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IA-15-03
IN THE MATTER OF AN INTEREST ARBITRATION BETWEEN OREGON STATE POLICE OFFICERS' ASSOCIATION AND STATE OF OREGON, DEPARTMENT OF ADMINISTRATIVE SERVICES, FOR OREGON STATE POLICE. IA-15-03.
 
Background
 
This is a statutory interest arbitration between the Oregon State Police Officers' Association ("OSPOA") and the State of Oregon, Department of Administrative Services, for Oregon State Police ("State" or "OSP"), under the Oregon Public Employees Collective Bargaining Act, ORS 243.746. On March 15, 2004, the parties exchanged their Last Best Offer ("LBO"), in accordance with the statutory requirement(1). I held a hearing on March 29, 2004, at the State of Oregon Department of Administrative Services office in Salem, Oregon. I held a continued hearing on April 9, 2004, at the OSPOA office, in Keizer, Oregon.
 
Both parties were present at the hearings, and represented by counsel. Each was given a full opportunity to examine and cross-examine witnesses, present evidence, and argue its position. Neither party objected to the conduct of the hearings. No stenographic record of the proceedings was made. At the close of the hearings the parties asked for the opportunity to file written briefs. I received the last brief on May 17, 2004, at which time I declared the hearings closed.
 
Statutory Criteria
 
ORS 243.746
 
(4) …unresolved mandatory subjects submitted to the arbitrator in the parties' last best offer packages shall be decided by the arbitrator. Arbitrators shall base their findings and opinions on these criteria giving first priority to paragraph (a) of this subsection and secondary priority to subsections (b) to (h) of this subsection as follows:
 
(a) The interest and welfare of the public.
 
(b) The reasonable financial ability of the unit of government to meet the costs of the proposed contract giving due consideration and weight to the other services, provided by, and other priorities of, the unit of government as determined by the governing body. A reasonable operating reserve against future contingencies, which does not include funds in contemplation of settlement of the labor dispute, shall not be considered as available toward a settlement.
 
(c) The ability of the unit of government to attract and retain qualified personnel at the wage and benefit levels provided.
 
(d) The overall compensation presently received by the employees, including direct wage compensation, vacations, holidays and other paid excused time, pensions, insurance, benefits, and all other direct or indirect monetary benefits received.
 
(e) Comparison of the overall compensation of other employees performing similar services with the same or other employees in comparable communities. As used in this paragraph, "comparable" is limited to communities of the same or nearest population range within Oregon. Notwithstanding the provisions of this paragraph, the following additional definitions of "comparable" apply in the situations described as follows:
 
(A) 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;
 
(B) 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
 
(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 other factors, if in the judgment of the arbitrator, the factors in paragraphs (a) to (g) of this subsection provide sufficient evidence for an award.
 
Last Best Offers of the Parties (Summary)
 
OSPOA
 
25.1 No Wage Increase for the 2003-2005 biennium.
 
25.3 Step Increases frozen until 6/30/05, at which time the employees have their service time restored.
 
Workload LOA No proposal
 
25.5 Cleaning allowance increased to $40, effective 1/1/05.
 
25.6 Cleaning allowance increased to $40, effective 1/1/05. Clothing reimbursement increased to $1000 for the biennium effective 1/1/05.
 
25.7 Effective 1/1/05 employees assigned to Forensic or Telecommunicator classification who are assigned as coaches receive an additional 5%. Effective 1/1/05 officers assigned to the motor unit shall receive an additional 5%.
 
29 - Insurance No difference between proposals
 
29 - LOA on Part-time employees No proposal.
 
16 Itineraries
 
16.1 Itinerary days off may not be changed without overtime liability, and once set the itinerary may not be changed without overtime liability.
 
16.3 No difference between proposals.
 
20 Vacation Increase vacation accrual rates by two hours a month effective upon execution of agreement.
 
State of Oregon
 
25.1 No Wage Increase for the 2003-2005 biennium.
 
25.3 Step Increases frozen for 24 months, (beyond the term of the contract), from the date of the arbitrator's award with no restoration of service time. State proposes to do this by separate letter agreement.
 
Workload LOA Propose to pay on 2/1/05 a lump sum of $350 to eligible employees or grant an additional two days off with pay.
 
