How we Did it! Achieving Goals in Simultaneous Negotiations with Six Bargaining Groups Jose O. Cortes, Assistant Human Resources Manager City of Inglewood Background: The City of Inglewood, as are most cities in California, has been struggling financially for the past few years. It has been deficit spending to balance their budget: spending from its reserves to keep the City operating. This has been going on for six fiscal years. The City has had to spend approximately $44 million from its reserves to be able to sustain rising labor costs and out of control Other Post-Employment Benefit (OPEB) Liabilities. Included in these unfunded liabilities are rising medical insurance costs for active employees and retirees, CalPERS retirement costs and accumulated employee vacation and sick leave benefits. To stop the bleeding the City has had to make draconian decisions and changes to remedy the general fund structural deficit problem. At the end of December of 2010, the City implemented an employee work furlough program that would reduce each employee s salary by 10% for three years. Each employee would e receiving only 72 hours of earnings and City Hall would now be closed every Friday. City Hall was on a 9/80 work schedule, (except for the Police Department) which means the City was closed every other Friday and adding the furlough, it would close every Friday. In addition, instructions were issued to reduce or limit hiring. Only critically needed positions would be hired and vacancies resulting from retirements were analyzed carefully to determine if the position could be eliminated or hiring for it be put on hold. Finally, the City made a concerted effort to generate new revenues by exploring all avenues possible to help improve the City s financial position. Fast forward to 2013: The City still had structural deficit problems; the employee work furlough was almost over. Employee morale was at an all-time low. Employees were feeling over-worked, vacancies were not being filled and the MOU s (Memorandum of Understanding) for all six (6) bargaining groups were set to expire at the end of December, 2013. The City had to act fast and creatively to get agreements with all six bargaining groups before they expired. The task was not going to be easy as the City had already approved the fiscal year 2013-2014 general fund operating budget with a $7,080,818 shortfall. Therefore, the City Council directed the City Negotiation Team to seek continuation of salary and benefit concessions, 1
specifically the 10% furlough in place since December 2010. By continuing the work furlough, the shortfall would be reduced by $2.2 million. Even so, this would not be sufficient to address the entire deficit. The City would also have to use $2.5 million of its reserves, freeze approximately 10 Police Department positions, make additional cuts to operating expenses and pursue several other revenue producing strategies. Negotiations with all six bargaining groups was not going to be an easy undertaking. Some very strategic planning was required to identify what concessions the City needed accomplished by the end of negotiations and to determine how quickly they could be implemented. The clock was ticking: the furloughs were scheduled to end by December 31, 2013. The City was only going realize salary savings for the first quarter of fiscal year 2013-2014. In order to realize savings for the entire 12 months of the fiscal year, furloughs had to continue beyond the 1 st quarter of fiscal year 2013-2014 or another 9 months. If the bargaining groups did not come to an agreement, salary savings from the furloughs would terminate in December and everyone would return to working the 9/80 work schedule. Doing nothing would have forced the City to impose severe budget cuts to avoid a financial disaster. The City was pushing for a quick settlement. This background explains why, how and what the City of Inglewood Negotiation Team had to do to accomplish settlements with their bargaining groups. Four months before the MOU s were set to expire, the City s team met with upper management, the Mayor and City Council. The Team wanted to get a clear direction of what their objectives were for the upcoming negotiations and what cost cutting measures they wanted the negotiating team to accomplish. The City Council is generally united on issues they address, so reaching consensus on the cost cutting measures was not difficult. From the onset, City Council informed the negotiating team that: The work furlough program had to stay in place; As the principle goal, the life time medical insurance for future retirees had to be eliminated. This is the largest and costliest contributor to the unfunded OPEB liability; and. Employees should pay their own share of PERS contributions and part of the City s if possible. Currently, medical insurance premiums for retired employees are costing the City approximately $5.1 million, and if nothing was done to reduce these cost, it could rise to approximately $10 million per year by the year 2024. 2
