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IA-11-02
IN THE MATTER OF INTEREST ARBITRATION, BETWEEN CITY OF MADRAS AND MADRAS POLICE EMPLOYEES' ASSOCIATION. IA-11-02
 
INTRODUCTION
 
The arbitrator was selected by the parties pursuant to the Oregon statutory process to decide their unresolved issues with respect to the terms of their collective bargaining agreement. Prior to the hearing, a motion was filed by the City of Madras (hereinafter Employer) to defer the hearing herein pending determination of an unfair labor practice filed by the Employer. The Madras Police Employees Association (hereinafter Association) opposed the motion and it was denied. At the hearing, witnesses testified on behalf of each party and exhibits were received. Post-hearing briefs were filed. The parties agreed to the arbitrator's request for an extension to no later than April 8, 2003 for the filing of his opinion and order.
 
All exhibits, awards, and briefs filed throughout this proceeding as well as the transcript have been considered by the arbitrator with the exception of the transcript of part of the proceedings of an unfair labor practice filed by the Employer that was not deemed to be relevant.
 
OPINION AND ORDER
 
I. COMPARATIVE REVIEW OF THE LAST BEST OFFER PACKAGES.
 
The full texts of the respective packages are in evidence and in the interests of brevity will be summarized herein. While the parties are in agreement that the primary issue separating them is that of health insurance, with wage increases being a close second, they nonetheless have included a host of other proposals. All outstanding issues in contractual order are presented below. When a party is not shown to desire a change, its' position is status quo.
 
A. Article 2 - Association Membership and Check off.
 
The Employer proposes deletion of existing language requiring it to furnish new employees a copy of the collective bargaining agreement and to permit an Association representative to explain it during work hours so long as it does not interfere with operations. The Employer proposes new language placing notice and approval requirements upon Association representatives when attempting to transact Association business on Employer premises during work time.
 
B. Article 3 - Management Rights.
 
The offers of the parties are virtually identical with the exception that the Employer provides in its offer that the use of police reserves shall not be considered contracting out.
 
C. Article 6 - Vacations.
 
The Association offer would delete the exclusion contained in the prior collective bargaining agreement of vacation accrual during educational leave with pay in excess of fifteen (15) days.
 
D. Article 7 - Hours of Work.
 
The Association offer would change the terms of the prior agreement by including language respecting shift bidding and paid lunch time, which would incorporate what it asserts is past practice on this subject and by providing no exceptions to scheduled work weeks.
 
E. Article 9 - Other Leaves of Absence.
 
The Employer offer deletes a section of the prior contract, Return Within Six Months, which provides that in the event an employee is rehired within six months of a non-disciplinary layoff, he/she shall return at the rate received at the time of layoff plus any interim step increments. The Association offer provides new contract language providing for layoffs by inverse seniority and bumping and recall rights for eighteen (18) months after layoff. In addition, the Association offer provides for the right of an employee who leaves a bargaining unit job for another position with the city to return to his/her bargaining unit position without loss of seniority and to be placed on a layoff list with the right to the first available vacancy should no vacancy exist at the time he/she desires to return to the bargaining unit.
 
F. Article 10 - Compensation.
 
The Association offer is for a five percent (5%) increase retroactive to July 1, 2002 for each of the existing six salary steps with the provision that an employee shall move to the next step on his/her anniversary date and subject to a successful performance evaluation with recourse to the grievance procedure should an increase be denied based upon a performance evaluation. The Association offer for the second and third years of the contract are COLA increases of a minimum of two and one-half percent (2.5%) and maximum of five percent (5%) effective on July 1 of each year. In addition, the Association offer proposes a three percent (3%) increase on January 1, 2004 and 2005 with the proviso that should a proposed annexation not produce sufficient revenue to finance the three percent (3%) increase in 2004, the Employer on thirty (30) days notice prior thereto may request a reopener on wages.
 
The Employer offer is for a 15-step salary plan with initial increases in rates of pay for each year of employment and two percent (2%) cost of living adjustments in the second and third years of the contract.
 
The Association offer in addition proposes a change in the CPI index from the prior contract, a five percent (5%) premium for employees having street level Spanish fluency, language providing for a change in rates of reimbursement for mileage, and new language providing for pay for meals when employees are required to travel outside the city.
 
G. Article 14 - General Provisions.
 
The Employer's offer would make minimal changes in the contractual provision respecting side arms and ammunition for training and practice purposes, and the deletion of existing sections of the contract respecting bulletin boards, which require the city to provide for Association use, union meetings, which provide for their being held on city property and attendance while on duty in an on-call status, polygraph examinations, which prohibit their use, and annual budget approval, which basically provides there is no guarantee by the city that the cost of benefits provided in the contract will be funded.
 
The Association's offer includes provisions for it to examine employee personnel files, a new definition of seniority, and a requirement that work rules be in writing with copies to the Association and employees.
 
H. Article 15 - Health, Welfare and Retirement.
 
The Association's offer proposes full medical, dental and vision care for employees and dependents at no cost to the employee, retroactive to July 1, 2002 at current levels. and LTD and Life Insurance benefits for employees at employer cost. It further
 
The Employer's offer caps its contribution for the first year of the contract at $600 per month, $625 per month for the second year, and $650 for the third year.(1)
 
I. Article 16 - Termination and Reopening.
 
The Association's offer proposes a change in the starting time of negotiations, a requirement that during negotiations the contract remain in full force and effect, and that the effective date be the date of the issuance of the arbitrator's award herein. The Employer proposes an effective date of July 1, 2002.
 
