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Title: City of Las Vegas and Las Vegas Fire Fighters Association, Local 1285, IAFF
Date: February 10, 2003
Arbitrator: Norman Brand 
Citation: 2003 NAC 102

 

In the Matter of a Factfinding Pursuant to Nevada Revised Statutes 288.200 Between

Las Vegas Fire Fighters Association, 
Local 1285, IAFF

                  and

City of Las Vegas 

 

FACTFINDER’S
REPORT AND
RECOMMENDATIONS

NB 2052

 

Before
Norman Brand
Factfinder

Appearances

 

FOR LAS VEGAS FIRE FIGHTERS ASSOCIATION, LOCAL 1285, IAFF 
Dyer, Laurence, Penrose, Flaherty & Donaldson

by Michael W. Dyer, Esq.
Thomas J. Donaldson, Esq.

 

FOR CITY OF LAS VEGAS
Fisher & Phillips, LLP

Ricciardi Law Group

by Mark J. Ricciardi, Esq.

February 10, 2003

 

Background

            The City of Las Vegas (“City”) and the Las Vegas Fire Fighters Association, Local 1285, IAFF (“Union” or “Fire Fighters”) are parties to a collective bargaining agreement that expired on June 24, 2001.  They met on various dates before the contract expired to negotiate a new agreement.  By August 28, 2001, the parties were quite close.  On the large money issues, there was only a one dollar difference in contributions to the Health and Welfare Trust for fiscal years 2002 and 2003, and a two dollar difference for fiscal years 2004 and 2005.[1]  There was a larger difference on wages, with the Union asking for a split four and a half percent (2.5-2.0) in each year of the Agreement, and the City proposing a split four percent in the first two years of the Agreement (2-2) and a straight three percent increase in the last two years of the Agreement.  The parties also had differences in their proposals for a cap on sick leave accrual and changes in longevity payments for employees hired after the date of the new agreement. 

            After the Union declared impasse and before the first scheduled factfinding hearing, the parties met.  The City increased its offer for contributions to the Health and Welfare Trust to meet the Union’s demand.  The Union, however, increased its demand for contributions to the Health and Welfare Trust from $10 bi-weekly increases in FY 2002 and 2003 to $59 bi-weekly increases in FY 2002 and FY 2003.  It asked for additional $9 bi-weekly increases in FY 2004 and FY 2005.  The Union also introduced a new proposal, that the City agree to pay fifty percent of the actual cost of any increase in dependent insurance after January 1, 2002.  The Union reduced its wage demands to split four percent increases in the first three years of the contract and a three percent increase in the final year.  The Union proposed a change in the sick leave cap from 2304 to 2000 hours with the City buying out the difference for existing employees.  The Union also proposed a change in longevity that eliminated its former willingness to agree to a different cap.  The City offered to reduce the initial wage increases it offered in order to accommodate the Union’s new demand for Health and Welfare Trust contributions.  The parties did not reach agreement.  I held hearings at Fire Department headquarters in Las Vegas, Nevada, on March 4, 5, 6, and May 3 and 4, 2002. 

            Both parties were present at the hearings and represented by counsel.  Each party was given a full opportunity to examine and cross-examine witnesses, present evidence, and argue its position.  Neither party objected to the conduct of the hearings.  A stenographic record of the proceedings was made.  At the close of the hearings, the parties asked to file post-hearing briefs and further calculations on proposed Health and Welfare Trust contribution increases.  I received the additional information in May, and the last brief on July 8, 2002.

ISSUES IN DISPUTE

            There are five issues nominally in dispute.

1.  Health and Welfare Trust

City Position

2002 

2003

2004

2005

$270 bi-weekly

$374 bi-weekly

$374 bi-weekly

$374 bi-weekly

Eliminate Article 22, Section A, formula language.

Union Position

2002

2003

2004

2005[2] 

$264 bi-weekly

$327 bi-weekly

$327 bi-weekly

327 bi-weekly

No change to Article 22, Section A.

The City agrees to pay 50% of the actual costs of any increase in dependent insurance coverage after 1/1/02.[3]

 

2.  Retiree Insurance – Article 17(F)

City Position

Increase from $54 per month per employee to $59 per month per employee effective July 1, 2001.

Union Position

Effective July 1, 2001, increase from $54 per month per employee to $59 per month per employee.

            Since both parties propose the same change, it is agreed upon and will be recommended.

 

3.  Wages

City Position

July 1, 2001

July 1, 2002

July 1, 2003

July 1, 2004

2.25% 

1.3%

3.0%

3.0 %

Union Position

July 1, 2001

Jan. 1, 2002

July 1, 2002

Jan. 1, 2003

July 1, 2003

2%

2%

2%

2 %

2%

Jan. 1, 2004

July 1, 2004

Jan. 1, 2005

 

 

2%

2%

2%

 

 

 

4. Sick Leave

City Position

New employees hired after the effective date of the contract will accrue sick leave as follows:

Employee
Group

Accrual
Rate


Cap

40 hour employees
42 hour employees
56 hour employees

3.69 hours bi-weekly
4.2 hours bi-weekly
5.6 hours bi-weekly

600 hours
675 hours
1165 hours

Union Position

            No change to existing contract language sick leave.

 

5.  Longevity

City Position

Employees hired after the effective date of this contract will not receive longevity.

Union Position

                        No change in current contract language on longevity.

