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IA- 02-06
 
In the Matter of Interest Arbitration between City of Springfield and Springfield Police Association. IA-02-96
 
INTRODUCTION
This matter came before me as interest arbitrator, selected by the parties using Oregon statutory procedures, to resolve a dispute regarding their next collective bargaining agreement. A hearing was held on December 5, 1996 in Springfield, Oregon. Witnesses were sworn, and each party presented testimony, exhibits, and arguments. The parties mailed post-hearing briefs, and the record was closed when the final brief was received on January 21, 1997.
 
OPINION AND AWARD
 
1. ASSOCIATION'S LAST BEST OFFER PACKAGE
a Salary Schedule.
 
Article 18.1 - Salary Schedule:
 
Retroactive to July 1. 1996, the salary schedule for all employees shall be increased by 2.7%.
Effective July 1, 1997, and again on July 1, 1998, the salary schedule for all employees shall be increased by the increase in the US CPI-W May to May, (1996-1997 and then 1997 to 1998) with a minimum of two percent (2%) and a maximum of five percent (5%) but minus one percent (1%). However, should the CPI be six percent (6%) either year, the increase will be five percent (5%). Should the CPI exceed six percent (6%) in either year, then the
Association, at its option, may reopen negotiations for that year on wages.
 
b Retirement.
 
Article 20 - Retirement:
 
Add the following new paragraph to this article:
 
Any disputes concerning an employee or former employee over the employee's eligibility for any benefit under the retirement plan or any other benefit for which the employee or former employee may be eligible may be processed on their behalf by the Association through the grievance procedure.
 
c Insurance.
 
Article 21 - Insurance:
 
Section 21.1 Health and Dental Insurance
 
Retroactive to July 1, 1996 the City shall provide and pay the full cost of the current health and dental plans, (ODS equivalent) or substantially comparable plans during the life of this agreement.
 
d Duration.
 
Article 24.1 - Duration:
 
This agreement shall be effective as of July 1, 1996 and shall remain in full force and effect through June 30, 1999, or until a new agreement in ratified or implemented by an arbitrator's decision. Negotiations for the successor agreement shall commence on or before November 1, 1998.
 
e Personnel Records.
 
Article 13 - Personnel Records:
 
Section 13.3 Staleness of Personnel Records
 
Written reprimand/warnings shall be deemed to be stale in an employee's personnel file after two years so long as no other disciplinary action occurs within that time period. A document that is stale cannot be used for purposes of progressive discipline. In addition, employees shall have the right to submit rebuttal material to any critical material contained in their personnel file.
 
2 CITY'S LAST BEST OFFER PACKAGE
 
a Salary Schedule.
 
Salary Schedule (Article 18, Section 18.1):
 
Retroactive to July 1, 1996, increase the salary schedule for all employees who are an the payroll on the date the arbitrator issues his decision by 2.7%.
 
Effective July 1, 1997, increase the salary schedule for all employees by the increase in the U.S. CPI-W May to May, with a minimum increase of 2. 0 % and a maximum increase of 5.0%.
 
Effective July 1, 1998, increase the salary schedule for all employees by the increase in the
U.S. CPI-W May to May, with a minimum increase of 3.0% and a maximum increase of
5.0%.
 
b Retirement.
 
Retirement (Article 20):
 
Add the following language to Article 20:
 
"*Effective July 1, 1997, each employee in the bargaining unit who is an active participant in the Pacific Mutual Retirement Plan shall contribute 2.0% of his/her subject salary to the Plan,
which contribution shall be withheld from the subject salary of the employee.
 
"Effective July 1, 1998, each employee in the bargaining unit who is an active participant in the Pacific Mutual Retirement Plan shall contribute 4.0% of his/her subject salary to the Plan, which contribution shall be withheld from the subject salary of the employee.
 
"The City will not be required to fund the current interest earnings on an annual basis, but will remain obligated for the equivalent of such earnings at the time an employee retires or is otherwise eligible for distribution of contributions and earnings. The parties agree that the determination of the investment portfolio for contributions and earning of the Plan are within the discretion of the City. Changes or modifications to the investment portfolio or investment strategies of the Plan do not constitute changes to the Plan's structure as otherwise proscribed in this Article, and remain within the sole discretion of the Plan's trustees.*" [** underlined]
 
c Insurance.
 
Insurance (Article 21, Section 21.1:
 
Modify Section 21.1 as follows:
 
"The City shall provide the current health and dental insurance plans (ODS equivalent) or substantially comparable plans during the life of this agreement. The City's obligation to pay for such plans shall not exceed {$365.04} *$390.00*. Any increase in premiums *which exceed this cap* {after August 1, 1994,} shall be shared equally by the City and the employees covered by this agreement. {The deductible shall be increased from $50 -to $100 effective January 1, 1995.}" ({} lined out, ** underlined)
 
d Duration.
 
Duration (Article 24, Section 24.1):
 
Modify Section 24.1 as follows:
 
"This agreement shall be effective as of July 1, 199*6*{4} and shall remain in full force and effect through June 30, 199*9*{6}. Negotiations for the successor agreement shall commence on or before November 1, 199*8*{5}." ({} lined out, ** underlined)
 
e Other provisions.
 
Aside from the tentative agreements already reached between the parties, the City proposes maintaining existing language on all remaining provisions of the Agreement, including the footnote contained in Article 20.
 
3 STATUTORY STANDARDS
ORS 243.746(4) provides:
 
(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 a 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 the 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 paragraph (a) to (g) of this subsection provide sufficient evidence for an award.
 