II. STATUTORY CRITERIA
 
The Oregon Public Employees Collective Bargaining Act, ORS 243.746(4) and the Rules of the Oregon Employment Relations Board ("ERB"), OAR 115-40-105(8), require that the following criteria govern the resolution of this dispute:
 
ORE 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 disputes, 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 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 subsection, "comparable" is limited to communities of the same or nearest population range within Oregon. Notwithstanding the provisions the of the subsection, the following additional definition of "comparable" apply in the situations described as follows:
 
1. For any city with a population of more than 325,000, "comparable" includes comparison to out-of-state cities of the same or similar size;
 
2. For counties with a population of more than 400,000, "comparable" includes comparison to out-of-state counties of the same or similar size; and
 
3. For the State of Oregon, "comparable" includes comparison to other states.
 
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 subsections (a) to (g) of this section 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 subsection (A) to (G) of this section provide sufficient evidence of an award.
 
III. SOME CONSIDERATIONS IN APPLYING STATUTORY CRITERIA
 
A. The Interest and Welfare of the Public.
 
The many opinions referenced by the parties demonstrate that there is no commonly accepted definition of this concept. Suffice to state the primary statutory criteria is regarded by the arbitrator as requiring the selection of that offer which will provide necessary police services to safeguard the citizens at the lowest cost level which will attract and retain qualified employees to provide such services. Secondary factors set forth in the statute are used to assist the arbitrator in arriving at a conclusion as to which offer better meets the interest and welfare of the public but will not be accorded, in effect, the role of co-determinants of the primary criteria.
 
B. Ability to Finance Cost of Proposed Contract.
 
This factor shall be addressed in conjunction with the analysis of the wage and insurance aspects of the parties' offers hereinafter.
 
C. The Ability to Attract and Retain Qualified Personnel at the Wage and Benefit Levels Provided.
 
Data indicates that in the past five years the Employer has received at least 26 applications for each of five openings. At present only one police officer was hired prior to 1995. One was hired in 1995, two in 1996, and one each in 1997, 1999, 2000 and 2001. The predominant reason given for departures in the past have been to obtain police work with larger, better paying jurisdictions. The Employer's police chief notes that many applicants do not have the experience he would like. No evidence was introduced as to the number and level of qualifications of applicants at comparable jurisdictions. Testimony of an Association witness indicated that a minority of bargaining unit employees are now seeking employment elsewhere. The Employer professes no knowledge of any potential terminations. Given the size of the Employer, its turnover rates and applicant pool do not appear to have been affected by compensation and benefit levels provided its employees to any degree beyond that which would be considered normal. For reasons discussed hereinafter, neither last best offer package is regarded as being of a nature that the Employer cannot continue to attract and retain qualified employees.
 
D. Overall Compensation Presently Received by the Employees.
 
Monetary factors other than wages and insurance as influencing a decision as to which last best offer package to accept cannot be viewed in a vacuum but must be considered in the context of monetary benefits provided by comparative jurisdictions and in this decision will be discussed in conjunction with the overall compensation of other employees in comparable communities.
 
E. Comparable Community Comparisons.
 
The parties are in agreement that in considering comparable communities the arbitrator should follow a progression of communities most closely comparable in population to the Employer. Both agree that the most reliable source for population data is the certified estimates of population issued by the Population Research Center, Portland State University. They differ as to which estimates to use with the Association urging that the estimate published during the period of contract negotiations should be used and the Employer urging that the most recent data released in December 2002 should be used. The Association contends that no matter which period is used a comparable community should not be excluded if it contracts with a county to provide such services. The Employer would exclude such a community.
 
In considering comparable communities, the December 16, 2002 estimates will be used as they are the most recent and cover the period when bargaining actually took place. In so doing, a community which contracts for police services will not be excluded as a comparable community as such does not appear warranted by the clear wording of the statute.
 
Based on the foregoing, the comparable communities are found to be the following ten, which are the five communities in ascending and descending population order to the Employer--Sandy, Molalla, Brookings, Sheridan, Talent, Scappose, Winston, Junction City, Phoenix, and Tillamook. Copies of the collective bargaining agreements between each of these communities and the collective bargaining representative of their police officers have been provided with the exception of Scappose where the collective bargaining agreement between the County with which it contracts for police services and its collective bargaining representative has been provided.
 
A review of these communities indicates that with the exception of Tillamook and Brookings, they have common characteristics shared with each other that they do not share with Madras. All are close to Interstate 5. Sandy and Molalla are approximately 20 miles from the Portland metropolitan area. Sheridan is approximately 20 miles from Salem. Junction City is within 20 miles of Springfield and Eugene. Winston is approximately 10 miles from Roseburg. Phoenix and Talent are adjacent to each other and within 10 miles of Medford. In addition to being in the geographically remote interior of the state, the largest city within approximately 30 miles of Madras is Redmond with a population of approximately 16,000.
 
Generally, wage rates for the 10 comparable communities are higher where the community is close to a large metropolitan area, and descend the farther from Portland the communities are located and the more remote their location is from Interstate 5. For example, the average monthly hire rate and rate for five years of service for Sandy, Molalla, Sheridan, Scappose and Junction City are $2,876 and $3,636, respectively. This compares to averages of $2,465 and $3,175 for the communities of Tillamook, Brookings, Winston, Talent and Phoenix. A difference of $411 or nearly 14% on the hire rate and $460, or 12.7% after five years. The differential on employer costs for insurance averages only three dollars $3 per month with the first grouping of cities averaging $634 and the second $631. Four of the six lowest rates of employer contribution for insurance are found in the communities which have collective bargaining agreements with the Teamster's Union and whose employees are covered by that union's Taft-Hartley insurance trust plan. It also must be noted that differences in maximum employer insurance costs per employee can result from whether insurance rates are based on a composite figure or on a tiered basis.
 
