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IA-01-02
 
IN THE MATTER OF THE INTEREST ARBITRATION BETWEEN: NEWPORT POLICE ASSOCIATION and CITY OF NEWPORT. IA-01-02.
 
INTRODUCTION
This matter came before the arbitrator pursuant to ORS 243.746 and administrative rules promulgated thereunder. The parties´ three-year collective bargaining agreement expired June 30, 2001. The bargaining unit involved is a 20-member group of police officers, including some clerical employees. They are employed by the City of Newport, which has a population of 9,660. The case was considered submitted based on the evidence presented at the hearing and post-hearing briefs that were received on June 20, 2002.
 
ISSUES
The parties reached agreement on all provisions to be included in their successor agreement except wages and the implementation date of certification pay.
 
The City´s last best offer was a three-percent wage increase, an additional step to the pay matrix and certification pay increases of $20 per month for intermediate certification and $40 per month for advanced certification effective July 1, 2001. Effective July1, 2002, the City offered a three and one-half percent increase in wages. The City´s third year offer, effective July 1, 2003, was a minimum wage increase of two-percent up to a maximum increase of four-percent depending on the March-March Consumer Price Index for Wage Earners.
 
The Association´s last best offer was a four-percent wage increase and an additional step to the pay matrix effective July 1, 2001. Effective July 1, 2002, the Association offered a four-percent wage increase and an increase in certification pay of $20 and $40 per month, to become effective on the date of this award. Effective July 1, 2003, the Association proposed a four-percent increase in pay.
 
The difference between the two last best offers of the parties can be depicted graphically as follows:
 
CITY
 
EFFECTIVE 7/1/01
 
3%
 
Added step 7
 
Increased Cert. Pay
 
EFFECTIVE 7/1/02
 
3.5%
 
EFFECTIVE 7/1/03
 
2% min., 4% max, Depending CPI-W
 
ASSOCIATION
 
EFFECTIVE 7/1/01
 
4%
 
Added step 7
 
EFFECTIVE 7/1/02
 
4%
 
Increased Cert. Pay (date of award)
 
EFFECTIVE 7/1/03
 
4%
 
While certification pay was mentioned as one of the unresolved issues, the only dispute was over the date it was to be implemented. The parties agreed that the increase would be to $80 per month for BPST intermediate certification and $160 per month for BPST advanced certification. The primary focus of the parties´ evidence and argument was upon the wage issue.
 
APPLICABLE STATUTORY PROVISIONS, ORS 243.746
***
(4) Where there is no agreement between the parties, or where there is an agreement but the parties have begun negotiations or discussions looking to a new agreement or amendment of the existing agreement, unresolved mandatory subjects submitted to the arbitrator in the parties´ last best offer packages shall be decided by the arbitrator. Arbitrators shall base their findings and opinions on these criteria giving first priority to paragraph (a) of this subsection and secondary priority to subsections (b) to (h) of this subsection as follows:
 
(a) The interest and welfare of the public.
 
(b) The reasonable financial ability of the unit of government to meet the costs of the proposed contract giving due consideration and weight to the other services, provided by, and other priorities of, the unit of government as determined by the governing body. A reasonable operating reserve against future contingencies, which does not include funds in contemplation of settlement of the labor dispute, shall not be considered as available toward settlement.
 
(c) The ability of the unit of government to attract and retain qualified personnel at the wage and benefit levels provided.
 
(d) The overall compensation presently received by employees, including direct wage compensation, vacations, holidays and other paid excused time, pensions, insurance, benefits, and all other direct or indirect monetary benefits received.
 
(e) Comparison of the overall compensation of other employees performing similar services with the same or other employees in comparable communities. As used in this paragraph, "comparable" is limited to communities of the same or nearest population range within Oregon. . . .
***
 
(f) The CPI-All Cities Index, commonly known as the cost of living.
 
(g) The stipulations of the parties.
 
(h) Such other factors, consistent with paragraphs (a) to (g) of this subsection as are traditionally taken into consideration in the determination of wages, hours and other terms and conditions of employment. However, the arbitrator shall not use such other factors, if in the judgment of the arbitrator, the factors in paragraphs (a) to (g) of this subsection provided sufficient evidence for an award.
 