For negotiations to be considered a success, these three items would be negotiated down or away. If the negotiating team could squeeze in some additional concessions, then that would result in an even better outcome. With marching orders in hand the negotiating team strategized on how to accomplish the instructions from City Council. The negotiating team consisted of an outside consultant that would be the Chief Negotiator, the Assistant City Manager over H.R, the CFO and the Assistant Human Resources Manager. Three team members have solid backgrounds in Finance/Accounting, so explaining financial information to the bargaining groups would be an easy task. Between these three members, the City s poor financial position could be expressed convincingly. Convincing the bargaining groups that concessions were needed for the City to survive was the main objective of the negotiating team. The City s Chief Negotiator, a 40 year veteran of Labor Negotiating, was well aware of what needed to be done to accomplish City Council s goals. He notified all the bargaining groups in writing that the City would like to open negotiations and that a meeting with each group needed to take place soon. The first meetings were scheduled as Ground Rule Meetings the last week of August, 2013. The negotiation teams were established and the rules of negotiations were agreed to. Notes were being taken so that any disagreement in the future of what was said in the meetings could be clarified by looking at the notes. In addition, the documents and information would be exchanged were determined and also how proposals would be exchanged and who would do the costing of the proposals. The City wanted to emphasize its poor financial position, so a huge amount of financial data was going to be provided to the bargaining groups. After the ground rules were established the Chief Negotiator made sure everyone understood the process. Two more negotiation meetings were scheduled to make sure that both sides continued the dialog and communications did not break down or momentum was lost. Scheduling future meetings was always a priority of the Chief Negotiator as he wanted continuous dialog between the parties. To drive e home the message of its financial crisis, during the first three negotiation meetings, the City presented financial information to lay the foundation for the proposals that would be presented later. Most meetings were scheduled for 2 to 3 hours. The information to be presented had to be informative, concise and convincing. The City presented the following documents to the bargaining groups: 1. Five years of City Budgets, to show the constant budget shortfall. 2. The City s 5 Year Revenue and Expenditure Forecast. 3. Five years of General Fund-Ending Reserve Balances, to show the use of reserves. 3
4. Five years of Worker s Compensation Expenses, to show the constant increases. 5. Five years of Special Fund, Revenue versus Expenditure Reports, to show how the other funds are performing compared to the General Fund. 6. Actuarial reports from an outside auditor, showing the City s growing unfunded OPEB liability. 7. Historical Expenditure reports of Health Benefits for the past five years to show the annual increase in cost for active employees and retired members. 8. Five years of Annual Financial Reports or the CAFR as everyone knows them. 9. Annual Total Cost of Compensation reports for each bargaining group. This data provided the average annual earnings and benefits paid for each employee, separated by bargaining group. By presenting all of this data, the bargaining groups would be less likely to accuse the City of withholding or falsifying information. Historically, the bargaining groups have not trusted the City, because in prior years the City did no provide such information. Therefore, to avoid accusations of withholding information, the City gave out all pertinent and relevant financial data to the groups. Once the financial presentations were completed, the City began presenting Proposals to each bargaining group. The Chief Negotiator presented proposals using a four column format: The first column describes the section of the MOU being changed, The second column identifies the City s Proposal The third column identifies the Cost Savings, as calculated by the finance department and The fourth column justifies the reason for the change or concession. This concise and to the point format has proven to be very effective as it summarizes the concessions being requested and the section of the MOU being changed. The first proposals addressed the City s three goals: (1) continuing the work furlough program, (2) sharing the cost of CalPERS contributions, and (3) elimination of life time medical insurance for future retirees in exchange for stipends being paid to the employees, and freezing the accrual of sick and vacation leave hours. The City and he bargaining groups went back and forth on the proposals; the bargaining groups were not happy with the cuts the City wanted. 4
Nearly 80 sessions were held with all bargaining groups, and approximately 25 briefing meetings were held with Mayor and City Council to update them on the status of negotiations and to obtain authority for the City s counter proposals. It was very important for City Council and Management to be on the same page and agree on the same terms being negotiated. You never want to feel like you have to negotiate with your upper management and bargaining groups over the same issues. The fact that City Council and the Mayor were constantly informed of the status of negotiations and that they understood the financial numbers and the issues at hand, made for a more productive and positive interchange. About six weeks into negotiations, it began to appear that the parties were not going to come to any type of agreement before the end of the calendar year. That was a big concern for the City. October was half way through and December was fast approaching and it seemed that agreements would not be achieved with any of the six bargaining groups. Continuation of the work furlough became priority number one for the City s negotiating team. All of the existing MOU s had language terminating the furlough program on the last pay period of December, 2013. The $2.2 million of anticipated