While due regard will be had for all comparable communities, more significance will be attached to the communities of Brookings, Tillamook, Winston, Talent, and Phoenix. Two of these communities (Brookings and Talent) are larger than Madras while three are smaller. Brookings and Tillamook share remote locations from I-5, in common with Madras, but do not share the proximity to a city of three times their size. Talent and Phoenix are the farthest south from Portland and are close to Medford, which is three times the size of the largest city in proximity to Madras. They are also along the I-5 corridor. Winston, although near I-5, because of its proximity to Roseburg, shares much the same geographic relationship to a city comparable in size as Madras bears to Redmond.
 
On the other hand, the communities of Sandy, Molalla, Scappose, Sheridan and Junction City are regarded as having their rates of pay for police officers influenced by their proximity to metropolitan areas with surrounding suburbs that can reasonably be expected to pay more money to their police officers because of their greater financial resources, higher cost of living, and competitive pressures to attract and retain police officers. These communities thus have little in common with Madras other than population.
 
F. The Cost of Living.
 
The CIP (All Cities) in the years 1998 through 2002 has increased by slightly over 10%. Increases in net wages of bargaining unit employees have been approximately 150% of this rate although a significant part of the increase is attributable to the employer picking up employee PERS contributions. With respect to each parties' last best offer package, no one can predict with any degree of certainty the future course of the cost of living index; however, based upon the experience of the past few years, it appears the Employer's wage offer on an overall basis will meet anticipated cost of living increases over the contract term, and the Association's will far exceed any reasonable projected cost of living increase.
 
G. Stipulations of the Parties.
 
There are no stipulations.
 
G. Other Traditional Factors.
 
The factors in subsections (a) to (g) of the statute are sufficient, without recourse to other traditional factors to make an award.
 
IV. ANALYSIS OF FINAL OFFER PACKAGES APART FROM WAGES AND INSURANCE
 
Both parties' final offer packages contain numerous changes from the prior collective bargaining agreement. The Association's package contains a number of additions, some in the form of incorporating into the collective bargaining agreement what it represents to be existing non-contractual practices while others are entirely new provisions. The Employer's package consists in the main of deletions from the prior collective labor agreement. Both parties are in agreement that either package proposal, other than parts dealing with wages and insurance, could be viewed as acceptable under the statutory criteria.
 
A review of the package offers in conjunction with reference to the collective bargaining agreements of comparator jurisdictions provides the following general impressions. A distinct minority has contractual language on shift bidding, the so-called Evergreen clause, access to employee personnel files, or prohibiting polygraphs. By the same token, a clear majority provide guaranteed workweeks, paid meal periods, and bulletin boards. All comparator jurisdictions have layoff and recall provisions. There is a distinct split among comparator jurisdictions with respect to inclusion of language regarding city property for Association meetings and attendance by on-duty officers.
 
Either parties' final offer package with respect to matters other than wages and insurance are regarded as meeting the statutory criteria. While the Association package contains certain provisions not generally found in contracts of the comparator jurisdictions and the Employer package attempts in some cases to provide less than the terms and conditions found in the majority of the labor agreements of comparator jurisdictions, neither package in its overall terms could be viewed as not being in the interest and welfare of the public.
 
V. ANALYSIS OF THE FINAL OFFER WAGE PACKAGES
 
Prior to 2002, Laborer's Union Local 14 had represented the police officers for over twenty-five years. Dissatisfaction with that bargaining representative led to the forming of the Association and its' selection as the bargaining representative. Along with the change in representation, the membership in the bargaining unit was expanded to include sergeants and an office manager who had previously been unrepresented.
 
Reference to all 10 of the comparable communities shows that the current hire rates and rates after five years service for the Employer's police officers are approximately 16% below their average. At ten and fifteen years service, the differential rises to approximately 22%.
 
The Association's package offer continues the current six-step progression terminating at the end of the fifth year of employment. There is no indication that any current bargaining unit employees would qualify for the Spanish premium and there is scant support for it based upon the labor agreements of comparable communities. In evaluating the Association's final offer wage package, it is assumed the cost of living index will increase by less than two and one-half percent (2.5%) and that wage rates in all comparable communities will increase by two and one-half percent (2.5%) in 2003 and 2004. The assumptions are based both on existing contract language and projected cost of living increases of two and one-half percent (2.5%) per year in 2003 and 2004.
 
Based on these assumptions, the monthly wage rates for all comparator jurisdictions at the hire level and after five years of service at the end of the contract will on average be over six and one-half percent (6.5%), and nearly eight percent (8%) higher, respectively, than those rates established by the Association package at the end of the contract and, after ten and fifteen years of service, will be approximately 13% higher. The net effect of the Association proposal would be to reduce by approximately one half the percent disparity between wage rates for Madras and all comparable communities.
 
Using the same assumptions as above, under the Employer's proposal at the end of the contract term, the hire rate and rate after five years of service for bargaining unit employees would be slightly under two percent 2%, and 10% respectively less than the average rates of all comparable communities. After ten years of service, the wage rate for bargaining unit employees would be approximately 11% less than the average of all comparable communities and about five percent (5%) less after fifteen years of service. Thus, the Employer final offer also makes significant inroads upon the existing disparity on wage rates with respect to the average of all comparable communities.
 
The wage progression schedule at all comparable jurisdictions varies to some degree with an average of about six years to reach the top, although some do provide longevity increases through fifteen to twenty years of service. While the Employer's 15-step and nearly 15-year progression is at the outer limits of comparator communities, it can not be rejected on the basis that it is totally out of step with comparable jurisdictions.
 
The Association's final offer package on wages, assuming the current employees remain and no others are hired, will increase the Employer's wage costs by about 21%, or approximately $63,000 annually by the end of the contract term over that which would have been in effect at the outset of the collective bargaining agreement. These increases do not, of course, reflect federal and state statutory retirement contribution cost increases. The Employer's final offer package on wages under the same set of assumptions will increase the Employer's annual wage costs by approximately $69,000 annually, or 23%, although the impact upon individual employees varies widely.
 