25.5 Cleaning allowance increased to $40, no effective date specified.
 
25.6 Cleaning allowance increased to $40, no effective date specified.
 
25.7 Effective upon month after signing or 1/1/04 whichever is later, Telecommunicator assigned as coaches receive an additional 5%.
 
29 - Insurance No difference between proposals
 
29 - LOA on Part-time employees Proposes that effective 1/1/05, part-time employees will pay same out of pocket costs in effect for Plan Year 2003.
 
16 Itineraries
 
16.1 No proposal.
 
16.3 No difference between proposals.
 
20 Vacation No proposal.
 
Positions of the Parties (Summary)
 
OSPOA
 
Interest and Welfare of the Public
 
The change proposed by the State represents a significant deviation from the status quo because it takes away previously bargained for merit and longevity step increases. Since the State is proposing this major deviation, it must show a compelling need for the change or a quid pro quo to justify the change. The State has offered no equivalent compensation, only the one time payment of $350, or 20 hours of paid leave. The State has failed to show a compelling need for a step freeze that continues beyond the 2003-2005 biennium. The justification for the freeze is a fiscal shortfall in the 2003-2005 biennium. OSPOA agrees there is a shortfall in the 2003-2005 biennium that justifies a step freeze. There is no evidence, however, of a fiscal shortfall in the 2005-2007 biennium. Rather, the State argues that the need for a freeze continuing into the 2005-2007 biennium is based on internal equity, a factor under ORS 243.746(4)(h). This argument takes the least of the statutory criteria and elevates it into the most important criterion. The State must justify its position on ORS 243.746(4)(a-g) and not resort to the "optional" criteria in (h).
 
The State incorrectly asserts that OSPOA should not receive more through arbitration than bargaining units with the right to strike accepted. The State's theory is that since bargaining units with the right to strike accepted the step freeze, if OSPOA had the right to strike it, too, would accept the step freeze rather than strike. Police officer strikes have a unique impact on the public, which gives them more economic power than non-police units. The legislature recognized this power by prohibiting member of this bargaining unit from striking, but requiring the State to resolve bargaining disputes through arbitration. Thus, what bargaining units that can strike accepted is irrelevant. OSPOA would strike over the 24 month step freeze if it could. Moreover, the unique hazards of police work make this bargaining unit different from all others. Because of this uniqueness, the morale of other State employees will not be affected by awarding OSPOA a different step freeze from what other units accepted or had imposed by arbitrators.
 
The State made a single economic proposal to all State bargaining units, including OSPOA. It did not vary from this proposal in its negotiations with OSPOA. It did not consider the OSPOA proposal, which, if accepted when it was made, would have saved the State $1 million in costs over what it expended on maintaining the status quo. Mr. Weeks testified that he and the Governor decided that no other bargaining unit would get more than the package offered to SEIU. This constitutes surface bargaining, an unfair labor practice. Additionally, because the current offer goes beyond the term of the contract being negotiated, it constitutes a permissive subject of bargaining. The arbitrator has no jurisdiction to award a contract term that is a permissive subject of bargaining.
 
Secondary Criteria
 
Ability of the Governmental Unit to Pay
 
1. The dollar value of the two last offers are in relatively close proximity, with the largest difference attributable to how the additional time off is valued - at backfill cost, or a fraction of that reflecting that there is rarely backfilling for days off.
 
2. The State's proposal, with vacation costed at $0, is actually $300,000 to $400,000 more expensive than the OSPOA proposal.
 
3. Since a fiscal emergency had been demonstrated only in the 2003-2005 biennium, the OSPOA proposal should be chosen.
 
Ability of the Governmental Unit to Recruit and Retain Qualified Personnel.
 
1. Because of the prestige of the Oregon State Police, there is no retention problem.
 
2. There is no evidence of recruitment problems because there has been no recruitment in the 2003-2005 biennium.
 
3. Since the State pays 8.45% less than the six largest Oregon jurisdictions, a position that will get worse with the freeze, it stands to reason that there will be recruitment difficulties. Thus, the OSPOA proposal should be chosen.
 