SUMMARY OF CITY´S ARGUMENT
The City contends that most arbitrators use the secondary criteria listed in ORS 243.746 (4) (b) to make a determination of what is in the interest and welfare of the public, since no guidance was provided by the legislature as to the meaning of "the interest and welfare of the public," the primary criterion mandated in subsection (4) (a). The interest and welfare criterion is to be viewed in conjunction with the secondary criteria.
 
The City, in looking at the secondary criteria, does not claim an absolute inability to pay, but rather a relative inability. Expenditures have exceeded revenues the last five years causing the City to use reserves to offset the difference. Revenue has grown 3.7 % annually, but expenditures have grown 5.9 % over the same period. That trend is expected to continue. In the early nineties the City´s property tax revenues increased 10 to 18 percent. Because of the property tax limitation measures that were passed, the revenue picture changed. The City is collecting tax revenue below the three percent permitted.
 
While the one-percent difference in the last best offers for the first year of the contract may seem insignificant, when compounded over a longer time the impact is significant. It is in the public interest and welfare that the City pay attention to its funding of services and the level at which those services will be provided.
 
Although nine bargaining unit employees, seven of whom were police officers, left City employment during the last contract term, there has not been a recruiting problem. The City´s proposal addresses the problem of losing senior employees. Even though the pool of applicants for police officer positions has dropped over the last few years, it still provides qualified candidates for vacancies. Wage and benefit levels are not the only factors that affect the size of the applicant pool.
 
As to retention of employees, one cannot attribute reasons for staying or leaving City employment solely to money. Decisions to stay or leave are influenced by many factors other than monetary ones. Newport will never be able to compete with large jurisdictions in wage and benefit packages. Those employees who recently left the City did so for a variety of reasons. Since there are enough applicants in the pool to fill vacancies that are created by the departure of senior officers, the City decided that adding a step to the pay schedule and increasing certification pay would provide an incentive for senior officers to remain with the City. It was the senior officers the proposal targeted because the City determined that it is in the interest and welfare of the public to retain those senior officers. Retention over recruitment was the emphasis in the City´s offer.
 
The overall compensation for wages and benefits provided by the City to its employees represents a substantial investment. It is in the public interest and welfare to provide employees with financial security and to provide types of contract benefits that are provided by other police departments to reduce turnover.
 
Since the 1995 amendment to the statute, ORS 243.746 (4) (e) defines comparable as "communities of the same or nearest population range within Oregon." The change in the law caused a variety of interpretations on the appropriate comparators. The City´s choice of comparators is based upon the premise that the statute means what it says in plain English, i.e., the comparators must be in the same or nearest population range of Newport. The change in the law was meant to stop unions from making the comparison of lower wage urban communities to urban higher wage communities and the similar comparisons of rural to urban communities. The only factor to be considered in selecting comparable Oregon communities is population, not geography, not similarity of function, not whether rural or urban. The legislature defined "comparable communities" by relying on "population range" as the sole basis for comparability. The City comparators are based upon population in a range that meets statutory requirements: the three cities just above the population of Newport and the three just below it.
 
The Association comparisons should not be given any weight. The statutory criterion gives the parties a choice of the same population or the nearest population range; there is no requirement for the magnitude of the spread of the range. However, "nearest" is a word defined by the relationship of the selected object (Newport) to the series it is a part of. Any series that gives a spread can only be the "nearest" if no other closer series is offered as a comparison. In the instant case, the Association comparators cannot be in the "nearest" range since the City has offered a range that is closer to the selected object (Newport). The Association´s comparators do not meet the statutory criterion by the City´s analysis.
 
Only the City´s exhibits should be used to determine comparability. The City´s comparisons show that Newport is slightly behind the average top step for the comparators selected, as corrected in its brief. However, a wage difference of plus or minus five percent is acceptable in many jurisdictions. There is no statutory guidance that defines the market or that indicates how much of a deviation from the average is permitted.
 
The City´s comparisons incorporate its last best offer of a three-percent wage increase, the certificate increase and an additional step. In none of the Association´s comparisons is the City´s offer included. Such omission flaws the Association´s presentation by magnifying the difference. Using the Association comparators shown in it´s exhibits, if the City´s last best offer is included, the difference between the average of the comparator jurisdictions and Newport is reduced significantly to less than five percent in one and less than two percent in the other.
 
When using the City´s traditional comparators, i.e., costal cities, and the data from the 1999-2000 contract year, senior officer pay is slightly lower than the average, but the entry level is above the average. After applying a three-percent increase and the additional step, both pay levels are above the average for the 2000-2001 contract year.
 