While the Employer offer departs from the norm insofar as the years of wage progression are concerned, it does have the benefit to employees of rewarding longevity, providing greater wage increases than the Association offer over the term of the contract for all but one bargaining unit employee, and significantly increasing wage rates during the initial period of employment. (2)
 
Focusing on the five jurisdictions that are regarded as the most comparable communities to Madras, the following is observed: The average monthly hire rate is $2,465 and $3,176 after five years of service. These figures are $223 higher at the hire rate, and $332 after five years of service than the Madras current rates, or differences of nine percent (9%) and 10.5% respectively. The Association final offer package would raise these rates to $2,354 and $2,986, or increases of five percent (5%). The Employer's final offer package increases the hire rate to $2,647 and to $3,069 with five years of service. These are increases of $405 and $225 per month respectively, or 18% and eight percent (8%) respectively.
 
The Association's package would place the hire rate at approximately four and one-half percent (4.5%) less than the five comparables and nearly six percent (6%) less after five years of service. The Employer's final offer package would place hire rates over seven percent (7%) higher than that of five comparable communities and approximately three percent (3%) less with five years of service.
 
Four of the five comparable communities provide for wage adjustments after five years of service. At ten years of service, the Employer's final offer package would be roughly equal to the average monthly rate for the five comparable communities. The Association's final offer package would leave employees with ten year's service about 12% behind the comparator jurisdictions, or about $400 per month. After fifteen years of service, the average monthly wage rate for the five comparable communities under consideration is $3,434. Under the Association final offer package, the wage rate does not escalate after five years of service, so employees would earn $448 less or 13%. Under the Employer's final offer package, the wage rate would be $3,667 per month, or about six percent (6%) higher than the average of the comparable communities. For all but one bargaining unit employee, the enhanced wages at the ten-year level and beyond will be theoretical rather than real during the three-year term of the agreement.
 
Based upon the terms of those five jurisdictions' collective bargaining agreements where applicable, and assuming actual cost of living increases of two percent (2%) or less per year, it is assumed that the wages of those five will increase an average two and one-half percent (2.5%) in 2003 and 2004, leaving Madras bargaining unit employees at the end of three years in the following posture vis-à-vis employees of the five comparable communities.
 
Since the Employer's final offer package only provides for a two percent (2%) increase in wage rates each year, it is estimated that at the end of the contract the rates for Madras employees will not be as high in relation to comparator jurisdictions as at the outset of the contract. A best-guess estimate is that hire rates will be $125 higher than the average of the comparables, or slightly over five percent (5%). After five years service, the Madras employees will earn about $128 per month or slightly under four percent (4%) less than employees of the five comparable communities. At ten and fifteen years of service, the Employer's offer similarly would provide slightly less favorable comparability than at the outset of the contract term.
 
Under the Association final offer package, the differential would be significantly reduced, because of annual increases proposed by it of five and one-half percent (5.5%). At the end of the contract term under the Association final offer package, Madras' hire rates would be $31 higher than that of comparable communities, or one and one-half percent (1.5%) and $13 less, or about .4% less than the average of the comparable communities.
 
Because the costs of the wage package are higher in the Employer final offer package, no discussion of ability to pay is necessary, as it must be assumed the Employer would not offer more than it could afford. Similarly, since the overall monetary impact upon the bargaining unit of both package offers on wages during the contract term produces essentially the same result, using admittedly radically different approaches, there is no need to examine other monetary benefits provided bargaining unit employees in conjunction with evaluating the final offers on wages. As was the case with the issues previously discussed, either final offer package with respect to wages would be regarded as being in the public interest.
 
VI. ANALYSIS OF FINAL OFFER PACKAGES ON INSURANCE
 
As the parties have indicated, the key difference between their final offer packages and the determinative factor in deciding which final offer package to award are the respective positions on insurance. In reviewing their packages, it is important to bear in mind the current status of this matter and the history leading to that status. When the police officers were represented by the Laborer's Union, their insurance was provided through that Union's Taft-Hartley Trust and was fully paid for by the Employer at a lower cost than would have existed under other Employer insurance plans. During this period, the insurance provided the sergeants and office manager, who were excluded from the bargaining unit, was that available to other non-union represented employees and was subject to capped employer contributions.
 
With the change in bargaining unit representation, the police officers lost the insurance benefits provided through the Laborer's Union and became covered under the existing insurance plans provided by the Employer. Since the transition in representation, the Employer has paid the full cost of insurance for the police officers. For the three bargaining unit employees not previously included in the unit, the Employer has contributed $500 per month to the cost of insurance benefits, and the employees have paid for the remainder of the cost. This is the same as the treatment of non-represented employees. The Employer currently offers two insurance plans. One is a traditional plan and the second utilizes a preferred provider format at a somewhat lower cost. The Employer estimates insurance costs will increase between 15-25% each year. The Association does not dispute this.
 
The cost impacts of each parties' final offer package will be analyzed based upon a projected annual cost increase of 20%, and no change in the current employee complement. At present the Employer's cost for providing insurance benefits is approximately $625 per month per employee. With a 20% increase in costs in 2003 and 2004, the Employer's cost under the Association's final offer package would escalate to slightly over $1,000 per month by the end of the contract term or about 60%. The cost of insurance benefits under the Association's package would increase the Employer's annual insurance costs by about $41,000, and the total costs of its wage and insurance package, exclusive of increased statutory costs attributable to the wage increase, would increase Employer costs by approximately $104,000 on an annual basis, or nearly 28% by the end of the contract.
 
The Employer's final offer package would have the following effect on employee wage and insurance costs. The current costs for insurance would be increased by $2,700 per year and the total increase in wage and insurance costs to the Employer at the end of the three-year contract term would be approximately $72,000, or slightly over 19% exclusive of statutory cost increases attributable to the wage increase.
 
