Confused Blather from Mayor’s Spokesperson on Pensions

Pittsburgh’s Controller asserts in newspaper accounts that Pittsburgh has not sufficiently addressed its pension problems or reduced expenditures enough to warrant having state financial oversight of the City terminated. A sentiment shared by the oversight groups-the Intergovernmental Cooperation Authority and the Act 47 coordinator-and the Allegheny Institute.

The Mayor’s office fired back with its usual rejoinder claiming enough has been done and says the following about the pension situation, "The Controller knows all too well that the City’s inherited pension problem can only be solved at the state level." Okay, what is wrong with this statement? There are two huge obvious fallacies in one sentence.

First, the City did not inherit the pension problem. Who died and left the pension plans to the City in their will? Of course, this part of the spokesperson’s comment is nonsensical. Pittsburgh created the pension crisis through its own behavior of overpromising and underfunding the pension plans over the course of many years. Granted, the union favoring Act 111 binding arbitration law was a key factor in egregious contract settlements during the last thirty years.

However, the Act 111 problem was known about decades ago and nothing was done about it. How many mayors, city council members, state representatives or civic leaders went to Harrisburg to lobby heavily for reforming Act 111 to reduce the extraordinary advantage the public safety unions have in the contract bargaining process? It is safe to say not more than one or two and only after the City was declared to be in financial distress. Indeed, how many would stand up for reform even now? Act 111 reform has been and continues to be anathema to the unions and is a political non-starter in union dominated precincts across Pennsylvania but especially in Pittsburgh.

To further add to the silliness of the spokesperson’s response, she continued with the claim that only the state can fix the problem. How is that? The pension obligations were entered into by the City and it must deal with its self- inflicted wound by adequately funding the pensions, curbing all expenses and supporting meaningful labor regulation changes and lobbying for authority to offer 401(k) type plans to all unvested employees.

Still, the best thing it could do would be to adopt private sector growth enhancing policies in order to shore up and expand its tax base while keeping a tight rein on spending. The ability to generate additional revenues from real growth as opposed to more taxes and higher tax rates is crucial to solving the underlying financial problems in the City. Of course, what we see emanating from the City are a steady diet of policies aimed at top down directed economic development, cronyism, and forays into every progressive, anti-free market notion coming down the pike. Too bad. The controlling political powers never seem to get it.

The Scranton Fix, and Changes to Chapter 9 Bankruptcy

Last October we wrote in a blog about the Supreme Court decision that said an "arbitration award" was not the same thing as an "arbitration settlement" and the impact that small distinction would have on communities in Act 47 distressed status. Language in the act stated "a collective bargaining agreement or arbitration settlement executed after the adoption of a [Act 47] plan shall not in any manner violate, expand, or diminish its provisions".

Under Act 111 of 1968, the collective bargaining law that outlines binding arbitration procedures for police and fire employees, the Court’s decision would have far-reaching consequences for communities in Act 47. Left unchanged, there would have been an incentive for combing over old arbitration proceedings to see if anything retroactive could be awarded. There would also be motivation for public sector unions to get to arbitration so as to fall into this grey area.

In the blog we noted "the onus is on the General Assembly and the Governor to act quickly to amend Act 47 language so that ‘awards’ are covered as well as ‘settlements’…A few word changes should do the job…The need for the Legislature to move as rapidly as possible cannot be more clear."

Legislation that has been signed into law does just that, adding language that defines an "arbitration settlement" to include that a "final or binding arbitration award or other determination" would be covered by the definition. The act allows for an arbitration award to deviate from the plan as long as it does not jeopardize the stability of the municipality and does not prevent relieving the distress (note that only six municipalities have emerged from Act 47 status, 21 are currently in). Deviation requires an evidentiary hearing.