The above statutory standards reflect a major change made by the Legislative Assembly in 1995 in what is known as Senate Bill 750. "The interest and welfare of the public" has been a statutory criterion since the basic statute was enacted in 1973, and prior to SB 750 it was part of a sentence which included "financial ability" (or what is usually called "ability to pay") . SE 750 not only put "The interest and welfare of the public" into its own subsection (a), but also declared it to have "first priority."
 
The parties devoted a significant portion of their briefing and exhibits to a discussion of the meaning of the phrase "The interest and welfare of the public". It appears that pre-750 decisions of arbitrators devoted little attention to the phrase, and when they did mention it there was little analysis beyond a general statement that the arbitrator's award was in the interest and welfare of the public, that it was in the interest and welfare of the public for the particular employees involved to have a fair wage increase, or that "costs should be reasonable to the tax payer and fair to the employee. " There is little guidance in these cases. Post-750 decisions provide little more guidance. In International Association of Firefighters, Local 2091 v. Winston-Dillard Fire District # 5(1995) Arbitrator George Lehleitner considered the employer's difficulty in passing levies, the influx of retirees which would result in greater need for emergency medical services, and said "it is in the interest and welfare of the public to pay a competitive wage unless the [employer's] finances are such that to do so would create unreasonable financial obligations. In summary, it appears that "interest and welfare of the public" as used in both pre-750 and post-750 decisions includes criteria which arbitrators have traditionally used.
 
Due to the statute's distinction between "primary" (paragraph (a) ) and "Secondary" (paragraphs (b) to (h) ) criteria, it is important to avoid the temptation to simply pick and choose from the secondary criteria and make them part of the primary criterion. Thus, I reject the temptation to take such criteria as "financial ability" (paragraph (b)) and "comparability" (paragraph (e)), which are secondary criteria, and elevate them to the status of primary criteria. To do so would make some criteria, and not others, perform double duty as both primary and secondary criteria. It also would, in effect, be unfaithful to the statute because the Legislative Assembly quite clearly knew how to divide the list of criteria between "primary" and "secondary," and it chose not to place any of the criteria in paragraphs (a) to (h) in the category of "primary."
 
Finally, I will offer the view that "interest and welfare of the public" requires that an arbitrator examine the entire case from the viewpoint of what is in the interest and welfare of "the public" rather than what is in the interest and welfare of the immediate parties. That means to consider the interest and welfare of the residents, property owners, voters, taxpayers, and recipients of police services, as distinct from the interests of the Association as an entity and the interests of the City as an entity. Thus, it may well be that the criteria in paragraphs (b) to (h) are relevant in a paragraph (a) analysis, but those criteria are examined with a view to the interest and welfare of the public rather than the interest and welfare of the City and the Association.
 
4 DISCUSSION
a Salary Schedule.
 
Both proposals are for three year contracts and include a salary increase of 2.7 percent retroactive to July 1, 1996. The City's Proposal limits this retroactive increase to individuals who are on the payroll when this arbitration Award is issued; that is a minor difference which I will not discuss further. For the second year (July 1, 1997) the City proposal is tied to the CPI and could range from 2 to 5 percent; the Association proposal is tied to the CPI and could range from 1 to 4 percent. For the third year (July 1, 1998) the City proposal is tied to the CPI and could range from 3 to 5 percent; the Association proposal is tied to the CPI and could range from 1 to 4 percent. In addition, the Association proposes a wage re-opener in either the second or third year or both in the event that the CPI is over 6 percent. The parties essentially are 1 percentage point apart in their salary proposals. It is the Association which is proposing the lower amount, due to the fact that its retirement proposal is significantly higher than the City's.
 
In two previous interest arbitrations (1985 and 1994) the arbitrators used Albany, Corvallis, Eugene, Medford, and Salem as comparable cities. Due to SB 750, Salem and Eugene must be excluded because they are not in the same population range. The overall compensation received by the employees compares favorably, with the remaining cities. Depending upon which proposal is adopted, Springfield employees will be receiving approximately 7.5 to 8.5 percent more than the average, and the difference between the two packages is in the range of only 1 percent. Because of this, comparability is not as important a factor here as it typically is in an interest arbitration.
 
Ballot Measure 47 clearly will have an impact. During fiscal 1997-1998 it is estimated that revenue losses will exceed $2,000,000, or more than 20 percent of current property tax collections. This, together with the increased costs associated with the retirement plan, will place a financial strain on the City.
 
The compensation package which has been in effect has enabled the City to attract and retain qualified police personnel. Very few leave to make more elsewhere, and there are many applications for each opening. Salary increases in the recent past have kept pace with or exceeded the increases in the CPI.
 
b Retirement.
 
Both parties emphasized that this issue is the key issue in this arbitration. The Association proposes to leave the Plan alone with regard to its funding and administration, and proposes to allow the Association to bring grievances as to both current and former employees. The City proposes that employees begin paying 2 percent of salary into the Plan effective July 1997 and 4 percent effective July 1998, to allow the City to fund pensions on an actuarial basis rather than on a cash basis, and to make clear that the City is allowed to make changes in the investment portfolio.
 
