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IA-11-03
In the Matter of Interest Arbitration, between OREGON AFSCME COUNCIL 75 and STATE OF OREGON DEPARTMENT OF ADMINISTRATIVE SERVICES on behalf of DEPARTMENT OF CORRECTIONS. IA-11-03.
 
I. PRELIMINARY STATEMENT
 
This is an interest arbitration before arbitrator Vincent M. Helm between Oregon AFSCME Council 75 (Union) and State of Oregon Department of Administrative Services on behalf of the Department of Corrections (Employer) pursuant to the Oregon statutory process to determine unresolved issues with respect to the terms of the collective bargaining agreement between the parties where the bargaining unit is strike-prohibited by statute. At the hearing, the parties had full opportunity to present evidence pertinent to the issues and to examine and cross examine witnesses under oath administered by the arbitrator. The parties filed comprehensive briefs. The award is based upon a review and analysis of exhibits, testimony and briefs.(1)
 
II. RELEVANT STATUTORY PROVISIONS
 
243.742 Binding arbitration when strike prohibited. (1) It is the public policy of the State of Oregon that where the right of employees to strike is by law prohibited, it is requisite to the high morale of such employees and the efficient operation of such departments to afford an alternate, expeditious, effective and binding procedure for the resolution of labor disputes and to that end the provisions of ORS 240.060, 240.065, 240.080, 240.123, 243.650 to 243.782, 292.055 and 341.290, providing for compulsory arbitration, shall be liberally construed.
 
243.746 Selection of arbitrator; arbitration procedure; last best offers; bases for findings and opinions; sharing arbitration costs. (1) In carrying out the arbitration procedures authorized in ORS 243.712 (2)(e), 243.726 (3)(c) and 243.742, the public employer and the exclusive representative may select their own arbitrator.
 
….
 
(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 paragraphs (b) to (h) of this subsection as follows:
 
(a) The interest and welfare of the public.
 
(b) The reasonable financial ability of the unit of government to meet the costs of the proposed contract giving due consideration and weight to the other services, provided by, and other priorities of, the unit of government as determined by the governing body. A reasonable operating reserve against future contingencies, which does not include funds in contemplation of settlement of the labor dispute, shall not be considered as available toward a settlement.
 
(c) The ability of the unit of government to attract and retain qualified personnel at the wage and benefit levels provided.
 
(d) The overall compensation presently received by the employees, including direct wage compensation, vacations, holidays and other paid excused time, pensions, insurance, benefits, and all other direct or indirect monetary benefits received.
 
(e) Comparison of the overall compensation of other employees performing similar services with the same or other employees in comparable communities. As used in this paragraph, "comparable" is limited to communities of the same or nearest population range within Oregon. Notwithstanding the provisions of this paragraph, the following additional definitions of "comparable" apply in the situations described as follows:
 
 
(C) 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 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 factors, if in the judgment of the arbitrator, the factors in paragraphs (a) to (g) of this subsection provide sufficient evidence for an award.
 
(5) Not more than thirty days after the conclusion of the hearings or such further additional period 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. The opinion and order shall be served on the parties and the board. Service may be personal or by registered or certified mail. The findings, opinions and order shall be based on the criteria prescribed in subsection (4) of this section.
 
III. CONTEXT OF DECISION
 
This award will directly affect nearly 1,600 corrections officers employed at nine corrections facilities and may well have significant influence upon determination of the terms and conditions of employment of nearly 1,300 employees in five other strike-prohibited bargaining units, (including over 600 corrections officers employed at four corrections institutions and represented by an Association) who have not agreed upon the terms of collective bargaining agreements where the paramount issue is the same as that separating the parties herein.
 
The decision is being made in the midst of a continuing poor economic environment which, due to both internal and external factors, has left government entities with reduced resources and expanded demands upon revenues. The impact upon state governments has been well chronicled, and the particular impacts upon the Employer will be discussed hereinafter along with consideration of the responses of the Employer and other bargaining units.
 
IV. SUMMARY OF LAST BEST OFFER PACKAGES
 
A. Employer Last Best Offer Package
 
1. The Employee proposes the following:
 
A letter of Agreement with respect to Article 14 - Salary Administration suspending in classification step advancements or increases for a total of twenty-four months following the effective date of the interest arbitration award.(2)
 
2. Article 25 - Working Conditions - format changes basically agreed to except for the union proposal on Section 7.
 
3. Letter of Agreement providing for a maximum one-time payment of $350 to employees employed on July 1, 2003 continuously through January 15, 2005, excepting those receiving a step increase to Step 7 during the period July 1, 2003 to the effective date of the interest arbitration with provisions for proration on a specified basis payable on February 1, 2005.
 