From the standpoint of employees in the bargaining unit, the differing final offer packages have substantially different financial impacts. Under the Association package, three bargaining unit employees will no longer have any deductions from their wages for health insurance costs and will, along with the other bargaining unit employees, have no reductions in pay to provide insurance benefits. Under the Employer package offer, the three employees who are currently contributing to the costs of their insurance will have their contribution reduced. The remaining six bargaining unit employees will for the first time have to make significant contributions to the costs of insurance coverage.
 
As a general proposition, and taking into account the personal income tax implications of deductions from employees' wages for insurance costs, it can be safely assumed that the amount of wage increase actually realized by bargaining unit employees over the term of the three-year contract under the Employer's final offer package will be approximately eight percent (8%) on average. This figure will most probably slightly exceed the projected cost of living increase during the three-year term. Under the terms of the Association's last best offer, the bargaining unit employees will see their income increase over the term of the contract at a rate of probably 250% over the increase in the cost of living.
 
In view of the significant differences between the final offer packages, a review of them in connection with comparable communities is clearly required. At present the total employer cost for insurance for all 10 comparables is $643, and employee costs average an estimated $75 per month, or a split of approximately 90% /10%. Four comparators pay approximately $546 per month. Three pay an average of approximately $614 per month. Three pay an average of approximately $800 per month. Eight of the 10 comparable jurisdictions have either an absolute cap on employer contributions, some form of cost sharing on increased costs, or reopener provisions where cost increases exceed a certain level. Clearly full employer payment of insurance costs is not the norm for comparable jurisdictions, although there is a wide split in the manner in which cost increases are shared. As indicated above, seven of the 10 comparator jurisdictions pay an average of approximately $575 per month for insurance. The Employer proposal of $600 per month clearly is in line with insurance costs of a clear majority of the comparable communities at the outset of the contract.
 
From the data submitted, it is impossible to accurately state the current distribution of costs and future distributions for the comparable communities. An extrapolation of data available including current employer costs, contractual provisions regarding allocation of increased costs between employer and employee, and the anticipated future rate of increase in insurance costs have been considered. In this regard, the following is noted: Brookings and Phoenix labor agreements provide full employer payment of insurance costs as does Junction City's labor agreement with a proviso for a reopener if insurance costs increase over 15% in any year. Brookings and Phoenix have current employer insurance contributions of $606 and $614 per month, and provide insurance through the Teamster Union's Taft-Hartley trust. Tillamook has a cap on employer contributions with insurance in excess of that amount being split 75% / 25%. Winston's labor agreement provides for a 95% / 5% split on insurance costs. The Scappose labor agreement provides for alternating employer and employee payment of cost increases with increases above 20% being split equally. Molalla's collective bargaining agreement provides for a 95% split on premiums of any insurance after December 31, 2003, or 50/50 split of increase at the option of the union. Sheridan, by virtue of contracting with Yamhill County, has its police services provided by individuals covered by a collective bargaining unit that provides for escalating caps on employer contributions with excess costs being split 50/50. Sandy has an absolute cap on employer contributions. Talent has a cap on employer-only contributions with the excess being split 50/50. Approximately one half of the comparable communities have collective bargaining agreements that have expired, or are expiring June 2003, including Phoenix.
 
While it is impossible to predict with precision what the comparable jurisdictions will be paying for insurance in 2005, for purposes of this analysis, it is assumed that insurance costs will increase for all comparable communities by 20% per year in the last two years of the parties' new collective bargaining agreement. It is further assumed for purposes of analysis that on average the costs of insurance coverage currently is split 90% employer and 10% employee. It is further assumed that increased costs will be split in such a manner that Employer costs in 2005 will be approximately 80% of the total cost of insurance.
 
Employees in all comparable communities are projected by 2005 to be paying approximately $207 per month for insurance coverage with the employer paying approximately $826 per month. These figures contrast with the end result of the Employer's final offer package, which would result in Employer costs of $650 per month and employee costs of approximately $365, and the Association's proposal, which would result in Employer payments for insurance of over $1,000 per month and zero contributions on the part of employees.
 
Turning to projected rates of pay, and insurance costs and allocations by the end of the term of the parties' three-year contract and comparisons with all comparable communities, the following estimates are provided based on assumptions previously discussed. In reaching an average wage rate, the rate of five years of service is used because at the end of the contract the majority of employees will be at this level or above: In 2002 the average wage rate for all 10 comparable communities was approximately $3,391 per month. The monthly employer cost of insurance was approximately $643 for a total cost of $4,034. The average gross pay of employees, less an average employee contribution for insurance estimated at about $75 per month, was approximately $3,316.
 
In 2005 the average monthly wage is estimated to rise to $3,528 with the Employer's share of insurance costs rising to $826 for a total of $4,354, or an increase of nearly eight percent (8%). During the same period, the employees' share of insurance cost is estimated to rise to approximately $207, leaving employees with a gross wage of $3,321, or an increase of only five dollars ($5.00).
 
Utilizing the same format for analyzing the Employer's final offer package, the average wage rate at the end of the contract would be $3,192, which coupled with a $650 payment for insurance provides a total of approximately $3,842, or slightly less than five percent (5%) higher than the Employer costs proposed for the inception of the collective bargaining agreement. Significantly, the Employer's final offer package in the first year of the contract would place its monthly wage and insurance costs at approximately $365 less than the average of the 10 comparables or approximately nine percent (9%) lower. At the end of the three-year term, the differential would be expanded with the Employer's monthly costs per employee being approximately $512 per month less than the average of all comparable communities, or nearly 12%.
 
