedings]; (1.c.) The average consumer prices for goods and services, commonly known as the cost of living [Note: The parties agreed that the Consumer Price Index (CPI-U) for the state rose, on average, 2.7 percent between 20032008, rose only 0.68 percent during the 20092010 recession, and has risen, on average, 2.65 percent since 2011]; and (1.d.) Other factors, not confined to the factors under (a) through (c) of this subsection, that are normally or traditionally taken into consideration in the determination of wages, hours, and conditions of employment. [Note: The arbitrator observed that the other factors are not specifically named in the law. However, such factors traditionally include: (1) the ability to pay, (2) bargaining history of the parties, and (3) retention and recruitment of personnel.] (2) Comparison of wages, hours, and conditions of employment of personnel involved in the proceedings with the wages, hours, and conditions of employment of like personnel of like government employers of similar size in the western United States. Questions: 4. If you were a Conventional Interest Arbitrator, how would you rule on the wage issue? Explain your rationale. 5. If you were a Final-Offer Interest Arbitrator, and you could only pick one sides package of proposals, which side would you pick? Why? 6. Suppose you were asked to mediate this dispute. What would you do, procedurally? What would you suggest regarding the issues? How would you motivate the parties to settle?