Another significant change as a result of the act is on municipal filings for Chapter 9 bankruptcy. Now municipalities that want to file will have to apply to the Department of Community and Economic Development (DCED) and the Secretary will make a "yes" or "no" recommendation on filing after weighing the criteria contained in the statute. As we noted in our 2009 report, states are free to place as many restrictions on their local governments when it comes to filing for Chapter 9 bankruptcy, including prohibiting them from filing.

Supreme Court Undermines Act 47 Coordinators’ Authority

A recently announced momentous decision of the Pennsylvania Supreme Court has severely limited the power of Act 47 to impose steps aimed at helping financially distressed municipalities return to fiscal stability.

 

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A League of Their Own?

Or, is the task force organized by the Pennsylvania League of Cities and Municipalities (PLCM) a voice in the wilderness?

Seeing cities either in or close to distressed financial status, facing large legacy costs, and wanting more options for cooperation or revenues, the 29 member "Core Communities in Crisis" has been deliberating since its formation in June of this year to deal with "a long-term vision and strategic proposal" to give to the new Governor and the General Assembly in 2011. An urban agenda, if you will.

So what do they see as problems and what do they propose as solutions? To summarize from an October 14th PLCM news release, more regional-type service delivery, no unfunded mandates from the state government (they don’t specify in the release what these are, or the impact of Federal mandates either), reform of Act 111 and Act 205, more regular property assessments, and new revenue options.

We’ve seen no real interest in changing Act 111, and the effort to change Act 205 through Act 44 last year was headed off by public sector unions when they got wind of the possibility of 401k type pensions (just last week a high ranking union official reacted to the passage of a separate school pension bill that the "most important part of this legislation is preserving the traditional defined-benefits pension, which protects retirement security for all employees, helps state and local governments in recruiting and maintaining dedicated and skilled workers") and the seemingly never-ending desire for local governments to create new and inventive tax sources (the "parking space privilege tax" and the "secondary education privilege tax" come to mind) indicate that change of a different type is needed.

Perhaps a menu of available local tax sources of which municipalities can choose (4 of 6 or 5 of 7, for instance); a state incentive for municipalities that combine services and can prove that there are real and meaningful savings; and treating arbitration for police and fire more like a judicial process with objective criteria would be a good place to start.

What Will Become of the Oversight Board?

Next year marks the end of the current life span of the Intergovernmental Cooperation Authority (ICA) for Cities of the Second Class, commonly known as the Oversight Board.  Created by Act 11 of 2004, which was signed into law on February 12 of that year, the statute’s language declares the Board “shall exist for a term of at least seven years”.  An act of the Legislature is required to extend the life of the Board beyond 2011.  

 

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The Power of Act 111

Uniontown, with a population of 11,541, down from 12,421 in 2000, has witnessed firsthand the power exercised by arbitrators under Act 111 of 1968, the act that outlines collective bargaining for police and fire employees in the Commonwealth.

Experiencing financial difficulties for some time-the City was considering Act 47 status two years ago-there were layoffs in the fire department and the decision was made to eliminate the department when the contract expired at the end of 2010.

But after a lawsuit activated the arbitration process under 111 the department will not go, the employees that were laid off will be recalled and all 13 members of the department are scheduled to receive 3.5% annual raises in a new four year contract that is binding upon the municipality.

Where are the opponents of unfunded mandates when you need them?

Consider that the state’s arbitration law does not take into account whether or not the municipality can afford the settlement, what income levels in the affected community are, and don’t include mediation or fact-finding as part of the process.

Thanks to a $633k Federal grant-free money for sure-Uniontown can pay the costs. But what happens when that grant runs out? If this mandate and the loss of Federal money mean bad things once again for the City then they can always revisit the Act 47 process to see if there is a coordinator willing to lend some expertise. Or the state could take a serious look at the statute (something that has not been done since the late 1970s) and think about criteria related to selection and awards.

