Volume 18

The Case Against Public Sector Unionism and Collective Bargaining By: David Y. Denholm

Public sector collective bargaining is a creature of the late 1950s and 1960s. The academicians and politicians who theorized about it and legislated its beginnings can be forgiven for having erred because they were working in a void with no empirical evidence as to how it would work.

Public sector collective bargaining as we know it in the 1990s is a failure. There is a very strong case against it, but the laws which mandate it have given political power to public sector unions, and they will not lightly relinquish the power they have gained. Therefore, the case against public sector unionism must have both theoretical and political dimensions.

To understand the utter futility of using the collective bargaining process to establish equity and harmony in public employment, it is necessary to briefly review the basic premises of our system of government and the fundamental nature of unionism and collective bargaining.

Differences between the Public and Private Sectors

We live in a society with two distinct sectors – the public and the private.

Unionism and collective bargaining are products of the economic decision making process of the private sector of our society. Despite this, the National Labor Relations Act, which was designed for the private sector, has been used, with minor variation, as a model for all public sector bargaining laws. Those who wish to impose collective bargaining on the public sector fail to appreciate the differences between the public and private sectors.

Monopoly v. Competition

The public sector is monopolistic; there is a single source of supply for government services. There is only one fire department, one police department, one system of public education. 

The public sector provides essential services.

 

The private sector is competitive; there are alternative sources of supply for the goods and services produced. There are a multitude of choices in everything from automobile dealerships to grocery stores.

The public sector provides essential services. It is the very nature of government to provide on a monopoly basis the public services which everyone needs.

The private sector provides nonessential services. There are choices involved as to what sort and how much of private sector goods and services to buy and use, whether it be an automobile or a television, or what brand of gas to buy or channel to watch, or whether to own a car or watch television at all.

This is not to say that some private sector goods, such as food, are not essential. But, in many cases, the government provides essentials through programs such as food stamps. Also, it may be argued that many government services are far from essential, but that is an argument against government providing that sort of service rather than an argument against the premise.

Political v. Economic

Public sector decisions are political decisions no matter how great their economic impact. Government makes decisions every day that have profound economic consequences, but these decisions are based on political, not economic, considerations. Decisions that are politically popular but economically ruinous can get a public official re-elected, gut decisions that are economically sound but politically unpopular can ruin a political career.

Private sector decisions are economic decisions no matter how great their political impact. In the private sector, economic decisions that have bad political consequences can make you unpopular, but political decisions that have bad economic consequences can put you out of business.

Sovereign v. Free Contract

Government – the public sector – is sovereign, and no other institution or enterprise in our society is sovereign. Sovereignty is the power to use force – to compel. Under our democratic system, governmental sovereignty is derived from popular sovereignty which we as citizens give to government, within constitutional limits, in the interest of security, and the public good.

Government's sovereignty is obvious in compulsory school attendance laws, the power to collect taxes, and the power to violate personal and property rights in the public interest.

 

A government which is not sovereign is a contradiction of terms

All economic and social activity in the private sector is governed by free contract. You only have a free contract when both parties want one. You cannot be compelled to buy the product of a particular company. Businesses cannot be compelled to join a business or trade organization. Support of churches is entirely voluntary. The list goes on and on.

Some say sovereignty is outdated because it is misunderstood. Some think of it in terms of the "divine right of kings." It is useless to argue that sovereignty is an outdated concept. Sovereignty is not something that government can choose to have. A government which is not sovereign is a contradiction of terms. No matter how pluralistic our society becomes, it is the sovereign nature of government which ensures the order necessary for participation in that pluralism by the individual citizens.

It may be argued that there are compulsory public sector bargaining laws in many states and public order has not broken down. This also misses the point. Whenever the representatives we elected to run the public's business are unable to carry public programs into effect because of opposition from public sector unions, our sovereignty has broken down which is a loss to us all.

That said, let's take a look at the nature and basic premises of unionism and American labor policy.

The Nature of Unionism

Adversarial

Unions view the employer-employee relationship as an adversarial one. Unions believe, or at least want their members to think, that employers are by their nature exploitative and that without the collective power of the union, the unorganized individual employee is helpless against the various forms of capital formation which employers represent.

While this may be true in the private sector, there is no reason to believe that it would be true in the public sector. The private sector is governed by an economic incentive – the profit motive. This system of economics has provided Americans with more goods and services, and a higher standard of living, than any other economic system in the world. But it is not applicable to many areas of the public sector of our economy.

Competition and the profit motive are at the heart of the union contention that employers are exploitative. That viewpoint leads the unions to an adversarial relationship. The absence of competition and profit motive from the public sector should cause us to then ask whether an adversarial relationship is necessary or desirable in public sector employer-employee relations.

It is likely that public officials, both elected and appointed, will find themselves as allies with government workers rather than adversaries in many instances.

Government is in the business of providing services. Providing these services efficiently is what gains votes – the bottom line in politics. This requires well trained and reasonably well satisfied employees. Government is in competition with the private sector to hire these workers. This gives government ample incentives to treat employees well and compensate them fairly. In fact, it is likely that public officials, both elected and appointed, will find themselves as allies with government workers rather than adversaries in many instances.

Monopoly

Unions insist upon a monopoly in representation. If a majority of employees in a bargaining unit desire representation by a union, the union then imposes its representation on the minority.

The effect of giving unions monopoly bargaining power is to make the union the workers' economic sovereign.

The effect of giving unions monopoly bargaining power is to make the union the workers' economic sovereign. The union decides the terms and conditions under which an employer may offer employment, and has the exclusive right to represent employees in grievances. This puts the public employee in the situation of having two sovereigns, the government and the union. Just as a non-sovereign government is a contradiction in terms, so is a dual sovereign.

In theory, collective bargaining brings the employer and the employees to the bargaining table as equals. This is a concept appropriate only to the private sector. Government, because of its sovereign nature, is in great peril when it views a small special interest group as its equal. Such an equal relationship causes broad public concern about the effectiveness of representative government, and can cause widespread voter/taxpayer dissatisfaction with government. Yet a less than equal role for the unions causes frustration for employees who have been led to expect too much from unionism.

Impasses

This brings us to the final element in the nature of collective bargaining – impasses. In collective bargaining it is the role of the unions to make demands and the role of management to respond to those demands. At some point management is bound to find itself unable to satisfy all the union demands. When an impasse occurs, the union must have some means of enforcing its demands. The traditional means of response to management recalcitrance is to threaten a strike.

In the private sector the strike is an economic weapon. The employer faces economic losses through a lack of business, and the employee faces economic losses through a loss of wages. If there is a strike at one provider of a good or service, consumers – the public – can shift to another provider or not purchase at all.

In the public sector the strike is a political weapon. The employer does not suffer an economic loss, and in many cases (e.g., particularly in education where most public sector strikes occur) neither does the employee.

Because of its political impact, the public sector strike is disruptive of the normal political process. Under normal circumstances, various interest groups within society, all of whom have a legitimate interest in public policy questions, exert pressure from various directions on elected representatives. Of these groups, a union of public workers is the only one that has the power, if not the legal right, to unilaterally deprive the rest of society of an essential service. Once this occurs, divergent political forces show a strong tendency to coalesce into a unified voice demanding a restoration of service.

By using a strike or the threat of a strike, the union can dominate the decision process and control the size, cost, and quality of government service.

The only way to restore the service, in most instances, is to give in to the union's demands. Thus, by using a strike or the threat of a strike, the union can dominate the decision-making process and control the size, cost, and quality of government service.

The proponents of unionism and collective bargaining in the public sector, who based the public-sector model on the private-sector model, ignored the essential differences between the

decision-making processes in the two sectors and the conflicts inherent between the nature of unionism and the nature of government.

The Public Interest

In order to fully appreciate the case against public-sector unionism, it is important to understand why public-sector collective bargaining is contrary to the public interest. We must first determine what is the public interest in public employment. This may be many things to many people, but there should be universal agreement that it include the following:

1. A peaceful, stable employer-employee relationship;

 

 

2. Protection of the rights of all public employees;

3. Protection of the right of the people through their elected representatives to control government policy and the cost of government; and

4. Governmental services provided in the most efficient and orderly manner possible.

Based on any objective standard, collective bargaining as it has developed in the industrial or private sector of America's economy, does not enhance any of the above in the public sector.

In 1959 Wisconsin was the first state to enact compulsory public-sector bargaining legislation. Since then more than forty states have followed suit in one form or another.

The proponents of bargaining were astute. They knew that if they told the public that unionism and bargaining in the public sector were intended to give unions a disproportionate amount of influence in the decision-making process, no one would have bought the idea. So they talked in terms of equity and ensuring harmonious employer-employee relations.

On both scores the results of compulsory public-sector bargaining have not only failed to fulfill their promise but have had an effect completely contrary to their intended purpose. As a result, public employees are increasingly hostile to their employers, and there is increasing public hostility toward public workers.

Harmony

The imposition of collective bargaining on public sector employer-employee relations results in an increase in strike activity. In 1958, before the passage of the first public sector collective bargaining law, there were 15 strikes against government. By 1980, after thirty-seven states had enacted compulsory public-sector bargaining legislation covering one or more groups of public, there were 53 6 strikes.

After President Ronald Reagan's firm handling of the PATCO strike in 1981, the number of strikes against government declined by about 50 percent, and the Bureau of Labor Statistics ceased reporting on strikes in the public sector, making further analysis of this issue impossible. Even so, it is worth noting that between 1958 and 1980 in no case did passage of a public sector bargaining law result in a decrease in strike activity.

Compulsory collective bargaining is destructive of a peaceful, stable employer-employee relationship.

Compulsory collective bargaining is destructive of a peaceful, stable employer-employee relationship. This is true statistically (from the facts available from areas which have experimented with it) and can be deduced from the very nature of the collective bargaining process.

Nevertheless, the proponents of compulsory public-sector collective bargaining have argued that such laws would serve to reduce public-sector strike activity. They claim that forcing government to recognize and bargain with unions would remove the cause of strikes by providing formal channels for the resolution of differences.

Some have claimed that collective bargaining legislation, by reducing the number of recognition strikes, would result in a net reduction in public-sector strike activity. Jack Stieber, author of a Brookings Institution study entitled, Public Employee Unionism, is often cited out of context to support this contention.

Clearly, there is little relationship between the incidence of government strikes and state laws regulating labor relations in public employment. Michigan, one of the three states with the largest number of strikes, has had a comprehensive law since 1965, while Ohio and Illinois, the other two, have no state statute providing collective bargaining for public employees. Other state patterns are similarly inconclusive. The one effect of laws that can be documented is that they reduce greatly the number of strikes over the issue of union recognition....

In fact, Stieber recognizes the true relationship between bargaining laws and strikes. The rest of the text indicates this: ... But other issues, particularly wages, have apparently increased the number of strikes sufficiently to more than compensate for the elimination of union recognition as an important issue in states with public employment laws. (Emphasis added)

 

In states which have adopted compulsory public-sector bargaining laws, there is a tremendous increase in the number of strikes – whether legal or illegal.

The Bureau of Labor Statistics of the U.S. Department of Labor began to keep detailed statistics on public sector strike activity in 1958. This database allows us to examine strike activity before and after enactment of bargaining legislation.

A study of this data covering all strikes against government from 1958 to 1980 shows that in states which have adopted compulsory public-sector bargaining laws, there is a tremendous increase in the number of strikes – whether legal or illegal.

A comparison of strikes before and after the enactment of a public-sector bargaining law shows a correlation between passage of such laws and a fourfold increase in strike activity on a national average. These figures are dramatized by examples such as Michigan where there was one strike against government between 1958 and 1964. In 1965, a public sector collective bargaining law was enacted which made strikes illegal. Between 1965 and 1980, there were 759 strikes against government in Michigan. In Pennsylvania, there were 72 strikes in the twelve years prior to the passage of a compulsory public-sector collective bargaining law which legalized strikes in 1970, and 767 strikes in the eleven years following enactment.

On a national average, there have been 1.34 public-sector strikes per year in states prior to passage of compulsory public-sector bargaining laws, and an average of 5.0 strikes per year after passage of such laws.

Equity

Unions in the private sector speak of equity in terms of the workers' "fair share" of the value of production.' No such measure is available to the public sector worker.

If we define equity for public sector workers as compensation comparable to their counterparts in the private sector, it can be easily demonstrated that unionism and collective bargaining have, as a natural consequence, inequity rather than equity.

In the private sector there is little argument that a unionized worker earns more than a nonunion worker doing the same work. Despite the obvious fact that our national labor law gives considerable advantages to unions in organizing campaigns, only about 10 percent of the workers employed in the private sector have elected to be represented by unions.

If a consequence of unionism is higher than average pay, how can this be called equity?

Since unionism is more concentrated in the basic industries where employment is in larger units, it is safe to say that far less than 10 percent of the employers offer employment under the terms of a union contract. The average compensation for work in the private sector is certain to be less than the union negotiated wage. If a consequence of unionism is higher than average pay, how can this be called equity?

Unionism has the same impact in the public sector. This can be shown by postal wage activity since passage of the Reorganization Act in 1971. In 1970 the average postal worker earned $7,777 per year, while the average manufacturing worker in the private sector earned $7,440 per year. The Reorganization Act imposed the NLRA on employer-employee relations in the postal service, ignoring the monopolistic, essential and political nature of the service. (The postal service workforce is very heavily unionized.) According to a report by the General Accounting Office, by 1976 the average pay of a postal worker had risen 69 percent to $l3,127, while the average manufacturing worker’s wage had increased only 57 percent to $11,703.

In 1996, the Fiscal Services Department of the Maryland Legislature did a study on the impact of proposed public-sector collective bargaining legislation. That analysis concluded that public-sector unionism results in an annualized increase in compensation costs of 1 to 1.5 percent. Comparing the compensation of state employees in Maryland to other similar employees covered by collective bargaining statutes over a period of 16 years, the report concluded that if state employment in Maryland had been subject to collective bargaining over that period of time, state employee compensation would have been 29 percent higher.

According to the Bureau of Labor Statistics, average hourly earnings in the public sector in 1996 were $15.06 compared to a private-sector average of $12.72 – a 13 percent difference. Average hourly earnings for unionized public-sector workers that year were $16.85.

Rising public discontent has focused on the public employee, while public employees have taken an increasingly hostile attitude toward the public. Because public-sector collective bargaining is a sacrosanct institution and is very poorly understood by both groups, it is not recognized as the source of the problem.

Employee Rights v. Union Privileges

Another widely held misconception is that compulsory public-sector bargaining laws somehow guarantee "rights" to public employees. Nothing could be further from the truth. In fact, close examination reveals that, if anything, the opposite is true and that compulsory public-sector bargaining laws give powers and privileges to unions at the expense of the rights of individual public employees.

Public employees, like all American citizens, have the right to join a union. This is a right protected by the First Amendment to the Constitution of the United States. No law is needed to guarantee it and no law should violate it. Beyond this, all the so-called rights contained in compulsory bargaining laws are union rights, not employee rights.

Compulsory public-sector bargaining laws give powers and privileges to unions at the expense of the rights of individual public employees.

To illustrate this point, almost without exception, such laws require that the union be the sole or exclusive representative of all the employees in a bargaining unit. This denies employees the right to represent themselves individually or to be represented by another organization of their own choosing. This monopoly power granted to the union is usually carried to the point of denying the individual employee the right to meet with the employer to discuss a grievance unless a union representative is given the opportunity to be present.

This is contrary to the fundamental guarantee of liberty under the Constitution. The First Amendment to the Constitution of the United States guarantees citizens the right to petition the government. Granting unions the exclusive right to represent government employees in their employment relationships with the government denies public workers this right in one of the most basic areas of concern – their jobs.

Unions commonly exploit their monopoly bargaining power by insisting that because they are "forced" to represent all employees, that all employees, having lost the right of representation to the union, should be forced to join or support the union as a condition of employment. This violates each employee's right to freedom of association and gives the union greatly increased power in determining the employment destinies of the employees.

Forcing public employees who are not union members to pay for union representation is based on the idea that union representation is a benefit. It is becoming increasingly clear that union gains for one group of employees often come at the expense of another group of employees, frequently within the same bargaining unit. Forcing an employee to pay for representation that is ultimately harmful to their interest is an injustice.

In addition to contract negotiations, unions also spend a lot of time defending individual employees in "adverse actions" regarding their own employment. These issues often involve absenteeism, insubordination, poor evaluations, etc.

Employees who are bargaining unit members but not union members may have decided not to join the union because they resent the union's role in defending the small minority of employees who are incompetents and chronic malcontents.

Typically, only a few employees in a bargaining unit require such representation and their need for it is chronic. Employees who are bargaining unit members but not union members may have decided not to join the union because they resent the union's role in defending the small minority of employees who are incompetents and chronic malcontents. For these employees, union representation may be the exact opposite of a "benefit." Requiring them to pay for the so-called "benefit" is a classic case of rubbing salt in a wound.

Granting unions monopoly bargaining privileges and the power to compel membership or support cannot be construed as guaranteeing any "rights" to public employees.

The proponents of compulsory public-sector collective bargaining laws play on the public's sense of fair play by saying that denying public employees the right to collective bargaining makes them "second class citizens." There is no constitutional "right" to collective bargaining in either the private or public sector. The U.S. Supreme Court has been quite clear about this in several decisions. All such "rights" are statutory.

Public-sector collective bargaining makes public employees "super citizens" and relegates the rest of the public to second class status.

Rather than the lack of collective bargaining privileges for public-sector unions making public employees second class citizens, the existence of public-sector collective bargaining makes public employees "super citizens" and relegates the rest of the public to second class status.

Public Control

Nor can it be said that public-sector bargaining laws protect the right of the public to control government policies and costs through their elected representatives.

The most fundamental violation of this principle is inherent in the very nature of the laws and leads to their designation as "compulsory" bargaining laws.

Public sector bargaining laws "compel" elected public officials to recognize and bargain with unions. This immediately deprives from the representatives of the people the power to determine whether such recognition and bargaining are, in fact, in the public interest.

Collective bargaining laws create an adversarial relationship between union and employer.

This compulsion to bargain is normally defined as an obligation to bargain "in good faith." There is no clear definition of "good faith," but experience with similar provisions in other laws leads to the conclusion that, despite legislative language to the contrary, the courts have ruled that in order to bargain "in good faith," the employer must be willing to grant some concessions to union demands. Thus, the elected official is in double jeopardy; not only must he bargain, he must make concessions.

By making the union a full and equal partner at the bargaining table, compulsory public-sector bargaining laws deprive the public of its right to participate in policy making. This point was emphasized in a U.S. District Court opinion which upheld the constitutionality of a North Carolina law declaring public-sector union contracts to be void. The Court said:

Moreover, to the extent that public employees gain power through recognition and collective bargaining, other interest groups with a right to a voice in the running of the government may be left out of vital political decisions. Thus the granting of collective bargaining rights to public employees involves important matters fundamental to our democratic form of government. The setting of goals and making policy decisions are rights inuring to each citizen. All citizens have the right to associate in groups to advocate their special interests to the government. It is something entirely different to grant any one interest group special status and access to the decision-making process.

By their very nature, collective bargaining laws create an adversarial relationship between union and employer. This makes strife inevitable. Most public-sector bargaining laws cause problems that result in an impasse which blocks resolution. Usually, this takes the form of mediation, fact finding and arbitration. These systems further serve to deprive the elected representatives of the people of their responsibilities.

The unions believe that no employer will seriously consider a union demand, if it knows that the union has no power to enforce it. To enforce their demands, unions must have the power to strike. As Sylvester Petro put it, "Collective bargaining unsupported by the strike is a sham institution; Government whose employees may strike is no less a sham." Another scholar from the opposite side of the ideological spectrum on the question of unionism, Theodore Kneel, expressed the same sentiment, "Collective bargaining and strikes are like Siamese twins."

Concern about strikes in the public sector has focused around the deprivation of public services. There is no doubt that this is a very real problem, but it distracts attention from an even more important consideration. Strikes against government are disruptive of the normal political process because they tend to coalesce divergent political views for a brief time into a single demand for the restoration of public service. This gives the union disproportionate power and results in government decisions which have short-term political benefits and disastrous long-term consequences.

Public-sector strikes enjoy a heightened degree of effectiveness not shared by private-sector work stoppages.

The usual reaction to the strike is pressure on elected officials to restore the disrupted service. Thus, the victim becomes the unwitting ally of the union. If the cost of restoring the disrupted service is capitulation to union demands, elected officials, caught between angry strikers and an angry public, usually must do so. Thus, public-sector strikes enjoy a heightened degree of effectiveness not shared by private-sector work stoppages.

Professors Harry H. Wellington and Ralph D. Winter, in their Brookings Institution Study entitled, "The Unions and the Cities," focus on this problem concerning the strike weapon:

The trouble is that if unions are able to withhold labor – to strike – as well as to employ the usual methods of political pressure, they may possess a disproportionate share of effective power in the process of decisions. Collective bargaining would then be so effective a pressure as to skew the results of the 'normal' American political process.

 

 

... Since interest groups other than public employees, with conflicting claims on municipal government, do not, as a general proposition, have anything approaching the effectiveness of the strike – or at least cannot maintain that relative degree of power over the long run – they may be put at a significant competitive disadvantage in the political process.

Collective bargaining as an institution is inappropriate to government.




 

There is no doubt that collective bargaining means strikes. There is also little question that strikes against government are intolerable. Therefore, collective bargaining as an institution is inappropriate to government.

Some states in an effort to avoid this problem have instituted compulsory, binding arbitration as a means of resolving labor disputes in the public sector. If anything, binding arbitration is worse than strikes.

Strikes destroy democratic government by giving the public sector union – a very small special interest group – disproportionate influence and therefore effective control of the public decision-making process. Binding arbitration completely removes elected officials from the process.

Binding arbitration, by the very nature of the process, is a 'no lose' proposition for the unions.

Binding arbitration, by the very nature of the process, is a "no lose" proposition for the unions. An arbitrator will never award a settlement that is anything less than management's final offer. The union is therefore able to obtain everything possible through the bargaining process, aided by its political influence, and then go to arbitration knowing that it can do no worse.

In many states which have enacted binding arbitration laws there are active movements to repeal them. But repeal is difficult because the collective bargaining laws greatly increase the political power of the unions.

State legislators often approve binding arbitration because its effect is felt at the local government level. One striking example of this is in Michigan where State Senator Coleman Young was the sponsor of a binding arbitration law. Later, as the Mayor of Detroit, Young said,

We know that compulsory arbitration has been a failure. Slowly, inexorably, compulsory arbitration destroys sensible fiscal management. (Arbitration awards) have caused more damage to the public service in Detroit than the strikes they were designed to prevent.

Clearly, laws which compel elected officials to recognize and bargain with unions in no way serve to protect the right of the citizen-taxpayer to control their government.

Efficient Delivery of Public Services

Finally, do compulsory public-sector bargaining laws in any way promote more efficient or orderly delivery of public services?

As already noted, there is a strong and direct correlation between collective bargaining and strikes which disrupt public services.

Beyond this, union contracts tie the hands of elected officials and make it impossible for them to respond in a timely fashion to economic or natural disasters and emergencies. One only need look at New York City's financial default in the 1970s to see how completely destructive absolute power can be in the hands of public sector unions.

In addition, public sector bargaining tends to telescope the government decision-making process. Contracts frequently deal with subjects beyond wages, hours, terms and other conditions of employment, and directly impact a broad variety of government decisions.

It is the nature of negotiations to make concessions and compromises when faced with a deadline. As a result, many contract agreements are made at the last moment. Elected representatives of the people are then faced with the need to consider, in a very brief time, a document which will affect a wide range of other decisions. There is not time under these circumstances for public review and for informed comment from other interest groups.

Because they create more problems than they resolve, most public sector bargaining bills provide for the establishment of a public employment relations board to resolve problems which arise under the law. These boards are cumbersome new bureaucracies which greatly increase government costs. They are given broad regulatory powers from which locally elected public officials have little or no recourse.

No matter what the real intent of these laws, by any objective standard, they are not in the public interest.

Public sector bargaining laws also lead to such inefficient practices as the collection of union dues at the taxpayers’ expense and giving union officials, who are public employees, time off at full pay while engaged in union negotiations.

It is clear, therefore, that no matter what the real intent of these laws, by any objective standard they are not in the public interest. They represent an expression of the selfish self-interest of public-sector union organizers and, indirectly, the interest of the politicians who enact them in order to curry favor with the union's political operatives.

Since public-sector collective bargaining is so contrary to the public interest, it is also essential to understand how it became so widespread. Public sector collective bargaining is a relatively new phenomenon.

In 1955 George Meany, the President of the AFL-CIO, said, "It is impossible to bargain collectively with the government." And as late as 1959, the AFL-CIO Executive Council was on record as believing that, "in terms of accepted collective bargaining procedures, government workers have no right beyond the authority to petition Congress – a right available to every citizen."

In the middle of the 1950s, some academicians began to toy with the idea that collective bargaining might lead to more harmonious and equitable employer-employee relationships in the public sector.

At about the same time, however, union membership as a percentage of the work force began to decline, and the number of people employed by government began to grow.

Union officials saw the emerging public sector as the new growth industry to replace the dues dollars and political clout they were losing from their decline in the private sector.

In 1958, public-sector union membership was only 1,035,000, or 12 percent of the public-sector work force of about 8.5 million. At that time the private-sector work force was about 43 million and union membership was 16,933,000 or 39 percent.

In the next two decades, the federal government and most states instituted compulsory public-sector bargaining schemes. In addition, the unions found that they could use their political power to prevent any resistance to union organization in the public sector at the local level, that is, once a compulsory public sector collective bargaining law had been enacted.

Between 1958 and 1978, the public-sector work force grew by 83 percent, while the private-sector work force grew by only 39 percent. Public-sector union membership grew to 6,019,000, which was 39 percent of a public-sector work force that by then numbered 15,630,000. By 1978, private-sector union membership had risen to 18,116,000, but was only 20 percent of the work force.

The decision to push for compulsory public-sector bargaining laws was indeed a profitable one for the unions. On the other hand, it was a failure for those who thought that it would lead to better government.

"Collective bargaining and the processes of democratic public benefit conferral are not felicitous bedfellows" – Professor Robert S. Summers.

In 1978, Cornell University law professor Robert S. Summers, concluded his monograph entitled, Collective Bargaining and Public Benefit Conferral: A Jurisprudential Critique, by saying, Collective bargaining and the processes of democratic public benefit conferral are not felicitous bedfellows. While it is possible to shore up these processes through the promulgation of codes for neutrals (and through other reforms), the extent its unhappy effects can be reduced or ameliorated by these means is limited. Abandonment of bargaining is necessary, for this and other reasons. Dr. Myron Lieberman, whose book Education as a Profession in 1956 was one of the first to advocate collective bargaining for teachers, and who was himself at one time a candidate for the presidency of the American Federation of Teachers, AFL-CIO, also became a bargaining practitioner. But in his book entitled Public-Sector Bargaining, published in 1980, Lieberman turns full circle, saying, It would be desirable to have a new organizational structure to replace public-sector unionism, but such a structure is not required to justify deunionizing public employment .... The choice is not between public-sector bargaining and something better. Without in any way idealizing what preceded public-sector bargaining, it was better. Even if one wanted to, it is impossible to go back to the way things were before the emergence of public-sector collective bargaining. It is time to move ahead. The collective bargaining laws have given enormous political power to public-sector unions. At the present time, repeal of these laws, no matter how desirable, is not feasible.

It is time for public officials and the people they serve to devise better policies and strategies for public employment matters. It is time to move beyond the failed nostrums of the past into a better future for public employees and the public they serve.

Fraud Prevailing Wage Surveys By: Armand Thieblot, Ph.D.

Dr. Thieblot is an adjunct professor at Western Maryland College.

Introduction

The Davis-Bacon Act, passed in 1931, and similar state prevailing wage laws require contractors on government-sponsored construction projects to pay their workers at least the rates prevailing for similar work in the locality where it is to be performed. The act did not specify how prevailing rates should be acquired or determined. Furthermore, no one—no legislator, official, statistician, or judge—has ever provided a logically defensible definition of the key term, prevailing. This not-inconsequential problem makes even the titles of prevailing wage laws fundamentally deceptive, since they do not ensure continuance of existing (prevailing) private-market labor rates, but rather supplant them with mandatory minimums set typically at the middle or the top of the range of existing private-market rates, sometimes even higher.* Thus, despite their name, prevailing wage laws actually set superminimum wages.

Furthermore, the state laws all differ from one another and from the federal law, and use many different methods to identify, calculate, or select the rates they call prevailing. If presented with the same distribution of actual wages paid in a locality for a particular craft on a particular type of construction, the state and federal laws could produce as many as 13 different amounts to call the prevailing rate for that craft and type of work, each as good as any other.1 Which one is best, or which, if any, is most fairly representative of the actual private labor market rate for that craft and area can’t be determined. Most prevailing wage laws ignore this problem, or simply define the prevailing rate to be whatever the administrators say it is. As a result, determinations may be issued with patently illogical prevailing rates and pass without challenge. Here are some examples of illogical rates found in recent state determinations:

• An Alaska determination identified and set prevailing rates for 95 different types of laborers who differed in title and craft affiliation but who were all unskilled. The average of prevailing rates (derived mostly from union contracts) set for these unskilled persons was 25 percent higher than the rate set for a group of highly skilled persons covered by the same determination—helicopter pilots while actively in flight. (Helicopter pilots in Alaska are typically nonunion.)

• A California determination required nonunion contractors to pay beginning carpet layer’s helpers $33.55 an hour, more than 4-1/2 times greater than the rate ($7.26) it required union contractors to pay for the same work. The union contractors got this break because the job title of Carpet Layer’s Helper is a union title that can’t be used by nonunion contractors—even though both union and nonunion carpet layers use helpers in about the same way. By prevailing rate rules, if a separate title does not exist for them, contractors must pay helpers using the tools of any trade the journeyman’s rate for that trade. Hence, nonunion carpet layer contractors for California public works must pay all their workers, including beginning helpers, the higher rate.

Results such as these have routinely gone unchallenged, partly because the typical process of challenging a determination is cumbersome, and partly because bizarre rates may result even from well-regulated administrative processes that are faithfully followed. Nevertheless, there is adequate reason to question the accuracy of individual prevailing rates and the fairness of the rate-setting process in general. In Oklahoma in 1995, a labor commissioner with previous experience in the construction industry became suspicious that the prevailing rates being administered by her department were unreasonably high.*Upon investigation, she discovered evidence of the following:

• Hundreds of bogus wage survey forms, including multiple forms on single projects, and forms from supposedly different sources filled out in the same, distinctive handwriting.

• Data submitted on wages paid for work on projects that were never constructed, specifically an underground storage tank and chemical building.

• Forms containing phantom data, such as an equal number of nonexistent ghost workers paid fictional, inflated wages added to the number of actual workers paid market rates.

• Forms reporting phantom jobs, such as one using seven asphalt lay-down machines and 21 asphalt-related workers to build a parking lot that was barely large enough to park that many machines, and besides was actually made of concrete.2

If the evidence was true, misstatements and misfilings of this sort would be clear examples of fraud in the determination of prevailing rates--fraud that had increased some individual rate determinations by as much as 162 percent.3 In July 1997, an Oklahoma jury found the first labor union official (who was indicted in a case) guilty of 14 counts of making false statements to the government.4 So the evidence was confirmed.

This was real fraud, but apparently it was not wide spread. The U.S. Department of Labor (DOL), after initially stonewalling requests to investigate the specific charges, eventually did issue revised (generally lower-rate) determinations for the contested areas of Oklahoma, while minimizing the possibility of similar malfeasance elsewhere. But under continuing pressure from Oklahoma and from congressional inquiries, two further investigations were undertaken of fraud in the survey process. One of these, a report issued by the General Accounting Office in May 1996, is difficult to comprehend and of little value.5* The other, released by the inspector general of the DOL in 1997, conducted desk and some field audits of about 10 percent of the wage surveys performed in 1995. It discovered no additional overt fraud, but did find that two-thirds of all wage survey reports subjected to onsite reviews contained "significant errors;" that 5 of the 7 audited surveys had enough errors that they had to be revised; and that 16 percent of the errors found were committed by federal DOL officials involved in the survey process. It concluded that, "If we had conducted more payroll reviews, we believe more exceptions would have been identified and would have revealed more material errors in published wage decisions."6

The inspector general attributed this astonishingly high error rate to inadvertence and inaccuracy, rather then to fraud or deception, of which the DOL was either the victim or the perpetrator. His analysis, however, was based on analysis of the arithmetical competence of DOL officials, the precision of the memories of contractors or third parties providing wage rates, and on other minutia of the survey process. It did not look at the larger question of whether the survey process, itself, might be deceptively biased towards specifying excessive rates—a form of fraud built into the process of rate determination that might be called structural fraud.

The discussion that follows, evaluating the degree of structural fraud in the wage-setting process, is based on a detailed review of a 1995 Davis-Bacon wage determination survey for building construction in Montgomery County, Maryland--one of about 3,200 counties in the U.S. entitled by the rules of Davis-Bacon to its own wage survey. I propose to show that its bizarre results could not be accidental. Then, I’ll give several reasons to be suspicious of any DOL assertions that survey fraud can be corrected through simple means or modest reform. Finally, I’ll suggest alternatives (short of outright repeal, though that possibility should not be discounted) that might lead to more fair administration. I’ll begin the discussion by looking at the outcome of federal wage determinations as a whole.