Comparability
 
1. Under Senate Bill 750 it is improper to use employer costs as the basis for wage comparisons.
 
2. The proper basis for comparison is employee wages and other direct payments, minus out of pocket costs such as retirement and health care.
 
3. The State's use of state comparators other than the four contiguous states has been rejected by arbitrators and is improper.
 
4. The proper benchmark is placing OSP compensation above the four state average and below California.
 
5. Using these comparators, OSP Troopers are 2.85% to 21.20% behind the average.
 
6. The step freeze will put them further behind.
 
CPI
 
1. The State's CPI comparisons do not account for increases that were required to restore comparability.
 
2. The proper comparison is what it will take over the contract term to stay even with CPI.
 
3. The step freeze would cause an average loss of purchasing power equal to 2.75% to June 30, 2005.
 
There are no stipulations, and the other factors are not appropriate to consider.
 
OSP
 
Interest and Welfare of the Public
 
The State argues that interest arbitration, as an alternative to the strike, should attempt to achieve the same outcome as would have been achieved if a strike were permitted. In this round of bargaining, all strike permitted units accepted the State's step freeze proposal without striking, even one that had it unilaterally imposed. Two strike prohibited units - including a large corrections unit - accepted the 24 month step freeze. In both strike prohibited units that went to arbitration and had awards at the time of the hearing, the arbitrators found that the interest and welfare of the public required choosing the State's LBO for reasons of morale, internal equity, and fairness.
 
The State's total compensation and benefit package, which reflects what the State pays for the benefits the employees receive directly and indirectly, is the proper measure for comparison. By that measure - in light of the State's undisputed fiscal crisis - the State's LBO represents a fair package. OSPOA compensation will continue to outpace inflation. Employees will be protected against increases in health care costs. Further, as the recall of laid off Troopers demonstrated, there is no recruitment or retention problem in OSP.
 
Secondary Criteria
 
Ability of the Governmental Unit to Pay
 
1. The statutory criterion requires a contextual inquiry into the State's "reasonable" ability to pay, not absolute ability.
 
2. The OSPOA LBO, contains a substantial additional cost that comes into effect on the last day of the agreement. This would impose a significant new cost in the 2005-2007 biennium.
 
3. In this biennium there have been extraordinary General Fund revenue shortfalls, layoffs, cutbacks in State services, unsuccessful attempts to raise revenue, and a continuing limited revenue base.
 
4. In the 2001-2003 biennium there was a shortfall of almost $2 billion.
 
5. The State laid off 759 employees, including (for the first time ever) 129 Troopers.
 
6. Agencies absorbed the elimination of over 1,000 positions.
 
7. Measure 28, an attempt to raise taxes, failed.
 
8. Measure 30 was defeated, requiring a disappropriation of approximately $780 million.
 
9. The State continues to rely exclusively on a volatile income tax for 75% of its revenue.
 
10. While a 4% operating reserve is the minimum reasonable, Oregon's "kicker" law precludes the State from maintaining any more than a 2% of General Fund revenue reserve.
 
11. Only a small portion of the current Emergency Fund reserve of $96 million (less than 1% of General Fund Revenue) is available as an operating reserve.
 
12. Current projections are for an $85 million shortfall, rather than an ending balance.
 
13. In the absence of any ending balance, the absence of any available General Fund reserve, and the cutbacks in staff and programs that have already occurred, there are no relative dollars available in the State General Fund to fund the OSPOA LBO.
 
14. An Award that mortgages the State's future - by imposing a large increase on the last day of the 2003-2005 biennium, does not serve the interest and welfare of the public.
 
15. There are no relative dollars available in the OSP budget to fund the OSPOA LBO.
 
16. OSP finances were so dire that, for the first time in 70 years, it was required to lay off Troopers.
 
17. In the 2001-2003 biennium OSP was forced absorb an $11 million cut in its $183 million budget.
 
18. The legislature approved only a $159 budget for the 2003-2005 biennium.
 
19. That budget has had to absorb the unanticipated step increases required to meet the status quo obligation.
 
20. The OSPOA LBO will require large additional expenditures in the 2005-2007 biennium.
 
21. Other OSP costs have increased and there are no offsetting increases in General Fund Revenue or lottery funds to pay them. Consequently, they must be absorbed by further cuts in the current budget.
 