B. Union Last Best Offer Package
 
1. Article 13 - Salaries and Wages, and Article 14 - Salary Administration - current contract language (thereby enabling bargaining unit employees to continue to receive merit ((step)) increases during the term of the agreement).
 
2. Article 25 - Working Conditions - Section 7 to change the current language to provide that the party who does not fulfill a time trade shall be charged with leave time.(3)



V. CONSIDERATION OF THE STATUTORY CRITERIA



A. The interest and welfare of the public (criterion (a)).
 
The statute provides that the interest arbitrator is to give first priority to this factor and secondary priority to the enumerated six additional criteria, and a seventh if necessary, in making a decision as to which of the parties´ last best offer packages to accept. As a general proposition, the offer which, on balance, is more likely to provide the level of service required to maintain the public welfare at the most reasonable cost should be adopted.
 
The statute clearly provides that where, as here, employees are prohibited by law from striking, the preservation of employee morale and the efficient operation of the unit of government requires the furnishing of interest arbitration as an alternative to a strike. Viewed in the context of legislative intent, interest arbitration, as a substitute for a strike, should as closely as possible, mirror the result which would have occurred had the parties been in an environment where there could have been a strike or lockout, and the parties in terms of economic strength were evenly matched.
 
In such a framework, it could be reasonably expected that each party prior to a strike or lockout would have set forth that proposal which would be the least it was willing to accept short of economic warfare. The party that would ultimately prevail in such a setting would be the one advocating the offer that was ultimately viewed by the parties as being in their best interests to accept. Interest arbitration as the substitute for a strike or lockout, therefore, is not intended to be a vehicle whereby either party can obtain a windfall but rather obtain the result which it could be reasonably expected would have resulted had there been recourse to economic action.
 
The determination of which of the competing last best offers to select cannot be made in a vacuum which is why, generally, recourse to the subfactors set forth in the statute is necessary, particularly where economic issues are at stake. This particular case is no exception. Because the Employer is seeking a substantial departure from a long standing precedent of providing for annual step or merit increases, it is particularly important to ascertain whether economic necessity or reference to internal or external factors justify such an approach.
 
B. Reasonable financial ability to meet costs of the contract, with due consideration and weight to other services provided and priorities of government, excluding a reasonable operating reserve as available to fund settlement (criterion (b)).
 
The statute requires the interest arbitrator to focus solely upon the ability of the Employer to meet the costs of the contract proposed by this union. Thus, where, as with this Employer, there are potentially six bargaining units that may seek interest arbitration, consideration can only be given in this proceeding to cost impacts of this particular bargaining unit´s proposal. Obviously, this has the potential of hastening recourse to interest arbitration as the available revenues may become diminished to perhaps the point of extinction by virtue of repeated interest arbitrations. In this instance, testimony indicates there are several other bargaining units positioning themselves for resort to interest arbitration and intent upon obtaining additional monetary benefits from a relatively fixed revenue pot.
 
The parties are in agreement that the Employer bears the burden of establishing the validity of its claim that it does not have the financial resources to satisfy the economic portion of the union´s last best offer package. With respect to budget and revenue issues, the Employer is in the best position to produce evidence on these subjects. Because the Employer herein is proposing a drastic departure from past collective bargaining agreements in the freezing of merit increases for a two-year period, it bears a particularly significant burden of persuasion with respect to a claimed inability to pay, amounting to a requirement to show compelling need or changed circumstances, absent an adequate quid pro quo.
 
The majority of the two-day hearing was devoted to matters revolving around the ability to pay. Numerous witnesses and exhibits were presented by the Employer and to a lesser degree by the Union. In essence, the Employer maintains that the precipitous decline in the economic climate of the state in the past three years following several years of tremendous economic growth, not only mirrored that being experienced nationally, but was exacerbated by the state´s dependence upon high-tech industries, the lack of a sales tax, and its heavy reliance upon the personal income tax as a revenue source for funding state government expenditures. The highest unemployment rate in the nation is in the state of Oregon resulting from the concentration of high-tech industries hard hit by the recession, contributed to unforeseen and prolonged drops in tax revenue.
 
In addition to those economic problems facing the Employer, other historical developments have influenced its´ financial plight. Various initiatives have foisted burdensome demands upon the state´s resources, including a major financial shifting of responsibility for education to the state, mandatory sentencing for criminals requiring tremendous expansion of corrections institutions and manpower and growth of the Oregon Health Plan. Other pressures upon the state´s resources are a rapidly growing population, underfunding of the state employee retirement system, lawsuits, and the historic reluctance of Oregon residents to accept additional taxes. Lastly, the requirement that all revenues in excess of two (2) percent over the state´s revenue forecast be returned to the taxpayers each biennium prevented the development of "rainy day" reserves to address revenue shortfalls.
 