Prior to 1991 the City used the Pacific Mutual Plan rather than PERS to provide retirement benefits to all its employees. The PERS statute's "equal to or better than" requirement resulted in the City raising its interest earnings guarantee to 9 percent in 1983, and resulted in the City increasing its contributions to police personnel from 17 percent of salary to 19.6 percent in 1991. The aggregate yield from the Plan I's portfolio has dropped each year from 1987 to the present, and it is projected to continue dropping to the year 2000. In 1992, for the first time, the net interest return from the Plan's portfolio was less than the 9 percent guarantee, and it is projected to continue dropping to the year 2000. All of this is a result of the fact that the portfolio is heavily invested in very long-term interest-bearing instruments, and the older instruments are being replaced by newer instruments which have lower interest rates. As a result of the fact that returns have dropped below the 9 percent guarantee, the City has paid out the following amounts in order to meet the guaranteed 9 percent; $10,711 in 1992, $36,520 in 1993, $118,346 in 1994, $288,091 in 1995, $306,631 in 1996. These amounts have come from the Plan's surplus reserves. If the Plan remains unchanged, then the reserves will be depleted in 1997 and the City's 19.6 percent contribution will have to be increased. One projection (City Exhibit No. 13) shows that leaving the Plan unchanged will result in a Plan deficit of over $1,300,000 by the year 2000, and the City will be obligated to pay for this deficit, and another projection (City Exhibit No. 26) shows that the City will be compelled to increase its contributions from 19.6 percent to 25.75 percent of salary when the reserves are depleted.
 
The City proposal is designed to require employees to share in the City's increased cost of
maintaining the guaranteed benefits of the Plan. During the first year of employee sharing (beginning July 1997) the employees' share would result in the City roughly breaking even, and during the second year (beginning July 1998) and thereafter the employees, share would cover $156,251 of the estimated $250,000 increased cost, leaving $93,749 to be paid by the City. The Association proposal is designed to maintain the employees' cost at zero.
 
The Association argues that the City has for several years managed the Plan investment portfolio in such a way that the returns have been less than they could have been and should have been. Outside experts had pointed out the potential problems as early as 1991, and in 1993 an outside expert recommended a re-allocation of investments which would be more aggressive. The City chose not to make significant changes in its investment approach on the ground that investments which look to higher gains also carry with them greater risks. My view is that it is not appropriate for me, with 20-20 hindsight, to second guess the City's exercise of honest judgment as to its investment strategy. Even if I were to disagree with the City's judgment, that would mean little in light of my lack of expertise and in light of the fact that there was no showing that the City did not follow accepted standards. The fact is that the problem exists now and must be addressed now, and claimed flaws in the City's previous investment strategy carry little weight at this point.
 
Footnote 2 in Article 20 of the collective agreement is an agreement by the Association that the additional cost to the City to upgrade the Pacific Mutual Plan to be equal to or better than PERS "will be a continuing cost factor in the City's compensation package." The Association position is that this agreement was satisfied in 1994 when the Association agreed that the City could choose to place new hires into PERS. The City position is that adoption of the City proposal will be a fair way to carry out the intent of footnote 2. My view is that allowing the City to place new hires into PERS is an unsatisfactory way to recognize the City's additional cost as a continuing cost factor. The current retirement plan is, as an actuarial matter, more valuable than PERS. The nature of the problem is "continuing," and the solution needs to be continuing. It therefore seems appropriate to implement some degree of cost sharing by employees.
 
The degree of cost sharing proposed by the parties can be looked at two ways. One way is to observe that the City proposal places most of the burden of increased cost on the employees, roughly the full amount beginning July 1997, and roughly 63 percent beginning July 1998; the Association proposal places the entire burden on the City. Another, and more satisfactory, way is to compare the burdens after including salary increases. This method requires an assumption about the future performance of the CPI, and I emphasize that my analysis makes an assumption and does not make a prediction. Assuming that the CPI increases at 3 percent per year, the combined proposals by the Association would result in a 2 percent increase in July 1997 and again in 1998, and the combined proposals by the City would result in a 1 percent increase in July 1997 and again in 1998. This makes the combined proposals so close to each other in dollar terms that it seems prudent to look at other variables. A key variable in this case is the question of constitutionality.
 
One consideration in this case which clearly comes within the definition of "the interest and welfare of the public" is the unusual question of whether the City's proposal would be unconstitutional. Analysis of this issue involves the impact of Oregon State Police Officers' Association v. State of Oregon, 323 Or. 356 (1996), and related court decisions dealing with the Contract Clause (Article I Section 10) of the United States Constitution. OSPOA held that Sections 10 (6 percent pick-up), 11 (guaranteed rate of return), and 12 (sick leave credit) of Ballot Measure 8 (1994) were unconstitutional in that they violated the Contract Clause. The Oregon courts examine four factors in their Contract Clause analysis: (1) whether there was a binding contract, (2) whether the State impaired the contract, (3) whether the impairment was substantial, and (4) whether the impairment was justified by a significant and legitimate public purpose. I will examine each of these four factors with a view toward predicting whether the Oregon Supreme Court would find that an award of the City's position would violate the U.S. Contract Clause.
 
(1) A binding contract. The OSPOA court was examining a contractual relationship between the State and Public employees which arose out of a set of Oregon statutes relating to PERS. In this case, the contractual relationship was created by the adoption of a Collective bargaining agreement. The signatory parties to that contract were the City and the Association, and the employees are third party beneficiaries. The City does not argue that there was no contract here. The City does base part of its argument on the theory that a contract was formed by an offer directly from the City to the employees, an argument which is addressed below, but the City does not argue that there was no contract in existence for purposes of Contract Clause analysis.
 
(2) Impairment of the contract. The heart of the Association's argument is that the contract created a vested right in a particular retirement plan, especially the right to enjoy the benefits of the plan without any employee contributions, and the City's proposal would impair that contractual right by requiring employee contributions. The heart of the City's argument is that its proposal does not abrogate a vested retirement benefit for past services, and applies only to retirement benefits which employees will earn for future work. In addition, the City argues that it is not contractually restricted from modifying the retirement benefits provided to employees.
 