Approaching the Association's final offer package in the same manner provides the following results: In the first year of the contract, the average monthly wage rate would be approximately $2,986, and the Employer's cost for insurance would be $700 for a total of $3,686, or about eight and one-half percent (8.5%) less than the average of all comparators and bargaining unit employees' gross pay less insurance deductions would be nearly 10% less. At the end of the three-year contract, the average monthly wage would be approximately $3,323, and the Employer's total monthly costs for insurance per employee would be approximately $1,010, for a total of $4,333, about one-half percent (.5%) less than the average of all comparable communities. The average gross monthly pay less insurance deductions for bargaining unit employees would be a few dollars more than the average of all comparable communities. Over the three-year term of the agreement, the Association offer package would move the employees from a current position of being nearly 17% less than the average gross monthly take-home pay after deductions for employees of all comparable jurisdictions to slightly over the average of all comparators.
 
Applying the same after-five-years-of-service approach to comparing the effects of each parties' final offer package on wages and insurance to the five communities deemed to be most comparable produces the following results.
 
In evaluating the five communities, it is important to bear in mind that aside from Winston, the average employer cost of insurance is $585 per month. (Winston, both for comparing present and future relationships, seriously skews both average bargaining unit wages and gross insurance rates, as well as insurance cost-sharing data.)
 
For those communities, the average monthly wage after five years of service currently is $3,176 with employer insurance costs of approximately $630 and employee insurance costs of approximately $50. Total monthly employer costs for wages and insurance are approximately $3,806 and employee gross pay less contributions for insurance is approximately $3,126 as compared to total wage and insurance costs for the Employer herein of a current level of $3,469, with employee gross wage rates of $2,844, less an average of $98 per month representing employee insurance contributions for the three previously unrepresented employees. The Employer, herein, thus has total wage and insurance costs slightly under nine percent (9%) lower than the comparable communities and its' employees' gross monthly pay after insurance contributions is slightly over 12% lower than employees of comparator jurisdictions.
 
Under the set of assumptions and actual contract provisions utilized with respect to all comparable communities, the following is projected to be the status for the five most comparable communities at the expiration of the contract term in 2005. The gross wage rate per month will be approximately $3,337 for the five cities, and employer insurance costs will be approximately $810, for a total of $4,147, and the employee share of insurance costs will be $160, leaving the employees' gross wages after employee insurance costs at approximately $3,167. These figures represent an increase in Employer costs of approximately $341, or nine percent (9%), and an increase in employee gross wages after contributions for insurance of about $51, or about one and one-half percent (1.5%).
 
The employer final offer package would provide for monthly wage costs of $3,069, and insurance costs of $600 at the outset of the contract for a total of $3,669, which is $137, or slightly over three and one-half percent (3.5%) lower than the five comparables and would provide gross monthly wages less insurance contributions of approximately $2,696, or approximately $157, or five percent (5%) less than that of employees of the comparable communities. The Employer offer package would increase its current costs overall by about $200, or nearly six percent (6%). At the end of the contract period, the level of comparability will not be maintained based on projections herein. The Employer's offer package at the end of the contract term will yield a gross salary cost of $3,192, with insurance costs of $650 for a total of $3,842. This leaves the Employer with gross monthly wage costs slightly over seven percent (7%) lower than the comparable communities. Its' share of insurance costs would be about $160 per month, or 20% less than is estimated for the comparable communities, leaving its combined wage and insurance costs about $305, or seven percent (7%) less than the five comparables, an improvement in comparability of over 40%. At the end of the contract term, employees herein, however, will see a decrease of about $12 in gross monthly wage rates after insurance contributions at the five-years-of-service level, although the Employer's monthly wage and insurance costs will increase by about $363, or slightly over 10%.
 
In view of the above, the impact of the Employer's offer package upon current bargaining unit employees is worthy of attention. For purposes of this evaluation, it is assumed that the employees' currently selected insurance plan will be continued in each instance for the duration of the three-year contract term. For the three individuals who, prior to 2002, were not included in the bargaining unit, their monthly base gross pay after deductions for employee contributions for insurance, on average, will rise from their current average of $3,139 to $3,565, or $426, or nearly 13.6% over the three-year contract term. For three police officers for whom the current costs of insurance are $580.50 per month, at the end of the contract term, their average gross monthly base pay, after deductions for employee contributions for insurance, on average will rise from their current average $2,443 level to $2,759, an increase of $316, or nearly 13%. For the three whose current insurance costs are $795 per month, their average gross base rate after deductions for insurance will increase from $2,583 to $2,648, an increase of $65, or about two and one-half percent (2.5%).
 
Under the Association's final offer package, by the end of the three-year term of the contract, the Employer's gross costs for wages and insurance would increase by about $860 per month, or nearly 25% for employees after five years of service. Employees' gross pay after deductions for insurance contributions would increase by about $577 per month on average, or 21%. The Employer's total cost for wages and insurance would be approximately $4,329, or about $182 more than the average of the five comparable communities, or nearly four and one-half percent (4.5%). Bargaining unit employees' gross wages for five years service, less deductions for insurance contributions, would be $3,323 per month, or about $177, and over five and one-half percent (5.5%) more than the average of the five comparable communities. The Employer's wage and insurance costs at the end of the three-year term under the Association offer package would increase over 32%. The benefits to individual employees would vary depending upon their step level and whether insurance had been fully paid by the Employer, but no less than nearly 17%.
 
VII. ANALYSIS OF TOTAL COMPENSATION AND RELATIONSHIP TO COMPARABLE COMMUNITIES OF BROOKINGS, TILLAMOOK, WINSTON, TALENT AND PHOENIX
 
A. Holidays.
 
Madras provides 10 paid holidays while the other jurisdictions average 11, and range from 10 to 12.
 
B. Sick Leave.
 
Madras provides one day for each month of service. Comparable jurisdictions have the same accrual plus the right of conversion of unused sick leave ranging from one-half to all for computation of retirement benefits. One comparable community provides a monetary incentive of one week's pay for not using any sick leave during a year.
 