Ability of the Governmental Unit to Recruit and Retain Qualified Personnel.
 
1. Despite the publicized wage step freeze, the State has had no difficulty in recruiting and retaining Troopers.
 
2. This is illustrated by the number of laid off Troopers who chose to give up higher paying jobs to take a recall to State service.
 
Comparability
 
1. The statute requires looking at pensions, insurance, and all direct or indirect monetary benefits received.
 
2. The proper comparison group is other states.
 
3. In addition to the contiguous states traditionally used as comparators (California, Idaho, Nevada, Washington), it is appropriate to look at non-contiguous states with similar economic and demographic characteristics.
 
4. Comparison of total compensation and benefits paid by the employer, shows Step 7 OSP Troopers at the maximum longevity step enjoy approximately the average compensation of the four traditional comparators.
 
5. Comparison at 5 years shows Troopers 9% above the average of the four state comparators.
 
6. If time off is valued on an hourly basis, the top step Trooper earns an hourly rate that is above the four comparator average and below California.
 
7. For Forensic Scientists at the maximum longevity, the total compensation and benefits paid by the employer are above the four comparator state average and below California.
 
8. For Telecommunicators at the maximum longevity, the total compensation and benefits paid by the employer are above the three comparator state average (Nevada does not have a comparable class at the state level) and above California.
 
9. Even with the 24 month step freeze, Oregon will maintain a competitive position.
 
10. Comparisons with cities and counties in Oregon are inappropriate for three reasons. The statute requires state comparisons, the other political subdivisions have different revenue sources, and no demographic evidence shows that Troopers live predominantly in those areas.
 
11. OSPOA errs in comparing only net compensation to employees, since it does not value the employer's significant ($1900 per month) contribution for health and retirement benefits. Nor does it take into account the $149.75 per month increase in health benefit costs the State has agreed to pick up in its LBO.
 
CPI
 
1. The CPI-U All Cities Index, as projected through the 2005-2007 biennium, shows an 82.4% increase since 1984. A top step Trooper has had a 96.9% increase since that time.
 
2. OSPOA Troopers - and inferentially other unit members - have not only maintained their standard of living in constant dollar terms, they have enhanced it.
 
Discussion and Analysis
 
First Priority: The Interest and Welfare of the Public
 
The statute accords first priority to this criterion, but does not define it. There are a multiplicity of arbitral views on its meaning. One view is that the status quo defines the interest and welfare of the public and when the State proposes to eliminate an existing benefit it must show a compelling need for the change or a sufficient quid pro quo. Another view is that providing public employees a fair compensation and benefit package, in light of the public's overall need for governmental services, satisfies the interest and welfare of the public. In one of the two interest arbitrations during this round of bargaining the arbitrator theorized that the "interest and welfare of the public" means the arbitrator must seek to replicate the bargain these parties would have reached if the OSPOA unit had been free to strike. Oregon AFSCME Council 75 and Department of Corrections, IA-11-03 (Helm, 2003). In the other interest arbitration, the arbitrator deemed all of the statutory criteria a contextual framework for understanding the primary criterion. She used the tertiary criterion of "other factors" to consider "internal equity" as a necessary criterion for determining the interest and welfare of the public(2). She found that the State sought to achieve "equitable treatment of all employees in response to the current fiscal crisis."Department of Corrections and Association of Oregon Corrections Employees (AOCE), IA-13-03 (Wilkinson, 2004)
 
In my view, this is the rare case in which the interest and welfare of the public may be discernible from the context of the dispute. The parties agree on the necessity for a wage freeze and step freeze. They disagree only on the length of the step freeze and whether, at the end of the freeze, employees will be immediately advanced on the pay schedule to where they would have been but for the freeze. Every State bargaining unit that can strike has accepted (or had unilaterally imposed without a strike) the State's proposed 24 month step freeze with no credit for the 24 months when the freeze ends. Every strike prohibited unit (with the exception of three units comprising a total of 45 employees) has either accepted a 24 month freeze with no credit for that time when the freeze ends, or had the arbitrator choose the State's LBO embodying it. If one looks to "internal equity," a tertiary factor, it supports the State's LBO.
 
