Budgets are falling across the state of Michigan. It happens. Revenues decrease in recessionary periods, and the realities of financial forecasts become vague and somewhat Picasso-ish when markets, where much of municipal pensions funds lay, become unpredictable.
So it goes in the City of Traverse City, Michigan where the future of pensions of Firefighters were considered on Monday. A new contract was signed increasing wages 2 % retroactively to June of 2009 when their previous contract expired. Further there was an additional sweetener into the pension promises made for the firefighters. The vote passed the commission was 6-1:
A factor used to determine firefighters’ pensions proved a sticking point in commission discussion and led Commissioner Mike Gillman to cast the lone dissenting vote against approving the contract.
The new contract increases the pension factor — a figure that’s combined with an employee’s years of service and wage level at retirement to determine pension — from 2.5 to 2.8 percent.
Firefighters are supposed to contribute enough toward their pension to make up for the increase, but Gillman contends the city “almost undoubtedly” will end up losing money on the deal.
“Actuarily covering it and actually covering it are two different things,” he said, referring to actuaries who help craft the pension formulas.
Bifoss agreed with Gillman, but said the city could lose bigger if the city wound up on the losing side of an arbitrator’s ruling on the matter.
The Numbers that commissioner Gillman describes are based on hypothetical investment returns considerably higher than recent or anticipated yields. The numbers expect an 8% return in the market based pension, when in fact it is maintaining barely 2.5%. The added contributions made by the firefighters will not automatically guarantee the value that the multiplier provides, and that can leave the city with a deficit in its contractual obligation.
In other words, its a unknown liability that the commission passed on to future budgets.
Ultimately, Traverse City, like much of the state’s cash conscious municipalities, should make an attempt to move into a purely “defined contribution” plan, which does not punish a future city government for the decisions of today’s contract makers. The increased benefits come at a cost to the taxpayers later in the scheme.
Bifoss’ remark however, gives a clue about why certain decisions are made, and that the underlying best option may not be what has been accomplished. He essentially said “We will lose more if we were to take this to binding arbitration.”
So why worry about arbitration?
Here is the sticker. The findings of compulsory arbitration are indeed final. But because of P.A. 312 of 1969, it stacks the deck against local governments. The preface to the bill reads:
AN ACT to provide for compulsory arbitration of labor disputes in municipal police and fire departments; to define such public departments; to provide for the selection of members of arbitration panels; to prescribe the procedures and authority thereof; and to provide for the enforcement and review of awards thereof.
It IS the authority in such cases, and a labor dispute arbitration over the Traverse City contract would result in the possibility of the city having to concede even further to the demands of the union, whether it likes it or not.
423.240 Majority decision of arbitration panel final and binding; enforcement; effect of new municipal fiscal year; awarding increased rates or benefits retroactively; amending or modifying award of arbitration.
A majority decision of the arbitration panel, if supported by competent, material, and substantial evidence on the whole record, shall be final and binding upon the parties, and may be enforced, at the instance of either party or of the arbitration panel in the circuit court for the county in which the dispute arose or in which a majority of the affected employees reside. The commencement of a new municipal fiscal year after the initiation of arbitration procedures under this act, but before the arbitration decision, or its enforcement, shall not be deemed to render a dispute moot, or to otherwise impair the jurisdiction or authority of the arbitration panel or its decision. Increases in rates of compensation or other benefits may be awarded retroactively to the commencement of any period(s) in dispute, any other statute or charter provisions to the contrary notwithstanding. At any time the parties, by stipulation, may amend or modify an award of arbitration.
Essentially, the act says that decisions made during the arbitration process need not even CONSIDER a municipality’s fiscal ability to pay for the contract, in the decision making of the panel.
Perhaps it is time to consider P.A. 312 a hindrance to sound fiscal planning, and call for its removal from our legislative record.
This year, for the first time since its passage in 1969, the legislature is considering amendments to P.A. 312. Amazingly, a simple provision saying that a municipality’s ability to pay should be considered by the arbitrator is considered controversial! Public employee unions continue to have an ownership interest in our Michigan Legislature.
Perhaps you should ask YOUR legislator where he or she stands?