I see little difference between the impairment found in OSPOA and the facts of this case. In OSPOA the court found that the State had made promises "with respect to the cost of their participation in the PERS retirement plan and the benefits they will receive upon retiring." It saw "a contractual obligation to provide an undiminished level of benefits at a fixed cost." 323 Or. at 375. The effect of Section 10 was to require employees to pay 6 percent of salary, in the future, into the PERS plan, and the court found that to be an impairment of the contract. In the present case, the City's proposal would require employees to pay 2 percent and then 4 percent of salary, in the future, into the Plan. The City's argument that its proposal deals exclusively with future deductions for future work is an appealing one. However, this very argument was rejected by the court. Indeed, one of the strongest arguments made by Justice Gillette in his dissent to the court's holding on Section 10 was that employees lost the 6 percent pick-up only prospectively and that Section 10's substantive provisions had no retroactive effect. 323 Or. 404 at 411. As attractive as Judge Gillette's argument may be to me, it is clear that it was rejected by the majority of the court.
 
The City correctly points out that the contract involved in this case is not the same as the one in OSPOA, and that the legality of the City's proposal must be examined in the context of the parties' collective bargaining agreement. The City argues that the collective agreement itself refers to the Pacific Mutual Plan, and that the Pacific Mutual Plan expressly provides that the City has a right to modify or terminate the Plan at any time. In short, the argument is that the retirement contract between the City and its employees includes the right of the City to terminate or modify the retirement Plan. The collective agreement provides:
 
The City will continue to participate *in its present retirement program* and ensure that such program is determined by the State of Oregon to be equal to Oregon Public Employees Retirement System (PERS) as it applies to police officers. [**Emphasis added in City's Post-Hearing Brief, page 12.]
 
The City may select the carrier for the retirement plan as long as it does not change the plan structure.
 
The Pacific Mutual Plan provides:
13.1 The Employer expects to continue this Plan indefinitely, but nevertheless *reserves the right at any time or times to amend this Plan to any extent and in any manner that the Employer may deem advisable* by delivery to the Plan Administrator a certified copy of a resolution of the City Council of the Employer making such amendment...
 
13.3 The Employer has established the Plan with the bona fide intention and expectation that it will be able to make contributions indefinitely, but *the Employer is not and shall not be under any obligation or liability whatsoever to continue the contributions or to maintain the Plan for any such given length of time, and may, in its sole and absolute discretion, discontinue such contributions or terminate the Plan at any time without any liability whatsoever for such discontinuance or termination*; provided, however, that it is the intent of the Employer to maintain this Plan as a plan which is equal to or better than benefits provided under the Oregon Public Employees Retirement System. [**Emphasis added in City's Post-Hearing Brief, pages 12-13.]
 
The City uses the OSPOA analysis of unilateral contract to argue that the Pacific Mutual Plan is an offer for a unilateral contract which employees accept by working and continuing to work, and that the contract which is formed is one which contains the right of the City to terminate or modify. The City bolsters this argument in two ways. First, it states that the Association agreed to the City's right to terminate and modify when the Association agreed to participate in the Pacific Mutual Plan. Second, it states that footnote 2 in Article 20 of the collective agreement is an agreement by the Association that the additional cost to the City to upgrade the Pacific Mutual Plan to be equal to or better than PERS "will be a continuing cost factor in the City's compensation package."
 
The City's claim that the City-employee contract includes a right to modify or terminate at the will of the City requires that I interpret the parties' collective agreement, and specifically the portions of Section 20 relied upon by the City. The bargain outlined in Section 20 is a bargain contained in a contract between the City and the Association. This is not a contract between the City and the employees. It was formed bilaterally between the City and the Association after following the statutory steps. The Section 20 bargain is that (1) the City will continue its present program, (2) the program will be "equal to or better than," (3) the City selects the carrier, and (4) the City does not change the plan structure.
 
The "program" specified in Section 20 is, according to the City, the Pacific Mutual Plan. It is not altogether obvious to me, in light of the language which allows the City to select the carrier, that every clause and phrase in the Pacific Mutual Plan is a part of the "program" specified in Section 20. However, assuming that the "program" is the Pacific Mutual Plan, the key issue is whether the collective agreement grants the City the right to terminate or modify the Plan. To understand this issue, one must recognize that there is an entirely separate contract between the city and Pacific Mutual. It is this contract which contains the language relating to the right to terminate and modify. The City-Pacific Mutual contract allows the City, as between the City and Pacific Mutual, to terminate or modify. Thus, for example, if the City decided to change carriers or if the City and the Association agreed to a different retirement plan or agreed to move to PERS, then Pacific Mutual could not prevent the City from terminating or amending. However, the City's argument is that it has the right, granted by the collective agreement, to terminate or amend the retirement plan as against the Association and the employees. (Of course, the City is logically compelled to recognize, as it does (City Post-Hearing Brief, page 12, footnote 9), that the exercise of its right or the effects of the exercise of its right would be subject to a duty to bargain.) Frankly, it is difficult to imagine any labor organization agreeing to allow an employer to have a right to terminate or significantly modify a pension contract without the express consent of either the employees or the labor organization. Pension rights are valuable benefits, and it would make little sense for the Association to agree that the City could have the amendment and termination rights which the City claims it has. Therefore, it would take some clear language in the collective agreement, bargaining history or past practice, to establish that the Association has agreed that employees' retirement rights are subject to the City's right to amend or terminate. There is no such clear language, history, or past practice. To the contrary, the phrase "so long as it does not change the plan structure" in Section 20 speaks to the City's lack of such a right. Of course, the City's argument is that "the plan structure" includes the amendment and termination language in the City-Pacific Mutual contract. I hold that it does not because "the plan structure" refers to such matters as the costs, benefits, and pay-out options upon which employees rely, and not to special clauses in the City-Pacific Mutual contract which are designed to protect the City in its relationship with Pacific Mutual. Therefore, I reject the City's argument and hold that the collective agreement did not reserve to the City a right to amend or terminate.
 
