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IA-04-02
 
IN THE MATTER OF THE INTEREST ARBITRATION BETWEEN CITY OF MILWAUKIE AND MILWAUKIE POLICE EMPLOYEES ASSOCIATION. IA-04-02.
 
BACKGROUND
This matter came before the Arbitrator pursuant to ORS 243.746 and its administrative rules. On April 5, 2002, the Milwaukie Police Employees Association (hereafter the Association) filed a written notice of impasse with the Oregon Employment Relations Board in the wage reopening negotiations with the City of Milwaukie (hereafter the City). The parties subsequently filed petitions initiating binding arbitration on the issue of Article 8 of the collective bargaining agreement, the annual cost of living adjustment (COLA). On June 26, 2002, the parties submitted their final offers to the Arbitrator. A hearing of the matter was scheduled for July 10, 2002 however the parties agreed to cancel the hearing and submit the case to the Arbitrator without a hearing. Each party submitted its exhibits to the Arbitrator on July 15, 2002 and on August 15, 2002 the parties submitted their written closing arguments to the Arbitrator. The award in this case is based upon the evidence and arguments put forward by the parties.
 
STATEMENT OF THE FACTS
The only matter before the Arbitrator is the determination of the annual wage increase at Article 8, Section B of the Collective Bargaining Agreement:
 
Article 8--Wages
 
B. Increase
 
For both subsequent fiscal years 2002-2003 and 2003-2004, the contract will be reopened to negotiate wage increases only.
 
The City submitted the following final offer:
 
For fiscal years July 1, 2002-June 30, 2003 and July 1, 2003-June 30, 2004 a cost of living increase of 3% will be added across the board to all ranges.
 
The Association submitted the following final offer:
 
Effective July 1, 2002, wages shall be increased across the board by not less than three (3) percent nor more than six (6) percent, based on CPI-U Portland. Calendar year average 2001 shall be used to calculate for fiscal year 2002/2003 effective July 1, 2002.
Effective July 1, 2003, wages shall be increased across the board by not less than three
 
(3) percent nor more than six (6) percent, based on CPI-U Portland. Calendar year average 2002 shall be used to calculate for fiscal year 2003/2004 effective July 1, 2003.
 
Pursuant to 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 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) Comparisons 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 provide sufficient evidence for an award.
 
POSITION OF THE ASSOCIATION
The Association contends that it is merely seeking to maintain its traditional contract language and maintain the cost of living index. According to the Association, its final offer will be of little or no extra cost to the City and will maintain the morale of police employees. It also best satisfies the statutory criteria.
 
The Association points out that the raises will most likely be the same under either final offer however the City's offer would change past practice and damage morale in the name of "predictability". There is an established past practice since July 1, 1993 of giving Association members a wage increase based on the CPI-U Portland. The Association offers the language from two previous collective bargaining agreements to support this position. (Assn. Exs. A-3 (a) and (b)) Based upon the trend of the CPI over the past years, it is highly unlikely the figure will even reach three (3) percent for the life of this contract. For calendar year 2001, the CPI-U Portland is only 2.5% which would result in a wage increase under the Association's final offer of three (3) percent, the same amount contained in the City's final offer. The Association assumes that the CPI-U Portland for 2002 will not be above three (3) percent based upon the historical figures. (Assn. Exs. A-4 (a) and (b)) In the event the figure is greater than three percent for the final year of the contract, the Association wants to maintain a raise consistent with the cost of living and tradition.
 
The Association maintains that its final offer is best suited to maintain good morale for police employees and best satisfies the statutory criteria of the interest and welfare of the public. Furthermore, it is the Association's belief that its offer will not cost any more than the City's offer, or at best, minimally more, therefore any budgetary issues raised by the City should be given little weight. Continuing the traditional contract language, thereby ensuring that Association members will not be behind the cost of living, will help the City attract and retain employees. From the City's comparators it is clear that the Association is currently behind in its salary range thereby making it even more important to continue the past practice of the COLA range.
 
