Palo Alto officials made a push this week to speed up the city's process for labor negotiations when a City Council committee endorsed a new policy that calls for new union contracts to be approved before existing ones expire.
In both cases, the city was seeking major benefit concessions, including a second pension tier for newly hired workers and new contributions from employees for health care. In each case, negotiations dragged on for months after previous contracts expired. When this happens, employees continue to receive the compensation laid out in their previous contracts until the new ones are approved.
From management's perspective, this creates an incentive for unions to drag on the negotiations as long as possible so that they can maintain existing benefits. Lalo Perez, the city's chief financial officer, said in a statement earlier this month that labor groups sometimes prefer to delay an agreement on a new contract "because the existing contract with its better compensation package stays in effect until a new agreement is reached." Councilman Larry Klein, who sits on the Policy and Services Committee, made the same point in a February meeting and called for the city's new "labor guiding principles" document to address this issue.
Klein said Tuesday, March 13, that the city has lost millions of dollars in potential savings by extending existing contracts well past their expiration dates. The current system, Klein said, is "very much in the union's favor." If the new contract includes salary increases, these increase become retroactive, Klein said. If the new agreement includes reductions, these changes are not retroactive, he said.
"In this present economic environment, it's a situation in which the union basically has an incentive to delay things," Klein said. "There shouldn't be an incentive for either side to extend the negotiations. There should be an incentive for both sides to get a deal done before the agreement expires."
The document that his committee approved Tuesday includes seven principles, including a call for timelier negotiations. The document states that the city "shall, to the maximum extent possible, reach agreement on the successor MOA (memorandum of agreement) with recognized employee organizations on matters within the scope of representation prior to expiration of their existing MOA." The document also commits the city to working with employee groups to "set an appropriate starting time for negotiations."
The issue of labor negotiations has become particularly tendentious over the past three years, as the city's tax revenues dropped because of the 2008 economic downtown. At the same time, employee costs have continued to rise. According to data from the Human Resources Department, the average budgeted cost for an employee position had gone up by 20 percent since 2009. Employee benefits, particularly pension and health care costs, have been the major culprit. The benefit portion of the "salary and benefits" has gone up by about 12 percent in the last two years, according to city data.
City officials have consistently indicated that with pension and health care costs rising far faster than the city's revenues, more concessions will be required in future years to balance the city's budget. The aim of the new document, according to a report from the Human Resources Department, is to "help create a transparent policy framework to guide labor relations and the efforts of staff and labor."
The new document also formalizes the city's commitment to "equity across employee groups"; its desire to set compensation in a way that would enable it to recruit and retain qualified employees; its commitment to "transparency" when it comes to employee compensation; and its intention to "pursue short term and long term strategies to curtail increasing employee benefit costs."
While much of the document is phrased in broad and generally benign terms, some union members questioned the need for the new guiding principles, particularly the new rule about the timing of negotiations. Brian Ward, chair of the Service Employees International Union, Local 521, said some members of his union have been wondering why the city is proceeding with the new document. The union, which includes about half of the city's workforce, became the first to see major changes in compensation when the city imposed benefit reductions on its members in 2009.
"Anyone would say they don't want long, drawn-out negotiations, but how do we come together and work collaboratively, like with interest-based bargaining, when we set our priorities?" Ward asked the committee Tuesday. "I think that when we look at these overall guiding principles, we're not sure where you're going with this."
Ward said that while it's hard to disagree with the principles in the new document (who can argue, for example, against the need for the city to be cost effective in its business approach, he asked), some SEIU members wondered whether the new document would effectively create "another stick" that the city can wield during negotiations.
"I think we're in agreement with all the principles, but do they necessarily need to be exerted, do they need to be drawn out?" Wards asked.
Marcie Scott, acting assistant director of the Human Resources Department, said some employees have indicated that they believe that the city, by including a reference to the timing of negotiations, "conveys a disinterest in the bargaining process." She stressed that the new principles means the city may have to start its negotiations with its labor unions earlier in the year, well before the contracts expire.
The committee voted 4-0 to endorse the new document and to forward it to the full council for final adoption.
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