My finding is that imposing a requirement that employees contribute 2 percent and then 4
percent of salary to the retirement plan would be an impairment of contract in violation of the United States Constitution as interpreted by the Oregon Supreme Court. My further finding is that the award of an arbitrator which included the City's proposal regarding retirement would be an impairment of contract in violation of the United States Constitution as interpreted by the Oregon Supreme Court. An arbitrator's award in this case is the action of the State which involuntarily imposes terms and conditions of employment, and is not an agreed-upon resolution. ORS 243.752. Although the City and the Association could have agreed to the City's proposal, they did not. Whatever else may be the interpretation of Footnote 2 in Article 20, it does not have the effect of making the outcome of this interest arbitration an "agreement" for constitutional purposes as suggested by the City (City Post-Hearing Brief page 14, footnote 10).
 
(3) Substantial impairment. If I were writing on a clean slate, which I am not because of the Oregon Supreme Court's cases, I would be inclined to consider whether the City's proposed salary increase would offset its proposed employee contribution. However, consideration of such an offset is rendered inappropriate due to the court's edict that pension rights and salary increases must be considered separately. OSPOA, and cases cited therein, 323 Or. at 374-375. (Of course, it is ironic that SB 750 requires an arbitrator to award one of the parties, total packages while the Supreme Court mandates that for Contract Clause analysis there must be a separate consideration of pensions and salary.) Also, consideration of salary increases as an offset to the 2 percent and 4 percent contributions is impossible because the salary increases in 1997 and 1998 are tied to future performance of the CPI, and there is no way to calculate the amount by which the retirement contribution would be offset.
 
It can be said with assurance that the impairment of 2 percent in 1997 and 4 percent in 1998 is substantial, and the City did not make an argument that this amount of impairment would not be substantial.
 
(4) Justification of the impairment. There are situations in which an impairment of a contract, which otherwise would violate the Contract Clause, can be justified by a significant and legitimate public purpose. The City did not attempt such a justification, and I do not find one. The most obvious candidate for a justification would be that maintenance of the retirement plan in its present form would be too expensive for the City. It seems rather obvious, given the Oregon Supreme Court's clear distinction between pensions and salary, that the City could easily reach its cost-saving objective in a lawful way by either directly reducing salaries or directly limiting the rate of salary increases. The availability of this alternative means of saving costs renders the impairment of contract totally unnecessary.
 
In addition to the above, there are three other portions of the proposals to be discussed.
The portion of the City proposal dealing with conversion to an actuarial rather than a cash basis is one which makes a good deal of sense, and the Association has not raised any significant objection to it.
 
The portion of the City proposal which makes clear the City's right to manage the portfolio is really no more than expressly stating the status quo. It is difficult to understand who else would manage it, and the Association has not raised any significant objection to that portion of the proposal.
 
The Association proposes added language which would allow the Association to grieve on behalf of both employees and former employees as to disputes involving eligibility for retirement benefits. The obvious benefit of this proposal is that it would both allow retired individuals to have access to the grievance and arbitration procedure, and perhaps prevent those individuals from bringing lawsuits as a means of resolving their disputes with the City.
The City argues that the Association's proposal regarding grievances is not a mandatory subject of bargaining under Oregon statutes, and therefore has no place in this binding interest arbitration. The Association argues that its proposal is a mandatory subject. On August 6, 1996 the Oregon Employment Relations Board (ERB) issued a ruling which held that a grievance proposal then being made by the Association was a permissive rather than mandatory subject. That proposal would have allowed former employees to bring grievances regarding eligibility for retirement benefits. The current proposal being made by the
 
Association differs from the one which ERB found to be permissive in that it would allow the Association to grieve on behalf of former employees. Given the reason for ERB's previous order, it is clear to me that the Association's current proposal is not a mandatory subject. The reason for ERB's order was that, "an exclusive representative has a PECBA right, and the employer has a PECBA duty, to bargain over employment relations of bargaining unit members only." (Springfield Police Association v. City of Springfield, Case No. UP-28-96 (1996), City Exhibit No. 35, page 16/722.) Under this reasoning, it will make no difference that the entity entitled to bring the grievance is changed from the former employee to the Association. The fact remains that the "employment relations" involved in the Association's proposal are those of individuals who are not within the bargaining unit which the Association represents. Therefore, I find that the ERB would find that the Association proposal involves a permissive subject which is not a required subject of bargaining.
 
c Insurance.
 