The Governor in preparing his budget determined that a bare-bones budget was required to guarantee education resources were adequate to avoid serious problems encountered in the recent past, to foster creation of jobs, and to convince taxpayers that they were receiving an appropriate level of services in return for tax dollars collected. As part of the budget, the Governor did not include the costs of merit increases for any state government employees, determining they should be frozen for the 2003-2005 biennium. The budget did fund increases in health insurance contributions and a one $350 payment to compensate for additional work-load requirements. These adjustments, however, were limited to Union-represented employees and excluded some 5,000 non-represented employees of the Employer.
 
The Legislature struggled through five special sessions in dealing with the budget and revenue difficulties compounded by revenues continuing to decline below forecasted levels, and the failure in January 2002 of voters to approve a temporary income tax increase. In order to address these matters, the Legislature approved a temporary income tax increase to provide over $700 million to address the shortfall in projected tax revenues to cover what was deemed to be a minimum level of government services. Included in this budget were the portions of the Governor´s budget freezing merit increases for all employees and providing the increased health insurance funding and one-time payment of $350. As with the Governor´s budget, these economical benefits were limited to union-represented employees and provided no cost of living adjustments. The Legislature also provided a mechanism for the voters to reject the temporary income tax increase in early 2004. If this should occur, the Legislature provided for disappropriations of revenue to occur at what was anticipated to be a proportionate level.
 
Ultimately, the budget approved by the Legislature totaled slightly over $37 billion, of which 29 percent was general-fund revenue from taxes, 22 percent Federal Funds, two percent Lottery funds and 47 percent other funds (which are generally restricted by law to finance specific objectives). The ending balance in the general fund, originally projected to be about $100 million, is currently projected at less than $60 million. An original fund of $40 million for emergency services now has about $33 million available. Clearly, the projected ending fund balance is not of a magnitude that any part thereof can be considered under the statute as available to fund the costs of the Union´s last best offer package. With respect to the Department of Corrections share of the budget, the budget approved by the Legislature contains severe cuts from prior service levels, including cuts in health services, partial closing of facilities, and limitations on hire.
 
In assessing the ability to pay issue, an arbitrator is at a tremendous disadvantage. The statute imposes the requirement that an interest arbitration be an expeditious proceeding. It is impossible to scrutinize in any detail, or question in depth, expenditures and revenues set forth by the Employer without consuming weeks of hearing at major costs to the parties and thereby frustrating the statutory intent of a speedy and economical means of resolving disputes. The Union, for its part, suffers from the same restrictions, resulting, as it has in this case, in broad-brush responses.
 
Certainly, no one can doubt the state of Oregon is in serious economic difficulties. The projections for 2003 and beyond are for a vastly improved economic climate. As pointed out by the Employer, however, these improvements are required to meet future expected demands upon state revenue and cannot be regarded as minimizing the current strained economic posture of state government. The arbitrator agrees with this view and does not place any reliance upon exhibits such s the Comprehensive Annual Report for year ended June 30, 2002, untapped tax sources, or trial balances for the year 2002-03 because the testimony of state Controller Radford makes it very difficult to predicate any definitive fund availability. Moreover, the traditional
 
reluctance of Oregon voters to approve other than "sin taxes" makes it problematic whether the current level of funding can be maintained. Voter disapproval of the temporary tax increase would place far more funding requirements in jeopardy than involved herein. The arbitrator, however, must deal in the here and now and not in hypothetical situations.
 
The arbitrator is impressed by the extremely small amount of additional funding required by the Union last best offer package. Less than $4 million in a total budget of over $37 billion is truly de minimus. While many legislative funds are required to be spent on specific items, only the most naïve would believe that discretionary funding of this minute amount is not available to be expended without flying in the face of the statutory language defining ability to pay. Indeed, were it not so, the interest arbitrator becomes a mere "rubber stamp," and the process of interest arbitration is rendered meaningless.
 