 

POSITION OF THE PARTIES

City

Financial Ability to Grant Monetary Benefits

            The City does not claim that it lacks the financial ability to grant the benefits requested by the Fire Fighters.  Instead, it asserts: “it is not sound fiscal policy to use a general fund balance for ongoing expenditures such as wages.” (Brief, at 5)  It notes that an ending unreserved fund balance is not a recurring source of revenue.[4]  The City argues that even if it has the ability to grant the monetary benefits proposed by the Union, it is not necessarily appropriate to grant them.  Rather, the Factfinder must apply traditional criteria, such as comparability and the interest and welfare of the public, in determining the propriety of recommending any benefits the Union seeks.

Wages and Health Insurance Contribution Increases

            The City does not deny the need for significant increases in funding for the Fire Fighters’ Health & Welfare Trust.  It notes, however, that the Union knew the grave financial difficulties facing the Trust in July, 2001.  Indeed, a member of the Union’s bargaining team was a Trustee who heard the consultant’s financial presentation showing the Trust faced bankruptcy.  Nevertheless, the Union only requested a $10, or $11, bi-weekly increase in each year of the agreement throughout bargaining.  After the parties declared impasse – in post-impasse bargaining that took place in February –the Union raised its demand for Health & Welfare Trust increases to $59 bi-weekly the first year, $59 bi-weekly the second year, and $9 bi-weekly the last two years.  It also lowered its wage demands to come closer to the City’s proposal. (C-6)

            This, in the City’s view, is but one piece of evidence that shows health benefits and wages are inextricably linked.  It notes that a large Las Vegas union gave up a first year wage increase to permit the employer to meet the increased cost of health benefits.[5]  From the City’s perspective, the Trustees of the Health & Welfare Trust have made benefit changes that only marginally affect the Trust’s financial stability.  Instead, according to the City, the Fire Fighters expect the City to give them a significant wage increase and absorb the entire $7.26 million projected cost of maintaining the Trust’s fiscal stability and current benefits.[6]  In the City’s view, that is justified by neither internal nor external comparisons, and is not in the interest and welfare of the public. 

            The City compares its expenditures for the Fire Fighters’ health insurance to its expenditures for City employees who are in its self-funded plan (“CHIP”).  The City claims that it paid only $460.55 per month per employee (including dependent cost payments) for City employees, while paying $487.33 per month per employee for Fire Fighters.[7]  If the City were to make the extremely large increases in payments to the Health & Welfare Trust requested by the Fire Fighters, it argues, the expenditure would be wholly disproportionate to what it pays for health insurance for all other City employees.  Similarly, the City compares its wage proposals for the Fire Fighters and other City employees.  It is negotiating for wage increases with City employees that are based only on CPI increases, while it is offering far more to the Fire Fighters.  Furthermore, the City argues, Fire Captains already have overall compensation that is 27% higher than Sergeants in the PPA unit.

            The City makes five arguments based on external comparability.  First, it notes that the Fire Fighters compare their 2000 pay to 2001 and 2002 pay rates in other jurisdictions.  This distorts all the Union comparisons.  Second, the City argues that the Fire Fighters compare themselves with jurisdictions that have significantly higher costs of living.  Third, the City argues that the Union comparisons omit key elements of compensation received by Las Vegas Fire Fighters – EMT pay, Health and Welfare Trust contributions, and the contribution to the Trust for retirement insurance.  Fourth, the City argues, Las Vegas compares favorably to Clark County, the most closely comparable jurisdiction.  Finally, on Nevada comparisons and the cities that both sides use in common, the City argues that Las Vegas Fire Fighters compare well. 

            The City also argues that the interest and welfare of the public is best served by providing only the increase it proposes.  The unreserved general fund balance is a “rainy day” fund and should not be used for raises.  Moreover, the rate of growth in City revenue has decreased in recent years.  Thus, the City must be fiscally cautious. 

Longevity Pay

            The City argues that longevity pay for new employees should be eliminated, for four reasons.  First, it argues that longevity pay serves no purpose.  It does not prevent senior employees from moving to other departments.  Indeed, when the Henderson fire department eliminated longevity pay it did not result in anyone leaving.  Second, longevity pay is an anomaly from the days when public sector employers paid significantly less than the private sector and sought alternative means to keep long term employees.  Third, the City has proposed eliminating longevity pay for its other represented employees.  Since it has already eliminated longevity pay for non-represented employees, eliminating longevity pay for new fire fighters will simply put them on an equal footing with other new City employees.  Fourth, four of the seven jurisdictions the Fire Fighters use for wage comparisons do not have longevity pay.[8]  Thus, in the City’s view it has become an anomalous benefit for Fire Fighters. 

Sick Leave Cap

            The City makes three arguments to support its proposed change to the accrual rate and cap on sick hour leave accumulation.  First, it notes that other City employees can only accrue 600 hours of sick leave.  Second, it asserts that there is no evidence of firefighter accrual rates for any jurisdictions outside of Nevada, although its proposed accrual rate would be half that of Clark County, Henderson, and North Las Vegas.  Third, the City argues that any time it can reduce a pending liability the public interest is served. 

Union

Financial Ability to Grant Monetary Benefits

            The Union argues that the City has not asserted an inability to pay, citing the testimony of the Director of the Department of Finance.  The Director testified that the City included in its FY 2003 budget sufficient amounts for the FY 2002 retroactive wage increase, the FY2003 increase, and the difference between the proposals of the City and the Union for that period. (Tr.IV. 110-114)  The Union further argues that the City has an additional $9.3 million available in the difference between the ending fund balance FY2001 and the opening fund balance FY2002.  Moreover, a comparison of the City’s budgeted and actual expenses over the years demonstrate conservative budgeting practices that regularly produce an ending balance in excess of budgeted. 