If one looks for a "compelling need" to justify eliminating a benefit for 24 months, the State's evidence of its fiscal crisis is overwhelming. Falling revenue forecasts accompanied by the "kicker" law requiring refunds of tax money, a public unwillingness to raise taxes, and voter rejection of an increase that resulted in a $780 million disappropriation have led to a true fiscal crisis. Lay offs, elimination of vacancies, and program closings have left the State with neither fat, nor muscle, to trim. The bare bones budget for the 2005-2007 biennium depends upon the savings achieved through a 24 month step freeze for all employees with no credit for that time when the freeze ends.
 
If one looks at whether the State's LBO provides OSPOA represented employees a fair compensation and benefit package, in light of the public's overall need for governmental services, it does. The comparators show that their total compensation package, as measured by State costs, is generally above the average for the four contiguous states. The CPI comparison shows that they will not fall behind inflation. Indeed, one part of the CPI is health care costs, which the State's LBO covers through June 2005 by increased expenditures for health benefits. Thus, the state's LBO insulates these employees from the effect of increased health care costs on the CPI. In light of the public's overall need for governmental services, the state's LBO provides a basis for avoiding further layoffs and deeper service cuts in OSP.
 
If one looks to the bargaining units that can strike in an attempt to determine what agreement would have been reached if this unit had the ability to strike, their agreements support the State's LBO(3). Virtually all of the other unions have accepted this freeze or had it imposed upon them. To allow one group of employees to avoid the full effects of the freeze could damage the morale of all other employees, as well as the credibility of their bargaining representatives. The impact it would have on future bargaining is unlikely to be salutary. Although OSPOA argues its members are "different" - because of the dangers of their job - and that other employees are unaffected by what is done for them, there is no evidence supporting that proposition. Surely, Corrections Officers can document great daily dangers in their job and can also claim to be different. Nevertheless, they accepted or had imposed the same freeze as all other State employees. Thus, the interest and welfare of the public is likely to be adversely affected by allowing one small group of state employees to escape equal treatment during this fiscal crisis.
 
Since neither party has cited a case in which the arbitrator chose an LBO solely based on the interest and welfare of the public, I will examine the other criteria(4). In so doing, it will become apparent that they, too, support choosing the State's LBO.
 
Ability of the Governmental Unit to Pay
 
There is overwhelming evidence of the State's fiscal crisis. OSPOA does not dispute there is a fiscal crisis for the 2003-2005 biennium. Rather, it asserts that there has been no demonstration that the fiscal crisis will continue into the 2005-2007 biennium. Therefore, the State can afford to grant step increases on the last day of the 2003-2005 biennium, and pay for those increases, plus the ones that occur after the beginning of the 2005-2007 biennium, with revenue from the 2005-2007 biennium. This position ignores both the unbudgeted money the State has had to expend to continue the status quo in this biennium and the deferrals of needed costs in this biennium that Major Bisgaard testified about. In effect, OSP will go into the next biennium with a deficit, resulting from overspending on steps in this biennium and deferring needed expenditures. OSPOA's LBO will add to that deficit by requiring an immediate increase in step payments on the first day of the new biennium. Consequently, this criterion favors the State's LBO.
 
Ability of the Governmental Unit to Recruit and Retain Qualified Personnel.
 
There was no evidence that OSP has any inability to recruit and retain qualified personnel. There was evidence that laid off Troopers gave up higher paying jobs in cities to return to the OSP when they were recalled. Thus, this criterion favors the State's LBO.
 
Comparability
 
The parties agree that the four contiguous states are proper comparison jurisdictions for OSP. According to OSPOA, earlier decisions have deemed the proper placement of OSP Troopers above the average of the four and behind California. The parties disagree over the proper additional comparators. The State, with little labor market justification, seeks to include distant states that it deems "comparable" to Oregon. OSPOA wants to include the six largest Oregon cities in its comparisons, although it is not clear that they are truly comparable, given their different revenue sources and the geographical diversity of OSP. In light of the overwhelming significance of the State's relative ability to pay in this interest arbitration, I have not considered comparators that are not agreed upon.
 