In this case, however, there is no question that revenue is in excess of that necessary to fund the last best offer package of the Union. Neither the Governor´s proposed budget nor the budget approved by the Legislature provided for funding of health insurance costs and the $350 one-time increased workload payment for the some 5,000 non-union represented employees of state government. The Governor, after the budget for the state was formally adopted, by executive fiat, determined that these employees would receive those benefits at a projected cost of $9 million (over double the cost of the Union last best offer package). The funding for these benefits is $3 million from the General Fund and $6 million from Federal funds. While no one can fault the Governor for his belated effort to ensure that nearly 20 percent of state government employees be provided for in the same manner as union-represented employees, his action makes it unmistakably evident that at least $9 million was available for funding of other than approved expenditures. Nor can it be seriously argued that funding for this purpose was due to an emergent, unanticipated need. Revenue to be utilized for this purpose cannot be regarded as being beyond the reach of interest arbitration, or every potential source of funding for a pending interest arbitration award could be removed by preemptive action of the chief executive of the state after a budget is legislatively approved. Such a result would make a mockery of the interest arbitration process. Thus, it is held there is an ability to pay if the last best offer package of the Union were to be selected by the interest arbitrator.
 
C. Ability to attract and retain qualified personnel at wage and benefit levels provided. (criterion (c)).
 
Testimony and documentary evidence establishes that hiring standards for bargaining unit employees are high. Employment as a corrections officer also clearly involves exposure to stress and physical danger not found in many other occupations. Nonetheless, over 56 percent of bargaining unit employees have been employed for over five years. Many of those with less than five years employment were hired to staff new or expanded facilities. In the two-year period July to July 2001-2003, there were a total of 183 separations from employment. Of these, 98 were voluntary resignations, which figure represents annual turnover averaging less than three percent per year. Evidence with respect to reasons for voluntary resignation was equivocal at best.
 
While operating under a hiring freeze for much of the 2001-2003 biennium, the Employer maintained a roster of applicants who had passed preliminary employment screening and testing averaging over 500 individuals, and, as of the date of the hearing, averaged well over 400 in 2003 as a whole. While staffing eastern Oregon institutions admittedly has been challenging, employer witnesses as well as wage and benefit comparability data indicate that locale rather than monetary considerations is the major adverse factor. The data presented shows that employment and retention has not been a problem of any real import with respect to this bargaining unit.
 
Accepting the union´s last best offer package coupled with eight percent unemployment in the state, would undoubtedly guarantee a continuation of this desirable situation. This should be true even though cost of living increases are not provided for in the tentative agreement between the parties because in Washington, one of the two non-resident states from which the Employer primarily draws employees, no cost of living adjustments have been provided state government employees since 2001.
 
The acceptance of the Employer´s last best offer package, which significantly changes the status quo with respect to step increases, might adversely affect hire and retention of bargaining unit employees where salary is the primary motivation for employment. Gauging the actual effect that may occur is speculative at best because of the continuing high levels of unemployment, lack of data showing how employees have reacted in similar situations, and the relatively high overall wage and benefit levels provided bargaining unit employees. It, therefore, cannot be said that the Employer´s last best offer can be reasonably expected to have a significantly deleterious effect upon the Employer´s ability to recruit and retain qualified bargaining unit employees.
 
D. Overall compensation presently received including wages, paid leave time, pensions, insurance, and all other direct and indirect monetary benefits (criterion (d)).
 
Preliminarily, a determination must be made as to what period of tenure of employment should be considered for analysis of this factor. The range could encompass hire, top steps, some point between the two extremes, or a combination. In this instance, an employee with five years service has been selected as the benchmark for this criterion as well as for criterion (e).
 
This selection is premised upon the fact that in a real sense the rate of compensation and benefits for a new hire is of little practical significance since it appears no current employees are at the hire rate and relatively few hires are projected during the two-year period of the collective bargaining agreement. Since the parties have tentatively agreed that there will be no general wage increase for the term of the agreement, consideration of pay and benefit levels at the top step would appear to be irrelevant to a decision in this matter.
 
The only detailed data, in the record herein, for employees in step progression relates to employees with five years service who are at step 6 on the parties´ wage schedule. Accordingly, for the most part, analysis will be confined to an employee with five years service. Further, because corrections officers, as opposed to corporals or sergeants, represent the overwhelming majority of bargaining unit employees, that classification will be considered.
 