            The City’s final offer -- which was made by agreement after the hearing (as was the Union final offer on the increase to the Health & Welfare Trust) -- reduces the wage proposal and increases the amount it is willing to pay to the Health & Welfare Trust.  This, according to the Union, amounts to an attempt by the City to simply cap its cost at an arbitrary 3.5% because that is all it wants to pay the Fire Fighters.  It is not based upon any articulated financial inability, nor any careful analysis of the propriety of the Union’s proposals.  The Union asserts, however, that its proposals are all justified on criteria traditionally applied in factfinding.

Wages

            The Union proposes two types of increases in wages.  The first is a 2% increase every six months for a total of eight increases over the four year life of the agreement.[9]  The second is a $4 per month increase in the contribution to the Health & Welfare Trust, which the City makes for current employees to provide them a fund to offset their cost for retiree health insurance.[10]  Since the parties agree to this increase, it need not be further discussed.

            The Union argues that the increases proposed by both sides in the last two fiscal years of the Agreement are “equivalent” because the Union’s 2% plus 2% increases cost only 3% in the year of implementation.  Thus, since both sides want equivalent increases in the last two years, the Factfinder should “logically” conclude that the increases proposed by the Fire Fighters are appropriate.[11] 

            The Union makes four other arguments.  First, it argues that the Fire Fighters’ workload justifies an increase in their salaries.  Its evidence for this is the following:

A.  Las Vegas Fire Department Station No. 1 was the busiest station in the country in the year 2000.

B.  Between 1989 and 1999 EMS responses increased 72.5% while suppression personnel increased by 28.9%.  Many of these EMS runs were transport runs which generated a revenue of approximately $1 million.  

C.  The expansion of the City has exceeded the expansion of fire department personnel.  As a consequence, Las Vegas Fire Fighters have a heavy workload.

D.  As the Fire Department evolves it creates new duties, such as the requirement to do Quick Action Plans for all businesses. 

Taken together, the Union argues, these factors justify the increases in salary it proposes.

            Second, the Union argues that Las Vegas Fire Fighters lag behind appropriate comparable jurisdictions in average base salary and cost per hour.[12]  The jurisdictions with which the Fire Fighters compare themselves include Oakland, California.[13]  The parties do have some jurisdictions they use in common, Seattle, Denver, Anaheim, and local Las Vegas jurisdictions, including Clark County.  Based on the averages in their comparison jurisdictions, the Fire Fighters argue that they lag significantly for rookie Fire Fighters, and slightly for Fire Fighters with 20 years of fire service, on average base salary and cost per hour.  They lag somewhat more over a period of 20 years for total compensation and cost per hour, although they concede that they are quite close on average total compensation over the 20 year period.

            Third, the Fire Fighters argue that they are closely comparable to the Clark County Fire Fighters.  They note that a 4% increase in FY 2002 would maintain relative parity between the Clark County Fire Department and Las Vegas Fire Fighters.  They further argue that at least a 2% plus 2% increase is needed in each year of the agreement since “the CCFF’s bargaining team is seeking a 5% raise effective July 1, 2002, and 2.5% raises every January 1 and July 1 thereafter.” (Brief at 9)

            Finally, the Fire Fighters argue that the average increase in Nevada IAFF Locals for fiscal year 2002 was 3.46%.  This means, in the Union’s view that a 2% plus 2% increase is appropriate.

Article 17 (F)

            The parties agree that the Article 17 (F) payment should be raised to $59 per employee per month.  The Union argues, however, that any amounts that are available in the separate fund maintained by the Health and Welfare Trust for retiree insurance contributions should be deemed unavailable to cover current and projected deficits in the main Health and Welfare Trust.  The Union argues that the parties bargained to earmark funds for retirees to use towards medical insurance premiums.  The earmarked funds can only be used for fire fighters who were employed by the City as of the date of the agreement (June 29, 1997) and who subsequently retired.  In addition to the bargaining history, the testimony of the Trust’s Counsel, Mr. Davis, confirms the parties’ intention to set up a separately held fund, solely for the benefit of those who retired after the effective date of Article 17 (F).

Longevity Pay

            The Union makes four arguments opposing any change in longevity pay.  First, it asserts that longevity pay enables Las Vegas Fire Fighters to compare favorably with other jurisdictions in their middle and later years of employment.  Second, eliminating longevity pay for Fire Fighters hired after July 1, 2001, would create disparities among bargaining unit members based upon their hiring dates.  Third, the Union argues that the City has made no showing of what, if any, cost saving this will provide.  Fourth, while the benefit was bargained away in two other southern Nevada jurisdictions, the City has not shown what other benefit those fire fighters received in exchange.

Trust Contributions

            The Union makes two general arguments from trends, and five specific arguments, in favor of its position. 

Trends

            According to the Union, since June 30, 1996, the City’s contribution to the Health and Welfare Trust only increased by $10 per pay period, on June 25, 2000.[14]  The Union further asserts that during that same period insurance costs increased approximately 11% per year for a total of 50%.  As a consequence, “the trust was forced to absorb the increased costs out of its revenues . . . [and] incurred a loss of over $500,000 at the end of FY 2001 and a cumulative loss of $962,000 over the past 18 months.” (Tr. I.52:20-53:6)[15]  According to the Union, “the Trust’s income must now be supplemented to offset the low contributions and high expenses over the past five years.” (Brief at 13)

            The Union compares the experience of its Trust with the experience of the City employees’ health plan.  It asserts that the City increased its budget for the health plan, in recognition of the medical expense trends.  On the other hand, “. . . The City wishes that the bargaining unit employees directly pay for the increased contribution – even though the need for the increase in insurance contributions is the result of outside ‘market forces’ and the City can afford the increase.” (Brief at 14)  In the Union’s view the City has provided absolutely no rationale for requiring Fire Fighters to take “wages . . . [out of] . . .  their pockets to pay for insurance benefits.” (Brief at 14)

