For many local governments, workforce costs represent more than two-thirds of their operating budget. In many regions of the country, most of these compensation costs are negotiated or collectively bargained, at least in part, with public employee unions. Despite the tremendous fiscal implications of these negotiations, those involved do not always incorporate resource planning information from the finance office. Although it is not always possible for finance officers to be at the bargaining table as labor contracts are negotiated, governments need to work closely with the finance department to address the short-and long-term implications of any proposal.
To protect the government’s financial health, the GFOA recommends that jurisdictions make use of the finance officer’s expertise throughout the collective bargaining process. The finance officer should participate in the following ways:
- Develop timelines. Work with the negotiation team to develop an appropriate preparation schedule that is in compliance with legal requirements and addresses the timelines for achieving a timely settlement. Considerations should include upcoming expiration dates of existing agreements, previous experience regarding the amount of time required to negotiate a new settlement, and legal deadlines for adopting budgets and tax levies.
- Prioritize issues. Work with other government team members to prioritize the bargaining issues and to understand and validate the costs and/or savings associated with each. Jurisdictions should also consider the impact of administrative efficiencies – changes that might not result in an explicit financial gain but will improve the government’s effectiveness.
- Communicate financial pressures. Advocate for longer-term fiscal stewardship issues such as managing pension and OPEB liabilities, and warn against the potential impact of failing to address these longer-term concerns. Educate all parties involved in the collective bargaining negotiations by providing objective, independent, clear, and effective communications about the government’s fiscal condition and the economic and fiscal challenges it faces. This information should demonstrate the effect of economic cycles on the jurisdiction’s ability to fund services. It should also include information about pressures beyond the government’s control such as health-care inflation and infrastructure needs, and how to reconcile the resource requirements needed for an agreement with other community priorities. Clear and compelling financial communications can help build trust and manage expectations.
- Be prepared. Consider the goals and interests on both sides of the table. Be prepared to assess the financial ramifications of any alternative settlement scenarios and to understand and calculate their costs.
- Evaluate potential renegotiation triggers. The finance officer should work with the negotiating team to assess the financial benefits and risks of clauses that would reopen the contract.
- Make peer comparisons. Analyze and understand the collective bargaining agreements of similar jurisdictions, fairly comparing the value of the total compensation and non-economic factors in any potential agreement the jurisdiction is considering.
- Determine proposal costs and affordability. When negotiations begin, provide the relevant financial information and work with the management team to determine prudent cost limits while still meeting community needs and priorities. Establish a methodology for comparing the cost of all proposals. All parties should consider both the short-term goals of the current negotiation and the costs involved with longer-term structural issues. Where appropriate, bring in consultants such as actuaries or financial advisors to help quantify costs in the short and long term.
- Determine the effect on different employee units. Consider the implications of each change on any potential agreement or on the entire workforce. For example, an agreement reached with one unit may set expectations for other employee groups in future negotiations. Also consider the management and fiscal implications, including compensation equity for employees who are not unionized.
- Fully evaluate retroactive proposals. Exercise great care when agreeing to either retroactive compensation or retroactive benefit proposals, which have a compounding effect on the cost of the benefit. Recognize the entire impact of significant increases that go into effect in later years of the contract, or "back-loaded" provisioning.
- Consider one-time payments. One-time payments (e.g., a signing bonus) or non-financial incentives that are structured to avoid building them into the pension base provide helpful options in negotiations.
- Weigh the advantages of negotiated benefits. Weigh the relative benefits of a negotiated, collectively bargained agreement, as compared to the potential outcome of either mediation or arbitration.1 In general, a negotiated agreement will likely produce a settlement that is more satisfying to both parties, while mediation and/or arbitration cedes the final result to an outside party.
1 Both mediation and arbitration employ a neutral third party to oversee the process, but mediation is generally a non-binding process (which can be a part of arbitration), and arbitration is generally a binding process. Mediation is generally conducted with a single mediator who helps facilitate discussion and the eventual resolution of the dispute. Arbitration is generally conducted with a panel that acts like a judge, making decisions about the evidence presented and giving written opinions.
- Michael Nadol and Vijay Kapoor, “Bringing the Numbers to the Table: What Finance Officers Need to Know About Collective Bargaining,” Government Finance Review, August 2011.
- Best Practice: Effective Budgeting of Salary and Wages (2010)
- Best Practice: Inflationary Indices in Budgeting (2010)
- Best Practice: Ensuring OPEB Sustainability (2007,2012)
- Best Practice: Strategies for Managing Health-Care Costs (2013)