Utilizing data furnished, the general compensation level for an employee in the state of Oregon totals the amounts shown per month broken down by category in the following manner:
 
Wages:$3,197
Employer paid retirement and Social Security at 23.14%:
$ 740
Employer paid health insurance - employee plus family rate:$ 797
Total Employer paid:$4,734
Annual hours: 2,080 Holiday and vacation hours: 216
Net work hours: 1,864
Net hourly rate: $30.54
with intermediate certification pay:$ 96
Total Employer paid:$4,830
Net hourly rate: $31.16
with advanced certificate pay:192
Total Employer paid:$4,926
Net Hourly: $31.78
 
In addition the Employer provides:



Bilingual differential (4%)Pre-Retirement counseling leave (3.5 days)
Call back pay (min. 4 hrs at regular time, paid at overtime)Promotional opportunities
Employer-paid life insurance ($5000)Reporting pay (regular pay for shift)
Free parkingShift differential ($.50 per hr.)
Lead work differential (5%)Sick leave (12 days per yr.)
On-call pay (l hr pay at second step/2 hrs on-call)Uniform
Paid leave for jury dutyInstitution staff deployment differential (5%)
Paid time for training
 
E. Comparison of overall compensation of employees in other states performing similar services (criterion (e)).
 
The first determination to be made in this analysis is what states should be compared to Oregon. Both parties concede that historically the four states geographically contiguous to Oregon have most frequently been regarded in prior interest arbitration proceedings as the appropriate comparators. In the interest arbitration in 2002 involving the unit of corrections officers represented by the Association of Oregon Corrections Employees, covering some 600 employees at four institutions, the Association argued for two sets of comparators--one consisting of five Oregon counties with the largest populations, and a second grouping of states including the four contiguous states of Washington, Idaho, Nevada, California, plus Alaska. The Employer utilized Connecticut, Iowa, Oklahoma, and South Carolina as comparators based on populations similar to Oregon´s. In that case, arbitrator Miller considered only the state comparators and concluded that under either side´s list, the Employer was competitive.
 
In a 2001 interest arbitration between the parties involved herein, arbitrator Snow was confronted with the Union urging Alaska and the four contiguous states as comparators while the Employer urged that California, Nevada, Idaho and Washington being contiguous to Oregon were the only appropriate comparators. The arbitrator did not expressly indicate the inclusion of Alaska as a comparator nor did he state it would be inappropriate to do so.
 
In the instant case, the Union again is arguing the comparator states should be five--Alaska and the four contiguous states. The Employer, for its part, advanced three sets of comparators. In apparent order of Employer preference, one includes seven states; i.e. Arizona, Kansas, Kentucky, New Mexico, North Carolina, Ohio and Texas; a second includes so-called labor-market states of Idaho and Washington; a third includes the four contiguous states.
 
The Employer in arriving at the seven states in its preferred comparators considered average worker wages, tax revenue per capita, unemployment, population, prison population per capita, corrections spending per capita, and economic diversity as measured by a 1993 document labeled as the Hackman Index. Coupling seven states closest to Oregon in the greatest number of categories, including the ten-year old Hackman Index, which measures industrial diversity, yielded the Employer´s preferred list of comparators. This results in including, in relationship to Oregon, three states with higher average wages, two states with higher tax revenue per capita, five with higher population (in the case of Texas, about 600% higher), five states with lower prison population per capita (Texas being over 50% lower) and seven states with lower corrections spending per capita.
 
A few thoughts about the factors forming the basis for inclusion are that prison population does not differentiate between the particular states own citizens in its state prisons and those who might be housed from other states and thereby be providing revenue that might be utilized to reduce the state´s spending on corrections. Again, spending per capita on corrections can be greatly influenced by whether a state is spending heavily on prison construction, or rehabilitation as opposed to wages and benefits for corrections officers. Moreover, reliance upon a ten-year old study of dubious relevance is not deemed particularly useful. As noted by arbitrator Miller, the only real limits in determining appropriate state comparators are those set by one´s imagination, limited by the requirement by arbitrator Snow that such selection be on some basis that allows the comparators selected to be rationally differentiated from the remainder. In this instance, the states selected, not surprisingly provided less in pay and benefits than does Oregon and on average were well over 30 percent lower.
 
Consideration of only Idaho and Washington is viewed as being too narrow a consideration. True, they are the two states next door to Oregon from which it attracts the most officers, probably based in no small measure on a far better economic package provided corrections officers in Oregon than in Washington or Idaho. On the other hand, the other two contiguous states--Nevada and California--provide wages and benefits that may well attract applicants from Oregon for corrections officers´ positions. A meaningful comparison of states would have to include states contiguous to Oregon, that may draw more Oregon corrections officers or potential corrections officers, than Oregon attracts and which therefore exert competitive pressures on Oregon.
 
The four contiguous states to Oregon, because of their proximity, form a natural nexus for purposes of comparability studies. The mixture of states includes two larger in population and two smaller, forming a good balance. Further, these states are the ones most universally regarded by interest arbitrators as being comparable to Oregon. Clearly, comparable wages and benefits are significant factors in collective bargaining. There is no more compelling reason to introduce Alaska as a comparator jurisdiction as urged by the Union than Arizona or New Mexico as urged by the Employer. In this arbitrator´s view, the addition of these states or any others urged by one or the other of the parties, predicated on a results-oriented approach, would not advance the cause of selecting a settlement in the interest and welfare of the public. Stability in the process should be enhanced by consistent application of past standards for evaluating comparability. Thus, since no changed circumstances have been shown to exist to warrant excluding or adding to the four contiguous states as comparators, they will be the comparator states selected for comparison herein.
 