            The Union makes five specific arguments against the City’s proposed increases in contributions to the Health and Welfare Trust.  First, it asserts that prudence requires the trust to maintain a six month’s reserve net of “Incurred But Not Reported” (“IBNR”) expenses.  The City’s proposed increase will not do this.[16]  Second, the Union asserts that health care costs paid by PPOs have increased approximately 11% in recent years and the trend continues.  This necessitates significantly increased contributions, simply to keep up with the increase in costs for the same benefits.  Third, the Union argues that:

These trends have significantly impacted the financial condition of the trust. . . and necessitate additional contributions by the City to . . . health plans, as well as possible changes in benefits, co-payments and premiums for dependents and non-employees. (Brief at 16)[17]

            Fourth, the Union specifically proposes an increase to $264 per pay period beginning July 1, 2001 and a further increase to $327 per pay period beginning July 1, 2002. 

            Finally, the Union argues that there is no evidence to support the City’s proposal to eliminate the formula contained in Article 22, A.

Dependent Premiums

            The Union argues that the City should pick up 50% of the dependent coverage co-pay currently paid by Fire Fighters, beginning July 1, 2002.  It advances two reasons.  First, it asserts that this would provide parity in benefits with other City employees, since the City pays half of the dependent coverage for other City employees.  Second, it asserts that three Nevada jurisdictions – Sparks, Reno, and Tahoe-Douglas - - pay a portion, or all, of the dependent coverage for their employees.

Sick Leave

            The Union makes three arguments to support its position that there should be no change to Article 16.  First, it asserts the City has offered no evidence of what, if any, savings will ultimately be generated by this change.  Second, it argues that the change will cut sick leave to one half of what other southern Nevada Firefighter units receive. Finally, the Union argues that the City is not offering any additional benefit to Fire Fighters in exchange for this change. 

FINDINGS OF FACT

1.     Financial Ability to Grant Monetary Benefits

            I find that the City of Las Vegas has the financial ability to grant the monetary benefits requested by the Union.  The cost of the wage increase was already budgeted, including retroactive amounts, in FY2003.  In addition, the Director of the Department of Finance testified to the availability of funds to meet the Union’s demands (including retroactive demands) in the fiscal year.  Further, there was evidence of a $9.3 million difference between the ending FY2001 and opening FY2002 balances, that would have provided another source of funds.  Calculating available funds in accordance with Nevada statutes shows the City has the financial ability to grant the benefits the Union requests.  Finally, the City did not present any evidence to refute the Union’s evidence showing it has the financial ability to grant the monetary benefits requested. 

            While it may be true, as the City argues, that it is inappropriate to expend one time funds to increase ongoing costs, the funds that are available for these increases are not one time funds.  The City’s financial ability, however, is only a threshold determination.  Having ascertained the money is available, I must apply the normal criteria to determine whether the increases proposed by the Union are appropriate.  I have looked most carefully at external comparisons and the interest and welfare of the public.

2.     Wages

            Las Vegas Fire Fighters have a work load that is consistent with a rapidly growing metropolitan area.  They are part of a dispatch system that effectively allocates work to the nearest appropriate unit, whether it is operated by Las Vegas Fire Fighters or Clark County Fire Fighters (“CCFF”).  In light of the similarity of the work, size of the force, and cost of living, the single most appropriate comparative jurisdiction for Las Vegas Fire Fighters is CCFF.  Other jurisdictions that have traditionally been looked to by the parties, and that both parties continue to agree are appropriate – Anaheim, Denver, and Seattle—provide additional comparisons.[18]

            In comparing Las Vegas with these other jurisdictions one must look to total compensation, while recognizing certain inherent difficulties in comparisons.  For instance, the annual half percent longevity increase for Las Vegas Fire Fighters first gets paid in the seventh year of employment.  Thus, a comparison that looks at compensation in year 6 is inherently flawed.[19]  It understates Las Vegas compensation.  Las Vegas’ longevity payments also make twenty year earnings (total compensation) an appropriate comparative measure, since that measure accounts for the small annual increments of Las Vegas Fire Fighters.[20]  Finally, to be fair, a comparison must attempt to account for the most recent increases.  Comparing the wage level achieved by Las Vegas Fire Fighters in June 2000 with wage levels achieved in other jurisdictions 6, 12, or 18 months later inevitably distorts the comparison.  To account for the difference, the Las Vegas Fire Fighters must be compared with other groups after the increase proposed by either side.

            If only wages were at issue, the parties would have agreed on the first two years of the contract, with Fire Fighters having 2% increases every six months in FY2002 and FY2003.  This would keep them slightly ahead of CCFF in relevant total compensation comparisons (U-44; 3/6/02 revision),[21] and above everyone except Oakland (at 11 years and total compensation) in the comparison group they propose.  In light of cost of living differences, a 4% wage increase significantly advantages Las Vegas Fire Fighters over all proper comparables, outside of CCFF. 

            It is more difficult to find facts supporting either party’s view of an appropriate wage increase for the third and fourth years of the contract.  The only basis for the Union proposal is that CCFF started bargaining with a proposal for a 5% increase January 1, 2002 and 2.5% increase twice each year over the rest of the contract. (U-78)  But the experience of collective bargaining has not generally been that Unions get what they first propose.  If one were to look at the CPI –U over the past ten years, inflation has been under three percent for almost the entire time, dropping to under one percent in 2002.  During that ten year period, inflation reached 4% in only a single month. (http://data.bls.gov/servlet/Survey)  While the previous rate of inflation is not a guarantee for any future period, it does suggest that during the past ten years there would have been no justification for providing a 4% wage increase in any year, to compensate for the erosion of buying power caused by inflation.  Three percent increases, with compounding, would have more than protected salaries against inflation during the entire period.