Binding Arbitration Sprouts in Green Tree

Act 111-the law that governs collective bargaining and contract resolution for police and firefighters-is coming into play in the South Hills suburb of Green Tree. Police and fire personnel (along with prison guards and people necessary to the functioning of courts) are prohibited from going on strike in Pennsylvania, so contract disputes are subject to a binding arbitration process spelled out in the law, which has been on the books since 1968.

Just because it has stood the test of time does not mean Act 111 does not need to be reformed. That’s what can be seen in the community in question where police wages account for 21% of the borough’s $7 million budget. Officers are making wages comparable to neighboring communities and have full health care benefits. But they are asking for raises in excess of what other bargaining units have received, prompting the manager to opine "we just don’t think the raise they’re asking for is reasonable in these economic times. It’s not in line with the raises we’ve given other employees".

The Act 111 process does not mandate that the arbitrators on the matter look at what the town can afford, what comparable professions make, or any fact-finding process at all. This is in stark contrast to other states. And if the arbitration panel rules in favor of the wage rates preferred by the police it is considered a mandate to the borough to pay it. On top of that Green Tree has to pay for its arbitrator and the third neutral panel member along with all the associated stenographic costs.

Act 111 has not been systematically evaluated by the state since the late 1970s, and the only "trump card" is for a municipality to enter into Act 47 which prevents bargaining agreements executed after the adoption of a recovery plan from violating its provisions.

Pittsburgh Loses Again

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Pittsburgh has lost again, although this time it was not a sports contest.  The City lost an arbitration award to the labor union representing Public Works employees.  The grievance was over the awarding of overtime during the G-20 Summit held in the City in September 2009. As a result, the City must pay a total of $50,000 to 62 laborers. 

 

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Act 111 in Need of Overhaul

In regards to a recent spate of incidents involving City police and fire personnel ranging from allegations ofroad rage, drunk driving, and assault the Mayor wants the departments to "clean up their act" while mentioning that there is another act that definitely needs to be cleaned up-the Police and Fire Collective Bargaining Act, better known as Act 111 of 1968.

"We’ve disciplined officers. We’ve disciplined firefighters. We’ve fired them, terminated them. Only to find that they’ve won their jobs back in arbitration" was what the Mayor said today.

Act 111 has been pointed to as a primary reason as to why municipal budgets have been stretched to the breaking point. Any impasse in a collective bargaining session is submitted to a panel of arbitrators who do not have to consider the financial ability of the municipality in making their decision. Only by entering into Act 47-which says that any contract negotiated after distressed status is declared-can a municipality thwart the possibility of an arbitration award that is too rich.

Now we see what Act 111 can do for management powers as well. The City needs to reduce its workforce so that it can begin to deal with its legacy costs, and Act 111 is doing the City no favors. So one of the action items that needs to be on the agenda of the coalition that is headed to Harrisburg seeking new revenues for the City is reform of the statute.

Shocking Surprise: Candidates Support State Liquor Stores

According to newspaper accounts, the four Democrat candidates for Governor have publicly supported the continued monopoly government control of liquor sales in Pennsylvania. Not too surprising given that the venue for the statements was a forum hosted by labor unions, the single biggest beneficiary of the status quo and implacable enemies of reform.

Just one more example of how organized labor, especially public sector unions, has Pennsylvania in a vise grip when it comes to policy. Teachers’ and transit workers’ right to strike and union-favoring binding arbitration for police and fire both combine to make Pennsylvania one of the worst, if not the worst, state in the country in terms of the power of labor to control a state’s governance and economic freedom. The financial situation in Pittsburgh and many Pennsylvania municipalities reflect this powerful interest’s control and the inability of these governments to enact the type of policies that would help them escape their financial plight.

Unfortunately, labor’s control over policy is so profound that not one Democrat candidate could support a sensible step such as privatizing the liquor stores. Indeed, there are few Republicans who will call for an end to teacher and transit worker strikes or stand up to police unions on the need for binding arbitration reform for fear of retaliation.

So on the state will go, among the worst economically in a country that seems headed for a period of very weak economic performance.