C. Vacation.
 
Madras provides, depending upon years of service, five to 30 days. The comparable communities provide a minimum of 10 to a maximum of 25 days.
 
D. Employer Share of PERS Contribution.
 
Madras and all comparable communities provide this benefit.
 
E. Certification Pay or Training Pay.
 
Madras provides amounts ranging from $50 to $150 depending on the level of certification. Three of the five comparators provide incentive or training pay in varying amounts with the Madras rate falling within the range of the comparators.
 
F. Longevity Pay.
 
Madras does not currently provide longevity increases. Three of the five comparators do provide increases beyond the usual period ending with the fifth year of service, but only Winston provides for increases at ten, fifteen, and twenty years of service.
 
G. Funeral Leave.
 
Madras provides up to five days. The comparator communities provide from three to seven days.
 
H. Educational Incentive and/or Tuition Reimbursement.
 
Madras does not provide either. One jurisdiction provides an education incentive and three provide for tuition assistance.
 
I. LTD and Life Insurance.
 
Madras provides neither benefit. Four of the jurisdictions provide varying amounts of life insurance. One provides LTD insurance.
 
J. Minor Miscellaneous Allowances, Premiums or Specialty Pay Such as Spanish speaking, or Physical Fitness.
 
These benefits in differing aspects are provided in a minority of comparable communities.
 
The foregoing indicates that the City of Madras is well within the general spectrum of comparator jurisdictions with respect to its total compensation package, although at the lower end of monetary value where items are based on hourly wages. This factor is neutral in evaluating each parties' last offer package. A quick review of the remaining comparable communities does not change this conclusion. A detailed cost analysis was not done in order to avoid additional expenses to the parties where a gross general view was deemed sufficient.
 
VIII. OBSERVATIONS AND CONCLUSIONS
 
The Oregon statute requires the arbitrator to confine his order to awarding one of the parties' last offer packages and prohibits the fashioning of an award which, in the arbitrator's opinion, more fully serves the interest of the public than the packages of the parties. While, in theory, the statutory scheme will cause the narrowing of issues as each party attempts to offer a middle of the road, balanced offer that most closely approximates the result that would occur if reasonable parties with comparable bargaining strength were making a good faith attempt to settle upon contract terms as an alternative to a strike or lockout, in this case, that has not been the result. Each party has advanced polar extremes with respect to the issues. The parties, with regard to those issues that are primarily non-economic in impact, have drastically different approaches. The Employer would eliminate certain existing contract provisions that are common in labor agreements and reflect commonly accepted accommodations to facilitate legitimate union activity. The Association on the other hand seeks to maintain these current amenities while at the same time introducing new provisions designed to promote employment security, enhance authority of the bargaining representative, and promote seniority rights. Some of these proposals reflect the conditions found in a majority of the collective bargaining agreements between labor organizations and comparable communities. Other significant proposals would result in the inclusion of provisions found in only a minority of the collective bargaining agreements of comparable communities.
 
It appears that the rationale of the parties is to include a smorgasbord of non-economic proposals, many of which, on an individual basis, have little to support them, but which will be included as part of the package if their proposal on economic issues is accepted by the arbitrator. The ultimate decision herein is to choose between two packages that each produce highly undesirable results on the basis of selecting the one that better meets the standard of being in the interest and welfare of the public.
 
With respect to justification for their economic offers, the approach of the parties may be paraphrased as follows. The Employer has adopted both a global and specific methodology. It references the general economic climate, the extreme financial predicament of state government finances, escalating costs of PERS, failure of voters to support tax increases, and the necessity of the City of Madras to maintain the security of the public through around-the-clock police protection in the face of fiscal constraints. It maintains that its' economic proposals address what is admittedly inadequate wage rates and at the same time provides for a method of allocating insurance costs in line with comparable communities and in accord with the approach required to address the unfettered escalation in the costs of health insurance.
 
The Association justifies its wage proposals as being required to begin to bring Madras bargaining unit employees' wage rates to a par with comparable communities. (3) The rationale for its proposal on insurance appears to be that fully paid insurance is warranted because of the significantly lower wage rates received by bargaining unit employees of the City of Madras in relation to wages received by police officers in comparable communities, and the assertion that fully paid insurance is the status quo that should be preserved. The Association advances the status quo argument in support of its opposition to the Employer's proposal for a 15-step wage progression and further opposes the Employer's wage proposal because of the inequality of wage increases it would provide. The Association maintains the City of Madras can afford the economic adjustments sought by the Association and that the speculative effects of the economy in general, or Oregon in particular, upon the Employer's ability to pay should not furnish a basis to reject the Association offer package.
 
Obviously, the status of the State of Oregon's finances and potential higher PERS costs on employers can, and may well have, an impact upon the fiscal stability of the Employer. These impacts, however, cannot be quantified to any realistic degree at this time, so cannot serve to furnish a basis to support or reject either final offer package. The exhibits and testimony relative to the Employer's ability to pay, because of their, at times, inconsistent and contradictory content, lead to a great deal of confusion. It may well be that an exhaustive review of the Employer's budget and financial audit report would reveal that indeed the Association's last offer could fall within the economic parameters required by the Oregon statute. This, however, would not answer the ultimate question as to whether the Association package with respect to insurance is in the interest and welfare of the public. Because the Association offer package is not deemed to be in the public interest, a time consuming analysis of the Employer's ability to pay is not required.
 
