Ripe for Reform: Binding Arbitration

"Binding arbitration" is one of those public policy terms whose obscurity keeps the average citizen from fully understanding the political machinations of worker-employer relations in our state. It is also a clumsy process that causes seemingly endless delays in the signing of state employment contracts, when its ostensible purpose is to resolve state employee labor disputes quickly.

Whenever Michigan’s state government is unable to reach agreement on an employment contract with the union that represents state troopers or if local governments cannot reach an agreement with the representatives of their police officers or firefighters, both sides are forced to go through "binding arbitration."

This means that the final decision on terms of employment will be made by a panel made up of one union representative, one government representative, and a "neutral" arbitrator provided by the state Employee Relations Commission. But in practice the arbitrator — who may be "neutral" or may not be — has the deciding vote on all controversial provisions.

The binding arbitration process is notorious for delays that can lead to fiscal crisis: Since January of 2000 arbitration rulings in Michigan have come in, on average, 22 months late. Such delays often make "back pay" awards necessary, to make up for raises earned before the arbitrators’ ruling. These can impose a significant burden on cash-strapped local governments, and at the same time force police officers and firefighters to wait for well-deserved raises or benefit improvements.

Binding arbitration awards have tended to be overly costly for taxpayers. A Senate Fiscal Agency review of state trooper arbitration awards showed that salaries awarded by arbitrators tend to be one or two percentage points higher than those secured by other state employees. And those state employees receive compensation that is above average compared to their counterparts in both the private sector and in other states, according to surveys compiled by the Office of the State Employer and the American Federation of Teachers.

But most important of all, binding arbitration undermines the ability of citizens to govern their own communities, by putting a significant part of the local budget — salaries for their police and fire departments — under the control of arbitrators appointed by Lansing. Decisions regarding these core functions of government, instead of being made by taxpayers through their elected representatives, are in effect made by an arbitrator who may have no connection to or knowledge of the community, and will suffer none of the consequences if he or she misjudges.

A reform of the binding arbitration process ought to speed it up and also increase citizen influence over it. A change in the Michigan Constitution would be necessary to bring that sort of remedy to State Troopers. But a model already exists in Michigan for an arbitration system that would do both for local police and firefighters.

The Michigan Constitution establishes a Civil Service Commission, with authority over the compensation and terms of employment of all state employees with the exception of state troopers. This commission has established a system of collective bargaining, but retains final approval over contracts and over the resolution of bargaining impasses.

The Civil Service Commission maintains a strict schedule for negotiation and impasse resolution. It guarantees that contracts are in place or impasses settled before state employees are forced to work without a contract.

A new system of local arbitration boards, set up at the municipal or county level, could perform a similar function for local police and firefighters. Unlike the Civil Service Commission, the authority of these boards could be limited to resolving impasses. But if the parties were unable to agree, their word would be final.

Such local arbitration boards should be chosen by local officials and could either serve as the arbitration panel themselves or establish a fact-finding panel while preserving authority to review and amend the fact-finders’ conclusions. Like the state Civil Service Commission, members of local arbitration boards would have long terms to protect them from day-to-day political pressures.

Taxpayers would influence the arbitration process through the elected officials who assemble the board. At the same time, members of these boards would have the chance to develop detailed knowledge of the needs of their communities and of the challenges faced by local police officers and firefighters.

By authorizing the creation of local arbitration boards, state lawmakers would give local citizens, instead of Lansing bureaucrats, the final say in labor negotiations. Lawmakers would also be emulating a system that already works; one with a record of timely decision-making.

And Michigan could say goodbye to the endless delays and fiscal problems that have come to characterize contract negotiations for local police and firefighters.

Paul Kersey is labor research associate for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland. He authored a policy analysis of a 2002 ballot proposal that would have amended Michigan’s constitution to require binding arbitration for state government employees.