The data submitted indicates the following in comparing wages and benefits of corrections officers with five years service in Oregon against similarly employed individuals in the four contiguous states:
 
OregonAverage of Four Contiguous StatesOregon Ranks
Wages$3,197$3,024
3 of 5
Employer paid retirement & Social Security at 23.14%

740


$ 633


3 of 5
Family rate Employer paid health insurance797545
1 of 5
Total Employer paid$4,734$4,202
3 of 5
Annual hours: 2,080 Holiday & vacation hours:
Net work hrs.
Net hourly rate
Top prem. pay:
Total Employer paid:




216 1,864
30.54
192
$4,926




215 1,865
27.11
50.00
$ 4,252




5 of 5
5 of 5
3 of 5
2 of 5


2 of 5


Net hourly rate:


31.38


27.43


2 of 5


Employee cost of family health ins.


-0-


$244* (*Based on total of min. and max. employee only and family rates ÷ by 4)


1 of 5
Employee cost after health ins. cost deduc-tion: Net hourly rate:




$4,926 31.78




$4,008 25.86




1 of 5
1 of 5
 
In addition to the foregoing, the comparator jurisdictions provide an average of 8.5 hours sick leave per month as compared to 8 hours for Oregon.
 
Removing Oregon´s premium pay leaves its corrections officers with a rate of $4,734 per mo. and a net hourly rate of $30.54, or over 11 percent higher than the maximum average of the four contiguous states and nearly 16 percent higher with the inclusion of maximum premium pay. While the Union would not consider the total package to include offsets due to employee contributions to health insurance, this is a major factor that cannot be ignored and contributes significantly to further enhance the position of Oregon employees relative to comparator states in the important category of employee "take home pay."
 
In view of the foregoing, Oregon is the leader in total compensation at present. With merit increases frozen for two years under the Employer´s proposal, the current substantial advantage enjoyed by Oregon correctional officers will be eroded by employees in the four comparator jurisdictions continuing to enjoy step increases and perhaps receiving an across the board cost of living adjustment in 2004. At best, this would most probably result in Oregon continuing to be number one overall in terms of total employer costs less employee insurance contributions where it can be expected that gains in terms of step increases and cost of living will be offset by at least an increase of 10 percent in employee insurance contributions. In summary, comparative data offers no compelling reason to adopt either last-offer package.
 
F. The CIP - All Cities Index, commonly known as the Cost of Living (criterion (f)).
 
In the period between June 30, 1993 and June 30, 2003, the parties are in agreement that the cost of living as measured by the CIP - All Cities Index has risen by slightly over 27 percent and is anticipated to increase from the June 30, 2003 figure of 183.7 to 190.1 on June 30, 2005, an increase of 6.4 points, or 3.5 percent. In the ten-year time frame from 1993 to 2003, across the board increases for bargaining unit employees were over 41 percent. An employee currently at step 6 has seen his/her wages increase by 44 percent. In that same time frame, the cost of living has increased by less than 13 percent. The lowest paid current bargaining unit employee, after one year of employment with step and cost-of-living adjustments, has had wages increased by over 10 percent while the cost of living rose just slightly over two percent.
 
With an estimated cost-of-living increase of 3.5 percent in the next two years, it cannot be said that any bargaining unit employee will be less than 5 percent ahead of the rise in cost of living while employed, and depending on length of employment, will have received as much as a 46 percent increase in compensation while in the same period, the cost of living rose less than 26 percent. The foregoing calculations do not include additional Employer costs for insurance and Employer-paid retirement and Social Security. Clearly, the Employer´s last best offer package cannot be rejected on the basis that employees have not, or will not, keep pace with the cost of living.
 
G. Stipulation of the parties (criterion (g)).
 
There were no stipulations.
 
H. Conclusions with regard to factors (a) through (g).
 
Having concluded the Employer has the ability to pay the merit increases included in the Union´s last best offer, the issue cannot be resolved in the Employer´s favor on that factor. The analysis of the wages and benefits provided, both in isolation and when viewed in the contexts of comparison with appropriate comparator states and the historical rate of increase in the cost of living, indicates that, beyond question, bargaining unit employees have fared very well. While the acceptance of the Employer´s last-best offer package would erode those gains achieved in the past, employees would still be in a desirable position at the expiration of the labor agreement.
 
