Bringing numbers to the table: what finance officers need to know about collective bargaining.

• Author: Nadol, Michael

"[The city] is like a person with cancer who's been shot in the chest. After you've stopped the bleeding and closed the wound, you still have to treat the cancer."

--Former Philadelphia Mayor Edward G. Rendell, discussing his city's immediate fiscal crisis and longer-term economic challenges in the early 1990s

For many local governments, workforce costs represent two-thirds or more of the operating budget. While states and some public enterprises are not quite so labor-intensive, employee wages and benefits are still a significant budget driver across all of the public sector--typically growing at rates that far outpace growth in revenues. Further, the Great Recession has made retiree benefit underfunding an increasingly widespread concern. In many regions of the country, most of these compensation costs are negotiated, at least in part, with public employee unions. Yet despite the tremendous fiscal implications of such bargaining, finance officers are not always at the table--and, even when they are, do not always play the optimal role.

For finance officers to best manage their organizations' fiscal condition, they need to weigh in effectively as labor contracts are negotiated--addressing the impact of negotiations on both the "gunshot wound" of immediate budget shortfalls and the "cancer" of longer-term liabilities and structural imbalances. From this perspective, whether at the table, or in a "consulting physician" role for a jurisdiction's chief negotiators, finance officers can play a vital role in successful diagnosis, treatment, and maintenance of good financial health.

UNDERSTANDING THE BARGAINING CONTEXT

Unlike private-sector labor relations rules, which are set by federal law and administered by federal agencies, public-sector labor relations rules are set by state and/or local laws and generally administered by state agencies. Consequently, public-sector labor relations laws vary widely as to how impasse disputes are resolved and what terms and conditions can be bargained. It is extremely important to understand the laws that apply to your particular unions.

In many regions of the country, when labor negotiations cannot be resolved at the table (when an impasse is reached), non-public safety unions have the ability to strike if they have met the statutory prerequisites such as notice, waiting period, and mediation. In other regions, final terms at impasse may be subject to implementation by the government's legislative body.

In almost every region, however, public safety unions cannot strike. Instead, public safety contracts (and, in some communities, those for civilians) are often settled through a process known as interest arbitration, under which an individual arbitrator or panel determines the final contract. Depending on the applicable statute, interest arbitration can take several forms--conventional arbitration, where an interest arbitrator has wide latitude to craft the award based on the issues raised; last, best, and final arbitration, where an interest arbitrator must choose either the government's or the union's last offer in its entirety (also called "baseball arbitration" because of its similarity to the process used for settling salary disputes in major league baseball); and last, best, and final by provision arbitration, where an arbitrator must again choose either the government's or the union's last position, but with the decision made on an issue by issue basis, not on the contract as a whole.

State and local labor laws also determine which terms and conditions can be bargained. In many cases, certain benefits such as pensions or health-care benefit plan design are set legislatively by statute. In some jurisdictions, a statute may set a minimum level of benefits and leave parties free to negotiate enhancements. A current issue winding its way through courts in several states is whether a government may modify retiree benefits, and if so, when.

These localized differences in the rules of the game can significantly affect the role of the finance officer and the opportunities to help shape the outcome of the bargaining process in a positive way. At the same time, there are many common themes across bargaining formats in terms of both the players at the table and the key approaches for contributing to a good result.

AROUND THE BARGAINING TABLE

To truly understand public-sector labor relations, one must understand the parties involved in a negotiation or interest arbitration, their interests, and their motivations. Of course, the set of players in any particular negotiation may vary, and the worldviews and personalities of the individuals who fill these roles can shape dynamics as much or more than the formal seat they occupy.

Unions. Unions may handle the negotiations either in-house, through an experienced business agent/representative, or through outside counsel. A union generally needs to have its members vote to ratify any agreement, meaning that union leadership will need to "sell" a tentative agreement to its membership, and varying constituencies can hold significant sway (such as "local" units representing particular trades or departments, and/or generational cohorts). In some communities, state and/or national union chapters may also take particular interest, since settlements in one government may have far-reaching impacts in other governments and throughout the nation.

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