Deal nears on reform of binding arbitration

An issue long near and dear to the heart of local government reformers came to a head this week at the State Capitol.

Negotiations continued in Lansing Thursday afternoon on competing bills from the House and Senate on the binding arbitration process for public safety unions and the local governments that employ them known as Act 312. The Senate version, SB 397, has the backing of police and fire union leaders, while the House concept, HB 4522, is favored by the Michigan Municipal League.

A Center for Michigan review finds the House bill stronger on the basic issue for most taxpayers: Helping cash-strapped local governments control costs.

The advantage is found in how the two measures deal with “ability to pay,” a point that MML’s Samantha Harkins says is her group’s “top reform target.”

Local governments have long argued that the arbitration process puts them — and the taxpayers they represent — at a disadvantage. A contract negotiation with a police or fire union can move to arbitration, where an unelected arbitrator can impose provisions regardless of the local unit’s financial circumstances. Potentially, Harkins argues, an arbitrator could favor a public safety union to such a degree that it would force the local government into the position of laying off actual officers or firefighters to balance its budget.

Binding arbitration was adopted in the 1960s to compensate for the state’s ban on strikes by public safety unions.

MML likes HB 4522 because it gives explicit direction to arbitrators on how to consider the government’s “ability to pay” as the top factor in guiding the ultimate ruling. By contrast, Harkins says, the Senate bill “does not alter the status quo.”

And while there are very few arbitration cases at any given time — a review of a database at Michigan State University found only four such rulings in all of 2010 — the impact is much broader.

Local leaders have long told CFM that the real impact of Act 312 is in how it distorts the culture of negotiations between local governments and public safety unions. Governments begin to fear what an arbitrator might rule, so they agree to “less bad” contracts with the unions to avoid the process entirely.

“Ecorse has an emergency manager right now,” Harkins said, “but also is in Act 312 arbitration. What happens if the ruling comes down against the city?”

Under HB 4522, state law is ranked. Provisions of Act 312 become subject to the emergency manager law, which the Legislature revamped just a couple of months ago.

Not all municipalities are in complete agreement with MML’s assessment. East Lansing City Manager Ted Staton reported Wednesday that his City Council’s position is closer to the Senate version than the House’s.

“The East Lansing City Council supports the continuation of Act 312 binding arbitration with significant reforms. Internal comparability with mandated primary ability-to-pay considerations are two of the reforms we support. We also want the legislation to make the whole 312 process more compact in terms of time,” Staton said.

Sen. Rick Jones, primary sponsor of SB 397, defends the Senate approach.

“My bill says that if two or more governmental units start an authority, then 312 applies. This will help more government units combine without lawsuits and encourage it. We can save tax dollars if more government units combine. My bill adds NO new people to 312. My bill carves ‘ability to pay’ out of the old law and makes it a number one, stand-alone issue,” the Grand Ledge Republican argued.

Harkins says it’s a mistake to explicitly include joint service authorities under Act 312 because it will expand the reach of the arbitration process — and thereby the potential for higher costs. She also explained that the Senate bill language does not give arbitrators enough direction on “ability to pay.”

Jones said, “Well I make (ability to pay) a stand-alone sentence and put it at the top. I believe that makes it the No. 1 for the arbitrator to consider.”

Almost since its inception, the Center for Michigan has argued for the need to reform the binding arbitration process. For a perspective on the Center’s thinking on the issue, click here, here, here, here and here.