Statistical Evidence of Fraud is Provided by the Percentage of Union Rates Found in Davis-Bacon Determinations

The definition of prevailing currently found in DOL regulations says the prevailing rate is the one [to the penny] found by survey to be,

"paid to the majority (more than 50 percent) of the laborers or mechanics in the classification on similar projects in the area during the period in question. If the same wage is not paid to a majority of those employed in the classification, the ‘prevailing wage’ shall be the average of the wages paid, weighted by the total employed in the classification."7*

There’s no provision in the regulations for adopting union rates other than by their statistical predominance, and no provision for establishing "safe union territories," other than by the same statistical survey process. Thus, DOL may consider areas to be safe union territory only if a survey once showed the percentage union there to be well over 50 percent in every job category, and if there have been no major changes since.*

In 1995, the DOL acknowledged that 29 percent of all federal Davis-Bacon wage determinations were from what it considered safe union territory (i.e., all job categories had wage rates set at the union scale),8 and noted that a further 23 percent were mixed, containing some but not all union rates. Together, more than 40 percent of all individual job determinations had mandatory minimums at the union rate.

Actual union representation in 1995 was only 18.8 percent in the whole construction industry,9 which leaves an interesting question: How is it possible that over 40 percent of prevailing rate determination categories have had majority union rates when unions were less than 19 percent of the construction population?

The answer, statistically, is "not very" probable. In fact, it is all but impossible to contrive a distribution that will achieve this result. In 1995 there were about 5,135,000 construction workers, according to the Bureau of Labor Statistics (BLS). If we assume that all determinations covered the same number of individuals, and that the 40 percent (of determinations) the DOL acknowledges to be at the union rate were all selected because a scant majority (51 percent) were union, then 1,047,540 union workers would have been needed to gain majorities in the 40 percent of determinations (at the union rate). But only 963,000 were represented by unions that year, which is not enough. This estimate assumes that every union member worked at the union rate. Furthermore, if any of the "safe union territory" determinations had more than 51 percent union, the shortfall would be even greater.

Supporters of the DOL have suggested that because residential construction is known to be overwhelmingly nonunion, makes up a large proportion of the industry, and yet is only one-quarter of the wage determinations, there are enough union rates to form the necessary majorities in other determinations. This is statistically possible in some cases, but barely so. Residential construction makes up between one-third and two-fifths of all construction work.10 If this segment is only 5 percent union, then at the higher number (two-fifths), an equal distribution of union rates in the rest of the construction industry (three-fifths) can produce the necessary majorities by a small amount, but at the lower number (one-third), it cannot (if non-residential construction is two-thirds of the industry).*

There are other factors that reveal greater shortfalls. For example, those already working on public works jobs are supposed to be excluded from new surveys. Because public works jobs comprise about 20 percent of total construction (all done under federal prevailing rates), excluding such workers would eliminate 1,027,000 workers, of whom 410,800 (40 percent) would be union workers. This would leave a balance of 4,108,000 construction workers, 552,200 of them at union rate. Under these assumptions, there must be 838,000 union workers to form a bare majority in 40 percent of the determinations--285,200 more than existed. We would obtain similar disparities by taking into consideration that 80 percent or more of union work occurs in urban areas, which comprise fewer than 20 percent of the counties.

Although it is possible to conceive of situations in which unions with less than 19 percent of the population could have over 50 percent representation in 40 percent of determinations, this would depend on union relative strength being greatest in the smallest trades and in the most remote geographic areas--both of which are contrary to experience. Thus, whether union membership is evenly or randomly distributed throughout the industry, the likelihood of 40 percent of survey rates being union is so remote as to be nearly impossible. The likelihood of an artfully arranged distribution achieving the same result is not much better. From this we must conclude that something is wrong. Either those interested in overstating union presence in surveys are lying to the government, or the survey process followed by the government is skewed in favor of the union rate, or both. The first is properly called real fraud; the second, structural fraud.

Real Fraud v. Structural Fraud

Fraud is defined in Webster’s dictionary as "deception deliberately practiced in order to secure unfair or unlawful gain; trickery." It affects prevailing rate determinations not only by making union rates appear much more prevalent than they are, but also by giving the wage-setting process a veneer of sophistication and accuracy that obscures its true weaknesses. Before illustrating with examples, it is worth noting that the DOL, to some extent, is being defrauded by those who submit tainted wage rate information (e.g., Oklahoma). Nevertheless, DOL seems unconcerned about, even hostile to, the notion that it might be the victim rather than the perpetrator of the fraud. John Fraser, a Deputy Administrator of DOL, emphasized that the Oklahoma "allegations of fraud appear to be ‘isolated’ and do not appear to be ‘part of a larger problem.’"11 Also, Assistant Secretary Bernard Anderson played it down by asking, rhetorically: "If fraud was a major problem, why is it that there has been no suggestion of fraud any place other than Oklahoma City?"12

Without dwelling further on the merits of that question, I shall leave further discussion of overt fraud and misrepresentation to others, and turn to examples of structural fraud, and how the process of prevailing rate determination contributes to a pattern of deception.

Size Of The Rate-Setting Problem

The prevailing rate determination process presents an imposing problem. There are about 3,000 counties in the United States, each of which should probably have a wage determination survey every year for each of four different types of construction—that’s 12,000 determinations per year. Every determination comprises 15 to 100 job categories (sometimes more, such as in Alaska where the determination lists 125 basic rates, plus up to 5 fringes each, covering about 550 separately identified construction job titles), each of which need a statistically adequate number of survey rates drawn from private construction performed within a recent time period. In essence, a full survey process would require contacting tens of thousands of firms each year, gathering 10–20 million wage rate details, each of which would have to be checked, validated and processed.

Despite this challenge, the DOL’s Wage and Hour Division, whose most important function is establishing wage rates, spends only 10 percent of its $100 million budget for surveys and rate determinations. Yet it spends approximately 75 percent for enforcement activities. As a result of the size of the task and the limited funding devoted to it, the DOL is unable to make surveys as frequently as required. The number of full surveys conducted each year is estimated to be no more than 100 to 150, meaning each county can expect a survey once every 20 or 30 years for any type of construction.* In 1995, the year of the inspector general’s audit, the DOL completed a mere 70 survey determinations (about half the usual number) because its survey resources were tied up in the careful resurveying necessary to replace the tainted determinations in Oklahoma.*

The DOL also devotes little attention to ensuring that the surveys it now performs are comprehensive. It uses a commercial service, The Dodge Reports, to identify contractors and subcontractors who did work in the county during the previous year. The DOL sends them copies of forms asking for wages and fringes by trade classification for peak periods. Although Davis-Bacon applies to all construction jobs over $2,000, and is supposed to disregard rates from previous Davis-Bacon jobs, the Dodge Reports are limited to larger jobs, usually over $250,000, and do not differentiate private from public works.* Although the DOL contacts subcontractors identified by respondents, it also accepts data from other sources, such as unions and trade associations. However, because response is not mandatory, firms which have no interest in government jobs tend not to participate. Also, the DOL usually doesn’t do cross-tabulations of individuals, so the same wage rates from the same individuals might be reported by a contractor, a trade association, and a union, and thus be counted three times. This is significant because the DOL considers three responses sufficient to set a rate for a particular trade.

Patterns Of Questionable Process

Details of the whole survey and rate-setting process are complex, but even a limited examination reveals patterns of inattentive or misleading activities that result in unjust determinations. Some of these patterns are well known, but excused as traditional. Other patterns, which may be inadvertent, have surfaced more recently as administrators try to keep up with changing market realities. The patterns are too numerous to catalog, and even close students of prevailing rates are not familiar with them all. A few patterns that seem to have the greatest or most perverse effect are described below.

1. Exact wages and phantom ratesIt is well known that Davis-Bacon relies on exact wage amounts to establish wage determination rates. Since only unions have collective bargaining agreements applicable to all journeymen in a given craft and locality, they are the only ones likely to have any significant number of individuals paid the same rate to the penny. Thus use of exact rates in surveys creates an obvious tilt towards union rates.

This pattern persists even though an increasing number of union (collectively bargained) rates are no longer the same to the penny, and may vary by a few dollars. Consider the case of California carpenters. Carpenters covered by the same local contract in the same counties in California may be paid at more than 12 different basic hourly rates (from $16.75 to $52.86 per hour) depending on their job title and the specific type of carpentry work they do. The different job titles include: carpenter, cabinet installer, floor worker, shingler, pile driverman, heavy framer, dock carpenter, bridge carpenter, saw filer, table power saw operator, pneumatic nailer or power stapler, roof loader of shingles, and stand-by diver--all titles for which separate rates are issued in the state determination. The DOL would classify all of these as "carpenter," since they are all members of carpenters’ unions. But how their wage rate variation would be handled is unknown. That level of classification detail on wage surveys in not available to the public.

This creates a problem in prevailing rate administration that is not well known. Davis-Bacon rate surveys are supposed to uncover existing rate-paying practices, from which an administrator is to select the prevailing rate by applying a decision rule, and then require that rate to be paid on future work as listed in the determination. Actually, the rate that shows up in the determination may not have been reported at all in the survey.

A common example of how this works is provided by the Davis-Bacon determination of wage rates for Montgomery County, Maryland, issued November 15, 1995. This determination was based on a survey, conducted in October 1994, of work performed in the county between July 1993 and August 1994. Exhibit 1 compiles the survey results found for piledrivermen. (Additional information on other work performed in the county was also accepted, which explains why the dates on projects in Exhibit 1 were from outside this time range.) Notice that there is little room for confusion about wage rates. The basic rate of all 10 piledrivermen was identical, and the fringe amount was only minutely different (perhaps the result of a transcription error). The question is: Based on this survey, what rate appeared on the wage determination?

These results, though surprising, are common. Whenever union rates are found to be prevailing in a survey, but a current union contract has different (usually higher) rates, then the actual prevailing rates (as determined by the survey) are discarded in favor of the phantom amounts listed in the union contract in effect when the determination is issued. The Montgomery County survey found rates for a net of 33 crafts, setting 15 of them (some questionably) at the union rate, 17 at an average rate or at a nonunion majority rate, and 1 in an indeterminate way (apparently union, but with 0 fringes). But when the determination based on this survey was issued a few months later, only the 17 average rates were presented as calculated. All 15 of the union rates were substantially increased (by up to 16.7%) because of phantom rates.

Although the survey data show that only two of the union wage rates changed during the 14-month survey period, every union rate in the determination is said to have increased in the three months between the time the survey was compiled and the determination was issued. Furthermore, until the next full survey in Montgomery County is performed (in perhaps eight or ten years), updated determinations will be issued with additional increases in the union rates to reflect current contracts.

A further complication occurred in the survey returns for heat and frost insulation workers. The DOL went so far as to adjust the rates reported by as much as necessary so that the "union rate" could be said to prevail—even though no more than 30 percent of survey participants received the same union rate, and 5 different union rates were reported. The results are complied in Exhibit 2.

2. Wages determined for every (union) trade, but not for (nonunion) helpersWhen the Davis-Bacon Act was passed by Congress in 1931, construction workers were either laborers or mechanics in one of about a dozen trades. Laborers were workers who were not allowed to use the (journeyman) tools of a trade, so a person would not typically start out as a laborer and then advance to being a mechanic (or journeyman). If he wanted to be a mechanic, he would enter the apprenticeship program for his chosen trade, and may eventually achieve journeyman status. Unions, which dominated the industry, controlled entry into the apprenticeship programs, and thus the flow of new qualified journeymen. Semi-skilled categories were rare then, but as technology changed, the need for additional levels of skill between beginner and journeyman increased. Thus, union bricklayers added their tenders, electricians their groundsmen, plumbers their pipetradesmen, pipefitters their utility assistants, and tile setters their finishers. Some, like elevator constructors, even called their helpers, helpers. Although these semi-skilled categories are proliferating, they do not all exist in every trade and jurisdiction, though some show up in most prevailing rate determinations.

As the nonunion segment of the industry grew, it was hampered by lack of access to apprenticeship programs and consequently to a flow of new, qualified journeymen. Thus nonunion contractors turned to using on-the-job training and the semi-skilled "helper" categories as stepping stones to journeyman status; these have become standard in nonunion construction. Helpers are now among the most populous labor categories. A report prepared by the Delaware Department of Labor in 1987 found that 14 percent of all nonsupervisory construction workers in the state were classified as helpers--more than any other trade except carpenters, electricians and painters.13

Nevertheless, nonunion helpers have had great difficulty in gaining recognition by prevailing wage laws. In Delaware, for example, despite the numbers, no wage rate determinations were issued for helpers at the time the report was prepared (or since). Nor have helper rates been issued elsewhere (except briefly by the federal government in a few surveys in 1992). Because of the lack of recognition, nonunion contractors working on prevailing rate jobs must choose either not to use helpers or to pay them journeymen’s rates.

The DOL has been under a legislative requirement to supply rates for helpers for half a generation, since 1982, but has found a succession of excuses for failing to do so. The most recent, voiced by Assistant Secretary Anderson, is patently absurd:

We learned that in the great majority of cases . . . no separate and distinct occupation defined as ‘helpers’ were found to be prevailing in the local labor markets.14

That this is a lie is evident by the Montgomery County survey and determination for sprinkler fitter helpers, whose job duties are easily defined and as well circumscribed as any others in the construction industry. Survey rates for sprinkler fitter helpers are shown in Exhibit 3.

The DOL survey found rates for 14 sprinkler fitter helpers working 12 different jobs during the survey period, but the survey summary indicated that "insufficient data" were available to set a rate, so none was included when the determination was issued. The nonunion employers who had supplied 70 of the combined 84 rates for sprinkler fitters and sprinkler fitter helpers would have to forego using helpers or pay them nearly twice their customary average wage on prevailing rate jobs.

By contrast, consider the rates for piledrivermen, already seen in Exhibit 1. Only 10 rates from 2 jobs were found, but this was considered enough. Similarly, sheeting ironworkers (8 rates, 1 job), boilermakers (15 rates, 1 job), reinforcing ironworkers (18 rates, 1 job), drywall finishers (6 rates, 3 jobs), tile finishers (3 rates, 3 jobs), tile setters (3 rates, 3 jobs), pipelayers (4 rates, 4 jobs), screedmen (11 rates, 4 jobs), backhoe operators (8 rates, 6 jobs), Gradall operators (3 rates, 3 jobs), loader operators (8 rates, 8 jobs), roller operators (6 rates, 4 jobs), and elevator constructors (5 rates, 4 jobs) all had rates issued on the basis of less information in the survey than was available for sprinkler fitter helpers.*

In the Montgomery County determination, one can also find a rate for a category of plumbers rather charmingly defined as one that works on,

Apartment Buildings over 4 stories (except hotels), schools, colleges, and speculative office buildings, strip shopping centers, churches, water coolers, room air conditioning units, appliances, packaged ice machines, and light commercial refrigeration and/or air conditioning systems serving a single business in a single story building and not to exceed 5 h.p. or tons, self-contained package unit up to and including 5 h.p. or tons.

Such plumbers are to receive $14.52 per hour, whereas plumbers doing all other plumbing work are to get $21.63. Since the survey did not uncover any workers (zero) who fit the above definition, this phantom category must have been lifted from a plumber union’s collective bargaining contract and added to the determination by a gracious DOL, despite the job title’s rather startling lack of prevailing status in the local job market. It’s one of a burgeoning number of union semi-skilled job categories popping up in determinations around the country. In Montgomery County, similar categories were included for lower level steamfitters, and for a subset of boilermakers called "small boiler repair mechanic."

Finally, there is the matter of (union) elevator constructor helpers. The Montgomery County survey did suggest a prevailing rate for this union semi-skilled category despite few survey returns (5 rates from 4 jobs). Yet when the determination was issued, the elevator constructor helper category was not listed. Nevertheless, a Maryland state prevailing wage specialist suggested that elevator constructor helpers could undoubtedly continue to be paid their "customary" helper rates, even on prevailing rate jobs, since "elevator constructors always use helpers." The same specialist seemed puzzled that nonunion contractors, who are "always using" carpenters’ helpers, might also want to pay them customary rates.

3. Miscalculations or deliberate misinterpretationsOne should never ascribe to malice what can adequately be explained by simple human error or stupidity. Nevertheless, and with due respect to the DOL inspector general’s views to the contrary, some mistakes appear too deliberate to be excused. Consider, for example, the calculation of fringe benefits for average-rate portions of the Montgomery County determination. As illustrated by Exhibit 4, the fringe benefit amounts required to be paid (for three different job categories) seem to bear no resemblance to survey results.

If the fringe benefit amounts found in Montgomery County resulted from arithmetical error, then the DOL has major obstacles to overcome in properly training its staff to prepare accurate wage determinations. But if the phantom amounts resulted from deliberate, arbitrary change, it is difficult to ascribe a motive for it other than mischief.

Inexplicable sloppiness (or arbitrariness) in the determination process can produce results that are either too high or two low, and examples of both are found in the Montgomery County survey. With respect to elevator constructors, special holiday and vacation provisions in the union contract were added to the determination, even though there was no evidence that they were present in the survey or referred to by respondents. For electricians, the survey fringe benefit amount was changed to an amount plus a percentage which totaled the same. (Perhaps the percentage is meant to apply to overtime as well as to base wage, but this is not specified. No explanation is given for the change.) In two cases (structural and ornamental iron workers, and laborers), fringe benefit amounts seemed to be decreased from what the survey indicated. There is one rate (for glaziers) that has no apparent reference or justification at all. Without access to the union contracts, we could not check the rates for the 15 union categories whose wages and fringe benefits were increased; but, as mentioned earlier, all 15 were raised to phantom amounts—perhaps as found in a union contract current at the time the determination was issued.

4. Use all available information, even if suspect. The final matter to be considered in this series is the process of collecting wage rate data for determination surveys, and specifically, why the union rate has a much better chance of being accepted, regardless of the actual state of the local labor market. In surveys, Davis-Bacon administrators will take statements showing wage rates paid from any interested source, so long as they include various bits of project information. The administrators are not required to certify the validity of this information, and the information does not have to be from someone who actually paid or received the rate. Therefore business agents (whose job it is to do this sort of thing) can submit wage rate data for many employee–job combinations served by the union hiring hall without much difficulty, even though the inspector general’s report singled out third-party data providers as being especially error prone.15 On the other hand, nonunion employers generally have access to fewer such combinations, have little individual stake in the outcome (especially if they do no Davis-Bacon work), have little financial incentive, and assume some risk to submit rates at all. Thus the whole rate-gathering process is an example of structural fraud: if it is easier for union rates to be submitted, it also becomes easier for them to be accepted as prevailing.

Somewhat less well known is the degree to which prevailing rate specialists are gullible, accepting bizarre rate submissions without any proof. Here are some samples from the Montgomery County survey, not all of which may be improper, but all of which should cause suspicion of the adequacy of the rate setting and review process:

• Project #294, said to be of $30,000 value, showed 4 carpenters, 1 sheet metal worker, and 50 electricians working in its peak week—a most unusual combination.

• Project #197 reported employing simultaneously 2 union glaziers at each of the following hourly rates: $13.50, $13.75, and $14.00, all plus $1.61 in fringes. Another project, #80, reported simultaneously employing 1 union glazier at $13.00, 1 at $13.75, and 2 each at $14.00, $14.75, and $15.00, all plus fringes of $1.16 (not $1.61). These are unusual variations to be found on single jobs at union rates.

• Project #275 separately identified 68 structural ironworkers and 68 ornamental ironworkers, but both groups had the same rates of pay and fringes. These were probably the same individuals, since structural and ornamental ironworkers are commonly joined.

• Project #240 had 16 roofers paid at 13 different rates ranging from $8.00 to $16.50. Although nonunion, it is unusual to have this much wage variation and this many roofers on a single job.

• For three Sears store renovations, done successively by what appears to have been the same crew going from one job to another, there were about 20 carpenters, 2 electricians, 3 carpet layers, and 4 resilient floor layers. All were paid at consistent union rates, all likely worked for the same general contractor, and all seemed to have had their wage rates tallied successively for each assignment. Realistically, such persons were not participating in the labor market for each job and should not have been counted repetitively. (At least two rate calculations might have changed from majority to average if apparent duplication had been eliminated.)

• Project #42, said to be of $900,000 value, employed a single (one), nonunion laborer in its peak week.

• Nine jobs showed total employment of 2 to 5 sheet metal workers, and 10 jobs showed total employment limited to 1 to 6 sprinkler fitters and helpers. This probably demonstrates more about which trades participate actively in surveys than it does about wage rates paid construction workers in the county.

• Project #275 was so large ($275 million) that it dominated the survey, providing 21 percent of the total number of survey wage rates and having a controlling majority in 7 job categories--3 of them exclusively. Such a project is fundamentally different from a $200,000 school repair job or the typical building project. Davis-Bacon administration calls for different rates for different types of construction; but this job, a "resource recovery facility," was not differentiated from schools and office buildings, whose wage requirements will nevertheless be influenced by it for years.

Conclusions and Recommendations

There can be little question but that wage determinations as now performed by DOL are shot through with fraud, at least with structural fraud. They produce a proportion of union-level prevailing rates that is clearly impossible to arrive at by honest means. (Even if the DOL blames this outcome on nonunion firms’ unresponsiveness to surveys, it must still reconcile the outcome to its own mission—which is to fairly reflect local prevailing wage rates in its determinations.) Nor can there be any question that the error rate in survey determinations (as partially illustrated here and discussed in the inspector general’s report) would be unacceptable if provided to a government agency rather than by one. So long as the DOL can grade its own exam papers and "solve" its extensive problems by "trying to do better," these errors will probably remain—and probably remain hidden. Clear documentation of deliberate fraud as brought to DOL’s attention by Commissioner Reneau of Oklahoma was insufficient to motivate DOL to take its problems seriously. Thus it is unlikely that this analysis of structural fraud will elicit a change in attitude or application from the DOL—even if it were repeated a dozen or a hundred times with similar results. After all, the facts of the helper controversy have been known for decades, and the DOL has been under a legislative mandate to determine rates for helpers for about 15 years, but continues to refuse to do so.16

My principal purpose has been to expose and draw attention to the problems discussed herein, many of which are buried too deeply in arcane prevailing rate administration details to have received much notice. I hope I’ve sparked further evaluations with a view towards uncovering and correcting fraudulent practices, both overt and structural. As for solutions, the nonunion sector has traditionally sought to repeal prevailing wage laws and has had measurable success at the state level during the past dozen years (and is to be commended), but if Davis-Bacon is retained, then other recommendations that could improve the accuracy of the wage setting process are in order.

One new approach might be formulated by combining the appeals process noted in the General Accounting Office report ("Process Changes Could Raise Confidence That Wage Rates Are Based on Accurate Data") with the error rates reported by the DOL inspector general (in "Inaccurate Data Were Frequently Used in Wage Determinations Made Under the Davis-Bacon Act"). The inspector general found an overall error rate of 65 percent of the survey forms it reviewed, and five of seven determinations inaccurate enough to require replacement. In short, it found prima-facia evidence of wide-spread error (without even considering most of the things we have been discussing in this paper).

The GAO report suggests that " . . . Labor’s appeals process can serve as an additional internal control to guard against the use of fraudulent or inaccurate data in the wage determination process . . . (p. 16)." It notes that any interested party can launch an appeal and submit a formal request for reconsideration to DOL. Even so, it has proven difficult in the past to appeal rate determinations beyond internal DOL review, and even internally, interested parties could contest a wage determination successfully only by presenting "evidence demonstrating that the survey wage rates do not reflect the pattern of wages paid in a particular area" [GAO, p. 11]. Thus, previous challengers typically had to conduct and verify their own surveys. Since the inspector general’s report shows such a propensity for error in the existing DOL wage setting process, I wonder if an unbiased judge might not put the shoe on the other foot; that is, by requiring the DOL to demonstrate the validity of any new wage rates that it publishes, requires and enforces, rather than forcing challengers to prove the rates are invalid.

As they operate now, Davis-Bacon and other prevailing wage laws perpetuate fraud by government on government (and taxpayers). This adds needless billions a year to the cost of public works--according to one estimate, it is equivalent to a handout of $5,000 per year to every individual union member in public works construction. The country gets very little for this investment, and very little of it trickles down to benefit workers who might need the protection that public works projects are designed in part to provide. Rather, billions go to support a labor elite, the highest-paid workers in the construction field, whether they are working on government contracts or not. The wage rates that Davis-Bacon type determinations specify are a sham, and the government appears incapable of equitably administering them in their current form.

Exhibit 1

Survey Compilation for Piledrivermen

Montgomery County, Maryland

Project Date # Rate Fringes
207 Oct. 95 4 17.71 3.38
290 July 95 6 17.71 3.36
Totals & Averages   10 17.71 3.37
Majority rate, per survey     17.71 3.36
Rates set by determination     ? ?

Source: DOL Survey 94–MD–022

 

Exhibit 2

Survey Compilation

for Heat and Frost Insulation Workers

Project Date # Rate Fringes
80 Sept. 95 1 18.68 5.43
81 Dec. 94 5 20.68 5.43
83 Nov. 94 2 18.68 5.43
86 July 95 1 14.00 0.42
    1 17.25 0.42
113 Dec.94 1 18.68 5.43
184 June 94 1 18.68 5.43
    1 20.18 5.43
262 June 94 3 19.18 5.43
275 May 95 1 19.68 5.43
    2 20.47 5.43
280 Dec. 94 3 19.18 5.43
    1 20.18 5.43
285 April 94 2 18.68 5.43
286 Nov. 94 2 18.68 5.43
287 July 94 1 19.68 5.43
288 May 94 1 18.68 5.43
310 July 94 1 19.68 5.43
327 Jan. 95 1 18.68 5.43
Totals & Averages   33 19.24 5.13
Majority Rate, per survey     n/a 5.43
Average Rate, per survey     19.24 n/a
Rates set by determination     19.58 5.68

Source: DOL Survey 94–MD–022

Exhibit 3

Survey Compilation for Sprinkler Fitter Helpers

Project Date # Rate Fringes
73 Sept. 94 1 10.00 2.10
80 Sept. 95 1 9.50 0.00
123 Oct. 94 1 8.50 1.04
135   1 7.50 0.49
166 June 94 1 7.50 0.49
195 Aug. 95 1 10.00 1.11
    1 8.00 0.18
    1 11.00 1.75
212 Nov. 94 1 8.00 0.00
271 June 95 1 10.00 1.11
285 April 94 1 6.76 0.18
314 Aug. 94 1 10.00 1.75
330 Sept. 94 1 7.50 0.00
336 Nov. 94 1 8.50 1.14
Totals & Averages   14 8.77 0.79
Average rate, per survey     8.77 0.92
Rates set by determination     none none
Nonunion contrator would pay:     15.94 2.75

Source: DOL Survey 94–MD–022

Exhibit 4

Survey Compilation for Fringe Benefits for

Pipelayers, Backhoe Operators and Loader Operators

Pipelayer Backhoe Operators Loader Operators
Project # Fringes
31 1 0.00
86 1 0.00
196 1 2.40
196 1 4.16
Project # Fringes
31 1 0.00
86 1 1.24
86 1 0.00
115 1 1.64
196 2 3.68
221 1 0.00
285 1 1.24
Project # Fringes
31 1 0.00
31 1 1.24
77 1 0.00
86 1 0.00
196 1 0.00
196 1 2.51
221 1 0.00
273 1 0.00
Average (majority): 164 1.44 (0.00)
Per determination: 2.36 2.17 2.17

Source: DOL Survey 94-MD-022

FOOTNOTES

{A} In the case of Davis-Bacon, the new minimum rates are the weighted average of all rates found by survey (a middle rate) unless a majority are paid the same rate to the penny, which would typically be the case only for union rates. That’s how the union rate, which is usually the maximum, can become the new minimum rate. Even more surprisingly, as will be explained herein, it is not uncommon for minimum rates set by Davis-Bacon surveys to be higher than the highest actually paid anyone covered by the survey.

{B} In Oklahoma at that time, state law required that prevailing rates for state work be adopted without adjustment from the federal Davis-Bacon rates. This requirement was tested in court shortly after the investigation began, and resulted in the Oklahoma statute being declared unconstitutional.

{C} Indicative of the lack of comprehension exhibited by this report is the breathless statement (accusation?) found on its page 12: "The use of inaccurate data could also lead to lower wages for construction workers on federal projects than would otherwise be prevailing. Industry association members and officials told us [GAO] that in several parts of the country, employers, especially nonunion contractors, paid wages on their private projects below the prevailing wage levels specified by the Davis-Bacon Act in their areas[!]" [Emphasis added.] It is small wonder that the rest of its analysis is worthless and most of its recommendations vacuous. The report does contain (in its second appendix on page 39) a fascinating example of wage compilation from a 1994 survey (94-SD-200). This wage compilation shows that the DOL apparently felt it had sufficient data to establish a prevailing rate for scraper operators based on 3 wage reports in the survey and for electricians based on 4. However, it also shows that the DOL felt it had insufficient data to establish a prevailing rate for carpenter helpers (27 in the survey, the third largest group), carpenter laborers (25 in the survey), cleanup laborers (9 in the survey), drywall tapers or drywall finishers (7 each in the survey) or roofers, insulators, or applicators (4 each in the survey). All of these survey rates were simply disregarded. This was also characteristic of the 1995 Montgomery County, Maryland, determination discussed later in the text. It is interesting to note that although nonunion helper categories are always discarded by DOL for "insufficient data," DOL’s survey form, WD-10, invites respondents to use carpenter’s helpers as a likely employee description.

{D} The Davis-Bacon law, passed in 1931, required prevailing rates but did not suggest how they might be estimated, acquired, or determined. The DOL established an administrative definition four years later, followed by procedural instructions (e.g., survey of rates to the penny, rates established by county separately for each class of worker in four classes of work) that remain in effect, largely unchanged. The only fundamental changes came in 1962, when fringe benefits were added, and in 1984, when the 30-percent plurality rule for rate selection became a 50-percent plurality rule. The details of the survey process are all arbitrary, as is the rate selection method, because "prevailing" has no statistical basis or objective meaning.

{E} There has been no substantive effort by DOL to conduct surveys to verify the "safe union territory" areas since the Davis-Bacon Act was amended in the 1980s—changing the 30-percent rule to a 50-percent rule. Not only did this rule change make it less likely that the union rate would be specified, but the amount of unionization in the workforce also declined dramatically. In the decades before the change, unionization rates exceeded 60 percent in all construction fields except home building. Since then, however, the rate of unionization in construction has fallen to below 20 percent. Yet, the DOL continues to assume that many, if not most, of the areas previously established as "safe union territory" continue as such.

{G} For those interested, the numbers look like this: Assume a construction industry composed of 5,135,000 persons, of whom 963,000 are union members. If 33 percent of the industry is residential work (as opposed to building, highway, or heavy work), and residential construction is 5 percent union, then residential work uses 1,694,550 persons, 84,727 of them union, leaving 3,440,450 persons for nonresidential work, 878,273 union. Assuming that 25 percent of all wage determinations for residential construction are purely nonunion, then 53 percent (.4/.75) of the remaining determinations would need union-rate majorities so that 40 percent of all determinations would be at union rate. If workers were equally divided among all remaining job categories, then 929,954 union workers would be needed to form a majority (51 percent) among 53 percent of 3,440,450 workers. But there are only 878,273 union workers available, so the 40 percent union-rate outcome would be statistically impossible. The corresponding numbers at 40 percent residential are 832,794 needed and 860,300 available, so the outcome is statistically possible at this level, but not by much.

{H} The Montgomery County, Maryland, survey used here replaced a previous survey that was 9 years old. Although I have not been able to verify this, I was told that some parts of the country have not had an actual survey performed since 1935.

{I} On this basis, with existing resources, it appears DOL could accomplish about 10 careful surveys a year, leaving them about 11,990 short of par.

{J} Oddly, current DOL survey forms specifically ask for wages paid on both private and prevailing rate jobs, although it is under legislative constraint to not consider those paid under Davis-Bacon.

{K} See the third footnote early in the text.

Riders and Taxpayers Held Hostage: Boston and Beyond By: Wendell Cox

In Missing the Bus, Robert M. Melia provides a comprehensive description of how the Massachusetts “Pacheco” law requires the Boston public transit system to spend more than necessary to provide its services.  The Pacheco law establishes a wage and benefit “floor” for employees of private contractors who would produce competitively contracted1 bus service for the Massachusetts Bay Transportation Authority (MBTA).  This wage floor is mandated despite the fact that such workers would be covered by minimum wage laws.2Further, the Pacheco law establishes evaluation procedures that prejudice public service provisions against the use of private contractors, despite their lower costs.  As a result, MBTA has been restricted in its ability to improve its cost effectiveness.  The Pacheco law violates the public interest:  riders pay more for less service; taxpayers are shortchanged by the production of less service than their funding should produce; and the community suffers from greater traffic congestion and air pollution than would occur if transit subsidies and fares were used to produce a concomitant amount of service.  

The policy absurdity established by the Pacheco law is not unique.  In most U.S. metropolitan areas, the interests of transit employees and unions is served before the interests of riders, the community and taxpayers. 
 

THE PUBLIC PURPOSE OF PUBLIC TRANSIT

Public transit is subsidized throughout the United States and the developed western world for two primary public policy purposes: (1) to provide mobility to those who have no access to automobiles; and (2) to provide an alternative to travel by automobile, thereby reducing traffic congestion and air pollution.  The direct beneficiaries of public transit subsidies should thus be the riders, for whom mobility should be provided; the community, which should experience reduced traffic congestion and air pollution; and the taxpayers, whose tax funds should purchase as much service as possible within the constraints of the tax resources provided.  Moreover, because it takes people to provide public transit service, transit employees should also be incidental beneficiaries of public transit subsidies.  Transit policy should not primarily serve transit employees, but should benefit them in the process of serving the riders, community and taxpayers.   
 

