Gentle Reader,

Yesterday’s Detroit News ran an Op-Ed by AFL-CIO President Mark Gaffney on the subject of Public Act 312, which specifies that binding arbitration be used to resolve bargaining impasses between local governments in Michigan and unions representing police and firefighters. Gaffney’s argument in defense of the current law is so thoroughly riddled with evasions and misstatements that a point-by-point rebuttal is in order. For sake of clarity I have reproduced Mr. Gaffney’s article in italics. My comments are in bold.

As state legislative leaders and pundits debate how to reform state and local government to best meet our economic challenges, union leaders are part of the deliberations and understand our state must change. We are willing to work on reforms to state and local government, taxes and, yes, labor costs.

We appreciate Mr. Gaffney’s willingness to acknowledge the influence that unions have in Michigan and that the AFL-CIO is indeed “part of the deliberations.” We hope he and the AFL-CIO will consider taking the next step and accepting some share of responsibility for the state’s current economic “challenges.”

But a union's responsibility to its members is to sort out fact from fiction before negotiations begin. Is an employer "broke" and in need of concessions to survive? What are the real numbers? And what else will be done to survive?

The answers are 1. Yes, the state is broke and a lot of municipalities are struggling as well. 2. Michigan’s unemployment rate is among the highest in the country, and at one point last September the Legislature confronted a $2 billion gap between income and outlays. The real numbers are hardly a secret. Individual municipalities may be in better or worse shape, but conditions in Michigan as a whole are pretty bad. 3. What we do to survive will depend a lot on what “part” the union movement chooses to play in the “deliberations.”

One example of dispelling popular misconceptions involves changing Michigan's police and fire bargaining law known as Public Act 312. The law, as it states, provides for an "alternative, expeditious, effective and binding procedure for the resolution of disputes" involving municipal employers and firefighters, police, emergency medical services and dispatch personnel. For more than 40 years, it has resolved contract disputes fairly and eliminated strikes by providers of emergency services.

Whatever else binding arbitration might be, it sure isn’t expeditious. The statute sets up a timetable in which a ruling is made within a few months, but our research shows that the typical arbitration panel takes around 15 months to reach a decision. Arbitration rulings taking in excess of three years (the typical length of a collective bargaining agreement) are not unheard of.

But some opponents keep misrepresenting the law, saying, for example, that "the arbitrator is not required to consider a community's ability to pay." The law in Section 9 says a government's ability to pay must be considered in each award: The "arbitration panel shall base its findings, opinions and order upon the following factors, as applicable ... (c) The interests and welfare of the public and the financial ability of the unit of government to meet those costs."

Actually, the law is kind of murky. Ability to pay is one of several criteria and not the first listed in the statute. The list of factors the arbitration panel can consider includes a catch-all category of any other information that parties might look at in collective bargaining. A panel is also expected to consider wages and benefits in comparable communities. All these different factors are to be considered “as applicable.” And who decides what’s applicable? The arbitration panel. Who decides which communities are comparable? The same arbitration panel. The law does not set any priorities among the various factors. Common sense would indicate that an arbitrator should never order a city to pay salaries it simply cannot afford based on the salary schedule set up by a nearby “comparable” community, but as the law reads now that’s entirely possible. At a bare minimum that needs to be changed.

Arbitrators routinely and thoroughly examine a city's finances. One arbitrator cited a 2007 ruling involving Detroit, which largely found in favor of the city government because it proved that the city could not afford the union's proposals.

Funny Mr. Gaffney should mention Detroit. Back in 1978 an arbitration panel ignored concerns about the city’s ability to pay, and awarded police there a very expensive cost-of-living allowance. As a result the city was forced to lay off police officers and a city where crime had been starting to drop saw crime rates jump. This contributed mightily to the disastrous condition of the city today. The moral of the story is that arbitration panels don’t always pay enough attention to finances, and one bad arbitration ruling can do a lot of damage.

The law is working. Research on arbitration awards from 1998-2008 by the Michigan Firefighters Council shows that more than 95 percent of labor contracts for fire and police are settled at the negotiating table.

We’ve scoured the internet and have been unable to find this report or even a Web site for the “Michigan Firefighters Council.” We have asked Mr. Gaffney’s office for a copy of this report. We will pass along any response we receive.

Public Act 312 has overwhelmingly encouraged local governments and fire and police unions to reach contracts and not rely on a third party to determine their future.

How does that work? By providing them with a way out? By setting up a third party with the power to determine their future? If we want to encourage local governments and unions to settle on contracts on their own, why not send them back to the bargaining table?

If Act 312 were as generous to workers as many commentators contend, wouldn't more than 5 percent of cases go to 312 arbitration? More than 95 percent of unions prefer not to use it. In those few instances where the parties use arbitration, the results have reflected a practical process that balances the interests of both parties while evaluating the local government's ability to pay.

Not necessarily. Arbitration changes the entire bargaining process. Giving an arbitration panel the power to impose its term changes the incentives for both parties. If the arbitrators are known to favor one side or the other, unions and employers will adjust their positions accordingly.

I have researched some mayors' complaints about how arbitration adds cost. They are wrong. In some cases, politicians have granted (through negotiations) extra pay and benefits to curry favor for their re-election. In other cases, police or fire management gave benefits many people would consider excessive to boost their own pensions.

Mark Gaffney defends arbitration by blaming elected officials for kowtowing to unions and padding their own wallets – nice. He also confirms the tremendous influence that unions have over local governments. But setting that aside, a task force convened by Gov. Jennifer Granholm found that binding arbitration added as much as five percent to the cost of local government in Michigan. It seems the mayors have a case.

If city administrators believe the arbitrators in the small minority of cases do not consider their budget constraints seriously enough, those cities should work through their employer associations and not choose arbitration.

And what exactly are the “employer associations” supposed to do? State law gives them no power whatsoever. Under PA 312 a union can call for binding arbitration unilaterally. If a union wants arbitration badly enough, there’s no way for a city to avoid it, short of giving in on union demands.

When the rules of Act 312 are strictly followed and arbitrators are fair, the outcomes are nothing like the urban legends in circulation.

As we showed earlier, arbitration panels rarely follow the rules at least when it comes to timing, and courts rarely review arbitration rulings so we cannot say for certain that their decisions are fair. Since the conditions Gaffney lists rarely apply in the real world it would appear there is some truth behind the “urban legends.”

Difficult economic times do not require changes to a law that has eliminated strikes by firefighters and police officers and continues to efficiently resolve labor contracts. Nor do a few complaints justify radical changes to a system that has worked well for the past four decades.

Worked well for whom? If persistent high unemployment and regular budget shortfalls do not justify changes to a wide range of laws, what does? PA 312 arbitration isn’t efficient and it adds to the cost of government. Our public sector labor law, PA 312 included, must serve the public interest in efficient and fair government. It has failed to do so.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.