STATE OF CONNECTICUT
OFFICE OF LEGISLATIVE RESEARCH
January 20, 2004
2004-R-0062
FACTORS
OF FINANCIAL CAPABILITY IN MUNICIPAL AND EDUCATION BINDING ARBITRATION
By:
John Moran, Associate Analyst
You
asked for a comparison of the factors used to determine the financial
capability of a town in binding
arbitration under two
laws: the Municipal Employee Relations Act (MERA) and the Teachers Negotiation
Act (TNA).
SUMMARY
The
two laws use almost identical language in mandating what an arbitrator or an arbitration panel must
consider when determining the financial capability of a town, a determination
that must be made before choosing between the last best offers of the town (or
school district) and the union. The major difference between the two laws is
under the TNA, if a town designates a reserve balance of up to 5% of its
budget, the reserve cannot be considered to pay for the cost of any item under arbitration. In other
words, the reserve is off limits when an arbitrator considers whether a town
can afford to pay raises, benefits, or other items in the arbitration. MERA has no such provision.
There
are a few more minor differences in language, which will be addressed below.
SIMILARITIES IN "FINANCIAL CAPABILITY"
Both
laws require that an arbitrator or arbitration panel "shall give priority to the public
interest and the financial capability of the municipal employer, including
consideration of other demands on the financial capability of the municipal
employer (CGS Sec. 7-473c(d)(9)). " (The only difference in this sentence
is TNA uses the term town or towns in a school district instead of
"municipal employer. ")
5% BUDGET RESERVE
The
TNA includes the following language, added by PA 97-177, which is not in MERA:
"In
assessing the financial capability of the town or towns, there shall be an
irrebuttable presumption that a budget reserve of five per cent or less is not
available for payment of the cost of any item subject to arbitration under this chapter (CGS Sec.
10-153f(c)(4)). "
Sen.
Gaffey, chairman of the Education Committee, brought out SB 1107, which enacted
this provision, on May 22, 1997. It was placed on the consent calendar and
approved by the Senate with no opposition. Sen. Kissel briefly remarked on the
rationale for the budget reserve provision:
"What
it does do is... [provide] that there is that irrebuttable presumption if there
is a reserve account of 5% or less, that those reserves should not be able to
be used toward that arbitrated
award because we have found that it is healthy fiscal policy to encourage
municipalities to have reserve accounts of up to 5% in order to maximize their
bond rating, which is just good state, public, fiscal policy. "
The
Senator also remarked that this provision does not limit the evidence that can
be brought forward by either side in an arbitration hearing.
On
May 28, 1997, the House passed the bill on consent after no debate.
The
Education Committee held a hearing on the bill, and the Connecticut Education
Association (CEA) spoke against it. Gail McKinley Anderson, speaking for CEA,
told the committee that statutorily placing the reserve fund outside of
consideration distorts its weight as only one factor in a multitude of factors
that must be considered when determining a town's financial capabilities.
Furthermore, she said the 5% figure was misleading because there are situations
when a town may have sound financial reasons for having a reserve balance
either above or below 5%. Also, she noted the existing law already required a
town's financial capability be given priority in arbitration proceedings.
Sen.
Kissel responded, in part, by saying:
"Five
percent was selected as a cap because that is what the bond markets look for to
make sure that towns have reserves so that they can meet their capital
expenditures and also address any kind of emergencies.
"It
has been brought to my attention on numerous occasions that the negotiators for
the unions, when it comes to binding
arbitration, will
point to a town's reserve account as a measure of a town's ability to pay when
they are in contract negotiations. That being the case, there is an impetus for
some small communities to try to drive that reserve down for fear that if they
get into arbitration,
it will be used against them. "
MINOR DIFFERENCES
Both
laws set five additional criteria that arbitrators must consider in light of
the town's financial capability.
The
factors are:
1. the negotiations between the parties prior to arbitration;
2. the interests and welfare of the employee group;
3. changes in the cost of living;
4. the existing conditions of employment of the employee group and those of
similar groups; and
5. the wages, salaries, fringe benefits, and other conditions of employment
prevailing in the labor market, including developments in private sector wages
and benefits.
These
factors are largely the same in both the TNA and MERA. But PA 91-352 made minor
changes to three factors in TNA, while leaving MERA unchanged. The revisions to
TNA provide more specificity to the existing criteria but do not substantially
change any of them.
PA
91-352 made the first factor more specific by adding the following phrase after
the word arbitration,
"including the offers and the range of discussion of the issues. "
It
made the third factor more specific by requiring that changes in the cost of
living must be averaged over the preceding three years.
The
fifth factor requires arbitrators to consider prevailing labor market salaries,
fringe benefits, and other employment conditions, and the act specifies this
must include the terms of contract settlements for other municipal employee
organizations.
None
of these changes are major and some, like considering the terms of other
municipal employee settlements, were already common practice.
JM:
ro