3.     Health Insurance Contribution Increases

            There are five facts for which there is compelling evidence.  First, an appropriate reserve for this Health & Welfare Trust, given its inability to increase income in the short term, is six months net of IBNR.  Second, without a significant infusion of money the Health & Welfare Trust will be in danger of failing over the four year period covered by this collective bargaining agreement.[22]  Third, it would be improper to invade the separate fund set up by the Trust to pay retiree insurance contributions.  The testimony of Mr. Davis was convincing.  Article 17 (F) contemplated that the money would be earmarked for the sole purpose of paying retirees a stipend toward their health care contributions. (See, U-72)

            Fourth, the Trust’s precarious position is not due to a combination of under funding and inflation in medical costs.  After the Trust’s inception, and during FY 1997, reserves grew to over 16 months and stayed at over 16 months until FY2000.  The testimony was that this is a much larger reserve than is appropriate.[23]  During FY2000 the reserves dropped to approximately 11 months.  During FY2001 the reserves dropped to a bit over 6 months. (Supplement to U-33)  During FY2000 and 2001, the cost of retiree benefits exceeded the income from retiree contributions by more than a $1 million. (U-54)  During that same period, income – net of contributions on behalf of retirees and all employee contributions[24] – exceeded total active costs plus the cost of all operating expenses.  Thus, if one were to consider only active employees, there was no under funding and no loss due to inflation in medical costs.  If only active employees had been covered, reserves would not have dropped significantly.[25]

            Fifth, the Trust provides subsidies to retired fire fighters that cost approximately $560,000 from 10/1/99 through 9/30/00 and $730,035 through 6/30/01. (U-54)[26]  The projected retiree subsidy for the four year contract period, net of the 63% increase in retiree contributions on 1/1/03, is $3.411 million. (Scenario 4, Union Projection, 5/14/02)  The projection is based on 132 retirees, amounting to a City subsidy of $258, 417 per retiree for the contract period.[27]  The City’s sole contractual obligation for retiree health insurance is contained in Article 17(F).  That article provides only for a monthly payment on behalf of active employees to be sent to the Trust.  The evidence shows that this money was intended to be used to subsidize Health and Welfare premiums only for Fire Fighters who retired after July 1, 1997. (U-72)  Thus, there does not appear to be any City obligation to subsidize retiree health care costs through contributions made on behalf of active employees.  Nevertheless, the City is paying for a very large subsidy.

            In order to maintain a 6 month reserve net of IBNR for the contract period the Union proposes a bi-weekly contribution increase of $64 in FY2002.  This amounts to an increased first year cost of $775,424 and a four year cost of $3.102 million.  This is less than the amount that is required to subsidize retirees for that period.  It proposes a second bi-weekly increase of $63 with a three year cost of $2,289,924, for a total increase of $5,391,620.  The Union proposal requires the City to pay the entire cost of subsidizing retirees over the contract period, as well as cost increases attributable to the effect of health care inflation for active employees. 

4.     Dependent Premiums

            The Union asserts that fire fighters in Incline, Sparks, Reno, and Tahoe-Douglas have some dependent insurance paid by their employers.  It is not clear, however, that these departments are comparable.  Neither Reno nor Incline makes payments into a Trust jointly administered by the parties.  Reno carries group insurance, while Incline buys its insurance through the Nevada Public Employee Benefits Systems.  Tahoe-Douglas has a Trust for “all qualified employees, retirees, and COBRA participants.”  It says nothing about dependents, although it is possible they are covered without additional cost to the participant. Sparks has an “Employee Group Health Plan rebate of $1,100 provided in Article 7  effective January 1, 2002.”  Since the contract containing the article was not provided, it is not clear what the $1100 represents.  Thus, the evidence of any jurisdiction having the benefit the Union is requesting is tenuous. 

            The Union’s other assertion, that the City provides its other employees dependent coverage, is true.  The City does not operate a jointly administered Trust for its other employees.  It controls the health plan.  It pays out of current revenues and, presumably, bargains with other City unions for the benefits to be provided the employees they represent.  There is no evidence of what bargaining led to the current arrangement.  Thus, it cannot be said that other City employees simply asked for and got 50% dependent health care coverage.  Moreover, the City controls the cost of dependent health care by the PPO and benefits it provides to City employees.  It shares control with the Union over benefits provided in the Trust.  Thus, the health care arrangements for Fire Fighters and other City employees are not comparable.

    5. Longevity Pay

            The City would accrue no immediate savings by eliminating longevity pay for new employees.  The City presented no evidence of the long term savings that would accrue.  The City is attempting to eliminate longevity pay in its CEA bargaining units and has eliminated it for non-represented employees.  North Las Vegas and Henderson have both eliminated longevity pay.  Four of the eight jurisdictions with which the Fire Fighters compare themselves do not have longevity. (U-43)  At 20 years, Las Vegas longevity pay is almost twice the amount of the next closest jurisdiction.  (U-43)

            The current effect of longevity pay is that Las Vegas Firefighter total compensation is slightly higher than CCFF at 11 and 20 years.  It is significantly higher than the average of other jurisdictions with which the Fire Fighters compare themselves.  The Las Vegas Fire Fighters are between 3.1% (11 years) and 6.6% (20 years) above the average total compensation at 11, 16, and 20 years. (U-43)  If the City of Oakland were removed from the comparison, the advantage of the Las Vegas Fire Fighters would be striking.[28]  For instance, at 11 years the average total compensation would be $59,894 for the other jurisdictions, putting Las Vegas 7.6% above the average.[29]  Thus, the evidence makes it clear that longevity is a major cost of currently high total compensation. 

