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IA-11-01
In the Matter of a Controversy Between LINCOLN CITY, Employer, and LINCOLN CITY POLICE EMPLOYEES ASSOCIATION, Union. IA-11-01.
 
This interest arbitration arises under ORS 243.746, pursuant to which this Arbitrator selected to hear the evidence and to determine the issues. A hearing was conducted on January 11, 2002, in Lincoln City, Oregon, at which time the parties had the opportunity to examine and cross-examine witnesses and to present relevant evidence. Both parties submitted closing briefs, which were received by the Arbitrator on or about February 14, 2002. The parties' representatives thereafter agreed to a two week extension of time for the issuance of this decision.
 
PERTINENT 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 a 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 paragraphs (a) to (g) of this subsection provided sufficient evidence for an award.
 
(5) Not more than 30 days after the conclusion of the hearings or such further additional periods to which the parties may agree, the arbitrator shall select only one of the last best offer packages submitted by the parties and shall promulgate written findings along with an opinion and order. . . .
 
BACKGROUND
 
Lincoln City is located on the northwest coastline of Oregon. Its economy is based largely on vacation tourism, and as a result its population is variable. It has a population of 7,480 full-time residents, and at the peak of the vacation season, there may be over 15,000 people in town. The number of off-season visitors has grown in recent years, due in part to the Chinook Winds Casino which recently opened nearby.
 
The Police Department consists of 19 peace officers in total, 12-13 of whom hold the rank of police officer. The Department is headed by Acting Chief Ernie Hanson, who took over with the departure of the former chief in April, 2001. The Department's budget is easily the City's largest expense, with police services, not counting dispatch, accounting for approximately one third of the expenditures from the general fund.
 
The impasse at issue in these proceedings arose out of re-opener bargaining for fiscal year 2001 salaries and health and welfare under the 1999-2002 collective bargaining agreement. On April 23, 2001, City Manager David Hawker presented his budget message to the City Council in which he recommended a number of cuts in general fund expenditures due primarily to the impact of Measure 50, which substantially reduced property tax revenues beginning in 1997. The Council adopted a budget incorporating many of those recommendations, including a cut of two police officers, and it took action to raise revenues through fees and an increase in the business occupation tax. It declined to place other tax measures on the ballot. The budget incorporated a 1½% wage increase for all employees, and that increase was accepted by the union representing employees outside of the Police Department.
 
In April, 2001, the City was notified of a 31% increase in medical insurance costs. On May 17, the City made a proposal to the Association under which it would pay the full premium for employee only coverage, but only a portion of dependant coverage, along with a 2.2% salary increase. In the City's last best offer, set forth below, it has proposed to maintain the status quo in terms of cost sharing for health insurance, with a 1.5% salary increase. According to Finance Director Ron Tierney, because the May 17 proposal would have cost employees $13,500 more in health and welfare, and the difference in the two salary offers is $9,100, the City's last best offer represents a net increase in its proposal, even though the salary offer is reduced.
 
LAST BEST OFFERS
 
The Association:
  • Article 22/Section (5) - Salaries
Retroactive to July 1, 2001, increase wages by two and one-half percent 2 1/2% across-the-board.
  • Article 22/Section (11) - Incentive Pay
Commencing May 1, 2002, officers and dispatchers with an Intermediate and/or Advanced certificate shall receive the higher amount of either two percent (2%) of the employee's base wage or $60.00, for each certificate.
  • Article 21 - Health and Welfare
 
Maintain status quo
 
The City:
  • Article 22 - Salaries
 
Section 5. Effective July 1, 2001, the salary schedule shall be increased by one and one-half percent (1.5%).

  • Article 21 - Health and Welfare
 
Section 1. The City agrees with the Association to maintain the status quo per current contract cost sharing formula effective July 1, 2001.
 
DISCUSSION
 
A. The statutory criteria
 
1. The interest and welfare of the public.
 
The primary statutory criterion is stated as the interest and welfare of the public. While both parties agree that the public interest is served by, in the words of the city manager's budget message, "a well paid workforce to both attract and retain excellent, well trained, and motivated employees," it is obviously not in the public's interest to suffer service cuts and the other consequences of committing the City's resources to the point of endangering its financial viability. Where, as here, the issues in dispute are completely economic, the overall interest of the public cannot requires the balancing of the remaining statutory criteria, which are considered below.
 