THE PUBLIC PURPOSE FAILURE OF TRANSIT

Reality falls far short of theory in the United States.  More than $340 billion (in 1997 dollars) has been provided to transit agencies in federal, state and local subsidies over the last 35 years—more than the cost of the 40,000 mile interstate highway system (which carries 25 times as many passenger miles annually).3Yet public transit’s market share has dropped significantly.  Annual ridership per capita is down more than 40 percent, and the decline has accelerated since 1980.4The significance of the role of public transit in providing transportation to work has fallen even faster—a 60 percent market share decline since 1960.5Two primary factors are responsible for transit’s decline:

?  Suburbanization of jobs and residences has created an urban environment that cannot be effectively served by mass transit.  Public transit is simply not a viable option for most trips within the modern urban area.6  

?  Transit unit costs (costs per hour or mile) have doubled relative to costs in the market.  As a result, transit agencies are charging higher fares and providing less service than would have been possible if costs rose within market rates.  Higher fares and lower service levels mean fewer passengers.  Transit might have retained its market share if the expanding subsidy revenues had been used to produce more service at lower fares.7The escalating cost of transit is directly traceable to its monopoly over the provision of services.  Without competition, which gives strong incentives to control costs, compensation of transit labor and management has risen to well above market levels, and staff sizes have burgeoned.

As a result, the transit employees who were to have been incidental beneficiaries of transit policy have instead emerged as the primary beneficiaries.  Meanwhile, the intended beneficiaries—the riders, community and taxpayers—lost by receiving fewer benefits than they ought to have received.  Moreover, virtually thousands of potential employees were not hired because less transit service was produced; they have been incidental losers as a result of transit policy. 
 

BOSTON

Boston has experienced the same dynamics.  Costs escalated while ridership per capita, and transit share of the work trip market, declined.  But, as Melia notes, Boston faced a serious financial crisis in the early 1980s and spent much of the next decade improving its cost performance.  In response, ridership began to rise, though market share losses continued, because automobile use was rising at a considerably greater rate.  Yet Boston’s 1980s progress, largely under the leadership of Governor Michael Dukakis and Transportation Secretary Fred Salvucci was notable.  For example, while MBTA was reversing its ridership decline, most of the largest transit agencies in the nation were experiencing ridership losses.

In the early 1990s, under the leadership of Governor William Weld and Transportation Secretary James Keaisiotes, MBTA became the first and only U.S. transit agency to recognize that, to achieve its public policy potential, a radically different approach was needed.8MBTA undertook to become a facilitator of transportation, which would competitively contract for all of its services, rather than provide them directly.  The result would be that costs would decline to market rates—at least 20 percent below MBTA rates.  This would allow MBTA to maintain and expand service, while keeping fares affordable.  MBTA adopted what has become the emerging model for delivery of public transit service in Europe, Australia and New Zealand—separation of policy from operations.  The role of the transit agency would become that of designer and purchaser of service, while all operations would be provided by companies selected through periodic competitive procurements.

The MBTA’s plans to better serve the people of the Boston area were, however, frustrated.  The principal beneficiaries of transit public policy—the transit unions—used their considerable political influence to obtain enactment of the Pacheco law, over the veto of Governor Weld.  Now Boston, which alone among the nation’s transit agencies had embarked upon a program to quickly restore public transit to its public policy purposes, had again experienced a public policy hijacking by the special interests that have largely precluded transit from achieving its potential around the nation. 
 

POLITICAL DYNAMICS 

Some of the strongest political support for transit funding is to be found among people concerned about the effects of the automobile on the environment and the dense central cities.  Some of these interests exhibit an anti-automobile sentiment that is the virtual equivalent of religious zealotry.  For these, it is important to discourage automobile use and encourage higher densities in employment and population.  Transit is a crucial element to their vision of the city restored.  

There is much restoring to do.  Virtually all U.S. central cities that have not annexed additional land area have lower populations than in 1950.  In a number of cases, population has dropped by more than 40 percent.  The city Boston has fared a bit better, with a loss of more than 25 percent.  From 1950 to 1990, the Boston urbanized land area (developed area, including the city and suburbs) has expanded by 150 percent, while the population has increased only 25 percent, as people and businesses moved from the city to the suburbs.  At regular intervals over the past half-century there have been initiatives to restore central cities.  But aside from their growing roles as regional entertainment centers (often publicly financed), the central cities have not been restored and their downtown areas are more often than not surrounded by square miles of decay and vacancy.  

The pro-city interests have been strongly in favor of additional transit subsidies, but have been virtually absent with respect to demanding financial accountability.  More often than not, central city proponents see transit subsidies as something of which there is too little, especially as regards contributions from suburban jurisdictions, state governments and the federal government.  But more subsidies are not the answer.  Additional subsidies are almost invariably consumed by higher unit costs, leaving little for lower fares and service expansion.  Since 1970, less than $0.20 of each new $1.00 in funding (inflation adjusted) has been used to expand service or reduce fares.9

So long as city proponents fail to address financial accountability, their theories about transit’s potential to assist in urban revitalization will remain unproven.  The additional funding will not be approved and the required expansion of transit service will not be produced.

The problem goes beyond transit.  In most U.S. central cities, policy is driven by the interests of public employee unions and bureaucracies.  The result is higher taxes and often poorer quality services.  In the long run those who favor cities must determine whether their cities are to primarily serve a privileged class of public employees or the public.  They can’t do both.  Up to this point, in transit and in other public services, the pro-city lobby has been either unwilling or unable to face this issue.  In the vacuum, public employee unions and bureaucracies have supplanted the former political machines.  It has been estimated that average city employee compensation is at least 30 percent higher than market.10

Consequently, the public may be worse off.  In 1904, Lincoln Steffens reported that: 

... there was a limit to the “rake-off,” and some insiders have told me that it has been laid down as a principle with the ring (city political machine) that the people should have in value ... ninety-five cents out of every dollar.  In some deals I have investigated, the “rake-off” ... was as high as twenty-five percent.11

To use Steffen’s characterization, a considerably larger “rake-off” is occurring in transit. More than 80 percent of the new transit money has served private purposes (the internal interests of transit agencies and their unions), while less than 20 percent has been used to serve the public. 
 

COMPETITIVE CONTRACTING  

The MBTA’s plan for separating policy from operations and competitively contracting service is, as noted above, the wave of the future in other developed nations. As governments in other nations observed cost escalations under the public monopoly model, they opted for a future in which cost effective, vibrant transit systems can serve, preserve and even revitalize cities.  They don’t want the systems to become instruments of neglect, as they have become in the United States.  Moreover, the trend toward competitive contracting is not limited to buses.  Subway and light rail (streetcar) systems are being competitively contracted as well.12

?  London is in the process of competitively contracting all of its bus service.  So far service levels have been expanded by 30 percent, subsidies have nearly been eliminated and ridership is up.

?  Stockholm, Melbourne, Perth, Adelaide and Helsinki are in the process of converting all of their bus and rail services to competitive contracting.

?  South Africa and New Zealand have or are in the process of converting all public transit services to competitive contracting.

?  European Union Transport Minister Neil Kinnock, the former British Labour Party leader, is encouraging conversions to competitive contracting throughout.

Competitive contracting is expanding in Europe and elsewhere for the same reason that MBTA adopted its policy:  transit costs have escalated under the public monopoly model.  If transit’s public purpose of service to riders and taxpayers is to be achieved, reform is necessary.

In the United States, progress has been slower, largely because of special labor privileges in federal transit law (Section 13-c of the Federal Transit Act), which require that laid-off employees be provided up to six years severance pay.13This provision is unheard of in Europe and Australia, despite their far more restrictive labor markets.  In this sense, federal law has an impact similar to Massachusetts law:  it places the interests of transit employees before those of riders, taxpayers and the community.

Nonetheless, there has been progress in the United States, as agencies have converted at rates that do not require transit employee layoffs.  Overall savings have averaged 30 percent.14

?  San Diego competitively contracted nearly 40 percent of its service, driving unit costs down by 30 percent over the past 20 years (while national public transit unit costs rose by more than 20 percent).

?  In Las Vegas, all public transit services are competitively contracted.  Also, it is the only transit system in the United States that is experiencing significant growth.

?  Major competitive contracting programs have been established in Los Angeles, Seattle, Houston, Dallas, Austin, Denver, San Francisco and Washington.

Laws such as the Pacheco law and Section 13-c of the Federal Transit Act, and the considerable power that transit unions have over state legislatures and local transit politics, have combined to produce a national array of public transit systems that carry fewer riders than 20 years ago, while consuming at least $15 billion more (inflation adjusted) annually in tax revenue.  Moreover, until hostage transit policy is liberated from special interests, public transit will continue to fall far short of its potential.  The Massachusetts Bay Transportation Authority decided to liberate transit from special interests, and the Pacheco law was its reward.

Despite this reversal, it is hoped that the policy directions implemented in London, Copenhagen, and Stockholm will also be implemented in Boston and other metropolitan areas around the nation.  Then, and only then, will the promises of transit be given a fair chance of fulfillment.   
 

ENDNOTES

 .  In a number of places Melia uses the term “private contracting” as synonymous with competitive contracting.  Not all private contracting is competitive.  Where contracting is not competitive, production of service by private operators is likely to be more costly, as a result of the lack of competition.  For example, the non-competitive private contractors that produce local transit service within the city of New York have cost structures well above market rates.  Efforts on the part of Mayor Guiliani to convert these services to competitive contracting have been frustrated by effective political opposition. 
2.  From an economic perspective, minimum wage laws are problematic, given their tenancy to reduce employment.  But at least such laws treat all employees the same.  An above minimum wage law for certain employee classifications, such as required by the Pacheco law, provides special privileges for some employees, at the expense of all others.  This violates the principle of equal protection under the law. 
3.  “U.S. Public Transport Subsidies from 1960,” The Urban Transport Fact Book, Internet: http://www.publicpurpose.com/ut-ussby.htm. 
4.  “US Urban Public Transport Per Capita Ridership: 1920-1995,” The Urban Transport Fact Book, Internet: http://www.publicpurpose.com/utus1920.htm
5.  “US Employment & Public Transport Work Trips: 1960-1990,” The Urban Transport Fact Book, Internet:  http://www.publicpurpose.com/ut-jtw60.htm. 
6.  The difficulty of effectively serving most of the modern US metropolitan area with transit is outlined on pages 20 to 25 of Wendell Cox, Light Rail in Milwaukee (Thiensville, WI: Wisconsin Policy Research Institute), 1998. 
7.  If transit unit costs had risen within market rates, service levels would be more than 125 percent higher than present.  It is likely that ridership would be more than 75 percent higher—with per capita annual ridership approximately 20 percent above the 1965 level (assumes +0.65 service elasticity—0.65% increase in ridership per each 1% increase in service). 
8.  San Diego has also established a deliberate policy to achieve optimal cost effectiveness, but has thus far limited its conversion by a no lay-off requirement.  Alone among US major transit agencies, Las Vegas has achieved market rate cost effectiveness by competitively contracting all of its bus service (although it converted from private monopoly rather than public monopoly).   
9.   Author’s estimate, based upon U.S. Department of Transportation and American Public Transit Association data. 
 0.  Wendell Cox, America’s Protected Class: The Excess Value of Public Employment (Washington: American Legislative Exchange Council), 1994. 
 1.  Lincoln Steffens, The Shame of the Cities (New York: Hill and Wang), 1957. 
 2.  Wendell Cox, Jean Love and Nick Newton, Competition in Public Transport: International State of the Art, paper delivered to the Fifth International Conference on Competition and Ownership in Passenger Transport (Leeds, UK), 1997, Internet: http://www.publicpurpose.com/t-5.htm. 
 3.  A similar provision applicable to Amtrak Employees was repealed in the Amtrak Reform Act of 1997. 
 4.  “US Public Transport Costs by Metropolitan Area: Competitive Tendering (Competitive Contracting) and Non-Competitive,” The Urban Transport Fact Book, Internet:  http://www.publicpurpose.com/utuscc95.htm.

Missing the Bus: The Right to Contract Privately for MBTA Bus Service By: Robert Melia

Mr. Melia works for the Pioneer Institute for Public Policy Research in Boston, Massachusetts. 

Executive Summary

Public transit agencies across the nation are struggling to control costs without reducing service. One effective strategy used by a growing number of agencies is to contract privately for bus operations. Almost without exception, these agencies report that private bus companies can deliver equal or better service at a 20 to 30 percent lower cost. 

The Massachusetts Bay Transportation Authority (MBTA) wants to use the same strategy and has accepted two bids to run 40 percent of its bus operations. The MBTA's cost analysis shows that it would save $23.1 million over five years. However, a 1993 anti-privatization law (commonly called the Pacheco Law) sets up a series of tests that an agency must pass before it can award a contract to a private company. Among the Law's more significant provisions are the following:

· Contractors must pay wages that are not lower than the lesser of these two:

(a) the minimum wage rate paid to state employees, or

(b) the average private sector wage rate for comparable positions, provided that such a rate has been established by the Executive Office for Administration and Finance;  

· The private bid must be compared not to the existing cost of providing the service but to the cost that would result if public employees were working in the most cost-effective manner possible; and

· The contracting agency must demonstrate that the quality of service likely to be provided by the private contractor will equal or exceed the quality that "could be" provided by public employees, not the existing quality of service.  

The Law gives the State Auditor the authority to decide whether these and other provisions of the Pacheco Law have been met, and to issue guidelines directing how state agencies must apply the Law. 

The Auditor rejected the MBTA's proposed contracts, claiming that they "will not result in a cost savings" and that the MBTA "does not know whether the proposed contractors can meet acceptable quality service levels." The MBTA has sued, claiming that the Auditor applied the Law in an "arbitrary and capricious" manner, and that the Law itself is unconstitutional. 

In preventing the MBTA from privately contracting for bus service, the Auditor did not develop his own comparison of the MBTA's in-house cost versus the cost of the private bids; nor did he provide any evidence that the service to be provided by the contractors is likely to be inferior to the current level of service. While the Auditor has identified several mistakes in the MBTA's cost analysis, these mistakes are relatively small and do not justify denying the contracts. Even if his objections were correct, the larger of the two contracts (which this paper analyzes in detail) would still save a minimum of $5.2 million over current costs. 

This dispute between the Auditor and the MBTA reveals several important weaknesses in the Pacheco Law. On the surface, the Law seems to call for an objective cost analysis, but in effect, the Law allows the Auditor to deny a contract based on highly subjective judgments. 

As it stands, the Pacheco Law prevents all but the most determined agency managers from even attempting to contract privately for services. (In the three years before the Law was enacted, there were 36 contracts awarded to private companies to provide a service formerly provided by state employees. Since the Law was enacted, five contracts have been awarded, only one of them significant.) Because competitive contracting usually results in a significant increase in productivity and cost savings, the public interest would best be served by amending the Pacheco Law to eliminate its most undesirable and arbitrary features. I recommend the following:

· Narrow the scope of the review to cost. It is difficult to predict quality in advance. Allowing the Auditor to speculate on the quality level of the services to be provided by the contractor is of no value to the public, especially when the Auditor lacks expertise in the service being contracted. 

· Compare the private contract proposal to existing in-house costs, not the cost that "could be" achieved if the state agency worked in the most efficient manner possible. 

· Require that the same assumptions the state uses when forecasting tax collections be used when preparing estimates of future variables such as wage increases and interest rates. This would remove the opportunity for either the Auditor or the contracting agency to determine the outcome of the review by manipulating important underlying assumptions. 

· Require agencies to publish cost allocation plans as part of their annual budget requests. For agencies desiring to contract out, this requirement would remove much of the temptation to choose a cost methodology that would "prove" that a private contract would save money. 

· Limit the Auditor's back-end review to identifying clear mistakes made by the contracting agency. The Auditor should not be allowed to raise generic doubts about an agency's accounting system or cost allocation methodology. (These issues should be worked out by the contracting agency and the Auditor before an agency solicits bids. Doing so should prevent either side from choosing a methodology simply because it would help "prove" their view of whether the contract will or will not save money.)

· Require the Auditor to come to a firm conclusion. If he finds mistakes, he must quantify them and factor them into the analysis. Then he must state what he believes is the in-house cost, and what he thinks would be the cost of the contract.  
  

Bus transportation is a vital public service. The MBTA recently announced a cost-neutral plan to maximize bus ridership: they will reduce service on certain bus routes in order to increase service on more heavily used routes. In contrast, many other transit agencies have discovered that privately contracting for bus service allows them to run more buses and still cut costs. Unfortunately, the Pacheco Law will prevent Massachusetts from testing that option.  
  

I. Introduction

Public transit ridership in Boston has increased steadily since 1975, and the transit system has been both extended and modernized. In recent years, maintaining or increasing the level of transit has become more important, both to mitigate the impact of the Central Artery construction project and to help spur the development of the South Boston waterfront. The Massachusetts Bay Transportation Authority (MBTA) has recently extended commuter rail service to the South Shore, and plans to extend service to Worcester. 

Yet there is a problem—the MBTA has long been one of the costliest transportation agencies in the nation. The Federal Transit Agency (FTA) reports it costs the MBTA $95 to run a bus for one hour. The median cost for the 25 largest U.S. transit agencies is $72 per hour, making the MBTA 32 percent more expensive than average.1

The MBTA has opted to maximize ridership by keeping fares low and extending service. At 85 cents for the subway and 60 cents for a local bus ride, the MBTA's fares are among the lowest in the nation, and are 30 percent lower (in real terms) than they were in 1965. Keeping fares low is a time-tested way to maintain ridership. 

As affluence increases, so does suburbanization and the rate of automobile ownership. One study concluded that ridership would have decreased at least 10 percent between 1970 and 1990 if MBTA had not reduced the cost of fares and improved service.2 Today, revenues cover just over one-third of the agency's annual operating costs. When capital costs are included, the fare recovery ratio sinks to just 22 percent. 

In 1965, the MBTA's first full year of operation, its deficit (the difference between revenues and the annual operating plus debt service costs) was $20.8 million. By 1991, the deficit totaled $575 million. In fiscal year 1998, the deficit will approach $675 million.3 One transit analyst estimates that the deficit will grow to $1.62 billion by the year 2010, assuming the MBTA continues to follow the same fare and service policies.4 That would require a subsidy of more than $4,500 per commuter per year.5

The deficit cannot forever grow faster than inflation (or tax revenue), and there are four basic strategies to reduce its growth rate: 

· cut service, 

· raise fares, 

· drastically reduce automobile usage, and

· cut the unit costs of running trains and buses.  
 

Cutting service is extremely difficult to do. When faced with periodic budget squeezes, MBTA management inevitably floats the idea of cutting the least-used bus routes. But it is easier to close a military base than to cut a route where the bus is always nearly empty, because each bus route has a very vocal constituency. 

Raising fares is also unlikely to help contain the deficit. The MBTA is required to conduct an environmental impact study before it can implement a fare increase, and, if the study shows that there will be a significant loss of ridership, the MBTA must abandon or reduce the fare increase.6 Because ridership decreases about 1 percent for every 4 or 5 percent increase in fares, any fare increase large enough to have substantial impact on the deficit would almost certainly trigger a significant reduction in ridership . 

Several European and Asian cities are using advanced technology (e.g., smart cards, electronic tolls) to charge drivers a premium for entering the central city during rush hour. These experiments have shown that if the marginal cost of driving during rush hour is high enough, automobile usage can drop 20 percent or more. With such policies in place, transit agencies can raise fares without fear of losing riders. However, given the public response to recent efforts to reduce or eliminate tolls on the Massachusetts Turnpike, such a policy is unlikely to be adopted in Massachusetts anytime soon. 

There is, however, some good news. Evidence suggests that controlling unit costs can help curb the deficit. If the MBTA can become more efficient, it might be able to reduce its costs without cutting service or raising fares. Over the past 15 years, a number of European and American cities have achieved significant cost savings by contracting privately for bus service. The MBTA is now attempting to do the same. In December 1996, it received bids to run about 40 percent of the bus service, and calculates that the two selected bids would save the agency about $23.1 million over the five-year term of the proposed contracts.7

Nevertheless, under Massachusetts General Laws (Chapter 7, Sections 52-55, the so-called Pacheco Law, named after its primary sponsor, Senator Marc Pacheco), the MBTA is subject to the following requirements: 

· the MBTA must determine its in-house cost of performing the bus service; 

· the MBTA may award the contracts only if a private company can provide equal service for less money, or better service for the same or less money; and

· the State Auditor must then review the MBTA's analysis and either verify that the terms of the Law have been met, or point out where the MBTA has not complied with the Law.  
  

This appears to be a fairly straightforward process. To determine the cost of providing the bus service in question, the MBTA would do the following: 

· identify all of its direct costs (e.g., wages, fringe benefits and uniforms for bus drivers and mechanics; diesel fuel; tires); 

· allocate a reasonable portion of indirect costs (e.g., management costs; support costs such as payroll and human resources); and then

· compare this total to the outside bids.  
  

The process became ensnared during the first year after the bids were received when the following events occurred: the Auditor accused the MBTA of deliberately withholding and distorting information, thereby making it impossible for the Auditor to conduct a comprehensive and accurate review; and the MBTA General Manager accused the Auditor of willfully ignoring his explanations. The Auditor and the MBTA have disagreed over virtually every aspect of the cost analysis. The MBTA claims the two contracts8 would save at least $16 million, even if every one of the Auditor's criticisms were correct. The Auditor determined that "contracting out this service will not result in a cost savings."9

Furthermore, the Auditor has ruled that the proposed contracts are not in the public interest, and has prevented the MBTA from awarding the contracts. In response, the MBTA sued, claiming the Auditor's review was "arbitrary and capricious."10

This dispute is significant not only because millions of taxpayer dollars and hundreds of union jobs are at stake, but because it is seen as a test case. If the court upholds the Auditor's decision, new competitive contracting by state government is essentially dead in Massachusetts. If the court overturns the Auditor's decision—especially if the court finds the Law to be unconstitutional—then competitive contracting may expand rapidly, likely becoming central in MBTA's efforts to maximize ridership without imposing an intolerable deficit on the taxpayers. 

The purpose of this paper is to determine whether the Pacheco Law created an objective framework for assessing the value of private contracting, which framework would then allow the state government to make decisions regarding the most cost-effective means of providing services to the public. The author examines the role of the Auditor in this process, and analyzes the MBTA's responses to the Auditor's objections. The paper concludes with recommendations for improving the process by which private contracting proposals are evaluated.  
  
 

II. Background

To understand how this conflict arose, three issues must be examined: 

· the MBTA's history of cost control efforts; 

· the experience of other transit agencies with privately contracted bus service; and

· the politics surrounding private contracting in Massachusetts.  
  
 

A. The MBTA's Cost Control Efforts

The MBTA's costs spiraled out of control during the 1970s. Jose A. Gomez-Ibanez, a transportation analyst at Harvard University, found that "real unit operating costs increased rapidly in the 1970s, accounting for 31.1 percent of the deficit growth in that decade."11 Because the MBTA's costs grew faster than inflation, Gomez-Ibanez determined that in 1980, the MBTA's operating costs were $29.2 million higher than they would have been had there been no growth in real unit operating costs. With a total operating budget of less than $275 million, this decline in productivity consumed more than 10 percent of the MBTA's 1980 operating budget. 

By 1981, the MBTA plunged into a fiscal crisis. The 78 cities and towns served by the MBTA demanded relief. Fares were doubled (but then partially rolled back), and the annual increase in the contribution that any city or town had to make toward the MBTA's deficit was capped at 2.5 percent, with the state paying the excess. To control costs, the legislature enacted the Management Rights Act of 1981. This law gave MBTA managers significantly stronger cost control tools, including ending automatic cost-of-living adjustments, eliminating pensions on overtime, allowing the use part-time employees, and giving the option to contract privately for services that had traditionally been performed by MBTA employees. Six years after the legislation, the MBTA estimated cumulative savings at $118 million.12

The Gomez-Ibanez analysis confirms that determined efforts to control costs can make a difference. His study found that real unit operating costs declined in the 1980s, in large part because of the use of the Management Rights Act. While the total deficit grew during the 1980s because of inflation, fare erosion, and a major capital improvements program, Gomez-Ibanez estimates that by 1990, the MBTA's cost control efforts were saving $49.5 million per year.13

B. Privately Contracted Bus Service

The private bus industry in the United States operates more than 120,000 vehicles14 and is beginning to run a significant number of buses under contract to public transit agencies. In the mid—1980s, only 1 to 2 percent of public transit bus routes were privately contracted, but by 1997, 10 percent of all routes were run by private contractors.15

In the United States, San Diego pioneered private contracting in 1979. Denver and Los Angeles have been using private contractors for about a decade. More recently, Indianapolis moved to contract privately for most of its bus service, and Las Vegas became the first transit agency to contract privately for all of its bus service. Private contracting is also becoming common in Europe, with London being the first major city to rely on it extensively. 

In virtually every case, the use of private contracting allowed transit agencies to reduce their unit costs and increase the level of bus service, as Table 1 shows. 

Table 1

Cost Savings for Cities Contracting Privately for Bus Service

Metropolitan Area Percent of Bus 
Service under Private Contract
Inflation-Adjusted 
Percent Savings
Percent Increase in Service
San Diego 37 30 46
Las Vegas 100 33 243
Indianpolis 70 26 38
Denver 25 18 25
London 57 46 28
Copenhagen 56 22 5
Stockholm 59 20 3


 Public transit managers have been very careful to set quantitative performance measures for private contractors. The two most common measures are the percentage of scheduled trips run and the average miles between breakdowns. Most public transit agencies also require private contractors to meet additional quality standards related to cleanliness, safety and passenger satisfaction. Follow-up studies in London, Denver and Los Angeles have all concluded that the quality of service is equal or better after private contracting.1

After 18 years of experience with private contracting, the verdict is clear: public agencies that contract privately for bus service can expect to save 20 to 30 percent and maintain a comparable quality of service. Most cities that have tried private contracting are pleased with the results and intend to expand its use. The Los Angeles official in charge of contracting for bus service has remarked, 

For larger transit agencies, there is no one program or project that has the potential to decrease costs and improve service quality more than competitive contracting ... From a cost savings perspective, I have seen enough bids and been involved in enough projects to know that [one] could open a private sector bus operating company tomorrow and save large transit agencies at least 25 percent.17
 

C. The Politics of Private Contracting in Massachusetts

The very thing that makes private contracting attractive to transit agencies—cost savings of 20 percent or more—also makes private contracting controversial, because those savings ultimately come at the expense of labor. The two primary ways that private companies reduce costs are by improving productivity and by reducing wages and benefits. Improving productivity results in fewer transit jobs being necessary to provide the same level of service. Over the years, public transit agencies have entered into collective bargaining agreements containing restrictive work rules. These rules frequently limit the use of part-time employees (particularly important in bus operations, which require lots of drivers during rush hour, but far fewer drivers during mid-day) and restrict the types of maintenance work that particular classes of employees are allowed to perform. Public transit agencies also provide generous numbers of sick days, requiring a large "coverage ratio" (i.e., extra drivers available if an unexpectedly high number call in sick). 

Administrative inefficiencies and extra layers of management also tend to build up over time. In a study of private contracting worldwide, Gomez-Ibanez concluded that "without the spurs of privatization and competition," public transit agencies decline into a "slovenly lethargy."18

Private bus companies also typically pay lower wages and provide less generous fringe benefits than do public transit authorities. The cuts in fringe benefits are often particularly deep, because fringe benefit rates among public transit agencies are quite high. (The MBTA uses a fringe benefit rate of 39.4 percent.)19 A bus driver at the top of the seniority scale at the MBTA earns a base salary of $40,290. With fringe benefits, the total cost to the MBTA is $57,445 per year. By contrast, a bus driver at the top of the seniority scale at Plymouth and Brockton, a local private bus company, earns $26,520 per year, or 34 percent less than his MBTA counterpart. When fringe benefits are included, the total cost is $34,476. That is $22,969 (or 40 percent) less than the MBTA's costs for a similar position.20 Attempts in Massachusetts to reduce this significant disparity in wages and benefits by contracting privately for bus service have ignited a fierce battle between management and labor. 

Governor William Weld, when first elected, vowed to use private contracting as a way to control costs. In 1993, however, the legislature passed the Pacheco Law, designed to inhibit the use of private contracting. The Law has the following major provisions:

· The purchasing agency must establish quantitative performance measures that the contractor must meet in the areas of quality, timeliness and effectiveness. 

· Contractors must pay wages "not less than the minimum wage rate that had been paid _ (to) "regular agency employees."21

· Displaced public employees must (assuming they are qualified) be offered jobs with the private contractor. 

· The private contractor must offer equal quality at a lower cost, or better quality at an equal or lower cost. 

· The private contractor's bid must be compared not to the current in-house cost, but to the cost of public employees working in the most cost-effective manner possible. 

· All contracts must be approved by the State Auditor before they can be awarded.  
  
 

The Law provides the State Auditor with considerable discretion in applying its provisions, including the ability to issue regulations mandating how to develop cost estimates. Moreover, by requiring the Auditor to approve contracts, the Law sets up an adversarial process. By the time an agency has prepared an RFP (Request for Proposals), reviewed proposals, and selected a private company to manage part of its operations, it has decided, correctly or incorrectly, that a particular service should be delivered via private contracting rather than directly by state employees. The stage for conflict is set by requiring another arm of government, which does not have any expertise in the service being provided, to second-guess the contract.  
  

III. The Conflict

In 1995 the MBTA announced that it intended to become a "virtual transportation agency." The MBTA would continue to control key public policy decisions (such as level of service, fare rates, bus route planning, capital improvements), but daily operations would be contracted privately, shrinking the number of MBTA employees from nearly 6,500 to just a few hundred. 

This attempt to contract privately for bus operations is the MBTA's first major step toward becoming a virtual transportation agency. To comply with the Pacheco Law the MBTA has taken the following steps:

1. In July 1996, the MBTA submitted a management study of its in-house operations to the Auditor. The study described the MBTA's bus operations, outlined in-house cost savings initiatives, discussed internal constraints to reducing costs further, and compared the MBTA's costs to those of other transit agencies. 

2. In August 1996, the MBTA issued an RFP inviting private companies to bid on all or part of its bus operations. The RFP allowed companies to bid on one or more "bundles" of bus service, with a bundle usually consisting of an MBTA bus garage and all the routes run out of that garage. For bidding purposes, the MBTA organized its entire bus operations into five bundles. 

3. On December 31, 1996, the MBTA received bids on two of the five bundles— Charlestown/Fellsway and Quincy. 

4. On January 2, 1997 (the next working day, as required by law), the MBTA submitted to the Auditor its estimate of the in-house cost of providing bus service for these two bundles. 

5. On April 18, 1997, the MBTA submitted the proposed contracts to the State Auditor. The MBTA also submitted a revised in-house cost analysis (the April Submission), to reflect the fact that bids were received on only two of the five bundles. 

6. On May 16, 1997, the State Auditor issued a letter (the May Objection Letter) denying the proposed contracts and detailing his reasons for the denial. 

7. On May 23, 1997, the MBTA resubmitted the proposed contracts along with a revised in-house cost analysis (the May Submission). The revised analysis incorporated certain of the State Auditor's findings and provided increased detail on why other findings were, in the opinion of the MBTA, incorrect or invalid. 

8. On June 20, 1997, the State Auditor issued a letter (the June Objection Letter) finding that the proposed contracts would not save money and again denied the contracts. 

9. On June 23, 1997, the MBTA filed suit in Massachusetts Superior Court, asking the Court to find that the Auditor's review violated the law and that the Pacheco Law itself is unconstitutional.  
 

The exchange of letters between the State Auditor and the MBTA General Manager during this time indicate that both sides perceived the analysis not as a dry accounting exercise but as a high stakes political battle. Each side accused the other of withholding and distorting information. As the following excerpts show, the letters drip with contempt and sarcasm, and reveal a climate in which objective analysis is impossible and in which fact-finding takes a back seat to name-calling. The State Auditor, A. Joseph DeNucci, in his letter of May 16, 1997, said, 

[The MBTA's proposals] were so deficient as to preclude this office from conducting a full review _ Although an agency's submission might not be free of error, be complete, or be reasonable, these deficiencies should not dominate each aspect of the submission.  
 

MBTA's General Manager, Patrick Moynihan, responded on May 19, 1997, saying, 

Even if we were to assume that every issue raised by your staff during its review was valid (notwithstanding the absurdity of such an assumption), the MBTA's proposed contracts would have still saved a minimum of $16,000,000.  
 

IV. Analysis

The MBTA and the State Auditor agreed that the amount of the winning contract bid for the Charlestown/Fellsway bundle, the larger of the two proposed contracts, was $243.4 million. Yet they disagreed on the MBTA's own cost to run the system as well as the transition costs of outsourcing this operation. Between January and May, the MBTA submitted three different internal cost estimates.22 The second internal estimate corrected some mistakes in the first estimate, and restored management and overhead costs for the three bundles for which MBTA did not receive bids. The third submission corrected some mistakes the Auditor found, and defended certain cost estimates which the Auditor alleged were incorrect, but which the MBTA insisted were accurate. 