    6. Cap on Sick Leave and Change in Accruals

            Three local jurisdictions, North Las Vegas, Henderson, and CCFF currently have accrual rates and caps that are the same as Las Vegas.  There is no evidence on accrual rates or caps in other jurisdictions in the Firefighter comparison group.  Las Vegas Fire Fighters currently accrue 11.08 hours bi-weekly if they are on a 56 hour per week schedule.  When a firefighter reaches the cap the City purchases one half of the fire fighters unused sick leave each year.  At retirement, fire fighters get paid in a lump sum for up to 2308 sick leave hours.[30] 

            Other City employees, who have a 40 hour week, accrue sick leave at 3.69 hours bi-weekly and have a 600 hour cap.[31]  They are only paid for the full 600 hour accrual at retirement if they have been employed for 20 years or more.  This amounts to less than one-third of a year’s pay.

Conclusions Based on Findings of Fact

            Las Vegas Fire Fighters are well compensated and, based on their workload, deserving of their compensation.  As a result of their current annual longevity pay, by their eleventh year of service they have roughly the same total compensation as the closest comparable group, CCFF,[32] and higher total compensation than any other department in the group of jurisdictions with which they choose to compare themselves.[33]  They do not require any equitable increase in total compensation to maintain their relative rank among comparable groups.  Indeed, their relative rank among comparable departments can be maintained with smaller increases than the Fire Fighters request.  Their sick leave accrual and cap are generous by most standards, but comparable to fire fighters in the local area.  There is no evidence on how they compare with similar jurisdictions outside the local area. 

            The Health & Welfare Trust, which provides medical, dental, and vision benefits to the Fire Fighters and their families, is in financial trouble.  It is not in trouble because of impecunious Trustees, inadequate City contributions, or runaway medical inflation.  It is in trouble because the City’s contributions for active employees and their families are subsidizing the cost of retiree benefits.  The subsidy is projected at $3.411 million for FY  2002 through FY 2005.  This subsidy comes from money the City pays to the Trust to purchase benefits for active employees and their families.[34]  There may be other causes, as well.  But it is clear that the amount charged retirees is too little to meet the costs of their benefits.  The projected deficit created by the difference in the Trust’s costs and income for retirees ($3.411 million) amounts to 63% of the total additional amount ($5.32 million) the Union wants the City to contribute on behalf of active employees over the four years of the contract. 

            The City agreed to provide a direct subsidy to retirees in Article 17(F).  The money contributed on behalf of active employees provides them a monthly stipend toward their health insurance cost when they retired.  The largest stipend goes to employees who retire after July 1, 2001; it amounts to $1500 a year.  By comparison, the projected implicit subsidy averages almost $65,000 a year to retirees.  The subsidy comes from funds nominally contributed by the City on behalf of active employees.  The Union wants the City to pay the entire cost of subsidizing retirees, without an offsetting deduction from the Fire Fighters’ wages.  In the past, the Union accepted a smaller raise in favor of retirement benefits.  That is a normal trade-off in collective bargaining.  It is appropriate here. 

            Longevity payments provide a significant portion of total compensation for Fire Fighters by their 11th year.  They account for the Las Vegas Fire Fighters having total compensation above any comparable jurisdictions.[35]  It is understandable that the City wants to bargain a future reduction or elimination in longevity payments for new employees.  Longevity pay provides automatic increases that drive up the cost of any negotiated wage increase.  Two local jurisdictions have recently eliminated longevity pay and four of the jurisdictions with whom the Fire Fighters compare themselves do not have longevity pay.  It may well be a form of compensation that no longer serves a purpose commensurate with its cost.

            The rate at which the fire fighters accrue sick leave, and the cap on accruals are consonant with local jurisdictions.  In light of the limited presentation on sick leave, it is not clear that either the rate of accrual or cap on accruals is excessive by comparison with other Fire Fighters.  While sick leave accruals and caps for Fire Fighters differ from what is offered other City employees – in ways that go beyond the difference in schedules – that does not indicate they require adjustment.  There are benefits and benefit levels that are unique to fire fighters for historical reasons.  If the City proposes changing them, it has the burden of proving they are no longer appropriate to fire fighters.  While the current benefit is generous in comparison to what is offered other City employees, there is insufficient evidence to demonstrate the change proposed by the City is appropriate. 

Determinations of the Factfinder

            The increases in bi-weekly payments to the Health & Welfare Trust proposed by the Union (Scenario 4; 5/14/02) will costs $5.392 million over the four fiscal years of the contract.[36]  It is necessary and appropriate for the City to increase its contribution to account for inflation in health care costs for its active employees.  The evidence shows that the Trust has adjusted benefits, co-pays, and employee contributions to contain costs.  These are all necessary changes, but have not been sufficient to bring expenditures into balance with income.  In part, that is because projected health care costs have a high rate of inflation.

            On the other hand, the largest part of the projected imbalance is attributable to subsidizing the cost of retiree benefits.  The projected cost of subsidizing retiree benefits for the four fiscal years of the contract is $3.411 million.  Since the collective bargaining agreement does not provide for contributions to subsidize retirees,[37] the City should not be required to pay a subsidy it did not agree to.[38]  It is appropriate for the Fire Fighters to offset a major portion of the subsidy for their retired brethren by foregoing part of their wage increase.  It is not appropriate for the Fire Fighters to offset the entire projected cost for two reasons.  First, since all of the figures are based on a four fiscal year projection they may not prove accurate.  Second, knowing that there is a real cost to subsidizing retirees, both groups of Trustees will have a reason to reduce or eliminate the subsidy over the life of the contract.  Doing so will enable the Trust to continue appropriate benefits while controlling co-payments for active employees.