2. The reasonable financial ability of the City.
 
The City has conceded that it is not claiming a strict inability to pay the cost of the Association's proposals, but it argues that its general fund revenue is shrinking rapidly due in large part to the effects of Measure 50, and that its financial projections show its expenditures as exceeding revenues over the next five years. On the other hand, Finance Director Tierney testified that the cost of the Association's LBO, which came to $21,323 more than the cost of the City's LBO,(1)would not cause the City to "go bust," and the Association argues that this means that cost is not a material factor in the City's future financial health.
 
It must be noted that ORS 243.752 (Senate Bill 750) does not contain a strict ability to pay criterion. In commenting on the change from the Legislature's restatement of this criterion from one line in the old statute to eight lines under SB 750, arbitrators John Abernathy and Tim Williams noted that one effect of this change was:
 
"Financial ability to meet the costs of the proposed contract has been changed to reasonable financial ability to meet those costs. This changes the inability-to-pay defense from an absolute inability to pay defense to a relative inability to pay defense."(2)
 
For this reason, the fact that the difference in cost between the two proposals will not bankrupt the City does not mean that the additional $21,000 of the Association's LBO can simply be dismissed as insignificant. The City is facing financial hardship, as demonstrated by fact that its general fund expenditures have exceeded its revenues since 1997, when the effects of Measure B were first felt, and its 2001 budget projected a $14,000 general fund deficit even with a number of staff reductions and a projected 1½% general salary increase.
 
The Association argues that the City is saving $6,000 to $8,000 per month due to the departure of the former police chief and the elevation of Acting Chief Hanson pending a permanent replacement. While there is a direct salary savings at this point, City Manager Hawker testified that the Department is down a position as a result of the chief leaving, and as a result of this and four officers on light duty, there is a great deal of overtime so that it was his belief that the Department was currently over-budget, even with the chief gone. The Association also notes that the City has saved $72,364 by not replacing a lieutenant who retired. However, the loss of a lieutenant through attrition was one of the cuts recommended by the city manager and adopted by the Council (Assn. Ex. 13, p. 17); therefore, this cost savings has presumably been incorporated in the current budget.
 
In summary, while the difference in the cost of the LBOs is relatively small, it will have an adverse impact on the City's ability to pay for other services and priorities. Because of the City's unfavorable financial condition, this is an impact which weighs against the Association's LBO.
 
3. Recruitment and retention.
 
Both parties recognize that some officers are likely to leave for higher paying jurisdictions, and that the cost of training a new officer is equivalent to nine months of salary so that serious efforts should be made to retain a trained officer (see Assn. Ex. 13, p. 9). While low salaries are undoubtedly a factor in officers leaving, there is probably an inevitability that some officers will leave for larger, more prosperous jurisdictions, while for others the lower salaries are balanced out by quality of life considerations for living in a small community in an area of tremendous natural beauty. It seems unlikely that the difference between a 1½% and 2½% salary increase in 2001 will have more than a negligible effect on whether individual officers will leave the Department.
 
4. Salary and benefit comparisons.
 
Under subsections (d) and (e), an interest arbitrator is to consider the overall compensation received by employees in comparison with the overall compensation of employees in comparable communities, with "comparable" being limited to communities of the same or nearest population range within Oregon. The initial problem in applying these criteria is to determine the appropriate comparators. The statute mandates the consideration of population, but it does not provide guidance as to what constitutes the same or nearest population range within Oregon for purposes of determining appropriate comparators. This issue is highlighted in the dispute between the parties as to appropriate comparators with Lincoln City.
 
For purposes of this arbitration, the City has provided two comparator charts. The first consists of five towns with a population spread of 12% above to 2% below Lincoln City's population of 7,480. The second consists of 13 cities with a population spread of 26% above to 21% below Lincoln City. The comparators are spread over all parts of the state.
 
The Association, on the other hand, has proposed a list of 13 comparators, and from population figures provided by the City it can be seen that the population spread runs from minus 21% (Seaside) to plus 47% (Troutdale).(3) In contrast to the City's list of comparators from all parts of the state, the Associations list contains a concentration of cities from the northern Willamette Valley (Troutdale, Gladstone, Canby, Sherwood), with populations ranging from 12,230 to 13,975, or 39% to 47% greater than Lincoln City, and which the City has characterized as prosperous, bedroom, suburban municipalities. However, the Association's list is largely consistent with the comparators chosen by Arbitrator Catherine Harris in a 1997 interest arbitration between these parties, and with a list utilized in a salary study commissioned by the City in 2001.
 