Before reviewing the specific charges and counter-charges regarding the cost of operating the Charlestown/Fellsway bundle, Table 2 below outlines the scope of the services to be contracted—about one-third of the MBTA's entire bus operations.  
 

Table 2

Dimensions of the Charlestown/Fellsway Operation

Indicator Charlestown/Fellsway Percent of MBTA Total
Bus Routes 80 33
Peak Bus Requirement 241 32
Employees 527 26
Revenue Hours 650,400 31
Revenue Miles 7,077,976 32

The MBTA claims there is an avoidable cost (the cost that can be avoided by privately contracting) for running this bundle of either $262.7 million (January), $261.2 million (April), or $261.0 million (May). The MBTA's estimates of transition costs range from a net gain of $1.9 million (April) and a net loss of $0.6 million (May). The MBTA also estimates that it needs to spend $2.3 million to monitor the contractor over the five-year life of the contract. Taken together, the MBTA claims total five-year savings ranging from $17.5 million (April) to $14.8 million (May). The MBTA's analysis projects savings of 5 percent—far less than other transit agencies report, primarily because the contractor proposed to match the wages of MBTA employees to ensure that the contract met the terms of the Pacheco Law. 

In ruling that the MBTA cannot award this contract, the Auditor made the following claims:

A. The MBTA made several mistakes in its in-house cost analysis with regard to operating and transition costs. 

B. The MBTA improperly excluded certain costs from the contractor's bid. 

C. The MBTA made unreasonable assumptions regarding the number of layoffs that will result, and the associated unemployment compensation, retirement and vacation buy-out costs. 

D. The MBTA's accounting system is so deficient that the Auditor's office had insufficient information to make a comprehensive review. 

E. The MBTA did not adequately establish that quality of service would be equal or better.  

Finally, the Auditor raises a number of other issues, including contractor compliance with environmental laws, the lack of a contingency plan for work stoppages, the value of union concessions, and procurement irregularities. 

A. Operating and Transition Cost Errors

In examining the MBTA's documentation of its internal costs, the Auditor notes the following errors: 

Error Amount
Double counting fuel tax savings $2,520,973
Incorrectly projecting annual increases in fuel taxes $130,242
Erroneous building and maintenance charges $263, 595
Incorrectly assuming rental savings $75,608
Incorrect wage inflation rate for executives $168,202
Total $3,158,620

SOURCE: A. Joseph DeNucci, Auditor of the Commonwealth, letter to Patrick J. Moynihan, General Manager, MBTA, May 16, 1997 (the May Objection Letter). As the Auditor does not specify the amount for annual increases in fuel taxes, rental savings, and wage inflation, I have calculated these amounts from information contained in the MBTA April and May submissions.

The MBTA acknowledges these mistakes (except for wage inflation for executives, which it disputes yet agreed to change), but notes that even after correcting these errors, the contract would still produce significant savings. 

B. Mistaken Contract Costs

The Auditor alleged that the MBTA incorrectly excluded two potential contract costs: incentives for improved service, and liquidated damages should the MBTA terminate the contract early. 

The proposed contract allows the contractor to earn incentive payments for superior service, which would include running at least 99.75 percent of all scheduled bus trips. The Auditor noted that the MBTA has already achieved this percentage of trip completion, allowing the contractor to earn an incentive for simply matching the existing level of service. The Auditor concluded that such incentives should be included in the base price of the contract; and he is probably correct. While the MBTA does not routinely achieve 99.75 percent trip completion, the fact that the MBTA met this standard during a recent quarter supports the Auditor's claim that the amount of this incentive, which the Auditor places at $271,515, should be added to the amount of the contract. 

The contract allows the MBTA to terminate the agreement at any time for any reason (termination without cause). This clause is frequently found in government contracts and increases the contractor's financial risk due to start-up costs for every major outsourcing contract. Typically, contractors amortize those costs over the life of the contract. Thus, if the MBTA were to terminate the contract without cause after only a few months, the contractor would be unable to recoup its start-up costs. The contract therefore contains a liquidated damages provision to protect the contractor against such an event. The provision requires the MBTA to pay $740,000 if the MBTA terminates the contract without cause during the first year. The amount of liquidated damages declines each year, corresponding to the amount of start-up costs the contractor should be able to recoup, as reflected in the price of the proposed contract submitted by the contractor. 

The Auditor seems to have mistakenly concluded that this provision is intended to compensate the contractor for its possible loss of profit if the contract were to be terminated early. In his May Objection Letter the Auditor states, "In the absence of any data to the contrary, the payment for "projected profit" for services not performed is clearly not in the public interest."23 However, the MBTA's submission shows that the contractor projects a profit of $23.2 million over the five-year contract.24 Thus, while the amount for liquidated damages ranges from $740,000 down to $60,000, the intent of this clause is clearly not to ensure that the contractor meets its projected profit goal, as the Auditor claims. 

C. Unreasonable Cost Savings Estimates

The Auditor claims that the purported cost savings from this contract rest on a number of unreasonable assumptions. The most important of these is the MBTA's estimate of the number of employees to be laid off, and to what degree these employees will be eligible for compensation under federal law. Other assumptions relate to the number of employees eligible for retirement benefits, and the proper treatment of accumulated vacation time. 

Lay-offs, unemployment and 13(c) protection. The MBTA currently employs 628 staff at the Charlestown/Fellsway bundle. The contractor estimates that it will hire up to 559 of those staff. Net savings to MBTA would largely depend upon the contractor's ability to reduce staff costs by reducing the number of employees, and the cost to MBTA of laying off employees. In researching its private contracting options, the MBTA found that private contractors typically hire 70 to 90 percent of the employees of the public transit authority doing the work to be contracted. The MBTA assumes that the contractor will hire 85 percent, or 519, of the 628 affected employees, leaving 109 potentially without jobs. The MBTA estimates that 57 of these employees can be placed elsewhere in the MBTA as vacancies occur, leaving 52 employees who would be laid off.25

Each employee lay-off will cost the MBTA an average of $4,900 in unemployment benefits. However, the MBTA faces a greater potential liability under a federal law commonly known as "13(c)," which is why it must accurately estimate the number of employees to be laid off. Section 13(c) of the Urban Mass Transit Act of 1964 (49 U.S.C. s5333[b]) provides employees of transit authorities that receive federal funds (such as the MBTA) with significant protection, including: 

· Preservation of rights, privileges and benefits under existing collective bargaining agreements; 

· Continuation of collective bargaining rights; 

· Protection against a worsening of their employment position; 

· Priority of re-employment for employees who are laid off; and

· Paid training programs.  
  
 

Section 13(c) "is an especially complex Federal requirement _ administered by two Federal agencies _ which do not always share the same policies or interpretations."26 The Department of Labor, which has primary responsibility for administering this provision, takes the position that, 

Section 13(c) agreements should be the product of negotiations between the parties and therefore has not prescribed, for general application, the requisite elements of a Section 13(c) agreement. Thus, there in no single regulation, policy statement or other guidance that summarizes what Section 13(c) requires.27
 

Instead, when management and labor disagree, the matter is often resolved by arbitration or by the courts. 

Under Section 13(c), dismissed or displaced employees can receive a "dismissal" allowance equal to the difference between their old wages and their new wages. For example, a bus driver earning $3,000 a month who was laid off and found a new job at $2,000 a month would be eligible for a dismissal allowance of $1,000 per month. The allowance would continue for the length of time the employee had worked for the transit agency, up to a maximum of six years. Unions have attempted to widen the protection offered to "worsened employees" to include any worsening in fringe benefits, working conditions or hours. 

To avoid testing its 13(c) liability, the San Diego rapid transit agency contracted its bus operations in small segments so that it could offer affected drivers the option to fill vacancies elsewhere in the transit agency. However, other agencies (notably Las Vegas and Indianapolis) have taken the opposite approach and have privately contracted most or all of their bus operations in a single swoop.28

The MBTA, in part to minimize its 13(c) liability, developed a procedure it expects will result in layoffs being concentrated among employees with the lowest seniority. Nonetheless, the MBTA and the Auditor have sharply different estimates of this liability. The MBTA estimated its liability at between $2.9 and $4.3 million,29 while the Auditor suggested a minimum liability of $36 million.30 While the MBTA provided considerable analysis to justify its range of liability, the Auditor did not provide a comparable analysis in his objection letters, and did not document how he arrived at his estimate of $36 million. 

Retirement Savings. After 10 years of service, MBTA employees become vested in MBTA's retirement program. Once vested, the MBTA is obligated to provide certain retirement benefits. By concentrating layoffs among employees with the least seniority, the MBTA expects to avoid laying off employees who are already vested in the retirement system. Accordingly, the MBTA assumed that it will incur no pension liability during the transition, and that it will ultimately save pension costs, as individuals who would have eventually retired and drawn an MBTA pension go to work for a private contractor instead. 

The Auditor noted that many of the MBTA's employees have five or fewer years of service and thus would not be vested at the end of the five-year contract. The Auditor then seemed to conclude that because these employees would not become vested during the term of the contract, the MBTA would not have any pension obligation to them and therefore could not claim any pension savings. This position is correct only if the MBTA plans eventually to bring the work back in-house. Since MBTA management plans to increase the use of private contracting, and no other transit agency has brought bus service back in-house, the Auditor's position is indefensible. Moreover, the Auditor made no attempt to quantify the amount by which he believes the MBTA has overstated savings. 

Vacation Buy-Out. The MBTA will have to pay the accumulated vacation leave of the estimated 571 employees who would leave the MBTA because of this contract. The MBTA asserted that this cost should not be included as a transition cost because the vacation leave was earned prior to the start of the contract, and the MBTA will eventually have to pay it regardless of whether this contract is approved. Either employees will quit or retire with accrued vacation time (and get paid for it), or they will use their additional vacation time, and the MBTA will have to pay other employees to perform the work. Although the Auditor takes the position that vacation buy-outs should be included in the transition cost, he did not attempt to estimate the value of this accrued vacation time. Assuming that the average employee has two weeks of vacation time, and that the average weekly wage is $800 (the top of the scale for a bus driver), the total liability would be about $913,000. Even so, the MBTA's position is correct. If the contract is denied, accrued vacation time will remain as a liability on the MBTA's balance sheet. If the contract is approved and the MBTA pays $913,000 in accrued vacation time, it will have less cash but it will no longer carry that liability, and therefore its net financial position will be unchanged. 

D. Accounting Deficiencies

Many of the changes the MBTA made from one submission to the next reflect a reallocation of overhead costs. In its April 1997 submission, which included the proposed contracts, the MBTA made two significant sets of changes. First, it reduced the amount of administrative labor allocated to the Charlestown/Fellsway bundle by $5 million. Yet since it received bids on just two bundles, the MBTA could not cut overhead and administrative costs as much as it could have if it were able to contract privately for its entire bus service.  
 

Table 3

Changes in Overhead Cost Allocation: 

January to April

Item January Estimate April Estimate
General Administrative Wages $3,432,924 $2,384,101
Bus Operations Administrative Wages $10,454,380 $8,182,245
Fringe Benefits (39.82%) $5,529,924 $4,207,519
Indirect Costs $10,604,359 $10,228,137
Total $30,021,587 $25,002,002

Second, the MBTA made upward revisions in its cost estimates for materials, tires, diesel fuel, uniforms, supplies, and services, partly offsetting the $5 million loss of savings described above.  
  
  

Table 4

Revised Estimates for Cost of Materials:

April and May

Item April Estimate May Estimate
Materials $3,563,218 $3,936,582
Tires $1,604,261 $1,772,452
Diesesl Fuel $7,082,010 $7,791,439
Uniforms $680,800 $749,000
Supplies $3,630,606 $4,011,037
Services $908,970 $1,003,411
Total $17,469,865 $19,263,921

 

SOURCE: January Submission, Form 2A; April Submission, Form 2A
  

In a July 1996 report to the Auditor, the MBTA acknowledged, "It is difficult to be precise regarding expenditures for each transit mode within the Authority—the accounting system has only recently been tailored to compile each transit mode as a distinct cost center."31 In responding to the Auditor's questions regarding why these changes were made, the MBTA noted, "Actual costs for materials, supplies and services are 'mapped' to the appropriate account in the general ledger from the purchasing system. This mapping was imperfect for FY96."32 Finally, in its May submission, the MBTA increased the cost of maintaining "non-revenue vehicles" (everything other than buses) by over 50 percent, from $830,708 to $1,273,209.33

Changes of this magnitude are not unusual for a government agency. Very few government accounting systems are capable of providing an accurate analysis of costs for any given sub-operation. For example, the MBTA needs to know how much it spends on bus tires so that it can properly monitor its current year budget and accurately prepare its budget request for next year. But before the MBTA developed its plan to contract privately for bus operations, it had no real need to know how much it spent on tires in the Charlestown/Fellsway bundle. 

In total, the MBTA reduced its claimed savings by $5 million, and then increased its claimed savings by $2.2 million, for a net reduction of $2.8 million. As the MBTA's total five-year cost for running the Charlestown/Fellsway bundle is $287 million, this net change of $2.8 million represents just 1 percent of the total cost and would not appear to support the Auditor's depiction of the MBTA's accounting system as wholly deficient. However, the timing of certain changes gives the impression that the MBTA is being less than forthright about its internal cost allocation methods. 

In December, the MBTA learned that it received bids on only 40 percent of the bus system, and therefore needed to carry $5 million more in management overhead related to the Charlestown/Fellsway bundle. Before submitting its April cost comparison, the MBTA reviewed its materials, tires, diesel fuel, uniforms, supplies, and service line items, and concluded that all six of these line items should have had higher amounts allocated to the Charlestown/Fellsway bundle. That increased projected savings by $1.8 million and offset more than one-third of the $5-million loss. 

In his May Objection Letter, the Auditor noted several MBTA mistakes worth $469,445. In its May Submission, the MBTA conceded those mistakes but informed the Auditor that it revised its method of allocating non-revenue vehicle repair costs, yielding additional savings of $442,501—neatly offsetting the Auditor's most incontrovertible findings. 

It is easy to see how the timing of the MBTA's changes made the Auditor suspicious. While these cost allocation issues are troubling, they do not nullify the MBTA's assertion that the proposed contract would save money. Even if every one of the MBTA's accounting revisions were disqualified, the total amount would only come to $2.2 million. Further, despite the Auditor's point about incentive payments, total savings would still be $12.3 million. 

Item Amount (in millions)
MBTA's estimated savings (May analysis) $14.8
Less: Deny all MBTA cost allocation revisions (2.2)
Less: Incentive payments (0.3)
Total Savings $12.3

 To deny the contract, the Auditor must cast more doubt on the MBTA's analysis. He did this by examining how the MBTA treats repairs made in its Everett heavy maintenance facility. Each bus garage has a staff of mechanics and the facilities to handle routine maintenance and a certain amount of repair work. In addition, the MBTA operates a centralized heavy repair facility (the Everett facility). The Everett operation rebuilds engines and transmissions, repairs damaged frames, and does major electrical systems work. Over the five-year term of the contract, the MBTA estimated it would spend $74 million to operate this facility. The Charlestown/Fellsway contract requires the contractor to purchase repair services from the Everett facility for the first two years of the contract. After that, the contractor can continue to purchase repairs from Everett or make other arrangements. 

The Auditor questioned the MBTA's estimate that it would avoid $23.8 million in Everett costs during the five-year contract term. First, the Auditor asked how the MBTA could be sure that it would continue to get revenue from the contractor during years 3 to 5. If the contractor decided not to use the Everett facility during those years, the MBTA would either have to lay staff off (raising additional 13[c] issues) or watch its projected savings evaporate. Second, the Auditor correctly notes, 

There is a lack of reasonable assurance that the level of heavy maintenance and repairs to be paid for by the contractors during the required first two service years will approximate the MBTA's estimate thereof. Because the MBTA does not maintain bus repairs by garage, it based its projected cost savings on an estimate of how much of the total $14.9 million budgeted for the Everett facility during the fiscal year 1997 pertains to the Charlestown/Fellsway bundle.34
 

The Auditor did not offer a specific critique of the MBTA's cost allocation methodology nor an alternative methodology, even though this is a critical issue in determining the MBTA's in-house cost. The MBTA allocates Everett costs to each bundle according to the percentage of the buses each garage needs to operate35—a reasonable methodology. This results in 32.21 percent of the total cost of the Everett facility being allocated to the Charlestown/Fellsway bundle. If a particular bus garage has 32 percent of the bus fleet, it might well result in that garage using 32 percent of total heavy repair services. 

There are other ways, equally reasonable, to allocate heavy repair costs. One obvious method is by total miles. The Charlestown/Fellsway bundle accounts for 28.73 percent of total bus miles.36 If allocated according to this percentage, the MBTA's avoidable costs (and thus total savings) would decline by $2.5 million. Another methodology is to use the number of bus breakdowns. The Charlestown/Fellsway buses are relatively new, break down less frequently, and therefore place less demand on the Everett maintenance facility. In 1997, the Charlestown/Fellsway buses suffered 487 breakdowns, or 26.4 percent of total MBTA bus breakdowns.37 If the MBTA were to use this methodology, total projected savings from this contract would decline still further. Regardless of which methodology is used, the contract would still save money, requiring the Auditor to raise additional objections. 

E. Quality Concerns

The privatization law sets up two quality standards. First, the contracting agency must prepare measurable quality standards before it releases its RFP. Second, after receiving bids and negotiating a contract, the contracting agency must certify that the contractor will provide services "that equal or exceed the quality of services which could be provided by regular agency employees."

Performance measures commonly used to evaluate the quality of bus service include the average distance between failures, percentage of scheduled trips run, accidents per million miles, on-time performance, passenger complaints per 100,000 boardings, and cleanliness standards such as daily exterior washings and interior cleanings. 

Almost all transit agencies use at least some of these standards, and most public transit agencies put additional quality measures into place when they begin to contract privately for bus service. In a review done for the Texas Public Policy Foundation, transportation consultants Jean Love and Wendell Cox concluded that the quality standards set for most private contracts "routinely exceed those standards previously—and often concurrently—set for service provided by the public authority."38

Public agencies set higher quality standards for private contractors for several reasons: 

· Such standards (and the financial penalties for failing to meet them) help deter inexperienced or unqualified firms from bidding; 

· The standards provide important leverage to public transit managers, who remain ultimately responsible for service quality even if they are no longer directly delivering the service; and

· Human nature being what it is, it is easier to tighten quality standards when you can hold someone else responsible for meeting those standards.  
  
 

Injecting competition into any service tends to improve quality. If a monopoly agency (either public or private) lets quality diminish, it is unlikely to suffer any adverse effects for a very long time. Ridership will decline, but the operation will continue as long as public money is available to subsidize it. By contrast, a company that wins a competitively awarded contract has a strong incentive to meet quality standards. Failing to meet those standards can result in financial penalties, and may ultimately result in contract revocation or non-renewal. 

MBTA followed industry standards. In attempting to ensure that quality remains at least equal to current standards, the MBTA followed what is becoming standard industry procedure:

First, the MBTA has negotiated a contract that incorporates more stringent quality measures. Because many of these performance measures are new, the MBTA and the contractor must agree to establish a baseline before actual performance levels can be established, but this is not uncommon. 

Second, the MBTA has established financial incentives and penalties. If the contractor meets all performance measures, it can earn an extra $2.3 million. If the contractor fails to meet these incentives, it is subject to a maximum penalty of $2.5 million.39 As the contractor projects a baseline profit of $23.2 million from this contract, meeting quality measures can mean the difference between a profit of $25.5 million and $20.7 million, giving the contractor a significant financial incentive to improve quality. 

Finally, the MBTA has selected an experienced contractor. ATC/Vancom is providing bus service to a number of other public transit agencies and has had several of its contracts renewed by these agencies. The company has experienced management and adequate financial strength to undertake a contract of this magnitude.  
  
 

Nonetheless, the Auditor has concluded, "The MBTA does not know whether the proposed contractors can meet acceptable quality service levels, let alone exceed the quality of service that is currently provided by regular MBTA employees."40 It is important to note that the Auditor has not provided evidence that the quality of service likely to be provided by the contractor is inferior. Instead, the Auditor determined that the MBTA did not meet the Pacheco Law's requirements for service quality. 

The Auditor's criticisms. The Auditor's criticism of the MBTA's efforts to ensure quality service is the weakest part of his review. These are his specific criticisms:

(1) Insufficient benchmarks. The MBTA proposed to create new quality measures and hold the contractor responsible for meeting those measures. The Auditor faults the MBTA for not having developed those measures earlier and submitting them as part of its July 1996 management study. 

The MBTA should be commended, not criticized, for its attempt to write additional quality indicators into the proposed contract. This is standard industry practice and helps give the public transit authority important leverage over the contractor, especially when the quality standards are combined with financial incentives/penalties, as the MBTA has done. 

(2) Failure to establish maximum in-house level of service. The Auditor noted the following: 

(E)xisting standards do not correlate to Chapter 296 quality requirements which could be provided by regular agency employees. Accordingly, we believe that the need to establish appropriate performance factors for each pertinent performance attribute based on the quality of service which could be provided by regular agency employees is a relevant fact for the MBTA to clarify.41
 

Estimating the quality of service that "could be provided by regular agency employees" is virtually impossible. For example, sometimes the MBTA is unable to run scheduled bus trips because too many bus drivers call in sick. The MBTA could develop and implement new policies to reduce sick leave utilization. However, it is impossible to determine what effect this would have on the percentage of trips run until such a policy were actually implemented. 

(3) Lack of thorough reference checks. Finally, the Auditor noted that the MBTA did much of its reference checking on the contractor after it submitted the proposed contract to the Auditor on April 18, 1997. The Auditor concluded that this calls "into serious question the integrity and completeness of the MBTA's quality comparison."42

Conducting site visits and reference checks after negotiating contracts is a flaw in the MBTA's procurement process. However, the MBTA knew that the proposed contractor is experienced in the field, and knew that other transit agencies which privately contract for bus service have reported receiving equal or better quality service. The reference checks, although performed late, were uniformly positive. 

F. Other Issues

Compliance with environmental laws. Section 54(7)(iv) of Chapter 7 requires the contracting agency to certify that its proposed contractor "have no adjudicated record of substantial or repeated willful noncompliance with any relevant federal or state regulatory statute." In his May Objection Letter the Auditor noted that the MBTA did not submit adequate documentation regarding the contractor's compliance with environmental laws. The MBTA responded that the contractor had provided assurances that it met this standard and that the state Department of Environmental Protection reported that the contractor did not have a record of substantial or repeated violation of environmental laws. 

Lack of contingency plans. The Auditor noted that MBTA employees are enjoined from striking, but that employees of the contractor are not so enjoined, and concluded that "it is essential that contingency plans be prepared setting forth the measures that the contractor plans to institute in the event of employee work stoppages." In his review of private contracting for bus operations, Wendell Cox reported that only five days of service have been lost as a result of contractor default in the United States during the last decade.43 Given this level of risk, it seems less than essential that the contractor develop contingency plans in the event of a strike. 

Procurement irregularities. After receiving the bid, the MBTA negotiated some changes in both the contract and the price. The most important change was to advance the contractor 75 percent of the monthly contract cost, or about $3 million per month. In exchange, the contractor reduced its bid by $1.9 million. The Auditor opines that "any major revisions to the plans and specifications requested by a successful bidder during contract negotiations after bid opening must be denied or the procurement must begin anew."44 This view is not widely held and is not in the public interest. Many states conduct a negotiating session known as "best and final offer." During such negotiations, the purchasing agency and the contractor discuss any changes to the contract that might result in lower cost and better value to the taxpayer. In this case, it looks like the MBTA and the contractor realized that because the MBTA can borrow at tax-exempt rates, it would be more advantageous to the taxpayers for the MBTA to borrow the money and advance it to the contractor. Surprisingly, the Auditor did not seek to estimate how much interest the MBTA would pay and subtract that amount from the total contract savings. The MBTA's interest costs will of course depend on actual interest rates over the next five years, but at current rates the MBTA should expect to pay $1 million. While it would be legitimate to add this amount to the cost of the contract, the Auditor has overreacted by claiming that this change invalidates the entire contract. 

Union concessions. In an attempt to prevent the MBTA from privately contracting any part of bus operations, the MBTA's unions developed a cost savings package and submitted it to MBTA management. The specific cost savings were to go into effect only if they were needed to reduce the in-house cost below the lowest bid by a private contractor. The unions value their concessions at $29.5 million for both bundles.45 MBTA management disagrees with many of the unions' proposed cost savings, and puts the value of proposed savings for the larger Charlestown/Fellsway bundle at $3 million.46 Thus, if the MBTA is correct, the private bid still represents the lowest value. However, if the unions are correct (or even half correct), then their package of cost savings results in the lowest bid, and the work should be kept in-house. The Auditor made no attempt to analyze this issue. Instead, he warned that if the MBTA succeeds in overcoming his existing objections, he "would be required to place a value on the submitted concessions, and to further determine whether the value of those concessions would negate the identified amount of savings."47  
 

V. Scorecard

The Auditor has raised numerous objections to this proposed contract. In certain cases, such as incorrectly calculating savings from fuel taxes and other items, he is clearly correct. In other cases, his arguments are questionable. Finally, he made several objections that detracted from the overall credibility of his position (e.g., quality issues, lack of contingency plans, compliance with environmental laws, procurement irregularities). Yet his most important objection remains the reliability and accuracy of the MBTA's accounting system. 

The MBTA claims that over the five-year contract period, it would save (i.e., avoidable cost) $261 million in operating costs for the Charlestown/Fellsway bundle alone. Table 5 shows the major categories of expense:

Table 5

Avoidable Cost for Charlestown/Fellsway

Expense Item Five-Year Cost 
(in millions)
Percent of Total
Direct Wages and Fringe Benefits $195.1 74.8
Materials, Supplies, and Services $20.9 8.0
Other Direct Costs $9.7 3.7
Everett Heavy Repair $23.8 9.1
Non-Revenue Vehicle Repair $1.3 0.5
Indirect Departmental Management $10.2 3.9
Total $261.0 100.0

 

The Auditor did not object to two categories of expense: direct wages and fringe benefits, and indirect departmental management. Together these two items account for 78.7 percent of the total avoidable cost. Moreover, while the Auditor has pointed out some minor mistakes or invalid assumptions in "other direct costs," he did no say he found the MBTA's underlying accounting system to be unreliable in this area. When combined with the two line items mentioned above, it appears the Auditor accepted 82.4 percent of the total cost savings as based on reliable accounting. 

Even so, the Auditor questions the MBTA's accounting and cost allocation system in the remaining three areas: materials, supplies, and services; Everett heavy maintenance; and non-revenue vehicle repair. 

A. Materials, supplies and services

The MBTA's documentation in this area has been problematic. For example, in April 1997 the MBTA told the Auditor that actual materials costs for fiscal year 1996 were $237,869, but that it was budgeting almost three times as much ($671,149) in fiscal year 1997. Other line items were also dramatically revised, some up, some down. However, while the individual line items often changed dramatically, the overall total did not. In fiscal year 1996, the MBTA reported spending a total of $3.9 million on material and supplies for the Charlestown/Fellsway bundle. In April 1997, the MBTA reported it was budgeting $3.6 million for this bundle in fiscal year 1997, and in May, it reported that it was increasing the budgeted amount back up to $3.9 million (see Table 4). While these changes are unfortunate, it is important to remember that the maximum possible difference between the three estimates is just $0.3 million, hardly enough to justify denying the award of the contract on the basis of an unreliable accounting system. But with the MBTA itself unsure of exactly what its costs are in this area, it would be reasonable for the Auditor to require that the MBTA use its lowest estimate (contained in its December 31, 1996 in-house estimate). This would reduce total savings from this contract by $1.8 million. 

B. Everett heavy maintenance and non-revenue vehicle repair

The Auditor was on solid ground when he questioned the methods used to allocate a percentage of the cost of running the Everett heavy repair facility and the non-revenue vehicle repair facility. As we have seen, the MBTA has apparently used a cost allocation methodology for Everett that results in the highest possible savings. A middle-of-the-road methodology would reduce savings by $2.5 million. In addition, the Auditor can reasonably deny the MBTA's 52 percent increase in its cost estimate for non-revenue vehicle repair (as it was made without adequate explanation), reducing savings by another $0.4 million. 

Not one of these issues is serious enough to justify denying the contract. At most, taking the Auditor's objections into full consideration, the MBTA's projected five-year operating cost savings would be reduced by $4.7 million, or 1.6 percent. Cost allocation methodologies are necessarily imperfect. Indeed, the uncertainty in the MBTA's accounting system is an argument in favor of private contracting. If the MBTA were to contract privately for a portion of bus operations, it would finally know exactly what this service costs, and it could use that knowledge to benchmark and manage the cost of the 60 percent of bus operations that would remain in-house. 

The Auditor's next justification for denying the contract was his determination that the contract would not save money. Table 6 summarizes the Auditor's objections to the contract. Where the evidence supports the Auditor's finding, the chart deducts the appropriate amount from the MBTA's claimed savings. Where the evidence does not support the Auditor's finding, the table contains a zero in the amount column. Further, where the Auditor did not attempt to quantify the amount of his dispute with the MBTA, I have supplied my own estimate. The starting point for this table is the MBTA's final cost analysis (May 24, 1997). That analysis assumes cost savings of $14.8 million and incorporates several of the Auditor's objections (i.e., fuel tax, rent, building and maintenance). Accordingly, Table 6 displays only the unresolved issues.  
 

Table 6

Auditor's Objections to the MBTA's Cost Analysis

(in millions)

Item Amount
Materials, Supplies, and Services $1.8
Incentive Payments $0.3
Liquidated Damages $0.0
Vacation Buy-Out $0.0
Retirement and Post-Employment Benefits $0.0
Everett Heavy Repair $2.5
Non-vehicle Repair $0.4
Interest on Advance Payments $1.0
Total $6.0

Although this analysis gives the Auditor the benefit of the doubt, the contract still saves $8.8 million. This amount should be further reduced by the MBTA's 13(c) liability, which the MBTA estimates will range from $2.9 to $4.3 million. Using the mid-point of this range ($3.6 million), ultimate savings would be reduced to $5.2 million. Although the MBTA estimated that it could reduce its in-house costs by $3 million if it accepted the concessions made by the union, private contracting is still the most cost-effective option.  
 

VI. Conclusion

Virtually every transit authority that contracts privately for bus service achieves savings of 20 to 30 percent. Yet the MBTA, in its own analysis, estimated savings of just 5 percent. The Auditor identified several problematic elements of the MBTA's analysis that could reduce total savings to $5.2 million or 1.8 percent (this does not include his more improbable assertions).

The differences between the Auditor's estimate, the MBTA's estimate, and the experience of other transit agencies raises three issues: (A) Why are potential savings from contracting at the MBTA so much lower than elsewhere in the nation? (B) How can we be sure which party is right or if either party is correct? (C) What does this conflict teach us about the Pacheco Law?

A. Why MBTA savings are lower

Based on the experience of other agencies, the MBTA should be able to save 20 to 30 percent ($57 to $86 million) over five years by contracting privately. Instead, savings were estimated to range from $5.2 million to $14.8 million. The two main reasons for the discrepancy are the MBTA's in-house cost accounting method used to determine costs, and the Pacheco Law provision that requires contractors to provide substantially similar wages. 

The MBTA's internal costs can be divided into two main elements: direct costs and indirect costs. Direct costs are such things as the wages and benefits of bus drivers and mechanics, and all the materials and supplies consumed by a bus operation. Indirect costs are primarily MBTA management and support services, such as MBTA senior management time, the law office, human resources, the treasury department, and other central services. In a cost allocation scheme, a transit agency might allocate one-third of its senior management cost to bus operations on the assumption that they spend that proportion of their time on buses, with the rest being devoted to subway, trolleys, commuter rail, etc. The Federal Transit Authority (FTA) recommends that transit authorities include all such indirect costs when they attempt to determine their internal costs. The FTA assumes that such costs will, in the long-term, decline if a transit agency privately contracts for a significant amount of its operations. Many of the 20 to 30 percent savings figures are based on this so-called full cost allocation method. 

In Massachusetts, the Auditor excludes certain indirect costs from cost comparisons. His rationale is that many indirect costs will continue over the life of the contract and are therefore not "avoidable." He used this rationale when he excluded a portion of the rent for MBTA headquarters, noting that the MBTA would still have to make the same rental payments even though it was employing a few less staff at headquarters. In the short term, his position is accurate. In the long term, however, if the MBTA expands its use of private contracting it will need significantly less headquarters space. Thus it is reasonable to assume that the MBTA would take less space when its lease comes up for renewal. Also, since the MBTA excluded its short-term debt (which most other transit agencies do not have to pay), it did not include $19.2 million in in-house costs. If the MBTA had followed the FTA's methodology, most of these costs would be included in its in-house cost, resulting in much higher potential savings.

The Pacheco Law requires contractors to pay wages that are not lower than the lesser of (a) the minimum wage rate that has been paid for those positions for which the duties are substantially similar to the duties performed by regular employees of the MBTA, or (b) the average private sector wage paid for comparable positions. 

Labor is the primary cost of bus operations, making up at least 80 percent of the total cost. The potential savings from private contracting are greatly diminished if the private contractor is locked into the same wage rates and fringe benefits as the public agency. One study of this issue concluded that 62 percent of the private sector's cost advantage was due to lower wages and fringe benefits.48 It is not unusual for a private bus company to pay $5 per hour less than a public transit agency. As this contract involves about 590 employees, a cut of $5 per hour would reduce wages by $6.1 million annually, or about $30.5 million over five years. Add in payroll taxes that vary with wages, and the total comes to about $35 million in savings over five years. 