            The parties originally were close to agreement on a 2%-2% raise (July 1 and January 1) in each year of the first two years of the agreement.  I recommend that the City provide the Fire Fighters a 2% raise effective July 1, 2001.  I recommend no further increase in wages until July 1, 2002, when I recommend an additional 2%.  I recommend they receive a further 2% on January 1, 2003.  By providing only a 2% raise for FY 2002, the City saves the equivalent of $2.971 million over the four years of the contract.  That is slightly less than the $3.102 cost of the $64 increase in bi-weekly contributions to the Health & Welfare Trust over the four years of the contract.  By providing these three raises the fire fighters are likely to maintain their relative position with almost all comparable jurisdictions. 

            I recommend a $64 increase in the bi-weekly City contribution to the Health & Welfare Trust beginning July 1, 2001, bringing the total contribution to $264.  I recommend a further $63 increase in the bi-weekly City contribution to the Health & Welfare Trust beginning July 1, 2002, bringing the total contribution to $327.  These increases will enable the Health & Welfare Trust to end FY 2005 with a six-month reserve, net of IBNR.  In light of this extremely large increase in contributions for health insurance, I do not recommend any new City payment of dependent contributions.  As a future offset to the City’s long term increase in health care costs, I recommend that longevity payments be changed for all fire fighters hired after July 1, 2002.  I recommend the City’s proposal of February 5, 2002: “Three percent on the tenth year.  One half a percent per year thereafter up to a total of ten percent.  Longevity will be paid in a lump sum annual payment, based on the employee’s base salary.”  Fire fighters will still have a benefit not enjoyed by the majority of comparable jurisdictions, while the public interest will be served by reducing that benefit in the future, without harming current fire fighters.

            In light of projected inflation, I recommend a 3% wage increase on July 1, 2003 and a further 3% increase on July 1, 2004.  I believe this is likely to maintain the Fire Fighters’ comparability over the contract period.

            I recommend (as the parties have agreed) an increase to $59 per month in the Article 17(F) payment.  I do not recommend any change in sick leave accruals or the sick leave cap. 

Summary of Recommendations

1.     Wages

      A.    2% increase July 1, 2001.
B.    2% increase July 1, 2002.
C.    2% increase January 1, 2003.
D.    3% increase July 1, 2003.
E.  3% increase July 1, 2004.

2.     Health Insurance Contributions

      A.    Increase to $264 bi-weekly, effective July 1, 2001.
B.    Increase to $327 bi-weekly, effective July 1, 2002.
C.    No change to Article 22 formula language. 
D.    No City payment for dependent insurance cost. 

3.      Article 17(F) – Effective July 1, 2001 increase monthly contribution to $59.

4.      Longevity – For fire fighters hired after July 1, 2002:  Three percent on the tenth year.  One half a percent per year thereafter up to a total of ten percent.  Longevity will be paid in a lump sum annual payment, based on the employee’s base salary.

5.      Sick Leave – no change in accruals or cap. 

 

 

San Francisco, CA                                                                          ______________________

February 10, 2003                                                                            Norman Brand

 

[1] I have used the calendar year in which the fiscal year ends to identify the fiscal year.  Thus, I have used FY 2002 to identify the fiscal year that began July 1, 2001 and ended June 30, 2002.

[2] The Union and City proposals are to increase the Employer contribution rate as of July 1st, the beginning of the fiscal year.  Thus, for fiscal year 2002, the increase would be made effective July 1, 2001.

[3] Under current contract language, the City pays either the flat amount (as indicated above) or the “average cost that the City contributes” to its CHIP plan for all other City employees.  The average is determined using a formula that takes into account the number of employees who receive employee only, employee plus one, and employee plus family benefits.  The formula multiplies the number of employees in each category by the number of dollars paid by the City for that category.  It then adds all of those totals and divides the number of dollars paid by the City by the number of employees.  Thus, the current formula accounts for any amounts that the City pays on behalf of employees for the increased cost of dependent coverage.

[4] The City does not address the propriety of using an annually recurring unreserved general fund balance that is the product of a specific budget philosophy. 

[5] The Culinary Workers Union, which took no increase in the first year of its new contract, is part of the same Health Services Purchasing Coalition, and subject to the same cost increases as the Fire Fighters’ Health & Welfare Trust.

[6] In a post-hearing revision to its demand, the Union asserted that a $5.392 million increase in contributions would allow the Trust to finish FY 2005 with a six month reserve, net of “Incurred But Not Recorded” (“IBNR”) expenses.

[7] This figure includes the $54 per month per employee that it pays the Trust on behalf of current Fire Fighters to subsidize their retirement insurance contributions.  The actual City contribution is closer to $523 per month or $241 per pay period.

[8] The Fire Fighters actually use 8 jurisdictions in their comparison although, as I note below, one jurisdiction is wholly inappropriate. (U-43)

[9] The Union characterizes this as a raise that costs the City the equivalent of a 3% raise each year.  Actually, this pattern of raises costs 3% only in the first year and puts off the last percent of increase to the first day of FY2006.  As a result of compounding, it also amounts to an overall wage rate increase of 17.17% over the four year term.