The City proposal would increase the cap on the City's insurance contributions from $365 to $390, and provide for a 50-50 sharing of premiums which exceed the cap. The Association proposal would obligate the City to pay the full costs without any cap. Historically, there was no cap until one was instituted following the 1994 interest arbitration. The parties disagree on the interpretation of contracts in comparable jurisdictions; the Association view is that no police officer in a comparable jurisdiction is actually co-paying; the City view is that all comparable jurisdictions impose limits on the employer's obligation to fund insurance. Further, it appears that all other City employees are subject to cost sharing to some degree, and that the increased amount of the cap will result in no co-pay for single or two-party coverage.
The cap was instituted in the 1994 interest arbitration, and the essential reasons given in Arbitrator Lindauer's decision remain valid today. The Association advances several arguments in favor of its proposed change. One is that the co-pay will result in a significant expense for employees, perhaps reaching as high as 2.5 percent of salary for the lowest paid employee. Another is the Association's claim that the City attempted to impose the highest cap possible and to change the dental plan to the detriment of the Association. A third is the Association's allegation that the City has made errors and caused delays in the handling of certain claims. The cost factor is significant, and yet it is inherent in any system under which employees are required to share in the cost of providing insurance. The other Association arguments do not seem to have any logical connection to the issue of the continuation of insurance caps. Therefore, I find that the Association has given insufficient reasons to make a significant change in the method of funding the insurance plans.
d Duration.
 
The Association proposes an Evergreen clause, which the City opposes. This clause would continue the contract in effect until a successor contract is executed. The Association's main argument is that this clause will create an incentive to reach a new agreement, and will be a deterrent to what the Association perceives as foot-dragging on the part of City negotiators during the past two negotiations. Comparability favors the City position, as Albany is the only comparable jurisdiction which has such a clause. Also, no other City bargaining unit has such a clause. My view is that an Evergreen clause is, in general, not to be favored because it tends to insulate both parties from the normal tug and pull of periodic negotiations. In particular, the Association's arguments in favor of this change are relatively weak when weighed against the fact that an Evergreen clause is so unusual.
e Personnel Records.
 
Prior to the 1994-1996 collective agreement the parties had language which required removal from the personnel file of written warnings or reprimands after two years if there were no other disciplinary actions during that time. After ERB ruled that such language was a permissive and not mandatory subject of bargaining, the clause was omitted. The
 
Association's present proposal is similar to the old clause, except it states that two-year-old warnings and reprimands become stale and cannot be used for purposes of progressive discipline. This would, essentially, restore to the contract a provision which was removed in 1994 due to the mandatory-permissive bargaining subject rules. The City's arguments are that a blanket policy is not needed, and the grievance and arbitration process is a forum for challenging improper use of stale discipline. The City opposes the last sentence of the
 
Association proposal on the grounds that this is a right employees already have, and that there would be no time limit. In light of the facts that the parties lived with similar language for years, that the City has not demonstrated that the previous language created any real problems, and that the previous language was omitted due to technical problems which are now cured by the Association's re-writing, it would be appropriate to include the Association proposal.
f Overall analysis of the packages.
 
SB 750 requires an arbitrator to award, in its entirety, one or the other of the parties' final offer packages. Although I have previously discussed each portion of the packages somewhat in isolation, I now turn to an analysis of the total packages.
 
On the Personnel Records proposals I favor the Association proposal, but that issue is a minor one. On the Insurance and Duration proposals I favor the City proposals, and these are issues of greater importance. The Salary and Retirement proposals are closely related to each other and they contain the heart of the economic portions of the final offers. Taken together, the Salary and Retirement proposals illustrate a fundamental difference in approach by the parties. Although each party's package demonstrates a recognition that employees should take on some of the burden of the City's increased cost of maintaining the 9 percent guarantee, each has a different notion of the level of burden which should be placed on employees. Considering the economic cost of both parties' packages, there is a difference of approximately $200,000.
 
As the parties have both stated, the most important issue in this case is Retirement. My view is that it makes sense for employees to take on some of the burden of the increased cost of maintaining the retirement benefits. Comparability data supports the view that this could be done without driving the employees' overall compensation levels below the average of comparable jurisdictions. The City proposal is logical in that it specifically provides for employee contributions to the retirement plan rather than providing for adjustments in base salary. However, as I have pointed out above, it is exactly this feature of the City proposal which creates the problem of unconstitutionality. At the same time, I am mindful that one portion of the Association proposal is most likely not a mandatory subject of bargaining.
In light of the SB 750 requirement that I consider the interest and welfare of the public as the primary criterion, it is my conclusion that the Association package should be awarded. I give little weight to the Association's guarantee that litigation would follow an award favoring the City; anyone can litigate or threaten to litigate. I give great weight to my conclusion that it would be a violation of the U.S. Constitution Contract Clause, as interpreted by the Oregon Supreme Court, for an interest arbitrator to award the City proposal on Retirement. The public interest and welfare would not be served by issuing an award if the most important part of that award would almost certainly be vacated by the courts.
 
5 ORDER
 
It is ordered that the parties adopt the Association's last best offer package.
 
Respectfully submitted,
 
Ross R. Runkel
 
DATED: February 19, 1997
* * * * *
 
ARBITRATOR'S FINDINGS, OPINION AND ORDER ON REMAND
FINDINGS AND OPINION
The original award dated February 19, 1997 awarded the Association's last best offer package. In a series of orders dated June 4, June 26, and July 23, 1997 the Oregon Employment Relations Board (ERB) (1) vacated the original award, (2) ordered the parties back to the arbitrator, (3) allowed the Association to withdraw or modify the retirement portion of its last best offer package, and (4) allowed the City to modify its last best offer package by withdrawing its retirement proposal.
 