If full-cost accounting is applied and if the Pacheco Law did not exist, the MBTA would have received bids based on lower wages, achieved additional savings of about $54.2 million, and reached the 20 percent threshold that other transit agencies report as minimum savings. 

B. How can we be sure who is right?

You don't have to believe in the old adage, "figures lie and liars figure" to be confused about whether the MBTA was correct when it claimed that it would save $14.8 million, or the Auditor was right when he claimed that there would be no savings. The two main areas in which the Auditor and the MBTA differ involve cost allocation methodologies, and assumptions about the future. I have already discussed the MBTA's cost allocation methodologies and concluded that, at most, the MBTA overstated savings by $4.7 million. Now let us assess the reasonableness of the MBTA's assumptions about future costs. 

The MBTA acknowledges that cost savings ultimately depend on unknown and unknowable factors, such as the number of bus drivers to be laid off, and how an arbitrator or judge will apply 13(c) protections. There are many assumptions that the Auditor has not questioned, but that can determine the outcome of the review. For example, the MBTA assumes that wages will rise 3 percent per year over the life of the contract, for a total increase of 12.2 percent. Yet neither the MBTA nor the Auditor can predict labor market conditions over the next five years. Moreover, if MBTA management cannot agree on a wage increase with its unions, the matter will be settled via arbitration. In the past, arbitrators have shown a willingness to make significantly higher awards than what the MBTA offers. This is of particular concern given today's tight labor market. Unemployment is at or near a 20-year low, and wages are beginning to rise more quickly than they have in several years. If this trend continues, the MBTA's predictions of a 3 percent wage increase may prove unrealistic and in-house costs may be significantly higher. Assuming a 4 percent average annual increase in wages (instead of 3 percent) would increase total in-house costs by nearly $4 million. This type of sensitivity analysis was not performed by either the MBTA or the Auditor, but can determine the final result. 

C. Pacheco Law Flaws

The Pacheco Law has slowed the pace of competitive contracting in Massachusetts to a crawl. In the three years before the Law was passed, the Weld administration issued 36 private contracts, but in the four years since the Law was passed, just 7 contracts have been submitted to the Auditor. From a public policy perspective, the Pacheco Law is poorly constructed. Its more important flaws include the following:

Avoidable cost standard. The Auditor requires that the full cost of a private contract be compared to the avoidable in-house cost, even though the FTA recommends that transit agencies determine in-house costs on a full-cost rather than an avoidable cost basis. The FTA reasons that if the full cost of the first, small-scale private contract is compared to a less-than-full in-house cost, then private contracting will be unable to gain a foothold. If private contracting is truly less expensive than the full in-house cost, and its use is gradually expanded, then over time the contracting agency will indeed be able to reduce management, rent and other costs that at first appear unavoidable. These savings will never be realized if the first attempt to introduce private contracting is denied because the private contract is compared to a less-than-full in-house cost. 

Quality standards. It takes time (and money) to develop enough data to establish reliable benchmarks. The Auditor's insistence that the MBTA develop such measures could, in theory, indefinitely delay the MBTA's ability to contract privately for bus service. Other transit agencies routinely develop new quality measures when they begin to contract privately, and there is no reason that bus riders in Massachusetts should be deprived of whatever improvements in service those measures can effect. Moreover, if the Auditor can disagree with the contracting agency over a relatively simple service such as bus operations, the scope for potential disagreement over how to measure the quality of complex human and social services is far greater. Finally, the Auditor's emphasis that the contractor's proposed service be measured not against the current level of service but the level of service that could be provided creates an impossible hurdle. 

Raising new issues and keeping issues in reserve. The MBTA claimed that the Auditor raised new issues in his second objection letter. The Auditor claimed that he was justified in raising those issues because the MBTA provided new information in its second submission. In addition, the Auditor warned the MBTA that if it ever succeeds in meeting his earlier objections, he will raise the issue of the unions' concessions. Clearly, this combination of raising new issues and keeping issues in reserve offers the possibility of endless delay.  
  
 

The Auditor does not have to say what he thinks are the MBTA's internal costs. This allows him to simply raise objections (e.g., What if more MBTA employees are laid off? What if the 13[c] ruling is less favorable than MBTA management expects? What if the contractor does not use the Everett repair shop after the second year?) rather than to take an affirmative position on these issues. It is as if the Auditor sees his role as that of a defense lawyer, trying to plant a reasonable doubt, rather than come to an independent and defensible cost comparison. Furthermore, the Auditor himself acts as both judge and jury, determining whether the doubts he has raised are sufficient to justify denying the contract.  

VII. Recommendations

This struggle between the Auditor and the MBTA demonstrates that Massachusetts needs a fundamentally different strategy for determining whether a particular private contract is likely to save money. In most states, this task is left to the judgment of the agency entrusted with providing the service involved. Massachusetts has attempted to replace this judgment with a cost accounting exercise. But we have seen that no matter how much analysis is done, in the end certain issues come down to personal judgment. The Auditor's ability to simply criticize and cast doubt on a contract without providing his own cost estimates gives him an arbitrary power to approve or deny contracts. 

If the state legislature wants an independent, objective review of contracts, it must revise the Pacheco Law as follows:

1. The scope of the review should be narrowed to cost. Quality is very difficult to measure and almost impossible to predict in advance. The authority given the Auditor to claim that certain aspects of a contract are not in the public interest, and to deny the contract on that basis, should be eliminated. 

2. The private contract should be compared to existing in-house costs, not the cost that "could be" achieved if the state agency worked in the most efficient manner possible. 

3. Assumptions about wage increases, interest rates, and other future variables should be identical to those assumptions the state uses to forecast tax collections. This would provide a consistent set of assumptions, and remove the opportunity for either the Auditor or the contracting agency to determine the outcome of the review by manipulating important underlying assumptions. 

4. Agencies should be required to publish cost allocation plans as part of their annual budget requests, regardless of whether they plan to contract privately. Doing so would likely remove the temptation to choose a cost allocation methodology based on whether it would help the contracting agency "prove" that the contract will save money. For example, if the MBTA had to allocate maintenance costs to all five bundles well before it put out an RFP, there would have been no incentive to choose a methodology that maximized the cost of the Charlestown/Fellsway bundle because they did not know in advance the bundles for which they would receive bids. 

5. The Auditor's review of an agency's accounting system and cost allocation plan should be completed before an agency issues an RFP. If the Auditor disagrees with an agency's cost allocation plan, he should quantify the amount of his disagreement, and specify where the amount in question should be allocated. As long as the Auditor must account for 100 percent of an agency's budget, there is no incentive for the Auditor to seek to skew the cost allocation. For example, if the Auditor reduces the heavy maintenance amount allocated to the Charlestown/Fellsway bundle, he has to increase the amount allocated to another bundle(s). While this may make the Charlestown/Fellsway bundle a harder operation to contract privately, it does make other bundles easier to contract out. Since the review must be conducted before an RFP is issued, there is no reason for the Auditor to conduct anything other than a strictly objective review. 

6. The Auditor's back-end review should be limited to clear mistakes. It is perfectly appropriate for the Auditor to identify clear-cut mistakes, such as double-counting fuel tax savings. But he should not be allowed to raise generic doubts about an agency's accounting system or cost allocation methodology. 

7. The Auditor must come to a firm conclusion. If he finds mistakes, he must quantify them, factor them into the analysis, and offer his own defensible estimates of both the in-house cost and the contract cost.  

Postscript

As this paper was being written, the MBTA was attempting to maximize bus ridership within its existing budget by adding service to its most heavily used routes and by reducing service on lightly used routes. Communities that would lose service have protested the plan intensely. At a public hearing on December 9, 1997, public officials representing the South End, Roxbury, and Jamaica Plain demanded that the MBTA not cut service on three routes in those neighborhoods; and the crowd shouted "Add! Add! Add!" as it called for more bus service, not less. 

The estimated savings from contracting privately for the Charlestown/Fellsway bundle would allow the MBTA to maintain the existing level of service on the three routes in question.  

Endnotes

1. "Bus Service Delivery System. Final report to the Massachusetts Bay Transportation Authority," Comsis. Prepared in association with Howard Stein/Hudson Associates and John T. Doolittle Associates, Inc., 1993. 

2. Jose A. Gomez-Ibanez, "Big City Transit Ridership, Deficits and Politics: Avoiding Reality in Boston," Taubman Center for State and Local Government, Kennedy School of Government, Harvard University, 1994, p. 12. 

3. The 1965 and 1991 figures are from Gomez-Ibanez, p. 2.

4. Ibid., Table 7: Transit Projection for 1020 under Different Scenarios.

5. In 1990, MBTA ridership was 660,000 linked trips. Assuming that most riders make two trips per day, this yields an estimate of 330,000 riders. Using the same assumptions to project the 2010 deficit at $1.62 billion, Gomez-Ibanez estimates that ridership will grow 8 percent between 1990 and 2010, producing an estimate of 356,000. If both his deficit and ridership numbers prove accurate, the annual subsidy per rider will come to $4,550. 

6. Gomez-Ibanez. p. 8. 

7. "Contacting for the Operation and Maintenance of Fixed-Route Bus Service. Charlestown/Fellsway Bundle," Vol. 1, MBTA, May 23, 1997, p. F-19. Hereinafter called the MBTA's "May Submission." 

8. The two contracts are very similar, and the Auditor's objections to each contract are almost identical. This paper will focus on a single proposed contract for bus service originating from the Charlestown/Fellsway garage, by far the larger of the two contracts. 

9. A. Joseph DeNucci, Auditor of the Commonwealth, letter to Patrick J. Moynihan, General Manager, MBTA, June 20, 1997, p. 2. Hereinafter called the "June Objection Letter."

10. Civil Action No. 97-2547, MBTA v. Auditor of the Commonwealth, First Amended Complaint, June 23, 1997, p. 14. 

11. Gomez-Ibanez, p. 15.

12. Fiscal Year 1989 Budget Book, MBTA, p. 4-12.

13. Gomez-Ibanez, Table 5: Components of the MBTA's Deficit Increase, 1970-1990.

14. Jean Love and Wendell Cox, "Competitive Contracting of Transit Services," the Texas Public Policy Foundation and the Reason Foundation, 1993, p. 3.

15. Wendell Cox, "Competitive Contracting in Public Transit: A Review of the Experience," Supplemental Report to the Legislative Transportation Committee, State of Washington, prepared by Cox, Hornung, Lahn, Mundle, and Prestrud, February 1996, p. 3. 

16. Wendell Cox and Nick Newton, "Competitive Contracting: The International Revolution and Implications for New York," paper presented at a New York City conference, "Getting from Here to There: A Transportation Plan for New York in the 21st Century," June 18, 1996, p. 15.

17. James McLaughlin, Deputy Executive Officer, Bus System Improvement Planning, Los Angeles County Metropolitan Transportation Authority, paper presented at a New York City conference, "Getting from Here to There: A Transportation Plan for New York in the 21st Century," June 18, 1996, p. 1.

18. Jose A. Gomez-Ibanez and John R. Meyer, "The Political Economy of Transport Privatization: Successes, Failures and Lessons from Developed and Developing Countries," Final Report prepared for the U.S. Department of Transportation under the University Transportation Center, Region One, 1992, p. 4-31.

19. MBTA May Submission, p. D-14.

20. Quincy Patriot Ledger, June 1, 1996, p. 28.

21. Contractors have the option to pay the "average private sector wage for comparable positions," provided that such a rate has been established by the Executive Office for Administration and Finance. Presumably the Auditor must agree that the positions are in fact comparable. Guidelines for Implementing the Commonwealth's Privatization Law, Office of the State Auditor, March 1994, p. 5.

22. The law requires the contracting agency to submit two separate estimates. The estimate of in-house costs is due the day after bids are received. If the contracting agency decides to award a contract, it must next submit the proposed contract, along with a comparison of the in-house cost to the contract cost. The MBTA submitted its in-house cost analysis in January (hereinafter the "January Submission") and the cost comparison in April (hereinafter the "April Submission"). In May, the MBTA submitted a revised cost comparison (the May Submission) in an attempt to satisfy the Auditor's objections. 

23. May Objection Letter, p. 15.

24. May Submission, p. E-72.

25. May Submission, p. E-6.

26. Transit Cooperative Research Program, Legal Research Digest, Number 4 (June 1995), p. 1.

27. Ibid., p. 8.

28. A transit agency's 13(c) liability is determined primarily by its contract with its unionized workforce. The fact that other transit agencies have been able to privately contract large chunks of their bus service without incurring massive 13(c) liability does not necessarily mean that the MBTA can do the same.

29. May Submission, p. E-15.

30. June Objection Letter, p. 14.

31. "Management Study: Outsourcing of the Bus Operations and Maintenance Functions," MBTA, July 31, 1996, p. 9.

32. May Objection Letter, p. 6.

33. May Submission, Form 2A.

34. May Objection Letter, pp. 4-5.

35. May Submission, p. E-41.

36. May Submission, p. E-19.

37. MBTA response to Pioneer Institute Freedom of Information Act request. 

38. Love and Cox, p. 11.

39. May Submission, Section 3.0, Exhibit I, p. 12.

40. June Objection Letter, p. 14.

41. June Objection Letter, p. 17.

42. May Objection Letter, p. 11. 

43. Love and Cox, p. 10. 

44. June Objection Letter, p. 19. 

45. May Submission, p. F-2. 

46. May Submission, p. F-6. 

47. June Objection Letter, p. 22. 

48. Roger F. Teal, "Issues Raised By Competitive Contracting of Bus Transit Service in the USA," Transportation Planning and Technology, Vol. 15 (1991), p. 402.

Poltroons on the Beach: The Fraud of the Labor Peace Argument for Compulsory Public Sector Collective Bargaining By: Edwin Vieira, Jr.

The prevalent legal wisdom today is that compulsory collective bargaining through exclusive representation is necessary in both private and public employment, because such bargaining is the best way to achieve so-called "labor peace". As with much of the legalistic knowledge percolating from within the Beltway and academia throughout contemporary America, this notion—notwithstanding its widespread acceptance among the mainstream of judges, labor lawyers, and legal commentators—is fundamentally flawed. In private employment, the "labor-peace" theory found perhaps its highest pseudo-scholarly apology in the famous work by Felix Frankfurter and Nathan Greene, The Labor Injunction. Eventually, this piece of propaganda was thoroughly debunked by Petro, but not before it had done its damage in rationalizing the Norris-LaGuardia Act and analogous State laws that promote and immunize union violence. And even today the errant thesis of The Labor Injunction is accepted as gospel by most people. In the public sector, too, the "labor-peace" theory is little more than a legalistic smokescreen—one of those terms judges and lawyers employ to defuse contrary argument and short-circuit critical thought. To any careful observer, this is so obvious that the "labor-peace" theory merits being labelled essentially fraudulent. Moreover, the responsibility for perpetrating and perpetuating this fraud on the country lies primarily with the Supreme Court of the United States.

I. Nowhere is the inherent fraudulence of the "labor-peace" theory more apparent than in the Supreme Court’s devious refusal to address—squarely and honestly—the serious constitutional issues that compulsory public-sector collective bargaining through exclusive representation raises. To appreciate this requires a review of the history of litigation on that question from the 1930s, through which the legal landscape of employment relations was so decisively altered.

In both the public and the private sectors, contemporary collective bargaining under statutes and court decisions differs from traditional collective bargaining under common law prior to the 1930s, in that the latter was voluntary, whereas the former is compulsory. Free collective bargaining involved negotiations between willing parties on both sides: Employees freely chose unions to bargain for them; and employers freely chose to bargain with those unions rather than with individual employees. Except in the public sector, where collective bargaining was generally—and quite correctly—disallowed as incompatible with governmental sovereignty, free collective bargaining was always and everywhere an option for employees and employers at common law. Sometimes it proved more desirable to the parties than individual bargaining, sometimes not. In any event, prior to the National Industrial Recovery Act in 1933, the status of an exclusive representative empowered by law to dictate the terms and conditions of employment for dissenting nonunion employees was unknown in American private enterprise or in public employment. Rather, employees’ exposure to majority rule by unions depended on voluntary association under the principles of common-law contracts. And had the Supreme Court not duplicitously retreated on the statutory construction it originally employed to uphold the constitutionality of the Railway Labor and the National Labor Relations Acts, something not very far from free collective bargaining might have evolved under those statutes as well.

In contrast, modern compulsory collective bargaining involves three components unknown at common law—two primarily affecting employees; the third, employers—and all of which rely on coercion. As to employees, the basic structural element of compulsory bargaining is exclusive representation. The union selected by a majority of employees in a bargaining unit becomes the exclusiverepresentative for all the employees for the purposes of negotiating their terms and conditions of employment, whether they desire its services or not. For an employer to negotiate or contract with individuals violates "the essential principle of collective bargaining", "even though the employees consent * * * or suggest the conduct". Under exclusive representation, "[i]ndividual contracts, no matter what the circumstances that justify their execution or what their terms, may not be availed of to defeat or delay the procedures prescribed" for collective bargaining, "to forestall bargaining[,] or to limit or condition the terms of the collective agreement". So, in stark contrast to—indeed, in contradiction of—common-law contractual rights, exclusive representation "extinguishes the individual’s power to order his own relations with his employer and creates a power vested in the chosen representative", "strip[s individual employees] of traditional forms of redress", and gives unions "a thraldom over the men who designate [them]" by "creat[ing] rights in [the] unions overriding those of the employees they represent".

With respect to employers, the basic structural element of compulsory bargaining is exactly that: a legally enforceable duty on the part of the employer to bargain with the union over terms and conditions of employment, and not to bargain with nonunion employees.

As known and suffered today, compulsory collective bargaining through exclusive representation is primarily the artifact of decisions of the Supreme Court that intentionally created the system as it now exists or carried that system to the extreme it has assumed, in the face of and with disregard for numerous constitutional problems. Moreover, having itself largely created the original problem of exclusive representation in the 1940s, the Supreme Court has in more recent years studiously attempted to avoid not only facing up to the deleterious consequences of its own actions, but even telling the truth about how its own decisions brought the country to this pass.

Although ideologically the story has much earlier roots, the consequential, if convoluted, legal history begins in 1993 with the National Industrial Recovery Act (NIRA). The NIRA authorized private "trade or industrial associations or groups" to apply to the President of the United States for approval of "codes of fair competition for [their] trade or industry", made these codes "the standards of fair competition for [each] such trade or industry" upon the President’s authorization, and imposed sanctions on violators. The statute also required "[e]very code of fair competition" to contain provisions for organization of unions and collective bargaining within the particular trade or industry, and gave "the standards established in [collective-bargaining] agreements * * * the same effect as a code of fair competition". The sole substantive requirement on the private "associations or groups" privileged to act as exclusive representatives of their respective trades or industries was that they "impose no inequitable restrictions on * * * membership * * * and are truly representative of such trades or industries". This was similar to the so-called "duty of fair representation" that the Supreme Court later imposed on unions acting as exclusive representatives under the Railway Labor and National Labor Relations Acts.

In A.L.A. Schechter Poultry Corp. v. United States, the Supreme Court unanimously declared the NIRA an unconstitutional delegation of legislative power to private parties. To the government’s argument that the codes were valid because they "consist of rules of competition deemed fair for each industry by representative members of that industry * * * most vitally concerned and most familiar with its problems", the Court retorted:

[W]ould it be seriously contended that Congress could delegate its legislative authority to trade or industrial associations or groups so as to empower them to enact the laws they deem to be wise and beneficent for * * * their trades or industries? Could trade or industrial associations or groups be constituted legislative bodies for that purpose because such associations or groups are familiar with the problems of their enterprises? * * * The answer is obvious. Such a delegation of legislative power is unknown to our law and is utterly inconsistent with the constitutional prerogatives and duties of Congress.

Shortly thereafter, Congress enacted the Bituminous Coal Conservation Act (BCCA). The BCCA authorized the organization of private "district boards of coal producers" as exclusive representatives for their segments of the industry, empowered the boards to fix prices and regulate "the sale and distribution of coal by code members" subject to approval by a commission of the national government, and imposed sanctions on dissenters. The BCCA also mandated collective bargaining "between representatives of the majority of mine workers [in each district]" to fix terms and conditions of employment for all workers.

In Carter v. Carter Coal Co., the Supreme Court declared the BCCA an unconstitutional delegation of legislative power to private parties. Referring specifically to the provisions of the statute providing for exclusive representation among employees, the Court observed that

[t]he effect, in respect of wages and hours, is to subject the dissentient minority * * * of * * * miners * * * to the will of the * * * majority * * * .
The power conferred upon the majority is * * * the power to regulate the affairs of an unwilling minority. This is legislative delegation in its most obnoxious form; for it is not even delegation to an official or an official body, presumptively disinterested, but to private persons whose interests may be and often are adverse to the interests of others in the same business. * * * [Astatute which attempts to confer such power undertakes an intolerable and unconstitutional interference with personal liberty and private property.

And, as Chief Justice Hughes added,

[t]he provision [for exclusive representation] permits a group of * * * employees, according to their own views of expediency, to make rules as to hours and wages for other * * * employees who are not parties to the agreements. Such a provision, apart from the mere question of delegation of legislative power, is not in accord with the requirements of due process of law.

Thus, Schechter and Carter held that the government may not constitutionally require private persons to submit their economic affairs to the control of exclusive representatives selected from among other private persons in the same industry or employment, notwithstanding that the highest public officials in the land supervised the selection and decisions of the representatives. 

Although little known today among most people, including lawyers, Schechter and Carter were among the most important cases of the 1930s, demolishing as they did one of the main pillars of the Roosevelt New Deal (the cartelization of private industry). Moreover, on the question of exclusive representation for employers and employees they were unequivocal: Exclusive representation was "a delegation of legislative power * * * unknown to our law and * * * utterly inconsistent with the constitutional prerogatives and duties of Congress", "legislative delegation in its most obnoxious form", "an intolerable and unconstitutional interference with personal liberty and private property", and even "apart from the mere question of delegation of legislative power * * * not in accord with * * * due process of law". One wonders how a constitutional condemnation could be phrased in language stronger and less equivocal than this.

Until a by-the-way, wholly unexplicated comment in Minnesota State Board for Community Colleges v. Knight (Knight II), any legally trained observer would have concluded that the holdings in Schechter and Carter remained as directly relevant to every form of governmentally imposed exclusive representation, and as intellectually valid and legally vital, as when the Court enunciated them. Moreover, where, as in public employment, political as well as economic interests were involved, these decisions should have been considered to have had a particularly compelling force.

Between Schechter and Carter, on the one hand, and Knight II, on the other, the unconstitutionality of exclusive representation in both private and public employment escaped judicial review on numerous occasions. In a challenge to the constitutionality of the Railway Labor Act (RLA) in Virginian Railway v. System Federation No. 40, the Supreme Court sidestepped the problem of exclusive representation in two ways: First, to the railway’s argument that,

[i]f the Act empowers the majority [of employees] to speak for the minority, it in effect delegates to the majority the right to prevent the [employer] from making a contract with the minority which the minority may be willing to make. A somewhat similar delegation to the majority of power to bind the minority was recently condemned by this Court in Carter v. Carter Coal Co., 298 U.S. 238[,]

the Court responded that "[t]he railroad can complain only of the infringement of its own constitutional immunity, not that of its employees". So that issue remained unheard.

Second, the Court held as a matter of statutory construction that exclusive representation was "exclusive" in only a narrow way. The RLA’s provision for exclusivity, the Court opined,

imposes the affirmative duty [on the employer] to treat only with the true representative [of the employees], and hence the negative duty to treat with no other. We think, as the Government concedes in its brief, that the injunction against [the employer’s] entering into any contract concerning rules, rates of pay and working conditions, except with [the majority union], is designed only to prevent collective bargaining with anyone purporting to represent employees, other than [the majority union], who has been ascertained to be their true representative. When read in this context it must be taken to prohibit the negotiation of labor contracts, generally applicable to employees * * * , with any representative other than [the majority union], but not as precluding such individual contracts as [the employermay elect to make directly with individual employees.

The Court did, however, uphold the constitutionality of compulsory collective bargaining itself (through "nonexclusive exclusive representatives") on a "labor-peace" theory:

[W]e cannot ignore the judgment of Congress * * * that * * * the meeting of employers and employees at the conference table is a powerful aid to industrial peace. 
[The] provisions [of the RLA] are aimed at the settlement of industrial disputes by the promotion of collective bargaining * * * . It was for Congress to make the choice of the means by which its objective of securing the uninterrupted service of interstate railroads was to be secured, and its judgment * * * is not open to review here.

Noteworthy is that the Court did not investigate, but simply deferred to, the judgment of Congress—not even bothering to define what "industrial peace" meant or to identify what party was responsible, in the sense of incurring some legally cognizable fault, for its absence.

For example, it was, and today still is, generally assumed that the cause of industrial unrest, disputes, and even violent strikes prior to the advent of compulsory collective bargaining in the 1930s can or should be traced to the refusal of employers voluntarily to accept the procedure of collective bargaining with unions. As the Supreme Court said in NLRB v. Jones & Laughlin Steel Corp.,

the right of employees to self-organization and to have representatives of their own choosing for the purpose of collective bargaining is often an essential condition of industrial peace. Refusal to confer and negotiate has been one of the most prolific causes of strife.

Even if that description of the situation were true—and, of course, it was never completely true, because even under common law many employers did choose to bargain collectively with unions—it would not inexorably lead to the conclusion that employers were somehow uniquely at fault, for two reasons. First, prior to the 1930s employers had a legal right to refuse to bargain collectively, and instead to bargain individually, with their employees. Second, individual bargaining succeeded because many employees did not desire to be represented by unions, which was their legal right, too. After all, employers could hardly bargain individually with employees unless those employees voluntarily bargained with them.

The dispute over collective bargaining in the 1930s, then, was never a matter of employers’ as a class unilaterally denying the "rights" of employees or of unions as a class, but of many employers’ and many employees’ standing together on their own legal rights against the demands of other employees and their unions. Indeed, if employers and employees exercised their then-undoubted common-law rights to bargain individually, unions and their members had by legal hypothesis no rights as against those employers and employees to bargain collectively. So, to the extent that industrial unrest did result from the refusal of employers and employees to accept the procedure of collective bargaining, its cause can just as easily be assigned to the refusal of unions and their members to accept the traditional common-law procedures of voluntary, free-market bargaining and contract, but instead to demand that employers and employees surrender their rights and knuckle under to the coercive device of exclusive representation.

In any event, no one in the early 1930s, and especially after Schechter and Carter, believed that exclusive representation was easily defensible as consistent with American economic or legal traditions. Indeed, so sure were even its partisans of the opposite, that, when the constitutional validity of the National Labor Relations Act (NLRA) was first at issue in the mid-1930s, the National Labor Relations Board intentionally selected its test cases to keep the sensitive question of exclusive representation from the Court. The Labor Board’s brain trust well recognized the significance of Carter as an adverse precedent.

This strategy bore fruit, probably saving the NLRA from invalidation. For in NLRBv. Jones & Laughlin Steel Corp. the Court followed the reasoning of Virginian Railway to hold, as a matter of statutory construction, that exclusive representation under the NLRA was analogous to exclusive representation under the RLA, and not really "exclusive" at all.

The decree * * * affirmed in [Virginian Railway] required the Railway Company to treat with the representative chosen by the employees and also to refrain from entering into collective labor agreements with anyone other than their true representative as ascertained in accordance with the provisions of the [RLA]. We said that the obligation to treat with the true representative was exclusive and hence imposed the negative duty to treat with no other. We also pointed out that, as conceded by the Government, the injunction against the Company’s entering into any contract concerning rules, rates of pay and working conditions except with a chosen representative was "designed only to prevent collective bargaining with anyone purporting to represent employees" other than the representative they had selected. It was taken "to prohibit the negotiation of labor contracts generally applicable to employees" in the described unit with any other representative than the one so chosen, "but not as precluding such individual contracts" as the Company might "elect to make directly with individual employees." We think this construction appliles to [the provision for exclusive representation] of the [NLRA].

As in Virginian Railway, this holding reflected the unanimous position the litigants—including the government—presented on the issue of exclusivity.

As in Virginian Railway, however, the Court in Jones & Laughlin Steel Corp.upheld the constitutionality of compulsory collective bargaining on the "labor-peace" theory that

[e]xperience has abundantly demonstrated that the recognition of the right of employees to self-organization and to have representatives of their own choosing for the purpose of collective bargaining is often an essential condition of industrial peace. Refusal to confer and negotiate has been one of the most prolific causes of strife.

Once again, though, the Court did not inquire into what "industrial peace" entailed, either operationally or legally. However, in the context of then-contemporary events, it was obvious that the Court was alluding to the often violent strikes and lockouts that had occurred during the early 1930s in the depths of the Depression.

In the mid-1940s, however, in two cases that raised only issues of statutory construction and application—J.I. Case Co. v. NLRB and Order of Railroad Telegraphers v. Railway Express Agency, Inc.—the Supreme Court purported to reinterpret the NLRA and RLA so as to preclude individual employment contracts in most circumstances. Revealingly, neither of these decisions bothered to reconsider—or even to delineate—the constitutional issues of exclusive representation raised and avoided in Virginian Railway and Jones & Laughlin Steel Corp., and how those issues (and particularly their avoidance) had controlled the statutory constructions the Court employed in the latter two cases. And this, notwithstanding that the statutory constructions in Jones & Laughlin Steel Corp. and Virginian Railway had served as the necessary predicates for those cases’ constitutional holdings, and had been put forward by the government itself as the interpretation on which it claimed the constitutionality of the statutes rested.

Rather cavalierly, the Court in J.I. Case Co. acknowledged what it was doing, but did it anyway, without explication of its reasons:

[I]t is urged that where * * * the contracts [with individual employees] were not unfairly or unlawfully obtained, the court indicated a contrary rule [of statutory construction] in [Jones & Laughlin Steel Corp. and Virginian Railway]. Without reviewing those cases in detail, it may be said that their decision called for nothing and their opinions contain nothing which may be properly read to rule the case before us. The court in those cases recognized the existence of some scope for individual contracts, but it did not undertake to define it or to consider the relations between lawful individual and collective agreements * * * .

Having redefined exclusive representation in J.I. Case Co. and Order of Railroad Telegraphers, though, the Court ought to have considered itself duty-bound to determine whether that new construction raised the very constitutional problems its earlier constructions of the statutes had been designed to avoid. Instead, it simply avoided the issue, conveniently "[w]ithout reviewing those cases in detail". For "review[ of] those cases" would doubtlessly have embarrassed its new agenda. To call this transparent tactic on the Court’s part a rather crass use of the "bait and switch" gambit is hardly harsh.

However, the Court did find space in its opinion in J.I. Case Co. to reassert a "labor-peace" rationale for its new construction of exclusive representation: "The practice and philosophy of collective bargaining looks with suspicion on * * * individual advantages. * * * [A]dvantages to individuals may prove as disruptive of industrial peace as disadvantages." But precisely why "advantages to individuals", honestly obtained, should be legally suspect—and, in fact, legally proscribed, as J.I. Case Co. and Order of Railroad Telegraphers held—simply because "[t]he practice and philosophy of collective bargaining * * * looks" on them that way the Court did not feel compelled to explain.

The contemporaneous decision in Steele v. Louisville & Nashville Railroad Co.also sidestepped the (un)constitutionality of exclusive representation in private-sector employment by imposing on unions the so-called "duty of fair representation" as to nonunion employees, in order to avoid the particular issues of due process and equal protection of the law that exclusive representation raised in that case. The Court explained that

the [exclusive] representative is clothed with power not unlike that of a legislature which is subject to constitutional limitations on its power to deny, restrict, destroy or discriminate against the rights of those for whom it legislates and which is also under an affirmative constitutional duty equally to protect those rights. If the Railway Labor Act purports to impose on [nonunion employees] the legal duty to comply with the terms of a [collective-bargaining] contract whereby the representative has discriminatorily restricted their employment for the benefit and advantage of the [union’s] own members, we must decide the constitutional questions * * * .

However, dodging those questions, the Court concluded that

the Railway Labor Act imposes on the * * * representative * * * at least as exacting a duty to protect equally the interests of the members of the craft as the Constitution imposes upon a legislature to give equal protection to the interests of those for whom it legislates. Congress has seen fit to clothe the representative with powers comparable to those possessed by a legislative body both to create and restrict the rights of those whom it represents, * * * but it has also imposed on the representative a corresponding duty.

In his concurring opinion, Justice Murphy followed the same strategy, observing that the

constitutional problem inherent in this instance is clear. Congress, through the Railway Labor Act, has conferred upon the union * * * the power to represent the entire craft * * * in all collective bargaining matters. While such a union is essentially a private organization, its power to represent and bind all members of a class * * * is derived solely from Congress. * * * [I]t cannot be assumed that Congress meant to authorize the representative to act so as to ignore rights guaranteed by the Constitution. Otherwise the Act would bear the stigma of unconstitutionality under the Fifth Amendment * * * .

Thus, both the Court’s and Justice Murphy’s opinions set out rather clear-cut recognition of the problem of delegation of legislative power that had formed the predicates for Schechter and Carter:

Congress has seen fit to clothe the representative with powers comparable to those possessed by a legislative body both to create and restrict the rights of those whom it represents * * * .
While such a union is essentially a private organization, its power to represent and bind all members of a class * * * is derived solely from Congress.