Additionally, I have used as a basis for comparison the amount the employer expends to provide the compensation and benefits the employee receives. It is clear that expenditures for retirement (including Social Security) provide a future direct benefit to the employees. The amount of retirement pay they receive is directly proportional to the money contributed by the State and the employee. To the extent the State also pays the employee's portion, that is an immediate and direct benefit to the employee. The State is clearly entitled to use its expenditures for retirement in calculating the benefits received by the employee. OSPOA argues that health care benefits are largely the same and the differences in costs are attributable to market considerations. The argument was not well developed in this case. Ordinarily, what an employer pays for health insurance (with or without an employee payment) is a measure of the plan benefits to the employees. For instance, lower co-pays generally require higher monthly payments. On this record, I have relied on the State's costs as a measure of the benefit received by OSPOA unit members. By that measure, even with the State's step freeze, the OSPOA unit members will retain their generally appropriate ranking in relation to the four contiguous states. Thus, this criterion is not determinative of which LBO should be chosen.
 
CPI
 
The evidence shows that OSPOA unit members have received raises whose totals exceed the increases in the CPI-U All Cities Index since 1984. Thus, this criterion is not determinative.
 
Other Criteria
 
The chief "other criterion" is "internal equity." It means that all State employees share equally in the sacrifices necessitated by the State's ongoing fiscal crisis. I agree with Arbitrator Wilkinson that it weighs heavily in favor of awarding the State's LBO. OSPOA implicitly recognizes the seriousness of the State's fiscal crisis. It has proposed only a variation on the State's freeze proposal, not a raise or complete escape from the step freeze. But the variation that it proposes is significantly different from what all but 45 State employees have thus far accepted or had imposed in arbitration. In light of that overwhelming acceptance, to permit OSPOA a significantly better step freeze and a large increase on the last day of the biennium would create potential morale problems in other bargaining units and the perception of unfairness.
 
Other Matters
 
While there are additional contract changes covered in both LBOs, none has the impact of the step freeze. Even if all of the other contract changes proposed by OSPOA were justified by the statutory criteria, they would not outweigh the significance of its step freeze proposal. I would still be obliged to choose the State's LBO because of the importance of its 24 month step freeze in ameliorating the fiscal crisis.
 
OSPOA raises two other issues, both of which involve allegations of unfair labor practices. It asserts that the State has engaged in surface bargaining and that the State has improperly carried a permissive subject of bargaining (extending the step freeze beyond the expiration date of the contract) into arbitration. I do not have jurisdiction to determine unfair labor practices in this forum. Further, I do not believe the behavior is so clearly a violation of law that my Award would necessarily be vacated because of it. If PERB were to determine that it was an unfair labor practice for the State to ask for a step freeze beyond the expiration of the contract, and the matter were to be returned to me, I would still award the State's LBO with the step freeze lasting only to the end of the contract, and with no credit for the period of the freeze when the freeze ends.
 
Order
 
Pursuant to ORS 243.746, I select the last best offer of the State of Oregon, Department of Administrative Services, on behalf of the Oregon State Police. I order the State's package to be included as part of the parties' 2003-2005 Collective Bargaining Agreement.
 
San Francisco, CA
 
Norman Brand, Arbitrator
 
June 17, 2004
 
Appearances
 
For Oregon State Police Officers' Association: Garrettson Goldberg Fenrich & Makler, by Daryl S. Garrettson, Esq.
 
State of Oregon, Department of Administrative Services, For Oregon State Police: Kenneth E. Bemis, Special Assistant Attorney General; Herbert L. Harry, Oregon Dept. of Justice
 
1.
 
0 The Last Best Offers are attached as Appendix A.
 
2.
 
0 In that case the Union argued that internal equity is the same as internal comparability, a criterion that has been rejected by a number of arbitrators. Arbitrator Wilkinson rejected that argument. Her reasoning is persuasive, and I reject OSPOA's argument to that effect in this case.
 
3.
 
0 It is, of course, conjecture to say what OSPOA would have accepted without striking if it had the right to strike. Nevertheless, if one were to accept the theory proposed by Arbitrator Helm, it would lead to choosing the State's LBO.
 
4.
 
0 This is not a case in which part of the LBO of one party is patently illegal..