Using the statutory comparators, the City is below the average at both the minimum and maximum for both years. Including certificate pay reduced the lag for senior officers by 2.89%. Increasing senior officer pay was the City´s goal.
 
The Consumer Price Index is not a factor in either proposal. Both offers exceed the CPI-U current index. No weight should be given to that data in evaluating the statutory factors.
 
In addition to the statutory comparators of nearest population range, the City utilized other factors that are traditionally used in bargaining. Not everyone can live in the climatic conditions of the coast. It is in the interest and welfare of the public to recruit people who can live on the coast.
 
SUMMARY OF ASSOCIATION´S ARGUMENT
The Association´s contention, regarding statutory guidance to determine the interest and welfare of the public, is in agreement with the City: there are no criteria per se and arbitrators have not been unanimous in their view. Recently some arbitrators have held that by assuring good morale through a fair wage that is within the ability of the employer to pay, will satisfy the interest and welfare of the public. Competitive wages satisfy the criterion unless such imposition would cause unreasonable financial obligations.
 
The last best offers of the parties are similar. Both include an additional step to the salary schedule, but that is not enough to close the gap between Newport and comparator jurisdictions. The additional step will not affect less senior employees for several years. Most of the comparisons used by the parties show Newport officers at the lower end of the schedule fare worse against the comparator jurisdictions. Over half of the employees are below the top step. Also the comparisons show Newport officers at the new top step will remain behind the comparator jurisdictions even if the City´s last offer is selected.
 
The Association offer will cost an extra 1.5 % over the first two years. The offer of the Association making certification pay effective at least a year later than the City´s proposal will save some of the extra cost of the Association´s offer. The City can afford the extra cost and it will be more effective in attracting and retaining qualified employees.
 
The City stipulated that it has the ability to pay the Association´s last best offer. The difference between the two proposals over the three-year term of the contract will be $27, 264 at the most and could be as low as $8,496. The difference will not be a material factor in the City´s future financial health. The City has the money to expand the cost of other services. While there may be problems with insurance rates and PERS, such problems will be minimally affected by the choice of which last offer to select.
 
The ability of the employer to attract and retain qualified personnel at the wage and benefit levels provided and the comparability studies both parties used illustrate why the Association´s last best offer is more aligned with the interest and welfare of the public. The City has been losing police officers to other jurisdictions with increasing frequency in the last few years. While some officers have gone to much larger jurisdictions that are not in the statutory range of comparability, they would not have looked elsewhere had their salaries been sufficient. The nearby Toledo Police Department, which is much smaller than Newport, and other departments in Lincoln County no longer consider Newport as a step up in the profession even though it is larger and would provide more interesting police work.
 
Of the five groups of comparator jurisdictions offered in this case, only one, the City´s "traditional" group shows the City ahead of its comparators assuming implementation of the City´s offer. The other four comparisons show Newport behind comparator jurisdictions, even with implementation of the City´s offer.
 
As used in ORS 243.746 (4), "comparable" means the same or nearest population range within Oregon. From the beginning, however, arbitrators have recognized that in addition to the consideration of population, geography may be used as a limiting criteria in chosing comparator jurisdictions. The Association pared down its number of comparators in the population ranges it chose by using geography and then assessed valuation. The comparators are within an approximate range of 100 miles. Those jurisdictions having at least half of Newport´s assessed valuation were used.
 
Newport police officers are far behind the comparator jurisdictions used by the Association under its methodology, even when an adjustment is made for the improper PERS pick-up inclusion to one of the comparators. Newport officers are behind the adjusted average of the group at the entry level by 10.97 %, at the entry level by 14.90 % at three years, by 12.13 % at five years and by 13.31 % at ten years. Even with the certification pay increase, officers will be behind the average in certification pay. Newport´s lack of education or longevity pay places it at a disadvantage to half the jurisdictions.
 
The group of comparators that shows the City ahead of its comparators is the City´s traditional group, which is made up of coastal communities. One arbitrator held that such restriction is contrary to the statute. The statute´s emphasis is on population and is not served by the City´s traditional group. Two of the comparators in the traditional group have populations less than half of Newport. The City´s adherence to population in its "3 up and 3 down" group is contrary to arbitration authority supporting the use of geography as a limiting factor because the group contains Baker City, which is located in the eastern part of Oregon.
 