However, as in Virginian Railway and Jones & Laughlin Steel Corp., the Court avoided the delegation-of-power issue through clever statutory construction—namely, cutting from whole cloth the duty of fair representation.

In Steele, this artful-dodger approach was possible because the complaining nonunion employees sought either nondiscriminatory representation by the union or a judgment that they could not be required to accept the union’s control over their employment relations, but did not argue that nondiscriminatory exclusive representation in and of itself was unconstitutional. The nonunion employees asked for "an injunction against the [union] * * * from purporting to act as [their exclusive] representative * * * so long as the discrimination continues". Thus, Steele left completely open the question of the constitutionality of concededly nondiscriminatory exclusive representation. Indeed, Steele’s construction of exclusive representation as implying a duty of fair representation would have been perfectly consistent with a determination in that or some other case that exclusive representation is unconstitutional on grounds other than the presence of invidious discrimination. For example, Schechter held the NIRA unconstitutional on delegation-of-power grounds, notwithstanding that that statute contained an explicit duty of fair representation.

The next case to touch on (although not to decide any aspect of the constitutionality of) exclusive representation, City of Madison, Joint School District No. 8 v. Wisconsin Employment Relations Commission, arose in the public sector. There, the Court held that a State may not constitutionally require an elected board of education to prohibit a nonunion teacher from speaking at a public meeting on a matter then the subject of collective bargaining between the board and the teacher’s exclusive bargaining representative. The constitutionality of exclusive representation itself, however, was in no way at issue. Indeed, the Court found it unnecessary to define "the extent to which true contract negotiations between a public body and its employees may be regulated". Nevertheless, the Court held that, "[r]egardless of the extent to which true contract negotiations between a public body and its employees may be regulated—an issue we need not consider at this time—the participation in public discussion of public business cannot be confined to one category of interested individuals. To permit one side of a debatable public question to have a monopoly in expressing its views to the government is the antithesis of constitutional guarantees."

One would have thought that the rather self-evident and quite unequivocal point—that "[t]o permit one side of a debatable public question to have a monopoly in expressing its views to the government is the antithesis of constitutional guarantees"—would have seriously undermined the validity of exclusive representation in public-sector employment, inasmuch as exclusive representation in that context is operationally nothing if not "[t]o permit one side of a debatable public question to have a monopoly in expressing its views to the government". Nonetheless, in a concurring opinion in City of Madison, Justice Brennan claimed that

Wisconsin has adopted, as unquestionably the State constitutionally may adopt, a statutory policy that authorizes public bodies to accord exclusive recognition to representatives for collective bargaining chosen by the majority of an appropriate unit of employees. In that circumstance the First Amendment plainly does not prohibit Wisconsin from limiting attendance at a collective-bargaining session to school board and union bargaining representative and denying [an individual nonunion employee] the right to attend and speak at the session.

One wonders by what chain of reasoning, in light of the rather clear-cut litigational history of exclusive representation set out heretofore, anyone—let alone a Justice of the Supreme Court—could opine with a straight face that exclusive representation was "unquestionably" or "plainly" constitutional in any respect, least of all under the First Amendment.

For Justice Brennan, though, the liceity of compulsory bargaining through an exclusive representative was apparently "implicit in the words of Mr. Justice Holmes, that the ‘Constitution does not require all public acts to be done in town meeting or in assembly of the whole.’ Bi-Metallic Investment Co. v. State Board of Equalization, 239 U.S. 441, 445 (1915)". As anyone—even a Justice of the Supreme Court—can conclude simply by reading Bi-Metallic Investment Co., however, that case in fact had nothing whatsoever to say about the constitutional problems exclusive representation raises. Neither could it have had anything to say about those problems. For Bi-Metallic Investment Co. was decided two decades before statutory union representation came into existence in the Railway Labor and National Labor Relations Acts, and three decades before the Supreme Court transmogrified the essentially non-exclusive representation upheld in Virginian Railway and Jones & Laughlin Steel Corp. into the strictly exclusive representation common in the private and public sectors today. Thus, the length of Justice Brennan’s reach for a supposed precedent rather "unquestionably" and "plainly" exposed his own recognition sotto voce that no real authority for exclusive representation existed either temporally or intellectually.

The next case to touch on (but, once again, not to decide any aspect of the constitutionality of) exclusive representation was Abood v. Detroit Board of EducationAbood held that an agency-shop arrangement in public-sector employment did not, on its face, violate the First and Fourteenth Amendments to the Constitution—although such a scheme could possibly abridge individual nonunion employees’ fundamental rights as applied.

Abood neither decided, nor even addressed, the issue of the unconstitutionality of exclusive representation, because that issue was not raised in the case in any way, shape, or form. The nonunion employees did not challenge exclusive representation in their original or amended complaints. The lower courts did not rule on any constitutional question touching on exclusive representation. The parties did not present any such constitutional question to the Supreme Court. Indeed, to the contrary, the nonunion employees explicitly stated that their "appeal * * * does not raise the question of the unconstitutionality of exclusive representation in public employment". "Therefore," the nonunion employees told the Court, "we must and shall refrain from addressing the merits of that issue [i.e., exclusive representation], secure in the knowledge that they will wend their tortuous way to this Court, sooner or later." "We repeat: Our concern here is notto attack the principle of exclusive representation as such." And the union agreed that the nonunion employees "do not challenge" exclusive representation. Moreover, Justice Stewart’s plurality opinion in Abood stated the question before the Court as being "whether [an agency shop] arrangement violates * * * constitutional rights", and held that "[a]ll we decide is that * * * the complaint * * * establish[es] a cause of action" with respect to the agency shop. Therefore, if (as they did) the nonunion employees’ complaints challenged only the agency shop (and not exclusive representation), if (as they did) the parties litigated only the constitutionality of the agency shop (and not exclusive representation), if (as they did) the parties explicitly stated that no challenge to exclusive representation was before the Court, and if (as it did) the Court itself held no more than that "the complaint[s] establish[ed] a cause of action" as to the agency shop, then a constitutional ruling on exclusive representation in Abood was not legally possible.

Not surprisingly, therefore, none of the opinions in Abood focussed on the constitutionality vel non of exclusive representation. Justice Stewart’s plurality opinion referred to various responsibilities of an exclusive representative in collective bargaining, in order to set out the traditional "free-rider" rationale for the agency shop. However, he cited no decision of the Supreme Court that had sustained exclusive representation in either public or private employment. This, of course, was no mere oversight. For the only decision of the Court then extant on exclusive representation by a labor union—Carter v. Carter Coal Co.—had held exclusive representation unconstitutional. 

In a separate opinion, Justice Powell observed that a "collective bargaining agreement to which a public agency is a party * * * has all the attributes of legislation", and admonished his colleagues that "voters could complain with force and reason that their voting power and influence on the [governmental] decision making process ha[ve] been constitutionally diluted" by delegation of power to a union to participate in making such economic laws. In these comments, Justice Powell implicitly recognized the problems of corporativism and unequal political influence inherent in compulsory public-sector bargaining through exclusive representation. He did not articulate any opinion on those constitutional issues, though, the very tense of the verb he used ("couldcomplain") showing the purely hypothetical nature of his comments. For no litigants presenting their rights as "voters" were then before the Court.

Furthermore, in their brief, the nonunion employees also disclaimed any intent to litigate the issue of delegation of power, saying that

[w]e need not explain in detail how prior decisions of this Court foreclose the question of the unconstitutionaluity of such a delegation of power to private parties to structure the public interest according to their own. E.g., A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 537 (1935); Carter v. Carter Coal Co., 298 U.S. 238, 311, 318 (1936) (opinion of the Court; Hughes, C.J., concurring); and cf. Lathrop v. Donohue, 367 U.S. 820, 853-55, 878 n.1 (1961) (Harlan, J., concurring; Douglas, J., dissenting). Neither need we advert to the controlling nature of these decisions on the issue of exclusive representation which underlies the whole agency-shop problem. It is not our purpose to raise the constitutional conundrums which both Justices Harlan and Douglas in Lathropconsidered pregnant with danger and difficulty * * * .

And the union neither discussed the issue nor even cited any of the cases to which the nonunion employees referred.

Justice Stewart’s plurality opinion also ignored Schechter and Carter, and acknowledged the marginally relevant Lathrop decision only correctly to note that that case "does not provide a clear holding to guide us in adjudicating the constitutional questions here presented".

In his opinion, however, Justice Powell made a very curious observation:

Because this appeal reaches this Court on a motion to dismiss, the record is barren of any demonstration by the State, that excluding minority views from the processes by which governmental policy is made is necessary to serve overriding governmental interests. For the Court to sustain the exclusivity principle in the public sector in the absence of a carefully documented record is to ignore, rather than respect, "the importance of avoiding unnecessary decision of constitutional questions."

As explained above, "the record [in Abood was] barren of any demonstration by the State, that excluding minority views from the processes by which governmental policy is made is necessary to serve overriding governmental interests" precisely because the litigants did not raise that issue, and therefore had no occasion to make such a record, even by way of allegations in their complaints. Therefore, it was constitutionally impossible "[f]or the Court to [have] sustain[ed] the exclusivity principle in the public sector", because the Court lacks constitutional authority to give advisory opinions on issues not presented to it in a specific "Case" or "Controversy". Presumably, Justice Powell knew all this. And he had before him the record of the case, which if it was not self-explanatory was supplemented by the nonunion employees’ unequivocal statements in their brief that their appeal did not raise the issue of exclusivity. So why did Justice Powell say what he did? Was it mere confusion? Or was it perhaps intended to plant the seeds of a legend—the legend that later sprouted (as described below) in Chicago Teachers Union, Local No. 1 v. Hudson?

Finally, in their separate concurring opinions in Abood, Justices Rehnquist and Stevens said nothing at all on the subject of the constitutionality vel non of exclusive representation.

As in its earlier decisions, the Abood Court mechanically and unthinkingly brought forth the "labor-peace" argument to rationalize compulsory public-sector collective bargaining. Justice Stewart’s plurality opinion adverted at several places to the view that "labor stability will be served by a system of exclusive representation". These statements, however, constituted no decision of constitutional law, but mere and even question-begging dicta. Many things that might serve "labor stability"—such as slavery—could also violate the Constitution.

For one example of what could fairly be described as Abood’s double-talk on this subject, Justice Stewart contended that

[t]he designation of a single representative avoids the confusion that would result from attempting to enforce two or more agreements specifying different terms and conditions of employment. It prevents inter-union rivalries from creating dissension within the work force and eliminating the advantages to the employees of collectivization. It also frees the employer from the possibilty of facing conflicting demands from different unions, and permits the employer and a single union to reach agreements and settlements that are not subject to attack from rival labor organizations.

One wonders in what dream world Justice Stewart was operating when he wrote this passage. Where in public employment (or private employment, for that matter) was it common, or even known, for employers to "attempt[ ] to enforce two or more agreements specifying different terms and conditions of employment" as to the selfsame employees? Not surprisingly, Justice Stewart provided no example. For that matter, where in public or private employment was it common for employers to attempt to enforce two or more agreements specifying radically different terms and conditions of employment for different, but similarly situated, employees? Not surprisingly, Justice Stewart provided no example of this, either. Even in the absence of unions, free labor markets simply do not allow such situations to arise in the normal course of events, or (if they adventitiously do) to persist for any significant length of time. To be sure, in the context of a hypothetical statute mandating compulsory collective bargaining but without exclusive representation, where two or more unions are empowered simultaneously to negotiate for the same employees, it is possible to imagine that an employer might "fac[e] conflicting demands from different unions", and "the confusion that would result from attempting to enforce two or more agreements specifying different terms and conditions of employment". But no public-sector collective-bargaining statute ever set up such a psychotic system.

For another instance of this confused thinking, Justice Stewart argued that

[t]he confusion and conflict that could arise if rival teachers’ unions, holding quite different views as to the proper class hours, class sizes, holidays, tenure provisions, and grievance procedures, each sought to obtain the employer’s agreement, are no different in kind from the evils that the exclusivity rule in the Railway Labor Act was designed to avoid. * * * The desirability of labor peace is no less important in the public sector * * * .

To hold this view, though, one would have to believe that a free labor market—in which employers could bargain with one union, more than one union if conditions warranted, or no unions at all—would necessarily and ineradicably be beset with debilitating "confusion and conflict". That, however, was not the case before compulsory collective-bargaining statutes were enacted. It was not the case when Abood was decided. And it is most assuredly not the case today, where the vast majority of private-sector employees belongs to no union at all. Also, for a Justice of the Supreme Court to hold this view, he would have to ignore the decisions in Virginian Railway and Jones & Laughlin Steel Corp., which held that, notwithstanding the designation of a union as the employees’ majority representative, an employer could enter into individual contracts with employees—contracts which, presumably, could have been informed by the "different views" of a "rival" union, so long as the "rival" union did not purport to act as the majority representative. Finally, for anyone to hold Justice Stewart’s view, he would have to forget that "[t]he confusion and conflict that could arise if rival * * * unions * * * each sought to obtain the employer’s agreement" derive fundamentally from the existence of compulsory collective bargaining itself. If employers were not compelled by statute to bargain, terms and conditions of employment would be set by free-market forces, which would balance or filter out the "quite different views" of "rival" unions.

Interestingly, Justice Stewart’s theory of "labor peace" turned not on outbreaks of industrial violence by workers if employers refused to accede to the process of collective bargaining (as was the historical predicate for the "labor-peace" rationales of Virginian Railway and Jones & Laughlin Steel Corp.), but on the palpably circular argument that "confusion and conflict * * * could arise if rival * * * unions * * * each sought to obtain the employer’s agreement". That is, "labor peace" required exclusivity in compulsory collective bargaining because, without exclusivity, an imaginary inherently chaotic scheme of compulsory collective bargaining would be chaotic! To which assertion, one would have thought, the proper response would have been a shrug, a derisive smile, and the suggestion that the logical solution to that phantom problem was simply to avoid any compulsory collective bargaining at all.

Interestingly, too, Justice Stewart’s theory that "[t]he confusion and conflict that could arise if rival * * * unions * * * each sought to obtain the employer’s agreement, are no different in kind from the evils that the exclusivity rule in the Railway Labor Act was designed to avoid" reinterpreted the "labor-peace" rationale of Virginian Railway from one concerned with violent strikes by unionized employees protesting the absence of union recognition and collective bargaining to one concerned with imaginary "confusion and conflict" in the context of hypothetical multi-union collective bargaining. Perhaps this was because Justice Stewart sensed that one could not plausibly rely on a traditional industrial-violence model of "labor peace" where the government—that is, the public—was the employer.

In any event, in all of this Jusice Stewart said nothing about the constitutional problems surrounding exclusive representation.

Revealingly as well, even in support of the agency shop (the matter at issue in Abood) Justice Stewart’s plurality opinion cited but a single constitutional case: Railway Employes’ Department v. HansonHanson, however, said nothing about the constitutionality vel non of exclusive representation, either. And prior to Abood, the one Court of Appeals squarely presented with the question had concluded that Hanson was irrelevant to the unconstitutionality of exclusive representation. So how, by relying on HansonAbood could have said anything about the constitutionality of exclusive representation defies comprehension.

Hanson did, however, make an obeisance to "labor peace", saying that

Congress has authority to adopt all appropriate measures to "facilitate the amicable settlement of disputes which threaten the service of the necessary agencies of interstate transportation." * * * These measures include provisions that will encourage the settlement of disputes "by inducing collective bargaining with the true representative of the employees and by preventing such bargaining with any who do not represent them," Virginian Ry. Co. v. System Federation No. 40, 300 U.S. 515, 548, and that will protect the employees against discrimination or coercion which would interfere with the free exercise of their right of self-organization and representation. National Labor Relations Board v. Jones & Laughlin Steel Corp., 301 U.S. 1, 33, 57. Industrial peace along the arteries of commerce is a legitimate objective; and Congress has great latitude in choosing the methods by which it is to be obtained.

But, in these remarks, Hanson clearly relied on a vision of "labor peace" that related to violent strikes over union recognition and bargaining that shut down interstate commerce. And, by its citation of authority, Hanson conceded sotto voce that even that form of labor unrest could be averted by the kind of exclusive representation upheld in Virginian Railway and Jones & Laughlin Steel Corp.—that is, exclusive representation that was not in fact exclusive, because it permitted bargaining by individual employees.

From all of this, then, it is pellucidly clear that Abood constituted no precedent for the constitutionality of exclusive representation in public-sector employment (or anywhere else), and certainly did not overrule or find inapplicable to public-sector exclusive representation the unequivocal condemnations of exclusive representation in Schechter and Carter.

Following Abood, the Supreme Court decided Perry Education Association v. Perry Local Educators’ Association. Although there the Court held that a school board could constitutionally grant to a union designated as the teachers’ exclusive bargaining representative the exclusive privilege to use teachers’ mailboxes and the interschool mail system, the constitutionality of exclusive representation itself was in no way at issue.

Nonetheless, in dicta the Court made a by-the-way nod to exclusivity, saying

[w]e observe that providing exclusive access to recognized bargaining representatives is a permissible practice in the public sector. We have previously noted that the "designation of a union as exclusive representative carries with it great responsibilities. The tasks of negotiating and administering a collective-bargaining agreement and representing the interests of employees in settling disputes and processing grievances are continuing and difficult ones." Abood v. Detroit Bd. of Ed., 431 U.S. 209, 221 (1977). Moreover, exclusion of the rival union may reasonably be considered a means of insuring labor peace within the schools. The policy "serves to prevent the * * * schools from becoming a battlefield for inter-union squabbles."

Revealingly, the Court cited no case for the proposition that "providing exclusive access to recognized bargaining representatives is a [constitutionally] permissible practice in the public sector". (Probably the Court merely meant that such exclusive access was "permissible" in the sense that many States in fact permitted it, rather than that it was legally justificable on statutory and constitutional grounds.) And, of course, the one case it did cite, Abood, sustained neither any privileges of "exclusive access" nor exclusive representation itself, in whole or in part—which is perhaps why the Perry Court merely said that Aboodhad "noted" certain things about exclusive representation, not that Abood had actually held anything on that subject.

Also revealingly, the Perry Court did not seem to grasp the obvious petitio principiin its observation that "exclusion of the rival union may reasonably be considered a means of insuring labor peace within the schools. The policy ‘serves to prevent the * * * schools from becoming a battlefield for inter-union squabbles’". Of course, "insuring labor peace" could also be brought about by not allowing collective bargaining through exclusive representation at all. For, without that system, "inter-union squabbles" would not be possible, because no prize of exclusive privileges would stand to be won on that "battlefield". That is, as articulated in Perry (as it was in Justice Stewart’s plurality opinion in Abood), the issue of "labor peace" is entirely synthetic, being merely—one is tempted to say, exclusively—the product or artifact of compulsory collective bargaining itself.

In keeping with the illogic of its primary position, the Perry Court admitted that "there is no showing in the record of past disturbance * * * or evidence that future disturbance would be likely" from allowing a union in competition with the exclusive representative to use the school mailboxes and mail system, but nevertheless held such proof unnecessary to sustain the exclusive union privileges at issue. That is, to the Court in Perry the "labor-peace" theory was not one that required supporting evidence before the rights of nonunion employees could be abridged, even though, traditionally, "undifferentiated fear or apprehension of disturbance is not enough to overcome" First-Amendment freedoms.

Interestingly, although Justice Brennan dissented in Perry from the Court’s notion that a threat to "labor peace" required no real evidence, he nonetheless accepted the question-begging proposition that "the State’s interest in preserving labor peace * * * in order to prevent disruption is unquestionably substantial". One can only wonder—for Justice Brennan failed to explain—how the government’s interest in "labor peace" is legitimately "substantial", when the threat to "labor peace" operationally arises from rivalry among unions for, and opposition by nonunion employees to, the very monopoly status for unions the government itself has created. Unless the constitutionality of that status has been proven, the government can claim no interest, substantial or otherwise, in the "labor peace" that status purportedly creates.

Most important to notice is the subtle—or, perhaps more accurately put, slippery—transition that took place in Justice Brennan’s opinion in Perry. In Virginian Railway and Jones & Laughlin Steel Corp. the Court in essence applied a de minimis rational-basis test to compulsory collective bargaining, saying that "[i]t was for Congress to make the choice of the means by which its objective of securing the uninterrupted service of interstate railroads was to be secured, and its judgment * * * is not open to review here". As to exclusive representation under the RLA and NLRA this approach may have been minimally legitimate in Virginian Railway and Jones & Laughlin Steel Corp., because (as explained above) no employees challenged the statutes, and the Court construed the RLA and NLRA as not precluding individual bargaining between employers and employees. But those cases certainly did not determine that the government had a "substantial"—or even any—interest in exclusive representation as exclusive representation came to be reinterpreted years later, perforce of J.I. Case Co. and Order of Railroad Telegraphers, for the compelling reason that, in Virginian Railway and Jones & Laughlin Steel Corp. the government did not assert a theory of truly exclusive exclusive represention, and in J.I. Case Co. and Order of Railroad Telegraphers the Court refused to discuss the constitutional issues arising from its reinterpretation of exclusive representation. Obviously, then, Justice Brennan was attempting to further the legend he had originally cut from whole cloth in City of Madison that exclusive representation was "unquestionably" or "plainly" constitutional, by supplying the first level of legal magic language for that unjustifiable conclusion: that the government’s interest in exclusive representation was "substantial".

Following Perry came Knight v. Minnesota Community College Faculty Association (Knight I), a case which did, for the first time, raise serious constitutional questions about exclusive representation in public-sector employment. Unfortunately, but perhaps predictably, the Court chose to treat Knight I in a summary fashion, without briefs on the merits, oral argument, or a full opinion, notwithstanding that, under the jurisdictional statute in force at the time, the nonunion employees had a right to appeal their case to the Court, and notwithstanding that the disposition, albeit summary, was nevetheless a decision on the merits. 

In a companion case to Knight IMinnesota State Board for Community Collegesv. Knight (Knight II), arising under the same jurisdictional statute, the Court—after full briefs on the merits and oral argument—held that a State community-college board could constitutionally prohibit nonunion teachers from speaking at official meetings on policy questions related to their employment but outside the scope of mandatory collective bargaining (the so-called "meet-and-confer" process), and could reserve the right to speak to members of the exclusive representative.

The constitutionality of exclusive representation itself was not at issue in Knight II. Nonetheless, the Court in Knight II sustained the union’s exclusive privilege to speak at the board’s meetings by reference to exclusive representation:

If it is rational for the State to give the exclusive representative a unique role in the [collective-bargaining] process, as the summary affirmance in [Knight I] presupposes, it is rational for the State to do the same in the "meet and confer" process. The goal of reaching agreement makes it imperative for an employer to have before it only one collective view of its employees when "negotiating." See Abood v. Detroit Board of Education, 431 U.S. at 244.

Similarly, the goal of basing policy decisions on consideration of the majority view of its employees makes it reasonable for an employer to give only the exclusive representative a particular formal setting in which to offer advice on policy.

In a footnote, the Court correctly described Abood’s holding on the agency shop, but then stated in slippery verbiage that "Abood did not even discuss, let alone adopt, any general bar on ‘exclusivity’ outside the collective-bargaining context". Of course (although the Court did not advert to it), neither did Abood discuss, let alone adopt, any general constitutional permission for exclusivity outside, inside, or anywhere around the collective-bargaining context. Abood held nothing about exclusivity at all.

In any event, that it may be "rational for the State to give the exclusive representative a unique role in the [collective-bargaining] process" was beside the constitutional point in Knight II—and, interestingly enough, was not even an issue in Knight I. That some governmental scheme is somehow internally rational (in an operational sense) does not compel the conclusion, or even necessarily provide persuasive argument, that the scheme is also constitutional. Operationally, of course, there can be only one union representative if there is to be only one agreement with one collective representative. So, in that trivial, tautologous sense, exclusive representation is rational. The constitutional issue in Knight I, however, was not whether the designation of one monopolistic representative was a rational way to create a system of monopolistic representation, but whether such a designation, precisely because it gave monopolistic powers to a private organization, abridged governmental and popular sovereignty, in violation of the holdings of Schechter and Carter, and of the fundamental constitutional principle of political equality that the Supreme Court had applied in numerous other of its decisions.

As to this, the Court in Knight II simply said that

[t]he [lower] court rejected [the nonunion employees’] attack on the constitutionality of exclusive representation in bargaining over terms and conditions of employment [in Knight I], relying chiefly on Abood v. Detroit Board of Education, 431 U.S. 209 (1977). * * * The [Supreme] Court summarily affirmed the judgment insofar as the District Court held [exclusive representation] to be valid. Knight v. Minnesota Community College Faculty Association, 460 U.S. 1048 (1983). The Court thus rejected [the nonunion employees’] argument, based on A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935), and on Carter v. Carter Coal Co., 298 U.S. 238 (1936), that [exclusive representation] unconstitutionally delegated legislative authority to private parties.

On what constitutional grounds the Court in Knight I "rejected" the argument based on Schechter and Carter the Court in neither Knight I nor Knight II chose to explain. The Court cited no decision other than Abood in support of the result in Knight I—from which, apparently, a reader of Knight II unfamiliar with Abood, and who incautiously fails to parse that decision for himself, is to infer that Aboodsomehow upheld the constitutionality of exclusive representation, and even somehow distinguished or overruled Schechter and Carter.

The statement that "[t]he [Supreme] Court summarily affirmed the judgment [of the District Court] insofar as the District Court held [exclusive representation] to be valid" provided no particular help, either. For, in its opinion, the District Court merely fantasized that "Abood squarely upholds the constitutionality of exclusive representation bargaining in the public sector"—when, of course, Abood does, and in light of the issues actually litigated in that case could do, no such thing.

The political grounds for the Supreme Court’s statement in Knight II, however, are not so difficult to fathom. By treating Knight I in a summary fashion, without a full opinion, the Court not only could suppress the arguments and evidence the nonunion employees put forward (for not one person in ten million will bother to consult the briefs hidden away in the Court’s bowels), but also could spare itself the embarrassment of trying to rationalize the constitutionality of exclusive representation in the teeth of SchechterCarter, and numerous other cases.

Most revealing about the whole affair is that Knight I was the first, and to date remains the only, case to reach the Supreme Court in which public-sector exclusive representation has been challenged on constitutional grounds. (Carterheld exclusive representation unconstitutional in private-sector employment.) Why, if Knight I was to be the only such case (as presumably the Court knew it would be, were exclusive representation upheld), and why, if the Court were to "reject[ ]" the obvious—indeed, logically compelling—application of Schechterand Carter to exclusive representation in the public sector, would the Court not have explained to the country the manifold sound bases for its decision, if such there were?

Justice Brennan wrote an extensive dissenting opinion in Knight II. Yet in Knight Ihe was strangely silent, notwithstanding that in other cases he had condemned summary dispositions of serious constitutional questions as "judicial irresponsibility".

That all the Justices eschewed any explanation or critique of what the Court did in Knight I evidenced their recognition sotto voce that a sound constitutional basis for that decision not only did not exist, but was even not capable of being concocted out of lawyers’ double-talk—and that any mention of this would, doubtlessly, draw the public’s attention to what the case entailed. How, indeed, could the Court summarily, without a written opinion, "reject[ ]" Schechter and Carter, two of the most significant constitutional decisions of the Roosevelt era, which set aside the key legislation of the New Deal? Was this because no opinion was necessary—or because no believable opinion could be written? Moreover, what sort of legal logic or economy would have led the Justices to pen long and involved majority, concurring, and dissenting opinions in Knight II, yet no opinion at all in Knight I, when the Court in Knight II explicitly rested that decision on the ersatz authority of Knight I ("[i]f it is rational for the State * * * " and so on, as quoted above)?

The dissenting opinions in Knight II are themselves quite illuminating as to the fundamental deception all the Justices practiced in that decision. In his dissent, Justice Brennan wrote that,

[a]s we have often recognized, the use of an exclusive union representative is permissible in the collective-bargaining context because of the State’s compelling interest in reaching an enforceable agreement, an interest that is best served when the State is free to reserve closed bargaining sessions to the designated representative of a union selected by public employees. See Abood, * * * 431 U.S. at 223-26. See also Madison Joint School District No. 8 v. Wisconsin Employment Relations Comm’n, 429 U.S. 167, 178 (1976) (BRENNAN, J., concurring in judgment).

One wonders who the "we" might be who "often recognized" the "permissib[ity]" of public-sector exclusive representation, other than Justice Brennan himself. No case before Knight I, including Abood and City of Madison, ever held "exclusive union representati[on] * * * permissible" in public employment, on any ground. No case before Knight I ever held that there was a "compelling [governmental] interest in reaching an enforceable agreement" that justified exclusive representation. Indeed, even Knight I (as interpreted by Knight II) did not so hold. Knight II merely said that "[i]f it is rational for the State to give the exclusive representative a unique role in the [collective-bargaining] process, as the summary affirmance in [Knight I] presupposes", then a lesser form of exclusivity would also be "rational". And, by Knight II’s own admission, the result in Knight Imerely "presuppose[d]" that such a situation was "rational". The Court having written no opinion, Knight I never actually inquired whether, let alone proved that, such a presupposition was valid, when measured against countervailing arguments and evidence. In addition, the nonunion employees in Knight I never argued that it was not "rational for the State to give the exclusive representative a unique role in the [collective-bargaining] process", but rather contended that exclusive representation is unconstitutional precisely because it is a rational and effective means to create a monopoly of political and economic influence for a union occupying such a position.

Again, noteworthy is the slippery transition made in Justice Brennan’s opinion. In the majority opinion in Knight II, the most the Court dared to say was that exclusive representation could be "presuppose[d]" to be "rational" on the basis of Knight I, but without providing any details as to why that was so. Mere rationality, of course, is the lowest basis for a constitutional ruling; and, as every law student learns in his first course in constitutional law, it cannot be employed to justify infringements on fundamental rights of free speech, association, and political equality (the rights asserted in Knight I). So the bare statement of Knight II as to the mere rationality of what Knight I did could not have been very comforting to anyone, such as Justice Brennan, conversant with the standards of contemporary constitutional jurisprudence and hoping to convince readers of the United States Reports that such standards had properly been applied in Knight I. Of course, under the circumstances, it was tactically the best, and perhaps the only, route the Court could follow in Knight II, given its obvious desire to suppress the issues raised in Knight I.

In Perry, Justice Brennan had stated in dicta that the government had a "substantial" interest in exclusive representation, putting the matter a notch higher up on the constitutional scale than mere rationality, yet still not high enough to justify the result the Court allowed in Knight I. So, in Knight II, Justice Brennan conveniently discovered from nowhere that the government’s interest in exclusive representation had suddenly risen to the "compelling" level—the verbal talisman that cures abridgments of fundamental rights. The assertion of this conclusory language could explain away to careless readers of the decision the result in Knight I without actually explaining the basis for that decision. So, very neatly, by Justice Brennan’s verbal legerdemain the constitutionality of exclusive representation in public-sector employment was decided rhetorically, without anyone’s actually having to address the question with real evidence and legal arguments as if they were in a courtroom.

One may legitimately wonder what, in Justice Brennan’s mind, the "compelling" governmental interest in exclusive representation might have been. True, the designation of one monopolistic representative is a rational, effective, and even arguably the only way to create a system of monopolistic representation. But what "compels" the government—what legitimate constitutional power and right, let alone duty, has it—to create such a system? For decades—yea, generations—governments hired employees without compulsory collective bargaining and exclusive representation, and quite adequately provided the public with services through those employees. So the "compelling" nature of the thing, whatever it may be, is no unavoidable, existential aspect of public-sector employment itself. Furthermore, for decades—yea, generations—public-sector unionism and both compulsory and voluntary collective bargaining were deemed wholly inconsistent with traditional concepts of governmental sovereignty. So the "compelling" nature of the thing, whatever it may be, is no matter of law. Indeed, the "compelling" aspect of exclusive representation flies in the face of traditional legal principles. Pace Justice Brennan, it is no practical matter of "reaching an enforceable agreement", either. For a public employer can certainly contract individually with its employees, with each of the individual contracts being "enforceable" to the same degree a collective-bargaining agreement is. In addition, a public employer can certainly offer the selfsame terms and conditions of employment to similarly situated employees as individuals, without any union’s being consulted.

So, Justice Brennan’s "compelling" governmental interest in exclusive representation reduces to nothing more than the silly truism that the government has a "compelling" interest in recognizing an exclusive representative for its employees where the government has an interest in reaching an enforceable agreement with such a representative, because the government can reach such an agreement only if it recognizes such a representative. But why and under what conditions the government has an interest in reaching such a monopolistic agreement, and on what logically independent grounds that interest is "compelling" (if it is), Justice Brennan did not explain.

In his dissent in Knight II, Justice Stevens said that "[i]t is now settled law that a public employer may negotiate only with the elected representative of its employees, because it would be impracticable to negotiate simultaneously with rival labor unions. See Abood v. Detroit Board of Education, 431 U.S. at 224-26." If Justice Stevens meant by "may" that "[i]t is now settled [constitutional] law," one wonders what he meant by "now". Even had he meant that—for the first time in history—Knight I so held, he would have been incorrect. For the nonuniuon employees in Knight I never attacked exclusive representation on the ground that public employers should be required, or even free, to "negotiate simultaneously with rival labor unions". But Justice Stevens did not rely, even erroneously, on Knight I. Rather, his citation of Abood implied, if it did not assert, that Abood had upheld exclusive representation as a matter of law. That, of course, is not the case. In any event, the apocryphal holding Justice Stevens cited is, to be charitable, foolish in the extreme in the face of the contention made in Knight Ithat for a public employer to negotiate with any union unconstitutionally abridges governmental and popular sovereignty and political equality.

