Economics 101: Then and Now

Aaron Donato
By Aaron Donato

The economy is bad. Seems like that’s all we hear. It’s on the television, radio, and in the newspaper. I am so sick of hearing the phrase, ‘in this tough economy’; like I forgot I’m struggling. Of course it’s not just me struggling; you probably are too. And the municipality you work for might be also.

Seventeen years ago when I started as a dispatcher with the City of Sacramento things were different. In 1994 the United States economy was flourishing. In December of 1994 GDP was up and by an annual rate of 5.1% and unemployment was at 5.4%. Those are amazing numbers and their significance should not be lost on you. In 1994 the difference between public employees and private employees was public employees typically had lousy pay and great medical benefits and pensions. Private employees had good pay but inferior benefits and maybe poorly performing under-funded 401k or 457 plans to help them with retirement.

And then the dot com boom occurred from 1995 – 2000. This speculative bubble forced cities and counties to compete financially with the fluctuating private sector which was now ‘cherry picking’ the best and the brightest out of the public sector with lucrative pay and promises of large bonuses. Seeing their talent leave in droves forced local government to the bargaining table with what they now realize over a decade later to be unsustainable compensation packages. Things like 3% at 50 for sworn, 2.0-2.7% 55 for PERS miscellaneous employees and 15-30% increases in salary drove up long term liabilities but at the time it seemed like the bubble would never burst!

Oh but it would.

But in 2004 the housing market exploded and everyone was happy again and most importantly, making money – especially cities and counties with new home sales and property tax assessments. Homes that were really worth $240,000 were selling for close to $1 million. There was no end in sight and spend, spend, spend was the mantra of city halls across the state and nation.

Until the credit collapse of in 2007.

Fast forward to today. The likelihood that your employer wants concessions from your labor organization is high. For months now the media and conservative business interests have been vilifying public employees, our wages and our retirement. They have been working the public into a fervor, pitting workers against each other. The perfect storm has been set and unfortunately we are directly in its path.

GASB 45 changed accounting practices for government, forcing long term liabilities such as retiree medical costs onto the books for the first time. This change required cities and counties to come up with a funding mechanism for these previously unfunded liabilities or face major problems with the credit rating houses. The old way of ‘pay as you go’ would not work any longer.

Rising healthcare costs caught employers by surprise. In some areas, healthcare rose by 35% over 5 years. Employers tried to keep up but the rising cost has proven too much for most and the cost has been passed onto employees in the form of large out-of-pocket expenses for premium coverage or a reduction of benefits and rising co-pays.

Cal-PERS losses. The employee contribution (the money you see taken out of your check each month) is set by law; but the employer contribution is not. It fluctuates and with major losses to the Cal-PERS investment fund over the last several years, that cost is being passed onto your employer. Usually these increases are smoothed out over several years, but because of consecutive year losses the increases are starting to have an impact.

Unemployment and loss of property tax revenue. The U.S. Bureau of Labor Statistics put the unemployment rate at 12.3% in December, 2010. Consumers are spending less and more people are on public/government assistance. Property tax revenue is down sharply due to massive bank repossessions. In Sacramento for instance 1 in 147 homes is in foreclosure and in Stanislaus County the number is 1 in 104. (Source: US. Bureau of Labor Statistics). This means that more people are paying less money into the pot that pays our salaries.

Competing interests. Most of these cities and counties want to continue providing full services to their citizens. That means that in addition to necessary services like police, fire, water and garbage they also want to maintain their parks, libraries, pools and community centers. This desire to fund these ‘quality of life’ services means that funds must be diverted from an already shrinking General Fund to these projects. That means fewer dollars in police and sheriff budgets. The problem is opposing police and sheriff budgets too stridently may play into the hands of anti-public employee forces with charges of greed and selfishness.

So how do we combat these circumstances that seem stacked against us?

The first thing that we can do is not buy into the propaganda that unions are bad and that public employee unions are worse. The ‘machine’ that seems to be driving this agenda has been revising history to fool the voting public into thinking that public employees, our wages, benefits, and retirement are what has ruined the economy. This is untrue. The economy was brought down by Wall Street, not public employees or unions.

Next, support your union. Unions often support candidates that commit to look upon their profession/membership favorably. Not just for wages and benefits but also for other important things like collective bargaining rights, binding arbitration, and maintaining legislated rights such as POBRA (Peace Officer Bill of Rights Act). Sometimes we might be surprised by these endorsements, but rest assured, the candidate(s) position on the issues have been carefully examined by the union.

Do not let the union busters ‘Divide and conquer’. There is a trend of carving out police and fire for any legislated changes and only affecting teachers, and miscellaneous government workers like garbage men and state workers. This tactic is designed to temporarily separate the strong from the weak. It is a tried and true strategy used every day by lions in the wild on the African Sahara, by bullies on elementary school playgrounds, and by the SS in Nazi Germany. Pastor Martin Niemoller (1892-1984) wrote the following about the Nazi rise to power: “First they came for the communists, and I didn’t speak out because I wasn’t a communist. Then they came for the trade unionists, and I didn’t speak out because I wasn’t a trade unionist. Then they came for the Jews and I didn’t speak out because I wasn’t a Jew. Then they came for me and there was no one left to speak out for me.

Lastly, get involved. Attend your City Council meetings, read the agendas online and see where your municipality is spending money. Are they giving raises to managers, yet recommending lay-offs for rank and file? Pay attention and follow the money. Attend your union meetings and ask questions. Find out the answers to important questions like what percentage of the general fund budget your department is, and what 1% of salary is, etc.

My philosophy at the bargaining table is to make sure you’ve done your homework. If your employer says they are insolvent and need concessions, pay for an independent forensic audit of their books. If they are truly facing a fiscal emergency there should be transparency on their part. I would rather pay the money and make an informed decision than have my membership question later if they were sold a bill of goods. Sometimes we can prepare for these negotiations by suggesting improvements in processes and procedures that will result in significant savings.

Also, if ultimately monetary concessions are made, try to make them temporary and with sunset clauses. In other words, if the employer wants employees to give back a future contractual raise of 4%, instead look for ways to defer the raise and perhaps stagger it out over a period of years ultimately adding a percentage or two on it at the back end. Additionally, I try to make sure that there are non-monetary items, AKA: working condition improvements, included in any employee concessions. These could include extra personal time off, POBR rights for civilian police personnel, the right to witness representation in internal affairs, paid workout time, etc.

Oh and before I forget, the most important piece of advice is this: If you are in the middle of a contract, make it clear to the employer that you are NOT re-opening the contract. Discussions about financial problems and what the employer would like to do to solve them are fine; but the contract remains closed.

Aaron Donato is the Civilian Executive Officer and Lead Negotiator for the Sacramento Police Officers Association. His seventeen years as a police dispatcher for the City of Sacramento and ten years on the Board of Directors with the SPOA have helped him gain recognition as a leader in his field. He has negotiated numerous contracts and working condition changes for the association.

Aaron may be contacted at adonato@spoa.org.