All three lists used by the City show that among officers with minimum pay, Newport officers fare worse against comparator jurisdictions than officers with maximum pay. That is why the additional step is not enough to attract and retain qualified personnel.
 
The City´s "3 up and 3 down" and the "combination" list show Newport officers will remain behind the comparator jurisdictions even if the last best offer of the City is selected.
 
Most of the comparisons used by the parties show that Newport falls short of other jurisdictions, even with the increases offered by the City. The difference between the parties´ last best offers is minimal. The Association offer will do more to support the recruitment and retention of employees and, therefore, is more aligned with the interest and welfare of the public.
 
FINDINGS OF FACT AND OPINION
The criteria by which arbitrators are required to analyze the last best offer packages submitted by the parties in interest arbitration disputes are found in ORS 243.746 (4) and the rules of the Oregon Employment Relations Board, OAR 115-40-015 (8). The statute requires that "the interest and welfare of the public" be given first priority and that the remaining criteria be given secondary priority. No definition is given in the statute for "interest and welfare of the public." It has been determined in several interest arbitration decisions issued by arbitrators, however, that the interest and welfare of the public cannot be determined in a vacuum but must be considered in conjunction with the secondary criteria. Where, as here, neither last best offer is proved to be unreasonable and either could reasonably be considered to be in the public´s interest and welfare, the secondary criteria must be addressed.
 
The first of the secondary criteria listed in the statute requires that the reasonable financial ability of the City to meet the cost of a contract be considered. The City does not claim an absolute inability to fund the Association´s proposal, but rather that revenues are decreasing while expenditures are increasing. The City acknowledges that its concern is not unique; other Oregon cities share a similar concern. The difference in the total cost to the City of the last best offers of the parties for the three-year period of the contract, according to the City´s evidence, will be at most $27,264 and could be as little as $8,496, depending on which proposal is awarded and what the Consumer Price Index will be for the last year of the contract if the City prevails.
 
The difference between the two proposals is not great. There is no reason to believe, based on the evidence, that the City cannot meet the cost of the Association´s proposal. Newport, like all public employers, has priorities that it must consider. One of those priorities must surely be to fund competitive wages for its law enforcement personnel. There is no reason to believe unreasonable financial obligations would be created if the Association proposal, as opposed to its own proposal, is awarded. The difference between the two proposals is modest, given a three-year contract.
 
The next of the secondary criteria to be considered is the ability of the City to attract and retain qualified personnel at the wage and benefit level it provides. The City recognizes that having nine employees out of a 20-member bargaining unit leave during a three-year period is not in its best interest. While the City has maintained a sufficient number of applicants in its pool, the number has decreased recently. It went from a high of 77 to 52 during the latest three-year period.
 
Whether the City´s wage and benefit level has caused the high turnover in employees and the reduced applicant pool is less than clear. Wages and benefits are not the only factors that cause employees to seek employment elsewhere, or cause others to want to apply for employment in Newport. The testimony of Association witnesses, former Newport police officers, indicated they left to go to jurisdictions that paid more. That testimony was insufficient, however, to warrant a conclusion that the City´s wages were the only reason. Moreover, some left Newport to go to larger jurisdictions with which Newport could not be expected to compete. Even though concrete conclusions cannot be drawn regarding recruitment and retention, there is reason to conclude the City´s wage and benefit level is at least a factor in its inability to retain qualified personnel. The significant turnover affects costs and efficiency.
 
The criteria listed next in the statute are the overall compensation presently received by the employees and the overall compensation of other employees performing similar services with the same or other employees in comparable communities. The statute defines comparable communities as those "of the same or nearest population within Oregon." The City proposed three groups of comparator jurisdictions. It´s "traditional" comparator group of Astoria, Coos Bay, Florence, Lincoln City, North Bend, Reedsport, Seaside and Tillamook has an obvious geographical bias. While there may be cultural reasons why such grouping is reasonable, nothing in the statute indicates such reasons are as important as population. Population is obviously where the legislature placed its emphasis.
 