[10] The Union characterizes this as a “wage increase” because of the bargaining history of Article 17(F).  As will be seen below, I credit the Union’s characterization.  Both parties link wages and contributions to the Health & Welfare Trust, albeit drawing different conclusions from this linkage.  The Union argues that money contributed to the Health & Welfare Trust for retiree insurance cannot be used to reduce the current and projected Trust deficits.  The City argues that increases in its contribution to the Health & Welfare Trust should reduce the wage increase awarded the Fire Fighters.

[11] The argument, of course, runs in both directions.  If the raises are equivalent, then the Factfinder is free to choose either – according to the Union’s argument.  But “equivalent” is not the same as “equal” and the argument is specious in both directions, relying on semantic ambiguity, not logic. 

[12] The Fire Fighter comparisons omit EMT pay, which adds 5% to their base salary. (Article 28A)  All but two Fire Fighters in the unit are EMT certified. (Tr. II, 240:2-4)

[13] On all of the comparisons, Oakland is a significant outlier.  For instance, its year 11 total compensation is 16.6% higher than the next closest jurisdiction.  The distortion it creates is magnified because the Fire Fighters use averages, rather than medians, in making their comparisons.

[14] The collective bargaining agreement demonstrates that this is true.

[15] The evidence is that this was a loss in the overall value of the trust, including $102,000 in investment losses during the period.  It does not account for earlier increases in the value of the Trust, indicating an excess of revenues over expenses.

[16] In its final position it appears that the City agrees that this is an appropriate level of reserve for the Trust.  Indeed, the City proposes larger contributions than the Union.

[17] The only specific change the Union proposes is to have the City pay one-half the amount employees currently contribute towards their dependent contribution.  The assumptions the Union uses to project costs and reserves do not include any increase in total employee contributions as a result of the City partially reimbursing employees.

[18] The cost of living differences in Seattle and Denver are not significant.

[19] This is one of the comparisons used by the Union.

[20] Total compensation is always a better measure than base wages, since compensation systems differ.  For instance, some jurisdictions provide longevity, special pay for basic EMT training, or other allowances.  Ultimately it is often impossible to make exact comparisons since a major element of compensation – health care – is often difficult to compare on a straight dollar basis.

[21] Excluding first year and sixth year.  The first is irrelevant in the absence of recruiting problems and the second misleading in light of the effective date of longevity.

[22] The Trust could increase co-pays for active employees and reduce benefits, as well.  There is insufficient evidence to determine whether that is feasible.  Simply requiring all active employees with co-pays to shoulder the cost would result in an increase of approximately $153 per bi-weekly pay period for each of them.  (The figure is an estimation based on the number of co-payers shown on U-32, the total cost of the Union’s proposed increases, and 104 pay periods.)  That amounts to almost $4,000 a year for each of those employees.

[23] Where payments are fixed for three years, it is appropriate to have sufficient funds to build a reserve against future cost increases.

[24] These were mostly employee co-payments. 

[25] There was a realized loss of $85,672 on investments.

[26] The 7 month actual and 2 month projection for PERS retiree contributions and “total retiree costs” seem unreliable, since the retiree costs are greater for the nine month period and the contributions are $20,000 short of three-quarters of the annual contribution shown for the preceding 12 month period.  On the other hand, this is the only evidence available, so I have used it to estimate the costs.

[27] There is no evidence projecting additional retirees over the four years.  More retirees will mean a larger overall subsidy.

[28] As previously noted, Oakland seriously skews the comparison because the cost of living in the SF Bay area is significantly higher than in Las Vegas.  The data presented by the City show that it would take a salary of $100,528 in Oakland to maintain the same buying power as a salary of $60,000 in Las Vegas.

[29] That is based on the June 24, 2000 rates for Las Vegas and rates ranging from 1/2/01 to 1/1/02 for the other jurisdictions.  With a FY 2002 increase the difference will be greater.

[30] While there was no specific evidence on the point, the common practice is to pay for the hours at the firefighter’s final rate of pay, not the rate at which hours were accrued.  This amounts to almost a year’s pay.

[31] The accrual rate is an inference I have made based on the City’s last offer and the assertion in testimony that the City proposal would bring Firefighter rates of accrual into line with other City employees, based on the difference between a 40 and 56 hour work schedule.

[32] Based on a comparison with a 4% FY2002 increase.  The comparison does not demonstrate the effect of moving EMT pay to base.  That provides a larger number for future compounding of raises.

[33] I exclude Oakland, which I previously noted is an outlier because of the San Francisco Bay area cost of living.  I note that the comparisons do not account for the 5% EMT pay which the parties agreed to add into base in the new agreement.  If any of the other jurisdictions have EMT pay as a separate entitlement, that is not shown in the Union’s exhibit U-43.

[34]  The subsidy is the difference between what PERS pays in contributions for retirees and what the Trust lists as “Total Retiree Costs.”  According to the evidence, the only contributions made on behalf of retirees are listed on the line “PERS Retiree Contributions,” since retirees cannot pay directly. (Tr. I, 110:1-7)  Mr. Davis testified that it is not clear that the City could agree to provide benefits directly to retirees without affecting their taxability, since they are not “employees” under Federal labor law definitions and therefore under the tax code. (Tr. III, 1:3-18)

[35] With the exception of CCCF.

[36] A $64 bi-weekly increase on July 1, 2001 has an annual cost of $775,424 for a projected 466 employees.  The four year cost is $3.102 million.  The $63 bi-weekly increase on July 1, 2002 has an annual cost of $763,308 and a three year cost of $2.290 million. 

[37] Except, of course, as specifically provided in Article 17(F).

[38]  Since the issue was not briefed, I do not consider whether the Union could actually require the City to negotiate over benefits for current retirees.

 

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