The Association urges the Arbitrator to select its final offer as being the most reasonable offer based on the statutory criteria, giving first priority to the interest and welfare of the public and secondary priority to the remaining criteria.
 
POSITION OF THE CITY
The City contends that its final offer retains the existing language and the burden rests with the Association to justify its proposed change in the language of Article 8. The City's offer is calculated to protect the interest and welfare of the public, provides the predictability necessary to create the City budget, is consistent with current economic realities, is firmly within the range of salaries paid in comparable cities for comparable work and, is reasonably connected to the Portland CPI.
 
The City maintains that a critical element in protecting the interest and welfare of the public is creating the annual City budget. According to the City, predictability is essential to creating and maintaining a budget, particularly in difficult economic times. (Affidavit of Michael Swanson) The Association's proposal undermines the City's ability to predict its expenditures and does not meet the statutory requirement of protecting the interest and welfare of the public. The proposed range does not adjust below three percent but only adjusts upward, to a maximum of six percent, making it an unjust range that does not reflect economic realities. The risk is placed completely on the City and the public it represents.
 
The City's proposed fixed rate increase complies with the "ability to pay" criteria listed in the statute. The City is presently facing a $1,200,000 shortfall during fiscal year 2003-2004 and in order to create a successful budget within this tight budget reality, the City must have predictability in its expenses. The City's proposed fixed increase offer provides that predictability. The City's proposal also enables it to maintain a reasonable operating reserve, which is an appropriate consideration within the statutorily mandated analysis of the City's reasonable ability to pay. The shortfalls in the City's budget are the result of the dramatic downturn in the local and national economy, falling interest rates that have considerably reduced the City's interest income, and uncollected property taxes that have risen above projections. (City Ex. #5) Additionally the City did not receive an expected Dispatch/CAD grant in the amount of $110,000. All of these cuts in revenue have resulted in spending far into the reserve and restrict the City's ability to pay. The Association's proposal threatens the City's budget process, lacking the predictability that is vital to creating a manageable budget and maintaining a sufficient reserve.
 
The City emphasizes that it has no difficulty in attracting a sufficient number of qualified applicants to fill vacant positions and there is no evidence that the City's turnover rate is higher than other police departments in Oregon. The City's proposal is sufficient not only to attract qualified personnel but also to retain qualified personnel as demonstrated by the Association's own survey in which the overwhelming majority of Association members rated their wages as being either "excellent" or "satisfactory". (City Ex. #6, p.2) At the time of the survey, the wage increase was at a fixed three percent.
 
The salary paid by the City is approximately the median within the comparable cities, with three cities paying less and two paying more. It is very close to the average of the salary range. Only one of the comparable cities provides a variable cost of living increase for 2002-2003, two cities provide a fixed rate increase, one at three percent, one at four percent, the fourth comparable city will pick up PERS and the fifth is going to mediation. (City's Ex. #7) The City's proposal of a fixed annual cost of living increase is in keeping with the COLA provisions in comparable cities. Furthermore, the City's offer exceeds the Portland CPI for last year.
 
The City concludes that its offer is best supported by the criteria set forth in the statute and urges the Arbitrator to select the final offer of the City.

ANALYSIS
ORS 243.746 (4) delineates the criteria to be used by arbitrators in the analysis of final offers submitted by parties. First priority must be given to the interest and welfare of the public and second priority is given to the remaining criteria.
The interest and welfare of the public
 
Both parties argue that their final offers best meet this criterion. The City maintains that central to protecting the interest and welfare of the public is creating the annual City budget and that in light of the current difficult economic times it is vital that the City be able to predict its expenditures. The City argues that its fixed rate wage proposal ensures predictability whereas the Association's proposed range not only places the City at risk but also is unjust and does not reflect economic realities, particularly since it does not adjust downward from three percent but only adjusts upward to six percent. The Association argues that the City's proposal is substantially similar to the Association's and therefore the City's financial concerns are therefore moot. The Association cites several arbitration awards that emphasize that the public's needs and interests are best met by assuring good employee morale through a fair wage that is within the employer's ability to pay. According to the Association, it is in the best interest of the public to maintain good morale for police employees and such morale is best maintained by adhering to the past practice of providing Association members a wage increase based on a range associated with the CPI-U Portland.
 
