Thursday, January 13, 2011

Binding Arbitration--Not Good for Writing Contracts

Jeff Jacoby points to the real victims of binding arbitration for public union contract negotiations and it is us.
When contract talks between a union representing public employees and the state or local government they work for are deadlocked, many states require that the disagreement be referred to an outside arbitrator for a binding decision. Since strikes by public employees are intolerable — no one wants firefighters, teachers, or trash collectors walking off the job — letting a neutral third party hear both sides out and settle the issue can sound like a fair and practical way to resolve thorny issues.
Sound imminently reasonable right? After all, an arbitrator is neutral, has no stake in the fight and is beyond the scope of the dispute. Once a decision is made by an outside arbitrator, no one can complain about right? The labor union and the governmental body has to suck it up what ever the decision by the arbitrator.

The problem is that there is no accountability for the arbitrator (who gets paid by both sides splitting the costs--which is not cheap). So the taxpayers pay the arbitrator's cost directly through the governmental body and indirectly by paying the salaries of the public employees who then pay dues to the union who then pay the arbitrator. Nice huh.

But Governor John Kasich (R-OH) makes a really good point:
“You think these local governments want to be stuck with binding arbitration?’’ Kasich asked. “I don’t know if you all know what binding arbitration is. When there’s a labor dispute, they bring somebody in from Kokomo, Indiana. He comes into Ohio. He imposes a settlement on our cities. He goes back to Kokomo — and we pay the bill.’’

With municipal budgets strained to the breaking point, said Kasich, the last thing local cities need is higher costs imposed on them by outsiders. “If you talk to the mayors of cities, Republicans and Democrats alike — Democrats will tell you off the record — [they] can’t stand binding arbitration . . . Binding arbitration is not acceptable. You are forcing increased taxes on taxpayers with them having no say, by people who come from a far-away place and have no accountability to the taxpayers.’’
Therein lies the problem--with no stake in the fight, the union can force an impasse that a governmental body does dare create. Public sector unions can threaten job action and there is minimal risk to them, after all, shouldn't cops and firefighters and teachers be compensated for their time and talent? But a city council can not afford to be in a position of "forcing" public employees to work for less or get fewer benefits because they know that if they do, every public employee union will campaign against them and the public will blame them for lack of police, firefighters, etc. They can't win.
In Michigan, notes the Mackinac Center for Public Policy, a respected think tank, “the average arbitration process takes 15 months to reach a decision.’’ When those decisions are reached, the price tag is generally high. A task force appointed by former Michigan Governor Jennifer Granholm surveyed the economic literature and reported in 2006 that the overall impact of binding arbitration in states that require it “is to raise municipal expenditures . . . by 3-to-5 percent relative to other states. While small in percentage terms, this impact is large in dollar terms.’’
By the way, Granholm is a Democrat--not some union busting, labor hating Republican. Here's the killer:
As state and local governments have learned to their chagrin, once binding arbitration becomes part of the collective-bargaining process, it doesn’t facilitate compromise — it undermines it. Unions quickly figure out that they risk nothing by making extreme salary or benefit demands, rejecting reasonable counteroffers, and then waiting for the ensuing impasse to go to an arbitrator. How can they lose? They know that the arbitrator will almost never award public employees less than the government’s final offer.
If there is a dispute as to the meaning of a term in an operating contract, arbitration is usually a good move and generally cheaper than going to court. By the way, it is not always cheaper, since arbitration is essentially a private trial, with witnesses, testimony, evidence presented and all the other features of a trial. Arbitration is just before a private decision maker who acts as a judge who can't be appealed. If you really wanted it to be cheaper--mediation is the way to go.

So what is the solution? Quite simply, blunt the power of public unions to make unreasonable demands and put some real bargaining power in the hands of the government. Unions who make unreasonable demands in the contract negotiation talks can be countered with a mandatory mediation procedure. If the unions make no progress or offer no compromises, the government can walk away from the table and the contract is automatically reduced by 2 percent in salary and benefits and put in place for one year. If no progress is made in that next year, the contract is reduced again by 2 percent in salary and benefits. In the second year of an impasse, the union has to pay the reasonable costs and fess for the governmental entity paid by the union negotiators. Thus if the parties come to an impasse, the burden is on the union to get the reasonable negotiations moving.

Now some people will argue that such a law is not fair to the unions, who after all work hard. I am not arguing that the union members work hard, but the contract negotiators almost never are union members, but outside experts hired to burglarize the tax coffers. Public sector work is relatively safe in terms of job security, but it cannot be a means of simply getting paid more and more for doing the same work, there must be a limit and we cannot have public sector unions simply holding the government hostage to force a binding arbitration by acting in an unreasonble manner and make outrageous demands.

After all, the public sector unions are public employees paid by tax payer dollars and the tax payers should hold much more power than they do now.

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