In Good Faith Negotiations, A Deal Is A Deal!

There has been a bit of debate on the Orange County blogs about the proposed salary increase for County employees represented by the Orange County Employee’s Association (OCEA) of 4.75% for the 2006-07 fiscal year. While the people raising the fuss are focused on the increases for general workers, for some unexplainable reason, they have missed the proposed increase of 4.5% for the highest paid employees in the county, Management.

For general reference, the proposed salary increases can be found on the Board of Sups page under the Agenda for the August 1, 2006 meeting. Agenda (Item#31) estimates the cost of the proposed 4.75% salary increase at $39.6 million. You will also find that Agenda Item #30 is the Management salary increase of 4.50% for at a projected cost of $6.5 million.

The main focus of the arguments against the increase seems to be related to the projected costs the pension benefit adjustments. Those changes, approved in the 2004-07 Contract Agreements, bring Orange County employees pension benefits in line with other public employee pensions in the state. At issue is whether or not County workers are paying enough to cover the cost of the increased benefit. I’ve posted about this before in Greenhut and his addiction to “Moorlach’s Moonshine Kool-Aid” and in Private vs. Government Wages: Comparing Apples to Oranges, but some people still think the “sky is falling”. Members of the Board seem to be concerned that the calculation of projected costs may be higher than anticipated. Since this is based upon assumptions that change daily, the projected costs are likely to fluctuate over time. This does not mean that the “Sky is Falling” or that the employee contributions to cover the costs are not enough. When the initial agreement was reached, both sides agreed on the projected amount of the costs and those costs were covered by a combination of direct contributions and health plan cost concessions.

It should be noted that these concerns are addressed in the proposed reopener agreement. I am referring to #6 of the Tentative Agreement; 2.7% @ 55 Contribution Methodology: “The parties agree to meet and confer regarding the establishment of a methodology to determine the future costs attributable to the implementation of the 2.7% @ 55 benefit formula.”

Based upon the detail attached to the Board Agenda Item regarding the tentative agreement, it appears that the cost of a 1% increase for the 12,000 OCEA represented employees would be around $8.3 million. Using that figure let’s do some math.

For the purpose of this exercise let us assume that if the pension enhancements had not been changed that OCEA would have negotiated for and probably received annual general salary increases of 3% for the three years of the contract.

Those hypothetical increases would have cost the County an additional $25 million in the 2004-05 year; $50 million in 2005-06; and $75 million in 2006-07 for a total savings of $150 million over the life of the contract.

The proposed salary increase for the 2006-07 year will cost approximately $39.6 million. Subtract that from the $150 million in initial savings and you have a total of $110.4 million in net savings over the three years of the contract. Remember, the costs of the retirement benefit enhancements are paid for through direct employee contributions and health plan concessions. Even if the calculations and assumptions utilized to determine the costs of the pension enhancements did not pan out, there is a significant amount of cost savings that could conceivably cover any shortfall.

Jubal over at the OCBlog says: “I don’t want Orange County to get caught in the upward spiral of ‘remaining competitive’ with other government agencies: that’s a bidding war in which the government unions best at dominating their elected officials win, and taxpayers lose.”

I can only surmise from his position that he will only be happy if government employees were to never receive a salary increase; and when they do not have a retirement plan and rely on social security. Given his logic, my guess is that he really doesn’t want to “reduce the size of government”, he wants to eliminate all government services by making people uninterested in working for government. In business as in government jobs, if you do not pay competitive salaries and benefits you create no incentive for people to work for you.

Some members of the Board of Supervisors want to rethink their salary adjustment offer to 12,000 County employees. They really should have thought about that before they made their offer.

In the world of collective bargaining there is a premise called “negotiating in good faith.” That is the basis for all negotiations for employee contracts. Both sides agree to live up to their end of any bargain. This includes an offer of a tentative agreement. In this process management and the unions negotiate an offer that is presented to membership of the union for ratification. Once an offer is made and accepted in good faith, neither party can, in “good faith”, rescinded the agreement. Just like when you negotiate to buy a car, when you sign on the dotted line agreeing to by the car, you do not get a cooling off period. You’re stuck with the deal you negotiated. While the deal may not be technically binding until formally approved by the Board, the process of making an offer that has been authorized by the Board and then rescinding it after it is accepted is not a good way to conduct negotiations.

In this case a deal has been reached and “good faith” negotiations require that it be honored.