The City reminds the Arbitrator that:
 
The burden of proof in interest arbitration generally rests with the party that is seeking some change in the status quo and absent persuasive evidence to justify some significant change, the proposal that most nearly continues the existing terms and conditions of the Agreement is preferred. Benton County Deputy Sheriff's Association and Benton County, IA-16-01 (June 2002)
 
The Arbitrator finds however that it is the Association's final offer that maintains the status quo. The Arbitrator has reviewed the language in the previous collective bargaining agreements between the parties (July 1, 1993-June 30, 1996 and July 1, 1996-June 30, 2001) and finds that the language in past years has provided for a fixed wage increase for the first year of the agreements and for subsequent years a wage range of:
…not less than three (3) percent nor more than six (6) percent based on CPI-U Portland…(Assn. Exs. 3(a) and (b))
 
The Association's final offer contains the same language as the previous agreements and thereby continues the existing terms and conditions of the previous agreements between the parties.
 
The City argues that times have changed and that predictability is critical however the Arbitrator finds that the Association's final offer does not prevent predictability. A review of the City's exhibits 8 and 9 finds that the CPI-U Portland did not exceed three (3) percent for the year 2001 thereby limiting the increase effective July 1, 2002 to three percent under the Association's proposal. That three percent is consistent with the City's fixed wage rate proposal. The CPI-U Portland for 2002 will not be established until 2003 however the projected rate is 2.9 (City Ex. #8) and according to the Association's Research Analyst the Portland CPI-U has been trending down since 1997 with the average over the past 20 years being 3.32% and over the past 10 years, 3.14%. (Assn. Ex. #4(b)) The Arbitrator's review of the documents submitted by the parties found nothing to dispute the Association's analysis. The City should therefore be able to conduct a similar analysis and determine within a reasonable range, the cost to the City for the third year of the Agreement under the Association's proposal if indeed the CPI-U Portland for 2002 exceeds three (3) percent. In a worse case scenario, if the CPI-U Portland for 2002 equals or exceeds six (6) percent, the additional cost to the City under the Association's final offer, based on the figures presented by the City in Exhibit 3 would be less than $2000.(1) The City's argument therefore that predictability can only be achieved through a fixed rate is not persuasive. The Arbitrator concurs with the Association that a change in the language that has been in the agreements between the parties since 1993 could have a negative effect on the morale of the police employees. Although it is unlikely that the wage rate increase will be more than three percent, the fact that it remains linked to the CPI-U Portland reassures the employees that their wages will reflect the cost of living. Although the City emphasizes that the Association's own survey shows satisfaction with current wages, the fact remains that the survey was conducted with the knowledge that the agreements had for the past several years contained a variable wage increase based on the Portland CPI. (Assn. Ex. #5) The City has not made a compelling case that it is in the interest and welfare of the public to change the established practice of providing a variable wage range.
 
Ability to Pay
 
The City contends that its fixed wage increase offer enables it to create a successful budget with the greatest possible predictability in its expenses. As discussed in the above section however the Arbitrator is not persuaded that predictability cannot be accomplished under the Association's proposal. While the precise dollar amount may not be known until 2003, the trend of the Portland CPI-U is below 3% and is expected to hover close to that rate. It is not unreasonable, in order to maintain the morale of the work force, to expect the City to develop its budget with this trend in mind. Any increase above the City's projection of $128,372.18 for its fixed increase offer should not be significant, should be within the City's ability to pay and, will permit it to maintain a reasonable operating reserve. The Arbitrator recognizes that there are shortfalls in the City budget caused by the downturn in the economy, falling interest rates, and uncollected property taxes however she finds that the cost to the City under both parties' final offers is very similar and may in fact be identical once the 2003 Portland CPI-U is known. Precise predictability may be the preference of the City but lack of such precision
does not affect the ability to pay.
 