Justice Powell joined in Justice Stevens’ dissent. Yet, although the nonunion employees in Knight I had argued that compulsory public-sector collective bargaining through exclusive representatives is an unconstitutional delegation of governmental authority to private parties, Justice Powell conveniently forgot his observations in Abood that a "collective bargaining agreement to which a public agency is a party * * * has all the attributes of legislation", and that "voters could complain with force and reason that their voting power and influence on the [governmental] decision making process ha[ve] been constitutionally diluted" by delegation of power to a union. (Apparently, Justice Stevens forgot them, too.) How Justice Powell could pinpoint this issue in Abood—where it was not litigated—but could then put it aside entirely both in Knight I—where it was the centerpiece of the litigation, and in Knight II—which used Knight I as ersatzauthority, passes understanding.

What comes out of all the opinions in Knight II and the absence of an opinion in Knight I is an evidently substantial and compelling desire on the part of the Justices to say as little as possible about the issues Knight I raised, and in Knight II to misdescribe Abood as having decided the constitutionality of exclusive representation. No doubt, this desire was also quite rational, in light of the extreme difficulty the Court would have had in explaining away Schechter and Carter in Knight I. It was also tactically adroit. A summary disposition by the Court is to be treated narrowly, and does not carry with the Court itself as much weight as a decision on the merits after full briefing and oral argument. However, a summary disposition is purportedly fully binding on the inferior federal and all State courts. So, by disposing of Knight I summarily, the Court effectively scotched the issue of exclusive representation in further litigation, but left itself free to bring up for review that issue, or some aspect of it, later on if it turned out (as so far it has not) that the Court’s imposition of an essentially fascist system on public-sector employment exhibits some overly rough edges that the Court feels need filing down.

Is the Supreme Court, then, to be charged with duplicity with regard to its actions in Knight I and Knight II? Perhaps this question can be answered by asking whether the Court is to be charged with spreading disinformation on the subject thereafter. This question can be answered by letting the reader draw his own conclusion from Chicago Teachers Union, Local No. 1 v. Hudson. In Justice Stevens’ majority opinion in that case, the Court asserted, without qualification, that in Abood "[w]e * * * rejected the claim that it was unconstitutional for a public employer to designate a union as the exclusive collective-bargaining representative of its employees, and to require nonunion employees, as a condition of employment, to pay a fair share of the union’s cost of negotiating and administering a collective-bargaining agreement". Of course, as explained above, in Abood there was no "claim that it was unconstitutional for a public employer to designate a union as the exclusive collective-bargaining representative of its employees"—no claim raised by the litigants, no claim adjudicated by the Court.

Now, Justice Stevens, for one, had sat on the very Court that had decided Abood. Had he, by the time of Hudson, quite forgotten what Abood was about? If so, surely he could have reread the opinions in Abood. And if that was not enough to refresh his recollection, he could have consulted the briefs in the Court’s archives. Perhaps he did not bother to do so. If he did, and understood what he was reading, he chose to describe Abood in a manifestly false way. But could Justice Stevens have written an opinion for the Court based on honest confusion (let alone duplicitious misrepresentation) about what Abood held, and still have had every other Justice of the Supreme Court join or concur in that opinion without comment? Would not honest confusion, let alone misrepresentation, have been corrected before the opinion went to press?

That honest confusion about what Abood held was not at work in Hudson can be surmised from the absence in the latter decision of any citation of Knight I or Knight II. Even a first-year law student, required in a moot-court exercise to write a brief defending the constitutionality of public-sector exclusive representation, would perforce cite Knight I, inasmuch as that is the only case that ever brought the issue to the Supreme Court for decision (notwithstanding that the Court dealt with in a summary fashion). The student might not be able to defend the result in Knight I, and surely would be unable to identify the chain of legal reasoning (if any) along which the Court reached it. But he would doubtlessly cite the case, or justifiably expect a low grade for his legal research. Why, then, did none of the Justices in Hudson mention Knight I, instead consigning it by silence to the status of a noncase (in the fashion of an Orwellian nonperson)? Was it because, if Hudson had cited Knight I, a legal researcher reading Hudson might have been stimulated to look up the details of Knight I in the briefs submitted in that case, and doing so would have seen what a utter, indefensible travesty that decision was? And therefore was it more politic and less embarrassing for the Court to attribute (even falsely) to Abood what Knight I did? After all, a legal researcher who began his search with Hudson and then turned to Abood, as Hudson seemed to direct him, might conclude that he could not understand how the Hudson Court had concluded that Abood had upheld exclusive representation when exclusive representation was not at issue there. But, notwithstanding that anomaly, the researcher might nevertheless simply write the whole matter off, accepting what amounted to a fait accompli, and thereafter himself citing Abood (on the arbitrary authority of Hudson) as the case that upheld exclusivity, without ever knowing of, let alone investigating, Knight I. In that way, in the real world of practical litigation the Supreme Court would succeed in covering up the whole tortuous history of exclusive representation from Schechter and Carter to Knight I and Knight II. Is that, however, what the Court did? Let the reader judge for himself. Surely, though, this explanation is not without precedent. Bigger and more consequential official cover-ups have taken place in American history.

A final piece of evidence supporting the theory of cover up is Justice Blackmun’s plurality opinion in Lehnert v. Ferris Faculty Association in which he correctly stated that "in Abood * * * this Court addressed the constitutionality of union-security provisions in the public-employment context", mentioning nothing about exclusive representation. Between Hudson and Lehnert, did the Court learn something about Abood that it had not known when it decided Hudson? Or was it that, by the decision in Lehnert, the Justices felt that no further mention of the Abood legend about exclusive representation was necessary? By Lehnert, the matter could be left where it lay. Who, after all, would ever bring it up again?

II. The twisted peregrinations of the "labor-peace" theory through the judicial underbrush described heretofore should suffice to discredit both that theory and the people who promulgated it. It would not, however, be amiss to address the demerits of the theory in some further detail, to cast the last shovelful of dirt on its grave.

As the Supreme Court’s opinions show, there are basically two branches to the "labor-peace" theory: The first, advanced during the period of chaotic economic and social conditions in the 1930s, asserts that, unless employers are compelled to accept the procedure of collective bargaining with unions through exclusive representation, violent strikes and other forms of labor unrest will ensue, with calamitous economic and social consequences. For examples—

[T]he meeting of employers and employees at the conference table is a powerful aid to industrial peace. 
[The] provisions [of the RLA] are aimed at the settlement of industrial disputes by the promotion of collective bargaining * * * . 
[T]he recognition of the right of employees to self-organization and to have representatives of their own choosing for the purpose of collective bargaining is often an essential condition of industrial peace. Refusal to confer and negotiate has been one of the most prolific causes of strife.
The practice and philosophy of collective bargaining looks with suspicion on * * * individual advantages. * * * [A]dvantages to individuals may prove as disruptive of industrial peace as disadvantages.

This branch of the theory essentially employs the threat of violent "labor unrest" to rationalize the imposition on employers and nonunion employees of the process of collective bargaining itself—backed up, of course, by the violence of the government if the victims protest. Intellectually, it is akin to the "protection racket".

The second, contemporary branch of the theory of "labor peace" is that exclusive representation is necessary to avoid practical problems that would arise if compulsory collective bargaining were applied in situations where more than one union attempted to represent employees. For examples—

The designation of a single representative avoids the confusion that would result from attempting to enforce two or more agreements specifying different terms and conditions of employment. It prevents inter-union rivalries from creating dissension within the work force and eliminating the advantages to the employees of collectivization. It also frees the employer from the possibilty of facing conflicting demands from different unions, and permits the employer and a single union to reach agreements and settlements that are not subject to attack from rival labor organizations.

[E]xclusion of the rival union may reasonably be considered a means of insuring labor peace within the schools. The policy "serves to prevent the * * * schools from becoming a battlefield for inter-union squabbles."

The goal of reaching agreement makes it imperative for an employer to have before it only one collective view of its employees when "negotiating."

[T]he use of an exclusive union representative is permissible in the collective-bargaining context because of the State’s compelling interest in reaching an enforceable agreement, an interest that is best served when the State is free to reserve closed bargaining sessions to the designated representative of a union selected by public employees.

It is now settled law that a public employer may negotiate only with the elected representative of its employees, because it would be impracticable to negotiate simultaneously with rival labor unions.

This branch of the theory assumes a political-economic consensus about the desirability of compulsory collective bargaining in some form, and essentially uses the threat of "labor unrest" to rationalize the imposition on employees of exclusive representation in bargaining (Knight I) and other forums (Knight II).

Overall, it may be said that, with the passing of the socio-economic conditions that made the first branch of the "labor-peace" theory plausible (if not defensible), and with the general acceptance or at least toleration of compulsory collective bargaining (and, indeed, its promotion in the public sector) by the powers that be in American society, the second branch of the theory has taken over the duty of rationalizing compulsory collective bargaining and exclusive representation. For example—

The confusion and conflict that could arise if rival teachers’ unions, holding quite different views as to the proper class hours, class sizes, holidays, tenure provisions, and grievance procedures, each sought to obtain the employer’s agreement, are no different in kind from the evils that the exclusivity rule in the Railway Labor Act was designed to avoid. * * * The desirability of labor peace is no less important in the public sector * * * .

Especially in the public sector, all these rationalizations appear particularly thin and unconvincing in light of the consequences of compulsory collective bargaining through exclusive representation to nonunion employees, to public employers, to the electorate, and to America’s entire legal, political, and economic systems. Moreover, on analysis, these variants of the "labor-peace" theory can easily be exploded.

Initially, one would expect a heavy burden of proof to fall on any litigant—let alone a court—advancing the proposition that "labor peace" can be served through a scheme of collective bargaining that forces employees to accept unions as their exclusive representatives, and that forces employers to negotiate with those unions. For common experience teaches that people forced to do something they perceive as contrary to their interests rarely acquiesce in their oppression, even though their resistance may under the exigencies of their circumstances take only surreptitious forms. In none of the Supreme Court’s labor-law decisions from the 1930s to the present day, however, has this burden of proof ever been met—and Perry said that it need never be met with real evidence.

Indeed, with so small a percentage of union members among employees in the private sector, one must wonder how anyone today could accept the airy assertion from the 1930s that "recognition of the right of employees to self-organization and to have representatives of their own choosing for the purpose of collective bargaining is often an essential condition of industrial peace. Refusal to confer and negotiate has been one of the most prolific causes of strife". Were that assertion true, would not some species of anarchistic industrial strife be expected to increase pari passu with decreases in union membership? And therefore should not modern times be even more the stage for industrial strife than ever the past was? The empirical evidence, though, does not validate this prediction. Therefore, may not one reasonably conclude that the vogue for compulsory unionism and other collectivistic solutions to economic problems in the 1930s was probably rooted, not in some unprovable because nonexistent cause-and-effect relationship between unionism and the economic welfare of employees as a class, but rather in the dominant socialistic and fascistic ideologies in which the Western world happened to be awash at that time, but which have since been discredited except amongst university professors, journalists, Hollywood glitterati, and (apparently) Justices of the Supreme Court?

Indeed, in Hanson, the Court in one of its more self-defining statements claimed that "[o]ne would have to be blind to history to assert that trade unionism did not enhance and strengthen the right to work. See Webb, History of Trade Unionism; Gregory, Labor and the Law." Is one to conclude from this jejeune apercu that tens of millions of American employees who reject union membership today are simply "blind to history"—or, in the old Marxian verbiage, traitors to their class? Or is it more likely that perhaps of somewhat dated and limited vision were the Justices who cited as an authority Sidney Webb, the notorious Fabian socialist and shameless apologist for Soviet Russia during the height of Stalin’s murderous reign? And therefore may one not also conclude that the Supreme Court’s original "labor-peace" apology for compulsory collective bargaining, which Hanson accepted, was more heavily freighted with tendentious theories deriving from the likes of Marx or Mussolini than with arguments congenial to the genius of American constitutionalism and individual freedom? That it was not some statement of enduring truth about employment relations, but merely the echo of the evanescent politically correct notions of an unsettled and confused time?

Interestingly, the Court seemed to admit as much in Hanson, when it offered the observation that "[t]he ingredients of industrial peace and stabilized labor-mangement relations * * * may well vary from age to age and from industry to industry. What would be needful one decade might be anathema the next." Is this observation—that "[w]hat would be needful one decade might be anathema the next"—perhaps the explanation for the Court’s tortuous, duplicitous path from Virginian Railway, through Knight II, to Hudson—namely, that the Court dared not openly address the issue of exclusive representation raised in Knight I, because it knew of no cogent defense for a corporativistic system of labor relations that, when honestly described, would find vanishingly few defenders outside of people nostalgic for Roosevelt’s National Industrial Recovery Act or Mussolini’s corporativism? Is Knight I a case in which the Court, after having insinuated the perverse scheme of exclusive representation into the law in earlier cases because the Justices thought it was "needful one decade", finally was brought face to face with the reality that that noxious principle is "anathema" to the basic precepts of constitutional law (as Schechter and Carter had held)—but then shrank from coming to grips with the problem, instead hiding behind the pathetic, cowardly fiction that Abood had already decided the issue?

Precisely how an advocate of compulsory collective bargaining would go about proving a clear connection between "labor peace" and compulsory collective bargaining through exclusive representation is difficult to imagine. For labor unrest is inherent in the conception and necessary in the operation of compulsory collective bargaining. Compulsory collective bargaining is, after all, a thoroughly adversary process. It presumes that employers and employees do not find themselves in a fundamentally complementary and coöperative venture, but are to some significant degree inherently in mutual opposition and disagreement because of what are supposed to be naturally contrary interests. This is no accident, inasmuch as compulsory collective bargaining embodies in statute form the ideology of trade unionism, which at base rests on definite, if basically false, class-warfare assumptions. In private employment, allowing unions and employers to operate on these errant assumptions through mutual economic coercion short of outright violence may perhaps be tolerable. In public employment, however, such toleration is wholly out of place. For notions of class warfare "on their face, obviously do not apply to the Government as an employer or to relations between the Government and its employees". 

Unions are nothing if not organizations that specialize in mobilizing and motivating employees so as to focus their wants and demands on recalcitrant employers. This may entail argument and persuasion. But where argument and persuasion fail, as they often do in a free society, unions inevitably turn to the tactics of pressure and force quite alien to a free society, in order to coöpt or interfere with the employers’ operations. The practical result of these tendencies is that compulsory collective bargaining inexorably and unavoidably substitutes relationships of power and coercion for relationships of consent and coöperation—and, indeed, institutionalizes and legitimizes conflict as a way of managing employment relations. Between employers and employees, one of these power relationships is compulsory negotiations, based on the coercion to bargain. Between union and nonunion employees another of these power relationships is exclusive representation, based on coercion, too. And between employers, nonunion employees, and the employers’ customers (in the public sector, the general public), on the one side, and unions, on the other, a third power relationship is the strike, which observers have long considered an indispensable adjunct of collective bargaining, and which often (if not usually) involves coercion in its most naked and repulsive forms.

In addition, compulsory collective bargaining directly and intentionally interferes with and subverts the symbiotic working relationship between employers and employees that is necessary for true stability and effectiveness in labor relations. The logic, and certainly the propaganda line, of compulsory unionism and collective bargaining is that employees owe the employment benefits they enjoy primarily to the unions that negotiate in their names. Bombarded with such ideas, employees will naturally tend after a while to attach their loyalties to the unions, rather than to their employers—or, in government employment, to the public whom their employers serve and to the taxpayers who pay their salaries. The latter is an especially perverse result. For every public employee owes his first and undivided loyalty "directly, immediately, and entirely" to the government and the public. "He has no other ‘client’ or principal. He is a trustee of the public interest, bearing the burden of great and total responsibility to his public employer."

From this perspective, then, the notion that compulsory public-sector collective bargaining can bring about "labor peace" is not simply an error, but a cruel joke. Where bargaining is premissed upon conflict; where the unions’ success, and perhaps even survival, depends upon creating, nurturing, and prosecuting conflict; where employees subordinated to unions through exclusive representation will, in the nature of things, come to identify their personal interests with the unions’ institutional interests in creating and prosecuting employment conflicts—where all of these conditions exist, how can such a system possibly not engender and exacerbate labor dissatisfaction, unrest, and turbulence? Is it reasonable to expect stability and effectiveness in labor relations to arise from insinuating into the process private organizations self-interested in promoting destabilization?

For this reason, one can easily see through the contemporary "labor-peace" theory that "the use of an exclusive union representative is permissible in the collective-bargaining context because of the State’s compelling interest in reaching an enforceable agreement, an interest that is best served when the State is free to reserve closed bargaining sessions to the designated representative of a union selected by public employees". Yes, this theory is rational. That, however, is not an answer to, but a statement of, the problem. It is precisely in the rationality—the workability—of this "labor-peace" theory that the danger lies. By creating a system of compulsory collective bargaining that "reserve[s] closed bargaining sessions to the designated representative of a union selected by public employees", the government opens up a Pandora’s box of political as well as economic troubles. By its very nature, compulsory collective bargaining is the most proficuous means for promoting an insidious, subversive form of "labor unrest" for which no remedy exists, because the "labor unrest" has been duplicitously renamed as "peace", and institutionalized and legitimized within the structure of public employment itself.

Thus it should be apparent that, in principle, the "labor-peace" apology for compulsory collective bargaining is a deceit. The full panoply of compulsory collective bargaining, exclusive representation, and strikes is no matter of simply adding to the system a process perfectly compatible with and supportive of the system, that merely integrates employees, through their unions, into a coöperative decision-making process with employers. Rather, it is a matter of reorienting the system along entirely new lines of force. This is especially true in the public sector, where, if "labor peace" can be bought by conceding to unions the special privileges of exclusive representation, compulsory negotiations, and strikes, the cost includes a radical transformation in the very structure of government.

Schechter and Carter made clear that schemes of exclusive representation constitute a delegation of legislative power, even in the private sector. So, too, especially do strikes in public employment. Traditionally, courts have recognized that strikes by public employees contradict the fundamental principles that the government’s duty is serve all the people all the time, not to allow itself to become the pawn of any special-interest group, and that public employees may not engage in conduct intended to subvert the order and efficiency of the government’s operations. To these courts, public-employee strikes amounted in practice to a delegation of governmental power from public officials to union leaders, a delegation fundamentally at odds with the very concept of government. No less a friend of labor unionism than Franklin D. Roosevelt condemned strikes by public employees as

manifest[ing] nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable.

And even intellectuals otherwise favorable to public-sector collective bargaining have long conceded that strikes by public employees constitute a species of political force that transmogrifies the political process by effectively transferring power from the public to unions.

The overall effect of all this is what Justice Powell touched on in Abood, when he observed that a "collective bargaining agreement to which a public agency is a party * * * has all the attributes of legislation", and that "voters could complain with force and reason that their voting power and influence on the [governmental] decision making process ha[ve] been constitutionally diluted" by delegation of power to a union to participate in making such economic laws. But it is also what the Supreme Court—including Justice Powell—refused to address in Knight I, and what the Court, hiding behind the whispy smokescreen of Abood, apparently intends never to talk about again. That is, even knowing what was and remains at stake, the Supreme Court has knuckled under to this truly revolutionary situation, not with a bang, not even with a whimper, but simply with silence.

The silence of Knight I is the most telling, the most damning, the most inexcusable, the most disgraceful aspect of the whole affair. What is its explanation? Bias—that the Justices harbored a strong prejudice in favor of compulsory unionism, growing out of years of faulty education and mingling with a ruling class for which corporativism, in operation if not in name, has become second nature? Cowardice—that the Justices simply wanted to achieve "labor peace" for themselves—that is, to avoid becoming the targets of attacks from the unions, the media, and the intelligentsiia for exposing the corporative, anti-democratic nature of compulsory public-sector collective bargaining, even if they ruled in its favor? Both are likely. But the latter more so. For if the Justices honestly believed—even wrongly, as the result of prejudice—that compulsory public-sector collective bargaining through exclusive representation is constitutional; if they believed SchechterCarter, and the doctrine of political equality to be somehow inapplicable to compulsory bargaining—then why did they not simply say so openly in Knight I? Why hide not only the reasons for their decision, but also even the particulars of the issues to which that decision related? And then why camouflage the whole matter by pretending that Aboodhad upheld exclusive representation, consigning Knight I to the jurisprudential branch of Orwell’s Memory Hole? The obvious answer to these questions is that a cover-up implies a knowledge of guilt.

Americans will probably never know the truth of this affair, because neither the Justices nor their clerks are unlikely ever to "spill the beans". But Americans should keep this shameful episode in mind when judging whether the Supreme Court can be trusted. Not so much to do the right thing—that, after all, might be asking too much. But just to tell the unvarnished truth about what it is doing.

Collective Bargaining: Bringing Education to the Table By: La Rae G. Munk, J.D.

An Analysis of Michigan School Labor Contracts  
and Recommended Improvements to Help  
Teachers, Schools, and Students

Executive Summary

The words "education reform" are frequently seen and heard on the editorial pages and airwaves of the news media. Mirroring a national discontent with student performance in the public school system, Michigan citizens have begun a discussion over the issues that affect the quality of their children’s education. These issues are many and complex, but one issue that is rarely mentioned or even considered in any discussion about education reform is public employee union collective bargaining.

This Mackinac Center for Public Policy study is the first ever to systematically analyze the hundreds of collective bargaining agreements for every school district in a state. It examines collective bargaining’s impact on Michigan public education and makes recommendations that school boards should incorporate into their union contracts to improve their ability to deliver quality education to students. The recommendations help school districts do the following:

• loosen rigid work restrictions on employees so that administrators can put the right teacher with the right training in the right classroom at the right time;

• free up scarce resources from counterproductive noneducational uses so that they can be redirected toward the primary goal of boosting student achievement;

• protect the constitutional rights of all employees so that liability exposure can be limited and costly financial and legal penalties from employee lawsuits avoided; and

• maintain the trust of parents and taxpayers in the local community by providing quality education while wisely managing public resources. 
  
 

Part I of this study provides a background to collective bargaining in Michigan, including its history, the laws that have shaped and are shaping it (especially Public Act 112 of 1994), and the challenges it presents to school board members, parents, taxpayers, teachers, and students. Recommendations to school boards on what to bargain and what not to bargain are also included.

Part II analyzes collective bargaining agreements—obtained using the Freedom of Information Act—from each of Michigan’s 583 school districts. This part identifies eight key provisions that commonly hinder the educational process, and makes recommendations that school boards should adopt to improve their ability to provide the best education possible to their students. The eight provisions and recommendations are as follows:

• Management rights clauses. Every collective bargaining agreement should specifically detail the rights and responsibilities that remain vested in the school board. These clauses should affirm that school management is the school board’s responsibility.

• Exclusive bargaining representative clauses. Exclusive representation means that the school district must deal solely with the recognized or certified union regarding employee wages, hours, and terms and conditions of employment. School boards should not agree to any contract language that prohibits teachers from exploring opportunities with other professional organizations, or requires union permission for them to do so.

• Union security clauses. Union security clauses subject school employees to mandatory union dues payments. School districts should not become union collection agents and enforcers by agreeing to the termination of employees who fail to pay dues money. Employees’ constitutional right to limit dues payments should be protected. Unions should be required to earn the voluntary financial support of school employees.

• "Just cause" discipline and discharge clauses. "Just cause" refers to standards of conduct that an employee must breach before being disciplined or discharged. Because "just cause" proceedings are subject to elaborate legal procedures, school boards should beware of language that expands the "just cause" concept too broadly to include probationary teachers, who are still being evaluated for their competency.

• Teacher evaluation clauses. School officials must be able to evaluate the competency and performance of each teacher in order to judge how well he uses his skills to help students learn and achieve. School boards must ensure that teacher evaluation language serves primarily to avoid any potential harm to students from unqualified or otherwise unfit personnel remaining in the classroom. 

• Seniority-based salary schedules. Most Michigan public school teachers are paid according to their years of experience and level of education. School boards should replace seniority-based salary schedules with performance-based pay scales that reward outstanding teachers and encourage innovation.

• Health care benefits. Teacher salaries and benefits take up an average of 82 percent of school district budgets. School boards should seek opportunities to competitively bid employee health benefits and channel the savings into the classroom.

• Class size clauses. Proposals to reduce student-to-teacher ratios are costly, needlessly restrictive, and have not been proven to significantly improve student performance. School boards should decline to negotiate class size limits. 

Part II also reviews seven court rulings on collective bargaining agreement issues and advises school districts how to avoid contract provisions that may expose them to costly legal and financial penalties resulting from employee lawsuits. Employees’ workplace rights are explained so school districts can understand their role in protecting those rights.  

Part I

The State of School Collective Bargaining 

1. Introduction

No one who follows education news can ignore the spate of surveys showing that students in the United States lag behind many of their international counterparts in their understanding of basic academic subjects. This trend has led to a general disenchantment with America’s public school system. In Michigan as in other states, reform of this system has become a hot topic of discussion among parents, teachers, administrators, elected officials, and other concerned citizens. These discussions take into account many issues involving the quality of public education services. One issue frequently neglected is the critical role that collective bargaining plays in the delivery of those services.

Effective delivery of education services requires that school administrators be able to put the right person with the right training in the right place at the right time. A collective bargaining agreement which unreasonably restricts school administrators’ ability to meet these obligations in a timely and effective manner impedes the delivery of quality education and handicaps not only administrators but also teachers themselves. Every hour of every school day, collective bargaining makes a difference in a school’s operations, its educational environment, and the ability of children to learn.

The discussion of education reform will become productive when citizens understand the impact of collective bargaining, and are willing to participate as informed consumers of public education services. Knowledgeable citizens can influence school boards. Whatever is negotiated at the bargaining table between representatives of school boards and teacher unions will powerfully influence the direction of public education for the foreseeable future.  

Public and Private Sector Collective Bargaining Are Not the Same

Michigan law requires that all public employers, including local school boards, allow their employees to form labor unions. It further requires that public employers bargain in good faith with the unionized employees’ representatives. Many view this situation as analogous to the bargaining that takes place between businesses and private sector unions, such as General Motors and the United Auto Workers. But there is a crucial difference between public sector (government) and private sector bargaining.

That difference is consumer choice. In the private sector, if a business such as a grocery store were to negotiate a union contract that specified costly and cumbersome wages and work rules that drove up the price of the store’s goods, consumers could and would choose to shop at a different store with lower prices and better service. This competition forces the private sector labor unions to either be reasonable in their demands or risk bankrupting the business and losing employment for their members.

With public sector (i.e., government) bargaining, there are no such competitive forces. If a state negotiates a contract with state employees that establishes excessive wages and inefficient and bureaucratic work rules, taxpayers would have no alternative provider of state services. Short of moving to another state, they could not choose to drive on lower cost roads, support a less expensive prison system, or seek options in other functions of state government. Citizens, therefore, are forced to pay the price through their taxes, or some must spend their days lobbying public officials for change—an expensive and time-consuming process that is difficult for most hard-working citizens. 

Unlike consumers in the private sector, taxpayers cannot easily "vote with their feet" to choose a better service provider. Public sector unions therefore experience little external pressure to moderate their demands. This is one reason why the salaries and benefits of government employees are often higher than those of employees performing comparable work in the private sector.

Public School Collective Bargaining Must Change to Stay Relevant

Public education is sure to undergo many changes in the next few years, given the present discontent with student performance. The collective bargaining process will have to change simultaneously if it is to continue to play an influential role in education. William G. Keane, a Michigan public school superintendent for 23 years, recently noted, 

Collective bargaining for educators is almost certainly entering a very different era. The economic, political, and social contexts in which American public education will operate in the future are unlikely to be anything like the environment of the past 30 years. As an artifact of the present educational system, collective bargaining will have to change with the system itself or become a useless and irrelevant appendage.

Through understanding how collective bargaining works, participants in the process can ensure that the focus remains on what is best for individual teachers, administrators, and students. For Michigan, recent changes in the law give school boards and teachers more opportunity to effectively direct school operations with student achievement as the priority.  
 

Purpose and Methodology of This Study

The purpose of this study is to help parents, teachers, administrators, taxpayers, and school board members understand collective bargaining’s role in Michigan public education, and to recommend teacher contract language that promotes better teacher performance, more effective management decision-making, and improved educational opportunities for students.

This study analyzes Michigan’s K-12 public school collective bargaining agreements, and identifies eight key contract provisions that can be improved to help school districts provide a better quality education to their students. The agreements were obtained from school districts by using the Freedom of Information Act.

It is the only study ever to systematically analyze the hundreds of collective bargaining agreements of all the school districts in a state. 

ENDNOTE: Districts operating under expired contracts were included in the analysis to the extent possible, using information from the last ratified agreement. Data were not available from districts currently engaged in negotiating. Text references to actual contract language typically do not identify specific schools. (The author may be contacted for a list of the contracts containing specific language cited in this study.)

Comparative data regarding the costs of these specific contract language provisions and actual costs of administering the collective bargaining agreements were obtained from school districts of various sizes.  

Teacher salary schedules were reviewed to determine the spread between the base salary and the top step, and the economic impact of the step system. Also, teachers' salary and seniority were compared with their education and years of experience. 

The collective bargaining process is often shaped by the decisions of administrative agencies and federal and state courts. Key court cases applicable to collective bargaining, which appear to have been ignored in many contracts, were identified and discussed to inform employees, school boards, and administrators of their legal rights and responsibilities. 

This study further compares the costs of various fringe benefits packages available to school districts. Agreements concerning fringe benefits are a significant part of collective bargaining. Due to changes in school funding, school districts are looking for more cost containment measures. 

Finally, this study was reviewed by school board members, superintendents, management and union negotiators, school attorneys, and other professionals working in the education field to ensure accuracy. 
  

2. The History of Collective Bargaining

For the first hundred years of American public education, collective bargaining for teachers was nonexistent. Government school teachers enjoyed employment protection through individual state civil service laws. 

During this time, many government school teachers and administrators became members of a professional organization called the National Education Association (NEA), to which the words "unionism" and "strike" were abhorrent. 

It was not until the early 1960s that the NEA’s philosophy shifted away from that of a professional organization toward that of a trade union. Two important events occurred at that time to encourage this. 

In 1961, the United Federation of Teachers (UFT), an organization modeled after the labor unions of the industrial sector, gained the power to collectively bargain for New York City teachers. In 1962, President Kennedy issued Executive Order 10988 approving unionization for federal employees, which inspired many state governments to do the same for state employees. 

This new union philosophy was sealed when, in the late 1960s and early 1970s, school administrators separated from the NEA. The NEA went on to become a full-fledged union for school teachers and support staff, including custodial, food service, and transportation employees.

The UFT secured for New York’s teachers a contract reflecting the industrial labor union model: uniform pay scales and seniority rights for teachers, limited classroom hours, and required union membership and dues deductions. This model continues to be followed today by the UFT’s parent union, the American Federation of Teachers (AFT), and the NEA, and their affiliates in each state, including Michigan. 

Michigan Law Opens Door for Public Collective Bargaining Agreements

In 1947, the Michigan legislature passed Public Act (PA) 336, the Public Employment Relations Act (PERA), which allowed state employees for the first time to organize and enter into collective bargaining agreements. Prior to PERA’s enactment, recognition or bargaining with a public sector union was illegal. 

However, the growth of government employee unions did not really begin until after Executive Order 10988. In the mid-1960s, aggressive lobbying efforts by the NEA and AFT in Michigan resulted in the 1965 passage of PA 379, which fundamentally revised PERA.

PA 379 eliminated the penalties for public employees who went on strike. Previously, government employees who violated PERA were considered to have terminated their employment. Though these new amendments to PERA did not legalize strikes by government employees, they substantially weakened the ability of public employers to withstand the pressure from union-initiated work stoppages.

The newly revised PERA of 1965 served as a focal point for teacher union organizing. The NEA’s Michigan affiliate, the Michigan Education Association (MEA), was officially recognized as a bargaining representative, and Michigan teachers soon became the first major state employee group to organize under the new statute. 

Other government employee bargaining representatives quickly moved to establish the legal privilege of bargaining exclusively for a group of public employees. The MEA abandoned its image as a professional educator organization in favor of the trade union model already adopted by the AFT. 

The AFT’s union image, meanwhile, caused its organizing attempts to be met with more resistance as teachers sought to maintain the professionalism long associated with teaching. (This same controversy has re-emerged today as the NEA recently voted on a merger with the AFL-CIO-affiliated AFT. The proposed merger was overwhelmingly rejected by delegates from the NEA’s state affiliates, including the MEA.)

Despite the controversy over image, by 1968 more than three-quarters of Michigan’s school districts had either voluntarily granted recognition to a representative teacher organization, or granted such recognition following a representation election. 
  

A String of Illegal Teacher Strikes

Although illegal, teacher strikes and other work stoppages became more frequent as the unions sought to tilt control away from school management. In 1966, the first full year after Michigan teachers began establishing bargaining units and taking steps to organize, nine school districts experienced their first teacher strikes. By 1967, 36 school districts did not open school on time. 

Some districts were forced to obtain injunctions in order to open their schools. Others experienced work stoppages for extended periods of time. Still others suffered the resignation of their entire teaching staffs. School boards were unprepared to confront these situations; as a result, many of them bargained away their responsibilities without even realizing it. 

This new adversarial relationship between district officials and teachers had an immediate effect on the resources available for education. The most striking was the doubling of annual percentage increase in teacher salaries in the first year of collective bargaining, followed by a tripling in the second year.  