The parties returned to arbitration, in a posture in which ERB would allow each to withdraw (or in the Association's case, withdraw or modify) only specific portions of their last best offer packages. The parties agreed to rest on the evidentiary record created in December 1996, and submitted new last best offer packages in conformance with the orders of ERB, together with new briefs. The submissions were mailed simultaneously on August 7 and received by me on August 8, 1997. The City re-submitted its previous last best offer package without change. The Association withdrew all of its previous proposal dealing with retirement, and otherwise re-submitted its previous last best offer package without change.
 
On the surface it might appear that it is inevitable that I find in favor of the Association's package simply because in the new submissions the City has made no change in its package and the Association is asking for less than it asked for before. This is in fact the position of the Association.
 
The position of the City is that I should revisit what it views as erroneous factual and legal conclusions contained my previous Award. Ordinarily, of course, an interest arbitration award is final and binding, and the parties lack an opportunity to (1) re-make arguments previously made, (2) make new arguments which could have been presented before, or (3) make arguments in opposition to a decision already issued. In addition, the scope of review before ERB is extremely limited. All of this is designed to bring the whole dispute to an end. In the present posture of this case, which is on remand from ERB, there is a serious question involving the extent to which an arbitrator should allow the parties to make the three types of arguments mentioned above. The question is particularly serious in this case because of the reason for the remand. The remand was ordered because the Association's final offer package included a permissive subject. Even though the City did not make a timely objection to the permissive subject, ERB declared a new principle (based upon a statutory change brought on by SB 750) that it will set aside an interest arbitration award if the award contains a permissive subject even if the objecting party did not make a timely pre-arbitration objection. The importance of this small piece of background is that the only reason the City is back before this arbitrator is because the Association's package (which I awarded) contained a permissive subject. The City has not changed its final offer package; none of the City's arguments address the change which the Association made in its final offer package; the facts are the same; the law is the same. What has changed between the original round of briefs and the current round of briefs is (1) I issued my now-vacated Award on February 19 and (2) the Association has changed its package.
 
My view is that it will be helpful to the parties to address the City's arguments if that will clarify the reasoning expressed in my original Award. It is, however, also my view that I should not allow this remand to be used as an opportunity for the City to make totally fresh legal arguments which the City could have raised in the original proceedings.
 
The City characterizes the core reasoning of my original Award as being that "the Arbitrator would have awarded the City's Last Best Offer but for his conclusion that the City's retirement proposal was unconstitutional." The original Award does not express the view that there was anything unconstitutional about the action of the City in making its proposal, in including it within its final offer package, or in mutually agreeing upon it with the Association. The original Award expresses the view that the Oregon Supreme Court would find it unconstitutional for an interest arbitrator, who exercises the authority of the State, to impose the City's proposal. With that change in the City's characterization of the original Award, it is accurate to say that but for the constitutional issue I otherwise favored the City's proposal. Therefore, my view on the constitutional issue, and its relationship to the statutory standard of the "interest and welfare of the public," was the significant factor which led to the original Award being to adopt the Association's package.
 
I now turn to the specific arguments advanced by the City.
 
1 Lawful, mandatory subject which the arbitrator had the authority to award.
 
a Mandatory-permissive-illegal classification.
 
The City argues that its retirement proposal "was a lawful, mandatory subject of bargaining which the Arbitrator had the authority to award." At one level the City is absolutely correct. The City's proposal was a lawful and mandatory subject of collective bargaining, and my original award neither said nor implied otherwise. indeed, my original Award pointed out that the parties could have agreed to the City's proposal. Further, I do not take issue with the City's argument that an arbitrator would have the authority to award the City's proposal in the sense that such an award would relate to a mandatory subject as opposed to a permissive (or even an illegal) subject. Nothing in my original Award said or implied that City's proposal was "permissive" or "illegal" in the sense that those terms are used by labor lawyers and others to describe subjects of collective bargaining as "mandatory," "permissive," or "illegal." The City's citation to, and argument derived from, decisions such as International Association of Fire Fighters, Local 696 v. City of Astoria, 8 PECBR 6604 (ERB 1984) are not helpful because that case is based upon mandatory-permissive-illegal theories which, quite frankly, simply are not involved in this case. Indeed, the City's entire mandatory-permissive argument is misplaced because the original Award was not expressly or impliedly based upon that line of reasoning.
 
b State action.
 
The real point of disagreement is that I concluded that the action of an interest arbitrator "is the action of the State which involuntarily imposes terms and conditions of employment, and is not an agreed-upon resolution." The argument made by the City in its original brief, and renewed here, is that interest arbitration is the culmination of the collective bargaining process. That is true. I rejected the City's original argument that an interest arbitration award is an "agreement," and held that such an award "involuntarily imposes terms and conditions of employment." The new twist in the City's current argument is that interest arbitration is the culmination of the collective bargaining process and not state action. My view is that interest arbitration as established by PECBA is an involuntary process. It is, as the City says, the culmination of the collective bargaining process. However, an interest arbitrator acting within the PECBA process is a person whose authority comes from the legislature and not from the parties. Therefore, the order of an interest arbitrator is State action, and not the action of a private arbitrator whose authority comes from the parties (as is the case in traditional grievance arbitrations). The City's argument, then, does no more than describe the fact that interest arbitration takes place after collective bargaining has not produced a contract. The argument does not squarely address the question of State action.
 
2 Application of OSPOA.
 
The City argues that it was error to rely upon the OSPOA decision, Oregon State Police
Officers Association v. State of Oregon, 323 Or. 356 (1996).
 