On the other hand, the Employer offer contains a draconian departure from the status quo in the form of freezing merit increases for a two-year period extending beyond both the term of the contract and the biennium. No precedent was cited for this reversal of decades of precedent.
 
There is no gainsaying that a freeze on merit increases imposes the greatest hardship on those employees least able to absorb it. It breaks faith with the employees who accepted employment with the reasonable expectancy that each year they would receive a merit increase which in time would bring them to, in effect, the journeyman rate of their classification. The devastating effect of freezing merit increases, affecting nearly 60 percent of bargaining unit employees, upon both morale and the expectancies of employees for a steadily improving standard of living, cannot be overemphasized. For these employees, many of whom are the sole economic support of a family unit with average wages at best, it is small consolation to note that economically their lot has significantly improved to this point.
 
As noted by the Employer, this arbitrator believes that a radical departure from the status quo is acceptable only if necessitated by compelling reasons or changed circumstances, unless accompanied by a quid pro quo. The tentatively agreed to proposal on Employer-paid insurance is the only factor that could be viewed as evidencing a quid pro quo for foregoing two years of merit increases, especially when it is considered the parties have agreed to no across-the-board wage increase to maintain employee´s relative status vis a vis the cost of living. Increased insurance costs pursuant to the tentative agreement with the Union, figured on a composite basis, will be $1,628 per employee over the two-year period between July 1, 2003 and July 1, 2004, or approximately $2,498,980. In addition, the $350 one-time workload adjustment at the end of the contract term amounts to potentially another $537,250, or a total of $3,036,230, or about 75 percent of the amount that step increases would cost over the same period. This indicates that the Employer last-best offer package falls short of supplying an economic quid pro quo even if the tentative agreement with respect to insurance is considered to be a tradeoff for the 24-month cessation of step increases. Moreover, employer fully paid health insurance is only guaranteed until January 2005, or six months less than the terms of the agreement.
 
In view of the foregoing, it is necessary to consider whether any factor not specifically identified in the statute, but which is one traditionally considered by interest arbitrators in determining issues involving wages, hours and other terms and conditions of employment, must be considered in order to make a determination herein. Internal equity is one such factor and its consideration, in conjunction with the legislative intent embodied in the interest arbitration statute, is mandated in this instance.
I. Internal Equity (Criterion (h)).
 
The concept of internal equity as being a consideration in weighing competing collective bargaining proposals has a long history of acceptance. It is particularly useful where, as here, consideration of specific statutory criteria provides no definitive basis for resolving the matter. In essence, the interest arbitrator looks to terms and conditions of employment of other employees of the Employer to consider the impact of each parties´ proposals upon the overall labor relations environment.
 
Indeed, in arbitrator Miller´s interest arbitration award in 2002, where in an economic sense he stated " … the wolf is really at the door," the key component of, and deciding factor, in his decision in accepting the last-best offer package of the Employer was the consideration of internal equity. In spite of limited interchange of bargaining unit employees between four western Oregon facilities where employees are represented by the Association and nine (the majority in eastern Oregon) facilities where employees are represented by the Union herein, the arbitrator noted that there was an eight-year history of compensation parity that would be disrupted by acceptance of the Association proposal which was at a variance from that recently agreed to by this Union for employees performing the same duties.
 
In the instant case, for whatever reason, neither party introduced evidence as to how much overall parity of compensation has been a factor in establishing wages, hours, and terms and conditions of employment for employees as a whole. There was specific testimony that unrepresented employees had traditionally received wage and benefit increases comparable to those provided employees who have representation for collective bargaining purposes. It appears that common characteristics of every bargaining unit contract in the past have been merit increases and insurance benefits.
 
At this time, well over 18,000 employees in 22 strike-permitted state government bargaining units, including 17 covering over 1,000 employees represented by the Union herein, have agreed to, and have signed contracts in 2003, providing exactly the same terms and conditions with respect to cost of living and merit freezes, $350 payment and enhanced Employer contributions to health insurance as are contained in a combination of the last-best offer package of the Employer herein and the tentative agreements between the parties herein. In these negotiations, the Employer and the bargaining representatives settled short of unilateral supplementation or strike. Included in this number are units represented by the Union herein, covering over 1,000 employees at the Employer correctional institutions. In addition, over 1,700 employees in two strike-prohibited bargaining units, including over 500 employees represented in one of the units by the Union herein, have agreed to the same terms.
 