The City's two comparison charts show the City as being 5.1% above average in terms of PERS-adjusted salary for the close population spread, and 1.8% above average for the larger population spread. The Association, on the other hand, shows the City as 6.36% below average for its list of comparators at the five-year level, and 2.63% under average at the ten-year level.
 
Another point of difference between the presentations by the parties is that the Association has made comparisons based solely on the two issues contained in the LBOs, i.e. salary and incentive pay, whereas the City has included comparisons based on other economic benefits, in particular health care benefits, which for Lincoln City represents 23% of salary. As previously noted, the City's LBO incorporates its agreement to maintain the status quo in health and welfare, which effectively means that it has picked up the entire 31% increase in insurance premiums.(4) Since the statute mandates comparisons based on overall compensation, the City's comparisons incorporating health care benefits must be given consideration. The chart below shows is a composite of charts comparing fiscal year 2001 PERS-adjusted salary for top step police officers (i.e. with ten years' seniority) and health care benefits. Since only the City has provided comparisons incorporating health care costs, the comparators are limited to those provided by the City in its chart showing the larger population spread, and of those the comparators chosen are those which also appear on the Association's list.(5) The cities are arranged in order of the salaries paid, and the two figures shown for Lincoln City incorporate the 1.5% and 2.5% figures from the parties' LBOs. These two figures have been calculated from the $3359 base salary for senior police officer, i.e. with ten years' experience.
 
City Population Salary - top step Health benefit(6)
 
(PERS adjusted)(7)
 
Florence 7,340 $3394 100%, employer paid, $677 maximum
 
North Bend 9,540 $3432 $474 cap on employer-paid premium
 
Astoria 9,815 $3441 95% cap, $527 maximum
 
Seaside 5,915 $3454 95% cap, $662 maximum
 
Silverton 7,470 $3502 90% to cap of $500
 
Lincoln City 7,480 $3614 (+ 1.5%) 100% employer-paid premium, less monthly
 
$3650 (+2.5%) co-payments of $7.50, $12.50, or $15.00, depending on number of dependants, resulting in employer payments of $286.50, $532.50, or $828.00.
 
St. Helens 10,100 $3959 $496 cap on employer-paid premium
 
From this list, Lincoln City's salaries compare favorably with the other cities shown, and even more striking is the relative generosity of its health and welfare package. To be sure, not all officers will qualify for the maximum coverage of an employee plus two or more dependents, but it is striking that St. Helens, which pays significantly more in salary, also pays significantly less for health benefits.
 
The above chart omits the northern Willamette Valley towns of Troutdale, Gladstone, Canby, and Sherwood, which pay salaries in the range of St. Helens. On the other hand, the chart also omits towns lying in more remote, rural areas of the state, which were included among the City's proposed comparators but to which the Association has objected.(8) The only condition in the statute concerning comparators is that of population; there is nothing in the statute suggesting that geographic proximity should be a factor. Assuming, however, that factors other than population may be considered, it is not entirely clear what a predominantly tourist and retirement community, such as Lincoln City, has in common with suburban metropolitan communities proposed by the Association.(9)
 
As previously noted, the northern Willamette Valley communities have populations ranging from 39% to 47% more than Lincoln City. The statute does not define what an appropriate population range is for purposes of comparison, but the population disparities give a somewhat diminished value to these towns as comparators. On the other hand, the population of Lincoln City swells during the vacation season, and there is some validity to the argument that larger communities should be considered. As previously noted, the cost of health care benefits has not been provided for these towns. From the contract language, it appears that the Troutdale health benefit package is generous, and this may also be the case with the other three towns, although the contracts on their face are not clear.
 
Overall, even giving consideration to the northern Willamette Valley towns, the salary and benefit package provided by Lincoln City, figuring in either a 1.5% or 2.5% increase, fits into the mid-range of comparable cities. It may be noted that its educational incentive package, which the Association has proposed to increase, is below that of the comparators. Nevertheless, it has not been shown that Lincoln City is out of line with comparable cities in terms of overall compensation, and this criterion has an essentially neutral effect in terms of which LBO to accept.
 