Attract and Retain Qualified Personnel
 
The City asserts that the Association's own survey reflects that police employees are satisfied with a fixed rate increase however the Arbitrator finds that there is no valid or reliable source to confirm whether the employees were basing their responses on a variable or fixed rate increase. There is also no evidence that the City is having difficulties attracting and retaining qualified personnel. As previously discussed, both wage proposals will most likely result in the same wage increase however only the Association's proposal maintains the tie to the cost of living that has been in previous agreements. A continuation of that tie will help to maintain employee morale.
 
Comparable Communities
 
The comparables offered by the City show that the wages currently paid to its employees are approximately the median, with three comparable cities paying less and two paying more. The Arbitrator notes that two of the cities that are paying less have scheduled increases for 2002-2003 of four (4) percent (Forest Grove) and "CPI-U Portland Min 4 max 5.5%" (West Linn). (City Ex. #7) West Linn's minimum increase of four (4) percent will result in wages relatively equal to the City of Milwaukie's wages under either final offer. Forest Grove has an additional scheduled increase of four (4) percent for 2003-2004 at which point the minimum wages will exceed the minimum wages of the City of Milwaukie and the difference between the maximum wages will be minimal, regardless of which final offer is selected assuming that the CPI-U Portland does not deviate from the emerging trend for the year 2002. As discussed previously in this analysis, both parties' final offers will most likely yield a wage increase of three (3) percent for both remaining years of the Agreement however the Association's final offer not only maintains the morale of the employees but also allows for a cost of living increase in the event the CPI-U Portland exceeds three percent and will therefore provide a slightly higher increase that will keep the City from falling further behind the comparable cities.
 
CPI-All Cities Index
 
Both the City and the Association acknowledge that the CPI All Cities Index has been in a downward trend. The Arbitrator concurs with their assessment that it is doubtful that any of the CPI figures will exceed three (3) percent for the duration of this Agreement and there is a good possibility that the CPI figures will be below three (3) percent. Since both parties' final offers represent a three (3) percent wage increase, this criterion only becomes applicable if the downward trend reverses and the CPI figures exceed three (3) percent in which case only the Association's final offer would enable the police employees to keep pace with the increase in the cost of living.
 
CONCLUSION
The analysis of the parties' final offers utilizing the statutory criteria does not yield any significant difference between the two proposals. Both offers would most likely provide a three (3) percent wage increase to the police employees. Both offers would enable the City to attract and retain qualified personnel. Neither offer places an unreasonable financial burden on the City. The Association offer however enables the employees to maintain the previously established tie to the cost of living under the same terms and conditions contained in the previous two agreements. The Arbitrator has not been persuaded that it is in the interest and welfare of the public to break that tie and finds instead that it is in the interest and welfare of the public to maintain the morale of the workforce by continuing with the previously established practice.
 
ORDER
Pursuant to ORS 243.746 (4) and for the reasons set forth in the Analysis, the Arbitrator finds that the Association's final offer is in the interest and welfare of the public and hereby orders that it be adopted.
 
Respectfully submitted, this 15th day of September, 2002
 
Sylvia P. Skratek, Ph.D., Arbitrator
 
Representing the Employer: Martin C. Dolan and Sue-Del McCulloch, Dolan, Griggs & McCulloch
 
Representing the Association: Jaime B. Goldberg, Garrettson, Goldberg, Fenrich & Makler
 
1. This amount was determined by multiplying the 2002-2003 fiscal impact of $63,237.99 by
 
1.06 which equals $67,032.26, which is less than $2000 more than the projected fiscal impact of the City's fixed rate increase of 3%, $65,134.19.