Pressure Grows to End Binding Arbitration with Government Unions

Published February 1, 2007

People from coast to coast apparently are coming to realize the harm to taxpayers that can be caused by allowing binding arbitration with government employee unions.

On November 7, 2006 the voters of Santa Clara, California rejected a ballot measure, by 56 to 44 percent, that would have imposed binding arbitration on contract negotiation impasses with public safety unions.

In an October 26 editorial opposing the measure, the San Jose Mercury News noted, “Binding arbitration nearly always is bad for cities. It takes control of the budget away from elected representatives and hands it to an independent arbitrator, who looks at numbers but not the broader good of a community.”

Consortium Pushes Reform

On the other side of the nation, in Connecticut, town officials are joining together in a new effort called the Connecticut Municipal Consortium for Fiscal Responsibility.

One of the chief goals of the consortium, which has been endorsed by more than 170 boards within 102 of the state’s 169 municipalities, is reform of the state’s binding arbitration law. Connecticut towns have multiple boards of officials, including Board of Selectmen, Board of Education, Board of Assessment Appeals, and Zoning Board of Appeals.

Connecticut’s Senate Republican leader, Louis C. DeLuca (R-Woodbury), has introduced legislation that would, among other things, give municipalities the right to reject an arbitration award and restart the process. This right is enjoyed by the state but denied to municipalities, even though it is state law that imposes arbitration on the cities.

DeLuca doesn’t mince words.

“What it all comes down to is it’s your money,” DeLuca said. “It’s your tax dollars the unions keep taking to pay the relatively small number of Connecticut residents who have been lucky enough to secure state or municipal employment.

“Reforming the binding arbitration process would be the single most effective step to bring property tax relief to the people of Connecticut, because the unions would no longer be able to dictate how your money is spent,” DeLuca said. “The General Assembly has a choice: Reform binding arbitration and bring tax relief to all of Connecticut’s residents, or succumb to special interest pressure and make all of Connecticut pay for the convenience of a select few.”

Resolves Disputes

Binding arbitration is a process in which two parties at an impasse in negotiations submit the dispute to a third party that makes a decision binding on both parties. There are two types of arbitration, rights and interest. Rights arbitration is used to resolve disputes about the meaning of an agreement. Interest arbitration is used to resolve disputes arising in contract negotiations.

Rights arbitration has many useful applications as an alternative dispute resolution mechanism. It is sometimes used as an alternative to litigation in resolving disputes. Many contracts include a clause stipulating that disputes will be resolved by arbitration.

But in the public sector, when the dispute is between a labor union of public employees and the elected representatives of the people, other important considerations come into play.

Can Increase Taxes

A statement in the 2006 Legislative Program of the New York Conference of Mayors and Municipal Officials illustrates those considerations:

“An arbitration panel has significant responsibilities and can issue an award which requires an increase in taxes. However, a panel is not responsible for its award and is not accountable to the taxpayers. Over the years that the compulsory arbitration law has been in existence, many unions have sought to rush to arbitration and avoid substantive negotiations. The compulsory arbitration process is an unfunded mandate upon municipalities and should be repealed.”

In the public sector, arbitration is often mandated by the state public-sector collective bargaining law.

The rationale for compulsory binding arbitration is that strikes against government are intolerable and thus arbitration is justified to prevent strikes. Because compulsory binding arbitration raises so many concerns about the nature of government, it is often restricted to disputes with public safety unions. In several states, however, it applies to all levels and units of government.

Officials Lose Spending Control

Arbitration takes spending decisions out of the control of the elected representatives of the people.

For example, New Jersey has a state law capping property tax increases, but according to a resolution by the New Jersey Municipal League, “for the ten year period from January 1996 through December 2005, arbitration awards exceeded both the CAP Law limitation and the Consumer Price Index (CPI) by 50%.”

In his seminal work on “Sovereignty and Compulsory Public Sector Bargaining” (Wake Forest Law Review, March 1974), Sylvester Petro, formerly law professor at New York University and a noted author on labor issues, cautioned, “Compulsory arbitration of public-sector bargaining impasses is, if possible, even more destructive of governmental and popular sovereignty than are public sector bargaining and strikes.”

The late Coleman Young, as a state senator, sponsored Michigan’s binding arbitration law, but as mayor of Detroit he said in a February 7, 1981 National Journal article, “We know that compulsory arbitration has been a failure. Slowly, inexorably, compulsory arbitration destroys sensible fiscal management.”

Arbitration awards, Young said, “have caused more damage to the public service in Detroit than the strikes they were designed to prevent.”

David Denholm ([email protected]) is president of the Public Service Research Foundation, an independent, nonprofit organization that studies labor unions and union influence on public policy.