While the Employer's wage proposal involves a departure from the status quo by introducing a 15-step progression to replace the former six-step progression, this format is not beyond the limits of provisions in contracts of comparable jurisdictions that provide for wage progression and/or longevity steps beyond five years of service and extending up to twenty years of service. Because of the change in format of wage increases required by the 15-step progression, the impact upon bargaining unit employees is not equal. This is not regarded as a fatal flaw since, with the existing bargaining unit employees, the increases to wages over the three-year term produce almost exactly the same than does the Association final offer package, although the impact upon individual employees vary greatly. The Employer's final offer package on wages substantially raises hire rates and also paves the way for eventually bringing the Employer's wage scale at the top range to that of comparator communities who provide wage increases beyond a five-year progression. These results should enhance the Employer's ability to attract and retain qualified employees.
 
Over the term of the contract, the gains in wages initially provided in the Employer's final offer package will likely be reduced since the two percent (2%) increases provided in the second and third years will probably be less than that provided by comparable communities. These disparities can and should be dealt with in the next collective bargaining agreement, along with further narrowing of the differential after five years of service.
 
Because of the difficulties with the Employer's final offer package on wages, which are addressed above, the Association final offer on wages is preferable except for its coupling to its offer on insurance. Contrary to the Association's assertions, the status quo is not fully paid insurance across the board for bargaining unit employees. This generalization applies to two thirds of the bargaining unit. For one third status quo is an absolute cap on employer contributions of $500 per month.
 
As a general proposition where there is a change from the status quo, a compelling need or changed circumstances must be shown to justify a change and absent either, a quid quo pro is the customary basis for effecting a change. In this case, where there are in effect two conflicting status quo situations--one providing for a fixed cap and one providing for full Employer payment of insurance costs--the need for uniformity in approach for the future is a paramount concern and the hard choice must be made as to which approach to utilize.
 
There is no economic issue of more concern to both the public and private sector than the overwhelming increase in costs of health insurance being experienced in recent years and projected for the foreseeable future. As reference to the comparable communities indicates, the method of addressing this cost has been to split the costs of insurance, in some manner, between the employer and employee, or perhaps to pay lower wages in return for fully employer-paid insurance.
 
It is highly questionable as to whether cost sharing has any appreciable impact upon the total cost for obtaining medical care. Cost sharing basically results in cost shifting from employers to a sharing of costs by employer and employees. Where employees pay for part of the cost of insurance, they may achieve some savings on monthly deductions for insurance contributions by moving to a less costly plan, but when the insurance benefit is actually utilized, they most probably incur higher out-of-pocket expenses.
 
The overwhelming majority of employers, both public and private, have some form of cost sharing on insurance. These run the gambit from an absolute cap to escalating caps with splits on insurance costs above the cap on total emloyee pick up of costs over the cap. The basic rationale for cost sharing is that, without it, Employer costs would become prohibitive.
 
While it may be argued that the future course of the cost of living and wage increases for employees in comparable communities may be somewhat higher than projected therein, these factors so not affect the conclusions herein because of the overriding impact of insurance costs. Again, even if the conclusions with respect to cost increases and sharing of cost increases prove to be inflated, the result reached herein is still warranted. No reasonable projection can escape the reality that insurance costs will continue to increase dramatically. This being the case, there can be no reasonable doubt that the current situation where an overwhelming majority of comparable communities have cost sharing will change to a situation where a majority of employees pay the full cost of insurance or contribute an increasing share of insurance costs.
 
The Employer final offer package on insurance would place its insurance costs above two of the five most comparable communities at the outset of the contract term and approximately $30 below the average of those communities. The Employer final package offer by the end of the contract term will most probably result in its contributions to insurance being substantially less than the comparators. This will also result in its employees realizing fewer real monetary gains over the term of the contract because of the impact of higher insurance contributions. This deficiency is further compounded by the uneven effect upon bargaining unit employees. Two thirds of the bargaining unit is projected to receive gains well in excess of cost-of-living increases under the Employer's final package offer. One third, however, will probably lose over the contract term in the sense that their economic increase will be offset by increased costs of insurance to the extent that their gains may well not match increases in the cost of living over the contract term.
 
The paramount consideration of the public interests, however, dictates that some form of cost sharing on insurance is required. The huge cost increases in health insurance that have occurred and will continue in all probability in the next few years constitute both a compelling need and changed circumstances which require that the cost of insurance be shared by the Employer and employees. The inequities anticipated to develop under the Employer's final offer package in the form of its contributions to increased cost of insurance and keeping pace with its comparators, as with the wage package, should receive attention and may well require significant modification in a future collective bargaining agreement.
 
From the foregoing, it is clear that had the Association's final offer package included any reasonable approach to cost sharing on insurance, or alternatively more modest wage increases to offset the costs of insurance fully paid by the Employer, it would have been deemed more acceptable on an overall basis and would have been adopted unless its economic impact would have been beyond the financial ability of the Employer to pay. Unfortunately, it elected to adopt an all or nothing approach, which is not compatible with the interest and welfare of the public.
 
IT IS NOW THEREFORE,
 
ORDERED
 
The collective bargaining agreement between the parties herein shall be the collective bargaining agreement set forth in the Final Offer of the City of Madras dated December 24, 2002, consisting of 25 pages and Attachment A.
 
Dated: April 8, 2003
 
Vincent M. Helm, Arbitrator
 
REPRESENTING THE EMPLOYER: Bruce Bischof
 
REPRESENTING THE ASSOCIATION: John Hoag
 
1. Although the Association lists LTD and life insurance as a new benefit, the City exhibits show an existing cost for these items.
 
2. While not specifically addressed by the parties, it appears the Employer's offer provides for a new classification of detective at a rate between that of sergeant and patrol officer.
 
3. In support of its wage offer, the Association notes that the Employer's 15-step pay-progression plan is not standard for police officers. It further accurately argues that the pay plan (recommended by a consultant to apply to all employees of the City of Madras) used cities as comparators for purposes of developing the wage scale which are not comparable to the City of Madras under statutory criteria.