The City stresses the line of cases in which the Oregon courts have struggled to determine whether a statute (especially a pension statute) creates a contract which is subject to the constitutional clause relating to impairment of contracts. The focus of the City's argument is the distinction between (1) statutes which contain a "legislative commitment not to repeal or amend the statute in the future" and (2) statutes which do not contain such a commitment. That distinction is one which the courts have used to determine whether or not a statute has created a contract. That is not at issue in this case. In this case there was a contract, and the City has never argued that there was no contract. There is no need in this case to determine whether a statute created a contract, and therefore no need to search for a "legislative commitment not to repeal or amend the statute in the future."
 
The City also stresses the line of cases in which the Oregon courts have expressed the notion that contracts between an employer and an employee can be modified, and makes the point that both unilateral and bilateral contracts can be modified by the parties. That is true, but that is not in the cards in this dispute. We are now at interest arbitration and no longer dealing with agreed-upon modifications, and there is no issue before me as to what sort of modification the City and the Association could have agreed to.
 
A new City argument is that because the contract at issue here is bilateral rather than unilateral, there is an even greater distinction between the contract before me and the contract involved in OSPOA. This legal argument was not raised in the original briefing, the City having then taken the position that the contract was unilateral. I will entertain this new legal argument because it is tied closely to one of the City's main arguments all along, which is that the City really had no contractual duty to which the Constitution's Contract Clause could attach. The essence of this new argument is that because we are dealing with a bilateral contract between the City and the Association, and that contract expired by its own terms in June 1996, then after June 1996 the parties have no contractual obligation to continue the terms of the agreement. It may well be correct that after the contract expired the City no longer had a contractual duty to make payments into the retirement plan. However, the City is still obligated to honor its contractual commitment to make pay-outs in accordance with the contract. It is the very nature of such a contract that the employer is obligated to make pay-outs even after the contract has otherwise expired. Indeed, a good deal of time at the arbitration hearing was devoted to an examination of the dollar amount of the City's exposure which will result precisely because of that commitment. It is the City's contractual commitment to make these pay-outs which raises a constitutional question when the City proposes that an arbitrator compel future increases in employees' contributions in order to protect a stable rate of pre-committed pay-out. I therefore reject the City's argument that the bilateral nature of its contract frees it of contractual obligations after the contract expires.
 
The City argues that in the original Award I erred factually and legally in deciding that the Plan Document (Exhibit 9) is a separate contract between the City and Pacific Mutual. I accept that, and withdraw my findings and conclusions to that effect. However, that does not change my ultimate conclusion. My point had been simply that the Association and the City had not agreed that the City retained the right to unilaterally modify or terminate the Plan as the City had argued in its original brief. In my original Award I assumed for purpose of discussion that the City was correct in its analysis that the "program" referred to in Section 20 of the collective agreement included every clause and phrase in the Plan document. I now revisit that underlying assumption and conclude that it does not. There is no language in the collective agreement which incorporates this external document by reference. Section 20 refers to "its present retirement program" which must be "equal to or better than" PERS. Later, Section 20 provides that the City may change carriers "as long as it does not change the plan structure." Based on this language, together with the Plan Document adopted by the City in a formal resolution, the City asks me to find that the Association has agreed that the City has a contractual right to terminate or modify the plan, subject only to the City's PECBA duty to bargain. I decline. That would be, to put it mildly, an absurd result. It would be an absurd result to hold that after a series of collective bargaining sessions a labor organization would agree to a retirement plan which on its face appeared to provide substantial benefits and appeared to be equal to or better than PERS, and yet was really just an at-will contract. In addition, I am not persuaded that the words "present retirement program," or "the plan structure" or any other language in Section 20 can fairly be read as incorporating a provision in an external document which gives the City the right to terminate the plan or modify the plan so as to reduce the benefits of that plan. In addition, that result would do violence to the express "equal to or better than" language of Section 20. (Contrary to the City's suggestion, nothing in the original Award states that there is any impediment to the power of the City to negotiate a change.)
 
The City renews its argument that its proposal was prospective only. This was covered adequately in the original Award.
 
3 Significant and legitimate public purpose.
 
The City argues that the City's proposal advances a significant and legitimate public purpose that overrides any purported impairment of contract. To the extent that this is a legal argument dealing with the constitution, it is one which the City did not address in its original brief, and therefore I will not entertain it on this remand. To the extent that this is an argument that the facts support the City's package under the statutory standards for interest arbitration, this was covered adequately in the original Award.
 
4 Practical reasons.
 
The City argues that an award in favor of the Association will preclude the City from seeking judicial review of the constitutional issue. On the other hand, the Association would be able to litigate the constitutionality of an award in favor of the City. I decline this invitation to tailor the Award in order to facilitate litigation of an issue which the City asked me to decide. In the original briefing it was the City who expressly and strenuously urged that the constitutional issue be decided by the arbitrator. The City expressly chose the arbitral forum for resolution of that issue. Now, after getting an adverse award, and after obtaining an ERB remand on a wholly unrelated ground, the City reverses its position and argues that litigation is preferable. The City submitted the constitutional issue to me for decision, and I will decide it.
 
CONCLUSION
Based upon the original Findings and opinion dated February 19, 1997, which are incorporated herein by reference, and based upon the Findings and Opinion above, I conclude that the original Order should be adhered to. ORDER
 
It is ordered that the parties adopt the Association's last best offer package as amended during these remand proceedings.
 
Respectfully submitted
 
Ross R. Runkel
 
DATED: September 5, 1997
 
REPRESENTING THE EMPLOYER: Jim D. Korshoj, Kenneth E. Bemis, Bullard Korshoj Smith & Jernstedt
 
REPRESENTING THE UNION: John Hoag, Hoag, Garrettson, Goldberg & Fenrich