There are six strike-prohibited bargaining units, including the unit herein, composed of over 4,500 employees that have not settled. By far, the largest segments of the strike-prohibited bargaining units, which have not settled on contract terms, are the unit herein and two units represented by two different associations representing corrections officers at the institutions not involved in this proceeding and state police officers. It appears that each of those remaining bargaining units is in various stages of advancement to interest arbitration. Only one small strike-permitted bargaining unit has not settled.
 
The contingent of unrepresented employees numbering over 5,000 have had the freezes upon wages and merit increases, $350 one time payment and enhanced employer health insurance contributions imposed by the Governor. Thus, at this juncture, of slightly over 28,000 represented and non-represented employees of the Employer, nearly 85 percent have terms and conditions of employment in accord with the terms of the last best offer package of the Employer herein coupled with the parties´ agreement with respect to cost-of-living freeze and increased Employer contributions for health insurance. Over two-thirds of the Employer´s employees have agreed to "arm´s length" collective bargaining agreements incorporating the merit freeze, which is at the very heart of the dispute herein.
 
If a small minority of employees were to continue to receive merit increases during the two-year moratorium affecting all other employees throughout state government, the adverse impact upon morale and consequently upon performance of duties while incapable of precise calculation must be deemed to be severe and not in the public interest. The agreement by the overwhelming majority of bargaining units supplies the necessary "compelling need and changed circumstances" to justify the substantial disruption to the status quo encompassed in the Employer´s last best offer package.
 
PUBLIC POLICY AND STATUTORY CRITERIA REQUIRE AWARDING THE EMPLOYER´S LBO PACKAGE
 
As noted above, under the Oregon statutes, there are strike-prohibited bargaining units as well as those which are strike permitted. Twenty-two of twenty-three strike-permitted units have accepted contract terms without a strike. In addition to rejecting a strike, they rejected the choice of refusing to agree to contract terms. This would have served to keep their options open pending a resort to interest arbitration by one or more of the strike-prohibited bargaining units in the hope that results thereof would generate a more favorable offer from the Employer. They opted instead to agree to a contract providing for a two-year freeze on merit increases. This decision appears to reflect their collective judgment that a strike would not result in a more favorable settlement, and that delay in settlement would not enhance the terms of their contracts. Only one unit is still working without a contract.
 
As earlier noted, the arbitrator believes that the intent of the legislature in providing for interest arbitration is not to provide a mechanism to reward bargaining units who are strike prohibited with terms more favorable than could be achieved by resort to strike. Rather, interest arbitration is provided as an alternative to a strike with the result produced being that which might be expected to have resulted if the bargaining unit were able to strike in pursuit of its objectives.
 
In light of the overwhelming evidence of the unity of decision making by the strike-permitted units, there can be little doubt that the terms of the Employer´s last best offer package would be that accepted by the bargaining unit herein, if it were permitted to strike, as being both in its´ own best interests and in the interest and welfare of the public.
 
In summary, examinations of factors (b) through (g) of ORS 243.746 (4) show that acceptance of the Employer´s last best offer package will not adversely impact the relative comparability of wages, benefits, and terms and conditions of employment of bargaining-unit employees to comparable employees of other states, or the ability to attract and retain qualified employees to such a degree as to warrant its rejection out of hand. The package will continue to provide wages that are improved in purchasing power, based on the CPI - All Cities Index, as measured over the past ten years. While the Employer has the financial ability to meet the cost of the last best offer package of the Union, considerations of internal equity and public policy indicate that selection of the last best offer package of the Employer is in the interest and welfare of the public, the first priority for determination under ORS 243.764 (4)(a).
 
ORDER
 
The last best offer package of the State of Oregon Department of Administrative Services on behalf of the Department of Corrections is selected by the arbitrator pursuant to ORS 243.746 (5) and is to be implemented effective January 5, 2004.
 
Dated: December 29, 2003
 
Vincent M. Helm, Arbitrator
 
Representing the Union: Allison Hassler, Legal Counsel
 
Representing the Employer: Kenneth E. Bemis
 
1. 0 Both parties either at, before and/or after the hearing contended that parts of the last best offer package of the other party was unlawful under applicable Oregon law. The arbitrator believes such objections should be raised before the state agency empowered to make determinations on such issues and will not be considered as being within the purview of this proceeding.
 
2. 0 The freeze would last beyond the term of the collective bargaining agreement as well as the biennium. This aspect of the offer is designed to impose equality with respect to duration among all bargaining units rather than to address economic necessity during the term of the labor agreement.
 
3. 0 Since the issue with respect to the status of merit increases is by far the most compelling, this proposal will not be considered unless the arbitrator elects to view the other aspect of the Union´s last best offer package as preferable to that of the Employer.