salary and benefit savings would not be realized if something was not done immediately. The City Council directed Management to develop a work force reduction plan that would provide the $2.2 million in salary and benefit savings that the furlough program would provide. When this was conveyed to the bargaining groups, they reacted as if this was a bluff. Then when the work reduction plan was approved by City Council and presented to the bargaining groups, they realized we were serious. The first reaction was shock but employees were also happy, because the City would allow the furlough program to terminate which had the effect of restoring 10% of the employee s salaries. Furloughs or layoffs? The affected bargaining groups requested meet and confer to discuss the impact of the layoffs (a formality as they knew nothing could be done.). The City had to achieve some type of salary savings to balance its budget by either furloughs or lay-offs. In the end, approximately 40 employees retired by December 30, 2013 bringing salary savings sufficient to reduce the number layoffs needed. The initial lay-off list included fifty-five employees; only five were actually laid off. Ending life time medical insurance payments: The City s concession in allowing the furloughs to terminate provided leverage for getting agreement on discontinuing life time medical insurance for future retirees. The bargaining groups became more receptive and studied City proposals more carefully. The City proposed to buy out each employee with a 5
stipend based on the years of service, starting at $90,000 for over 25 years of service down to $20,000 for employees with 5 years or more of service. To maintain parity, each group received a similar offer with the exception of somewhat higher buy-out amounts for the sworn. This stipend would be paid out over an 8 year period, so that the City would experience cash flow problems. By offering these stipends, the City would save approximately $160 million over a 30 year period. If paid life time medical insurance was continued the cost would exceed $300 million over a 30 year period. As the proposals were being studied, some of the groups were becoming hesitant because they felt that the buy-out amount was trivial compared to the benefit they would be giving up. They argued that they did not want to sell their vested benefit cheaply. The City strove to convince the bargaining groups that this was not a vested benefit: the City had not been paying into it. The City repeatedly reviewed and explained expenditure reports with all groups, proving no funds were being paid or set aside for future retiree medical insurance premiums. Also persuasive was the actuarial report created by the City s Assistant City Manager. It was actually more accurate than the actuarial report the City received from an outside OPEB consultant. The City s report listed every current employee with the medical insurance plan each had, his or her actuarial life expectancy and projected annual increases to insurance premiums. When the bargaining groups saw this comprehensive report, reality set in. They understood how expensive life time medical insurance is. The final activity that convinced the groups that life time medical insurance this was not a vested benefit was each group s informational session with the Mayor. The Mayor explained the City s financial position and emphasized that if nothing changed, he did not want our City to end up like Detroit, showing the video of the Detroit bankruptcy. He set aside about 45 minutes for questions from the bargaining groups to respond to their doubts and concerns. This proved to be very effective, especially with the groups on the brink of agreeing to the City s proposals. The clarifying questions pushed them over the edge as they finally understood the City s dilemma and reasons for the changes. Although this situation was not something they would prefer, but knew that if the City did not move quickly, it would be insolvent within the next two years. Employee increased PERS payments: City PERS contributions were another item that had to be addressed. The City was able to get the bargaining groups to agree to have employees pay the entire PERS payment and 2 or 3 points of the City s portion. By, in exchange, offering 10% to 12% raises. We emphasized that the employees reportable earnings to PERS would increase and consequently increase their monthly pension payments. 6
As of April 30, 2014, four of the six bargaining groups had agreed to the City s proposals. The remaining two groups were in mediation and hopefully will come to an agreement, soon. In conclusion, the City was successful in obtaining agreements on two of the three goals it set out to achieve. The principle goal, elimination of life time medical insurance for future retirees, was accomplished. The City was successful because of: Our experienced negotiator and his persistence in staying at the table and keeping the parties talking;, Presenting clear and persuasive financial reports; Open communication between the bargaining groups, upper management and the elected officials; and The City being transparent, not giving the appearance of hiding things. This brought more trust and receptiveness from the bargaining groups. There will probably never be 100% trust between the City and the bargaining groups but at least some progress was made during this round of negotiations. Presented by: Jose O. Cortes City of Inglewood Assistant Human Resources Manager One West Manchester Blvd. Ste. 810 Inglewood, CA. 90301 jcortes@cityofinglewood.org (310)412-5368 April 30, 2014. 7
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