5. Cost of living.
 
The parties have provided contrasting cost-of-living figures, based on the period of time covered. The Association relies on the 3.7% increase for the year ending January, 2001, while the City relies on the 1.6% increase for the year ending November, 2001. The Association argues that the earlier figure is appropriate, since the parties began negotiating in December, 2000, and that it should not be penalized for the fact that the bargaining process will end in arbitration in early 2002, rather than closer to the commencement of bargaining in December, 2000. The City argues that the CPI figures are used to project the cost-of-living for the upcoming year, and therefore the November, 2001 figures which provide the actual increase for half of that year are even more reliable.
 
The statutory language provides little guidance on this issue, and no arbitral precedent has been cited by either side. It would seem that the appropriate time period for the cost-of-living figures would be the time period under negotiations, which in this case is the fiscal year from July 1, 2001 through June 30, 2002. For this time period, the figures relied upon by the City are more relevant, and this factor favors the City's proposal.
 
B. Conclusion.
 
The City has convincingly shown that its financial condition is precarious and will be adversely impacted by meeting the costs of the Association's proposal. Although the City could meet the cost of the proposal, the statute does not establish a strict ability to pay as a criterion. Arbitrators are to consider the reasonable financial ability to pay while giving due consideration to the municipality's other obligations and priorities. The City has already cut some services as a result of its financial difficulties, and although it is not doubted that a well-paid work force benefits the public, the evidence relating to salary and benefit comparisons and cost-of-living does not demonstrate that Lincoln City police officers are below standard such as to overcome the evidence of the City's budgetary constraints. Therefore, it is concluded that the interest and welfare of the public favor acceptance of the City's last, best offer.
 
AWARD
 
The last, best offer of Lincoln City is adopted for the fiscal year commencing July 1, 2001.
 
Dated: April 1, 2002
 
Franklin Silver, Arbitrator
 
APPEARANCES:
 
On behalf of the Employer: Patrick J. Mosey, Mosey Consulting, Inc.
 
On behalf of the Union: Jaime B. Goldberg
 
1. The City initially estimated a cost difference of $26,183 between the two LBO's (City Ex. 4). However, Mr. Tierney conceded that he had failed to factor in the current benefit costs in its status quo proposal on incentive pay, so that the actual cost diffference in the proposals was $21,323.
 
2. Abernathy and Williams, "Last Best Offer - Total Package: Oregon's New form of Interest Arbitration," LERC Monograph Series No. 14, p.92.
 
3. The Association also included Coos Bay, with double the population of Lincoln City, in its list, but has retracted that city, and North Bend, in its post-hearing brief.
 
4. The Association has provided evidence that in six of eight of the communities included in its list of comparators, the parties have agreed to 2001 salary increases greater than its 2½% proposal. No evidence has been provided as to what additional health care costs or other economic the cities have agreed to, and therefore this evidence does not fit the statutory criterion of overall compensation.
 
5. North Bend was listed on the Association's exhibits, but the Association has indicated it was included in its exhibits in error. It was, however, one of the cities included in the salary study commissioned by the City, for which comparators were chosen by a labor-management committee. For this reason, and because it is close in population to Lincoln City, it is appropriately considered in this decision.
 
6. The collective bargaining agreements generally show the amount of the employer contribution, the employee co-payment, and/or the dollar or percentage amount of the cap on the employer-paid contribution for the first year of the contract only. The current amounts of the employer contributions were obtained by the City's Human Resources Manager DeLane Englestad by contacting the various cities directly, and the resulting numbers appear consistent with the contract provisions which were placed in evidence.
 
7. The PERS adjustment comes into play based on whether the employer or employee makes the contribution. In their charts, the parties have shown the PERS adjusted wage differently. The City has shown the base salary, and has calculated the PERS adjustment by adding the amount contributed by the employer to the base. The Association, on the other hand, has subtracted the amount contributed by the employee from the base. Either method of calculating the PERS adjustment would appear to be accurate, although the total PERS-adjusted salaries shown on the City's charts are higher than those on the Association's charts. The amounts shown above are taken from the City's charts.
 
8. These towns include Baker City, Cornelius, Cottage Grove, Hood River, Independence, Prineville, and Sweet Home.
 
9. The Association has provided an exhibit showing that Lincoln City's assessed valuation is the second highest in its list of comparators, and is comparable to that of the northern Willamette Valley communities. While this evidence has relevance in terms of the City's tax base, this comparison would have been more useful if there had been expert testimony to correlate it more directly with the City's financial condition and that of the other communities. As it is, the City provided budgetary information demonstrating its precarious financial condition, and it is not clear how to evaluate the comparison of assessed valuation.