Federation of Connecticut Taxpayer Organizations

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