The City´s argument in urging its second group of comparators is persuasive. That is the "3 up, 3 down" group of cities that bear the closest population to that of Newport. Those are: Astoria, Baker City, Cornelius, North Bend, Cottage Grove and Sweet Home. As the City urges, the statute defines comparability solely on the basis of population. Arbitrator Lindauer expressed it succinctly in IAFF and City of Astoria, (December 2000):
 
ORS 243.746 (4) (e) specifically limits definition of "comparable" to communities of the same or nearest population range within Oregon. The legislature provided no additional criteria in the statute to qualify the term ´comparable communities.´ Comparability is defined solely on the basis of population. . . The legislature clearly defined the term ´comparable´ communities by relying on ´population range´ as the sole basis for comparability. . . . Had the legislature intended the ´nature of any employer´ to be a factor, it would have included that factor in the statute. Accordingly, the clear and unambiguous language of the statute, requires the Arbitrator to consider only those communities that are of the same or nearest population range in comparison. . .
 
To that interpretation one should note that a number of arbitrators have used geography in arriving at appropriate comparator jurisdictions. Arbitrator Lehleitner in IAFF and Winston-Dillard Fire District #5, (October 1995) expressed the opinion that he read nothing in the statutory language that expressly or even implicitly stated that an arbitrator cannot limit comparisons to the same geographical area. Others following Lehleitner have used geography as a limiting factor.
 
The following chart, prepared by the City, shows the results of comparing Newport´s wages with those of the six cities closest in population to it, three with higher populations and three with lower populations:
 
City´s "3 Up and 3 Down" Comparisons
CITYPOPULATION
7-1-2000
7-1-2001
MIN. MAX.
MIN. MAX.
ASTORIA9,790
$2,559 $3,109
$2,718 $3,234
BAKER CITY9,840
$2,786 $3,138
$2,897 $3,264
CORNELIUS9,710
$2,512 $3,593
$2,587 $3,701
COTTAGE GROVE8,670
$2,485 $3,173
$2,636 $3,366
NORTH BEND9,370
$2,423 $3,132
$2,506 $3,240
SWEET HOME8,160
$2,512 $3,053
$2,675 $3,251
AVG.
$2,546 $3,200
$2,670 $3,343
NEWPORT9,660
$2,475 $3,075
$2,549 $3,309
% DIFF.
-2.80 -3.90
-4.53 -1.0
 
It is clear that Newport is behind the average wage of the six cities closest to it in population, even when the City´s last best offer is added, as it is in the above chart. Adding the Association´s proposal would improve Newport´s standing but would not eliminate the negative difference.
 
It is not critical to the resolution of the present interest dispute that the reasoning of either Lindauer or Lehleitner be endorsed, although Lindauer´s interpretation seems to be the sounder of the two. My analysis of the five groups of comparators offered in evidence by the parties, i.e., the two discussed above plus a combination of those two by the City and the two by the Association, compels the conclusion that the Association´s last best offer best promotes the interest and welfare of the public. In four of the comparator groups the City´s employees are behind employees in the jurisdictions indicated with respect to wages and benefits, even when the City´s last best offer is added as an adjustment.
 
The Association used population range of 50 % greater to 25 % less than Newport and 25 % greater to 25 % less than Newport. It then pared down the resulting number of cities by using geographical location and assessed valuation. The Association´s data for its two groups of comparators show the City significantly behind in pay and benefits of those jurisdictions. The lag is lessened to some extent when the difference is adjusted by the City´s last best offer, but the difference is still a negative difference and one that should not be permitted to exist for three years. The morale of the bargaining unit members will be enhanced if the higher of the two proposals is selected. A well-paid police force promotes efficiency thereby giving the public its money´s worth. The association´s last best offer will do more to promote effective recruitment and retention of employees thereby advancing the interest or welfare of the public.
 
It was not necessary to consider Consumer Price Index information in making my analysis of the evidence and arguments offered. The overall compensation received by Newport employees in this bargaining unit compared to the overall compensation of other employees performing similar services with employers in comparable communities shows Newport behind. The ability of Newport to attract and retain qualified personnel is less than it was a few years ago. The City has the reasonable financial ability to implement the Association´s last best offer. Those factors in paragraphs (a) to (g) of the statute, as discussed herein, provided sufficient evidence for my award.
 
AWARD
 
For the reasons stated above, I select the last best offer of the Association and order that it be adopted.
 
Dated this 19th day of July, 2002.
 
Jack H. Calhoun
 
APPEARANCES:
FOR THE ASSOCIATION: Jaime B. Goldberg, Garrettson, Goldberg, Fenrich & Makler
 
FOR THE CITY: Candace Ludtke, Local Government Personnel Institute