Public Act 112 of 1994

In 1994, the Michigan legislature passed PA 112 which, among other things, amended PERA to re-establish penalties for government employee work stoppages. It also removed certain subjects from the scope of mandatory bargaining, giving school boards and administrators greater control. 

School officials have hailed PA 112 as a sorely needed remedy to an unfair, union-favored bargaining system, while unions challenged these new amendments to PERA in court. In 1995, the MEA and AFL-CIO sought to have the law declared an unconstitutional violation of the free speech and free association rights of their members. The Michigan Supreme Court, in rejecting the unions’ challenge, held that the obligation of public employers to bargain is "imposed by statute and may be limited by statute." 

Since the passage of PA 112, there have been no strikes by Michigan teachers. In Saginaw, which suffered six strikes between 1967 and 1990, teachers recently acknowledged that because of the economic penalties imposed under PA 112, they have stayed in the classrooms. 

PA 112 has many new and important implications for school boards bargaining with public employee unions. These implications are discussed throughout this study. 

3. Fundamentals of Collective Bargaining

There are certain basic principles that, when understood, help school board members and other citizens deal effectively with collective bargaining issues.

Collective bargaining topics fall into one of three legal categories: mandatory, permissive, and prohibited. Under PERA, public employers are obligated to bargain with the employees’ representative over only those subjects which are deemed mandatory, such as work-rules, seniority and promotion, and grievance procedures. 

The collective bargaining agreements in many Michigan school districts contain language which exceeds the scope of these mandatory subjects. Non-mandatory, or "permissive," topics of bargaining may still be bargained, but the school board’s only legal responsibility consists of carrying out mandated statutory obligations.

The Michigan Supreme Court explains the legal obligation, or "duty," to bargain this way:

The primary obligation placed upon the parties in a collective bargaining setting is to meet and confer in good faith. The exact meaning of the duty to bargain in good faith has not been rigidly defined in the case law. Rather, the courts look to the overall conduct of a party to determine if it has actively engaged in the bargaining process with an open mind and a sincere desire to reach an agreement. [Citations omitted.] The law does not mandate that the parties ultimately reach agreement, nor does it dictate the substance of the terms on which the parties manifest such an attitude and conduct that will be conducive to reaching an agreement.

In other words, school districts are not required to bargain over every topic presented in union proposals, and there is no requirement that compels either party to agree to a proposal or make a concession. The obligation to bargain imposed by PERA on public employers and bargaining representatives is met when the parties bargain in good faith over the mandatory subjects defined by statute and case law. 

Mandatory Subjects of Bargaining

Mandatory subjects of bargaining are those subjects embodied in the statutory language of "wages, hours, and other terms and conditions of employment." The Michigan Supreme Court provides a list:

Such subjects as hourly rates of pay, overtime pay, shift differentials, holiday pay, pensions, profit sharing plans, rental of company houses, grievance procedures, sick leave, work-rules, seniority and promotion, compulsory retirement age, and management rights clauses are examples of mandatory subjects of bargaining.

Health care benefits are also mandatory subjects of bargaining. Other mandatory subjects of bargaining include the following: 

• class loads;

• selection of textbooks;

• retirement incentive plans; 

• subcontracting out exclusive teacher bargaining unit work;

• instructional time; 

• extracurricular duties; 

• schedule changes in preparation time and length of the school day; and

• the criterion and format of teacher evaluation. (Frequency of evaluations, however, need not be negotiated.) 
  

Since Michigan public employees are not permitted to strike, the Court has applied a more expansive interpretation of what constitutes a mandatory bargaining subject, concluding that a subject is mandatory when it has a direct effect on the employment relationship. 

Once a specific subject has been determined to be mandatory, the parties are required to bargain over it; neither party may unilaterally change the language or resulting conduct until an impasse is reached. "Impasse" is defined by the courts and administrative agencies (which oversee labor relations) as a continuing effort to negotiate without a change in position. The Michigan Employment Relations Commission (MERC) decides on a case-by-case basis whether an impasse has been reached. MERC considers an "impasse" to be the point at which the positions of the parties have become so entrenched that no further bargaining would be productive. 

At no time is either side required to accept the other’s proposal or compromise in a way that may be harmful, in either the short or long term, to the district or teachers. By declaring an impasse, however, the bargaining parties do not necessarily meet the legal standard required before a particular proposal can be unilaterally implemented. The obligation to bargain continues: An impasse only suspends bargaining on the particular subject until there is a change in circumstances or in the position of one of the parties. 

Sometimes the impact of a school board’s decision is a mandatory subject of bargaining, even though the decision itself can be made unilaterally by the board.

Some subjects of collective bargaining appear to be within management’s unilateral control, but affect the employment relationship. The U. S. Supreme Court has developed a test to balance the interests of the parties in these instances. The balancing test establishes that the obligation to bargain exists when the "benefit, for labor-management relations and the collective bargaining process, outweighs the burden placed on the conduct of the business."

Though these subjects seem all-encompassing, management decisions which go to the heart of controlling the school district are not considered mandatory subjects. Education policy, for example, has been determined not to be a mandatory subject of bargaining. 

Those subjects which are not considered mandatory may be either permissive or prohibited subjects of bargaining. 

Permissive Subjects of Bargaining

Permissive subjects of bargaining are those over which bargaining is neither compelled nor prohibited. Neither party is required to agree to proposed language that is a permissive subject, and the matter cannot be pursued to the point of impasse. Although the parties may discuss permissive subjects and try to reach agreement, neither may, at any time, insist on the subject being incorporated into the contract. 

Decisions which are essential to the existence of the school district or which only indirectly affect wages, hours, and employment conditions are considered permissive subjects of bargaining. 

Examples of permissive bargaining subjects include the following:

• elimination of any programs being transferred to an intermediate school district;

• issuance and return dates of teacher contracts; 

• recruiting standards; and 

• formulation of new positions.  

Also, peer review, teacher protection, and appointment of curriculum committee members are all permissive subjects of bargaining because they are only indirectly related to essential terms of employment.

Once language is contained in a collective bargaining agreement, it cannot be changed unless there is mutual agreement or the contract expires. School boards should understand that the inclusion of permissive subjects in collective bargaining agreements needlessly binds school management and may reduce or eliminate flexibility in decision-making. This flexibility is vital to management’s ability to implement creative or innovative new methods and programs. 

It is much easier to keep language out of a teacher contract than to remove it later. Accordingly, school boards should not negotiate or include in the agreement any the following:

• maximum class size;

• any issue not exclusively related to teachers;

• maintenance of school standards;

• grievances, as a general aspect of employment;

• the union’s code of ethics as the standard of professional conduct; and

• any clauses that substantially restrict normal board operations.  
  

School boards must carefully weigh the consequences of refusing to bargain over some subjects presented by unions. While failure to bargain over mandatory subjects can result in unfair labor practice charges and legal fees, failure to bargain over permissive subjects can result in loss of teacher morale, union-initiated media campaigns, and pressure tactics on the local community. (Some school districts have faced such consequences when they refused to bargain over subjects that were prohibited.)

School boards may bargain over topics indirectly related to teacher employment, but should maintain the distinction between board policies and collective bargaining agreements. Board policies and collective bargaining agreements cover different aspects of school operations and must be kept distinct. Otherwise, the board may end up negotiating all of its policies, which is costly, inefficient, and time-consuming. Existing board policies should never be made a part of, or subject to, the contract.

Similarly, school boards should not include statutory requirements in collective bargaining agreements. For example, over 200 Michigan school contracts currently list the composition of site-based management committees, which is established by statute. The inclusion of such lists in the contract means that committee compositions cannot be changed during the contract period even if the authorizing statute is changed.

Furthermore, school boards should not include any contract language that obligates any party to abide by the U. S. and Michigan Constitutions and applicable federal and state law. Such language is superfluous because these laws automatically apply to the bargaining relationship. 
  

Prohibited Subjects of Bargaining

Prohibited subjects of bargaining are those subjects that, if included in a collective bargaining agreement, are unenforceable as a matter of law. For instance, a right protected under federal or state law cannot be bargained away in an agreement. Though the courts and administrative agencies have rendered few decisions defining prohibited subjects of bargaining, there is a general guideline; namely, an agreement cannot contain a topic which has been determined by law to be either of the following: 

• the sole responsibility of one party; or 

• illegal under federal or state law. 

A 1980 MERC decision provides an example of the latter situation. Grand Rapids teachers faced a mandatory assessment requiring the payment of a fee to a teachers’ assistance program fund. MERC determined that the fund was being used to support teachers during strikes which were illegal under PERA, and so ruled the assessment a prohibited subject. 

Prohibited subjects of bargaining should never be included in collective bargaining agreements; unfortunately, many contracts throughout the state contain them. Few public employees and school officials are knowledgeable enough to recognize which clauses in a collective bargaining agreement are prohibited and unenforceable by law, and consequently, they can easily be misled. In Michigan, MEA officials have been known to insist that certain prohibited subjects of bargaining remain in the contract. This leaves school districts with the impression that those provisions were enforceable. The following letter from an MEA official reveals the union's strategy and twisted reasoning. 
 

December 5, 1995
 

Superintendent, Public School

Dear Mr. Superintendent: 

This is to follow up our conversation this morning. PA 112 presents a dilemma when it comes to prohibited subjects of bargaining.

Since they are prohibited it is impossible to change or delete those sections, since that would involve bargaining. And bargaining is prohibited.

I believe, however, that the Michigan Court of Appeals did shed some light on that matter. They said: the subsections "evince a legislative intent to make public school employees solely responsible for these subjects by prohibiting them from being the subjects of enforceable contract provisions...."

Consequently, we must leave the language in the contract since we can't bargain it out, but it will, according to the Court of Appeals, be unenforceable.

I hope that answers the Board's concerns. Sometimes laws produce bizarre results!

Sincerely, 

Uniserv Director

Michigan Education Association

Although there are many prohibited subjects of collective bargaining, the following are specifically prohibited under PA 112 of 1994:

• Who is or will be the policyholder of any employee group insurance benefit;

• Establishment of the starting day for the school year and the amount of pupil contact time required to receive full state aid;

• Composition of site-based decision-making bodies;

• Decisions involving intra- or interdistrict open enrollment;

• Authorization of contracts to organize and operate public school academies (charter schools); 

• Decisions to contract noninstructional support services;

• Decisions involving use of experimental programs and staffing;

• Decisions involving use of technology to deliver educational programs and the staffing to provide the technology, as well as the impact of these decisions on individual employees and bargaining units;

• Use of volunteers to provide school services; and

• Additional compensation or work assignments intended to reimburse an employee for any monetary penalty imposed under PA 112. 

School boards should perform a careful review of all collective bargaining agreement language to insure continuing compliance with the law and applicable court decisions. An experienced labor relations specialist or labor attorney can provide a thorough, section-by-section contract analysis. 

4. Shortcomings of the Collective Bargaining Process

The collective bargaining process has many characteristics that tend to produce agreements that fail to meet the needs of school districts, teachers, and their students. The purpose of this section is to provide school board members, parents, teachers, and community members with an understanding of these negative characteristics and how they often affect the quality of a local school district’s educational product.

To avoid being manipulated during the bargaining process, school board members must be able to do the following: 

• understand collective bargaining, 

• know the needs of their district, 

• be aware of what any proposed contract says, and 

• consider the long-term effects on the district of any agreed-upon contract language. 

This last item is especially important, as many districts fail to consider what the consequences of negotiated language will be five or ten years down the road. 

School board members should therefore approach the bargaining table with the same level of professional ability, determination, skill, and understanding exhibited by full-time union negotiators. They should also involve the public in the process, constantly communicating the facts about the negotiations to parents, taxpayers, the school employees themselves, and other citizens. "Labor peace at any price" is simply an unacceptable and short-sighted approach.

The costs—administrative, educational, financial, or otherwise—of the collective bargaining process are discussed below. 

"Factory Model" Collective Bargaining is Not Well Suited to Quality Education

Collective bargaining, with its roots in the industrial, mass-production sector of the economy, operates under a "factory model" of bargaining whereby unions focus on securing for their members contracts with uniform benefits, working conditions, and salaries.

The factory model, however, does not work well for individual professionals working in an educational setting. Teachers are not assembly line workers and their "product" is not mass-produced interchangeable widgets, but individual, educated children.

The personal and individual interests of teachers are overridden by the factory model’s emphasis on the interests of the group. In fact, the professional needs of the teacher are seldom properly addressed within the standard terms of a collective bargaining agreement. For example, consideration of individual teacher salaries and terms of employment separate and apart from what the union negotiates is forbidden. All teachers, no matter how they perform, are paid on the same salary schedule. 

This uniform treatment of employees results in a loss of individual freedom, motivation, and productivity as the creative energy of teachers becomes diverted from the classroom toward union-related activities. Many quality teachers simply choose to leave their profession in favor of finding greater freedom to exercise their skills and abilities.

A recent example in Saginaw highlights the factory model approach of emphasizing uniform rules and procedures over individual needs and talents. Louise Harrison, a finalist for Michigan Teacher of the Year in 1989-90 and Michigan’s Creative Writing Teacher of the Year in 1992, requested a transfer to a different school within her district. The administration approved her request, but the local MEA affiliate blocked her transfer on the grounds that it violated seniority rules. Then-board member Ruth Braun noted with concern that the schools in Saginaw "can’t override the union and put our best teachers in positions that are in the best interests of students." 

Another consequence of applying the factory model to education is the creation of an atmosphere of antagonism between school districts and employee unions. This antagonistic aspect was recently confirmed in at least one Michigan district when former Saginaw school board president Thomas S. Tilot stated, "Based on our last three negotiations, we spent a whole lot of time in adversarial negotiations."

Former AFT president Albert Shanker explained the adversarial relationship between unions and employers this way: 

Union contracts represent some attempt to limit and curtail the powers of management. 

. . . [t]he interest of unions, as long as you have a factory model, is in seeing to it that salaries are adequate and that they are not subject to some individual administrator who can use them politically or in a discriminatory way.  

The industrial or factory model of collective bargaining also does not serve the students of unionized teachers well. As Seattle, Washington Superintendent John Stanford was quoted as saying, "We lost our way when we became more interested in the employment of adults than in the education of children." Even Albert Shanker conceded that, "Once you leave the factory model and start thinking about education, student outcomes, and accountability, there are ways to improve upon the present system."

Scholarly research shows that effective schools are based on flexibility and individual autonomy. But collective bargaining in general, and the factory model in particular, focuses primarily on group interests, and on one-size-fits-all seniority, transfer, and salary schedule contract provisions (which are discussed more completely in Section 1 of Part II). 

The factory model is detrimental to teachers and ultimately to the students who learn from them. 

Standard or "Pattern" Contract Language Does Not Meet the Needs of Individual Schools and Districts

The nation’s two largest teacher unions, the National Education Association (NEA) and the American Federation of Teachers (AFT), encourage their affiliates throughout the nation to use standard or "pattern" contract language in their collective bargaining agreements. Such pattern language appears in the collective bargaining agreements of all 583 Michigan school districts. 

These pattern agreements, however, do not adequately meet the unique educational needs of individual schools and districts. For example, what may be an appropriate contract provision in an inner-city Detroit school may not be helpful or right for a rural district in the Upper Peninsula. 

Collective Bargaining Politicizes Local School Boards

School board members must take an oath that requires them to carry out the obligations of their offices in the best interest of the public. However, the collective bargaining process frequently puts them at odds with their statutory and ethical responsibilities. 

Ronald Booth sums up the slings and arrows that board members must face when combining labor relations, human relations, and politics:

[I]f unions do not get what they want at the bargaining table, board members and superintendents can find themselves in jeopardy. If the politics of impasse or strike doesn’t get the superintendent fired, then sometimes it’s the loss of school spirit that often follows the strike or the teachers’ refusal to maintain acceptable relationships with students and parents.

Even without the rigors of bargaining, superintendents can seal their own doom through neglect of faculty attitudes. ... Today’s teachers not only talk about their problems out of school, they organize campaigns to unseat board members and to remove the superintendent.

That leaves school boards and superintendents on the horns of this dilemma: How do they protect the public from the unions without making themselves the sacrificial lambs?

Some boards have said, let’s forget the public and give the unions what they want. Other boards have stood fast against the union’s demands and been ousted at the next election, soon followed to the sidelines by their superintendents.

Clearly, what is called ‘collective bargaining’ in the private sector is not necessarily the same thing in the public sector. 

Unions routinely recruit pro-union candidates to run for public office. They then use their considerable resources to get these candidates—who often do not reveal their union support while campaigning—elected to school boards. Former AFT member and 1993 National Teacher of the Year Tracey Bailey is a frequent critic of the unions and their political nature, calling them "special interests protecting the status quo" and pillars of "a system that too often rewards mediocrity and incompetence." 

Collective Bargaining Hinders School Management Decision Making

The agreements that arise from collective bargaining establish the respective rights of school management and the employee union. Usually, the more language that is included in an agreement, the more restricted the school board and administrators are in making decisions. 

Too many school boards have agreed to include in collective bargaining agreements subjects that hamper their ability to make timely and crucial decisions that affect the delivery of educational services. The end result is that administrators and teachers both become bound by a rigid and cumbersome set of work rules and procedures. 

Needlessly complex union and legal requirements have led to an ineffective and time-consuming accountability process for many districts. The burdensome contractual requirements for the evaluation, discipline, and discharge of employees have frequently lead administrators and school boards to determine that the cost of maintaining high standards of employee professionalism is just too high, leaving ineffective or even incompetent teachers in the classroom. 

Toward the end of his life, Albert Shanker recognized that accountability is essential to providing quality education:

The key is that unless there is accountability, we will never get the right system. As long as there are no consequences if kids or adults don’t perform, as long as the discussion is not about education and student outcomes, then we’re playing a game as to who has the power.

Collective Bargaining Inhibits Open Communication

The adversarial and political nature of the collective bargaining process frequently distorts or stifles communication among key groups in a school district. School board members and administrators, fearful of being charged by the union with unfair labor practices, are often wary of speaking openly and directly with teachers. Taxpayers and members of the community are frequently unaware of, or misinformed about, what is negotiated between their elected school boards and the teacher unions.

For example, unions (and sometimes district negotiators) often make a concerted effort to communicate only the general employee salary increases and not the total bargained increase in compensation. Consequently, Michigan citizens tend not to have a clear understanding of the true employee compensation costs for their districts, which typically range between 80 and 90 percent of a school district’s budget.

This lack of communication has led analysts to argue that collective bargaining has resulted in too much of the public interest being given away or ignored. 

More public and parental involvement in the bargaining process is key to ensuring that schools continue to deliver a high quality education. But while the state of Michigan does permit bargaining to take place publicly, few districts open their negotiations to the entire community. Many other states are now requiringcollective bargaining to be done in public. William Keane notes, 

The public may tolerate being left out of the process when things are working smoothly. When trouble results, they will be heard. So-called sunshine laws in Florida and other locations, which require that collective bargaining be carried out in public, are on the books because the public interest can be ignored only so long. 

Collective Bargaining Fosters Numerous Conflicting Agendas

The collective bargaining process involves more than just the interests of school board members and teachers. Many special interests are often represented at the table, each with its own agenda and goals it wants to accomplish. The goals of these various interests are seldom the same. 

The agendas on the union side, for example, may include the national union affiliate’s agenda (NEA or AFT), the state union affiliate’s agenda (MEA or MFT), the local union representative’s agenda, the local bargaining unit agenda, and the bargaining team agenda. The school district, on the other hand, has the school board’s agenda, the superintendent’s agenda, and the administration’s agenda to consider. 

The presence of so many different agendas often leads to miscommunication and miscalculation. For example, some school boards hold the superintendent responsible for negotiations, but his agenda may not match the board’s and, as a result, he may attempt to "buy labor peace" by agreeing to a contract which may not be in the best interest of the public or the students. Sometimes the superintendent and union negotiator exceed their authority during negotiations or give too little time for the board to properly review the terms they have negotiated. These are common ways that a school board finds itself stuck with a contract it did not necessarily agree to or want.

Teachers in some districts have attempted to alleviate these problems by separating from their state and national affiliate parent unions in favor of bargaining for themselves. These locally organized teacher unions have determined that collective bargaining fails when there is an imbalance of power at the negotiating table because one side, the union, is professionally trained while the other, the school board, is composed of community lay people. As the president of one (Michigan) local teacher union said, "Being independent allows us to be reasonable with people in the community who have as much at stake as we do."  

Collective Bargaining and Contract Administration Are Expensive

Every school district pays a high price for collective bargaining. 

Financially, the highest cost associated with collective bargaining is in employee compensation packages. In 1997, the Michigan Association of School Boards reported that statewide salary increases for education employees equaled 2.6 percent. However, this figure does not take into account the total compensation figure, which should include items such as fringe benefits, paid leave, additional duty pay, step increases, and "longevity" (see Section 1 of Part II for a discussion of the structure of teacher salaries). With these factors included, the actual average increase in teacher salaries and benefits exceeded 8.5 percent.

Another cost of collective bargaining comes from the time spent negotiating. For districts where the superintendent is expected to be part of the negotiating team, the time spent in preparation and bargaining adds as much as 80 to 100 additional hours to his workload every contract period, not counting the additional overtime for any secretarial, support, and administrative personnel. Districts that hire professional negotiators on either an hourly or per session fee basis pay between $5,000 and $15,000 for each contract period.

Even the contract document imposes small but significant costs on schools, unions, or both. The cost to prepare, print, and distribute negotiated collective bargaining agreements to school officials and employees averages about $600 per contract period, and some districts with fewer than 200 teachers have reported costs in excess of $2,000. Some districts also have additional expenses associated with keeping the community at large informed about the negotiations and their outcome.

Still other districts have incurred expenses arising from efforts to make the process less emotionally draining and adversarial. One Michigan school district and its teacher union said they paid $2,000 per day plus expenses for a labor relations attorney to guide them through a "collaborative bargaining" approach to their 1998 labor negotiations.

There are certain unavoidable costs to administering contracts when numerous parties are involved; however, taxpayer funds allocated for educational goals have too often been diverted to pay for negotiations, general contract administration, and the consequences of poorly bargained language. School officials who carefully prepare for collective bargaining and negotiate wisely can not only reserve these resources for their intended purposes, but also maintain the trust of the parents, taxpayers, and students in their community. 

Overcoming the Shortcomings of Collective Bargaining

The shortcomings inherent in the collective bargaining process help explain why there is much room for improvement in Michigan school district collective bargaining agreements. Part II of this study provides an analysis of those agreements and recommendations for improving the ability of public schools to provide quality education by making positive changes to the language contained in them.

PART II

Advancing the State of School Collective Bargaining 

1. Improving the Language in Collective Bargaining Agreements

Every word in a collective bargaining agreement is critical. Each negotiated clause and phrase can have a tremendous impact on a school district’s operations, the morale of its employees, and ultimately, the education of the children entrusted to it. Because arbitrators must interpret a contract based primarily on its language, every district’s negotiating team should prepare by thoroughly reviewing all contract language to determine current applicability.

This analysis is based on a review of the collective bargaining agreements from each of Michigan’s 583 public school districts. Although there are numerous problems with the agreements, this section focuses on eight key areas that present the greatest opportunity to significantly improve the agreements and thereby improve educational quality. Each area is discussed in detail below, along with recommendations for strengthening, removing, or otherwise improving contract language. 

Improvement #1: Strengthen Management Rights Clauses

Every collective bargaining agreement should specifically detail the rights and responsibilities that remain vested in the school board. As elected officials, school board members form the only public body with the legitimate responsibility and authority to operate a school district; neither teachers nor unions have been granted authority by the electorate to undertake this responsibility. 

School board members are held accountable by parents, taxpayers, and community members for the operation of their schools. Efficient operation requires that school boards never relinquish their ability to make decisions in the management of the district for which they are responsible.

Analysis

The management rights contract language, or "rights of the board of education," is the contract provision that affirms school board control over the operation of the school district. The Michigan legislature has provided the framework for management rights by statute:

A public school employer has the responsibility, authority, and right to manage and direct on behalf of the public the operations and activities of the public schools under its control.

The contracts reviewed by this study show that many school boards do not fully understand how their control can be relinquished by poor wording of the very terms meant to define their right to exercise control. 

A school district may exercise only those management rights that are explicitly established in the collective bargaining agreement. Arbitrators may determine that any action a school district takes outside of the rights clearly defined in the collective bargaining agreement constitutes a unilateral change in employment conditions. They may also interpret imprecise language, such as that found in the following examples, as providing inadequate notice to the union of the specific rights reserved by the board.

Here is an example of a poorly worded yet standard management rights clause found in a great number of Michigan school districts’ bargaining agreements:

The Association [union] recognizes that except as specifically limited or abrogated by the terms and provisions of this Agreement and to the extent authorized by law, all rights to manage and direct the operations and activities of the School District and to supervise the teachers are solely and exclusively vested in the Board.

The broad wording of this management rights provision fails to protect the role and responsibility of the school board and allows the union to define the school board’s rights in the agreement. Management rights clauses should instead be written from the perspective that the school board is responsible for school management except as specifically limited by the agreement. 

A second example of overly broad language is that which mirrors only the statutory framework:

The Board, on its own behalf and on behalf of the electors of the District, hereby retains and reserves unto itself, without limitation, all powers, rights, authority, duties and responsibilities conferred upon and vested in it by the laws and the Constitution of the State of Michigan and of the United States.

Some districts have attempted to protect their employees’ individual rights within the framework of a group agreement by modifying their authority with the following phrase:

The Board of Education in this contract does not seek in any way to deny or restrict any employee’s rights established under the Michigan General School Laws or any other laws or regulations which apply.

This clause could well lead an arbitrator to determine that a disputed management decision places an unwarranted restriction on the individual rights of a teacher protected by this language, even though the decision itself is properly within the purview of management. 

The wording of a management rights clause can also restrict the very rights it is intending to define, as in this example: 

The Association recognizes and agrees that the School District has the exclusive right to govern all aspects of operating the School District, including the right to discipline for just cause and to direct its entire work force at all times. 

Here, the wording may bind the school district to the lengthy "just cause" proceedings (discussed below) for the discipline or discharge of all probationary employees as well as tenured teachers. Arbitrators may apply this interpretation even when a separate section of the contract states that termination or failure to re-employ a probationary employee is not subject to the grievance procedure. This language can still result in lengthy grievance proceedings and defeat the purpose and intent of probation for new employees.

Recommendation

School districts should adopt strong management rights clauses that explicitly designate the rights reserved to the school board, administrators, and management.

A school district’s best defense against union charges of unfair labor practices is to clearly state management’s rights in the collective bargaining agreement. Ambiguous wording may invite courts and administrative agencies to find that the school administration has waived its right to make unilateral decisions over a subject in dispute. Where the terms of the contract explicitly state the employer’s management right to take an action disputed by the union, the Michigan Employment Relations Commission has ruled that the union waived its right to bargain the matter.

Following is an example of a strong management rights clause that provides clear notice of the rights retained by the school board. This clause should be placed at the beginning of the agreement so that the contract flows naturally from the express rights laid out in the clause.

A. Nothing in this Agreement is to be interpreted as constituting a waiver of the Board of Education’s rights and responsibilities to create and maintain schools that reflect its public’s wishes. The intent of the Agreement is to establish wages, working hours, and conditions of employment with the Association.

B. Therefore, the Board on its own behalf and on behalf of the electors of the District, hereby retains and reserves unto itself, without limitation, all powers, rights, authority, duties, and responsibilities conferred upon and vested in it by the law and the Constitutions of the State of Michigan and the United States including, but without limiting the generality of the foregoing, the right to:

1. The executive management and administrative control of the school system and its properties and facilities;

2. Hire all employees and to determine their qualifications and fitness for employment and conditions for their continued employment, or their dismissal;

3. Establish grades and courses of instruction, including special programs, and to provide for athletic, recreational and social events for students, all as deemed necessary or advisable by the Board;

4. Determine overall goals and objectives as well as the policies affecting the educational program;

5. Select textbooks, teaching materials, and teaching aids;

6. Determine class schedules, class size, hours of instruction, and assignment of teachers with respect thereto;

7. Determine the services, supplies, and equipment necessary to continue its operations and the methods, and processes of carrying on the work;

8. Adopt reasonable rules and regulations;

9. Determine the location or relocation of its facilities, including the establishment or relocation of new schools, buildings, division or subdivisions thereof, and the relocation or closing of offices, departments, divisions or sub-divisions, buildings, or other facilities;

10. Determine the financial policies including all accounting procedures, and all matters pertaining to public relations;

11. Determine the size of the management organization, its functions, authority, amount of supervision, and table of organization; and

12. Direct the working forces, including the right to hire, promote, discipline, transfer, and determine the size of the workforce. 
  
 

C. The exercise of the foregoing powers, rights, duties, and responsibilities by the Board and the adoption of policies, rules, regulations, and practices in furtherance thereof, shall be the exclusive prerogative of the Board except as limited by the specific terms of this Agreement.Improvement #2: Limit Exclusive Bargaining Representative Clauses

Exclusive representation means that the management must deal solely with the recognized or certified union regarding employee wages, hours, and terms and conditions of employment.

Analysis

When a public employer recognizes a collective bargaining representative as the agent representing the employees in a defined bargaining unit, PERA grants exclusive recognition to that agent to act for those employees on issues involving wages, hours, and terms and conditions of employment. In addition to including such recognition, more than 500 contracts contain a separate provision by which the school board agrees not to negotiate with any other teacher organization. 

In other words, if a school board wished to contract with a math, science, or professional teacher organization for the purposes of professional development for its staff members (a term of employment), the board must first obtain the union’s permission.

Recommendation

School boards should remove exclusive bargaining representative clauses that require union permission before employees can explore opportunities with other professional organizations. 
  
 

Improvement #3: Remove Union Security Clauses

Many school board members and other citizens mistakenly believe that union membership is required for all teachers working under a collective bargaining agreement. The truth is that there is no statute that requires teachers to either become union members or pay union dues in the absence of a contractual agreement between a school district and union that contains a "union security clause."

When a union security clause is included in a collective bargaining agreement, it forces school employees to pay union dues. School boards who agree to such a clause become union financial enforcers, often by agreeing to fire any employee who fails to pay dues money. This arrangement allows the two major teacher unions, the NEA and the AFT, and their state affiliates, to forcefully take more than $800 million per year from the country’s teachers without their voluntary consent. 

Analysis

Union security clauses undermine union accountability by forcing teachers to financially support the union whether it has earned their support or not. Employees working under a collective bargaining agreement with a union security clause fit into one of two categories: full union members or "agency fee payers." Agency fee payers are those employees who decline to join the union but are required to pay a "service fee" (or "agency shop fee") to the union for the costs of collective bargaining representation services.

The statute governing union security agreements expressly affirms that dues or service fee payment is not a mandatory condition of employment, but it does not preclude school boards from negotiating a dues or service fee provision if they choose. In practice, most school districts require their employees to pay dues or a service fee, and provide that the money be involuntarily deducted from the paycheck of any employee who fails to pay. 

Dues and service fees in most districts presently average two percent of the negotiated base minimum of each teacher’s salary: A teacher with a $30,000 base salary must therefore pay $600 annually in local, state, and national union affiliate dues.

Compulsory unionism for public school employees brought about by union security clauses has had profoundly negative effects on school districts. It has lowered teacher morale and professionalism which in turn has hurt student achievement in the classroom. A 1996 study conducted by Harvard professor Caroline Hoxby found that, "Teachers unions increase school inputs but reduce productivity sufficiently to have a negative overall effect on student performance." Hoxby also discovered that in addition to having lower student achievement, unionized districts also suffer from higher student dropout rates.

Currently, every teacher contract in Michigan includes a union security clause whereby the school district agrees to act as the collection agent for union dues. Most districts additionally act as union record keepers by transmitting payments to the local union and often separately to state and national affiliates. Standard language in over 500 current contracts further provides that 

In the event there is a change in the status of the law, so that mandatory deduction from wages pursuant to the paragraph above is prohibited, the employer, at the request of the Association, shall terminate employment of a bargaining unit member that refuses to authorize deduction of the representation benefit fee…. The parties expressly agree that failure of any bargaining unit member to comply with the provisions of this Article is just cause for discharge from employment.

In other words, even if involuntary dues deduction is prohibited by a change in law after the contract is bargained, the school board still agrees to fire any employees failing to pay union dues.

However, dues-paying teachers have the following constitutionally protected rights:

• To pay only those costs directly attributable to collective bargaining and negotiations which provide a direct benefit to them; 

• To object to the amount of agency shop or service fee required; and

• To have that amount reviewed by an impartial decision maker.  
  
 

School districts have an independent responsibility to inform their employees about their rights, but a significant number of current contracts do not mention these rights. More than twenty collective bargaining agreements in Michigan do not even inform teachers of their right to refrain from becoming full dues-paying union members by choosing instead to pay only an agency shop or service fee. 

With few exceptions, those contracts that do advise teachers of the right to object limit teachers’ means of protecting those rights. Over 150 Michigan collective bargaining agreements contain a standard notification clause as follows:

Pursuant to Chicago Teachers’ Union v. Hudson, 106 S. Ct. 1066 (1986), the Association has established a "Policy Regarding Objections to Political-Ideological Expenditures—Administrative Procedures." Those administrative procedures (including the timetable for payment) apply only to non-Association bargaining unit members. The remedies set forth in those procedures shall be exclusive and, unless and until such procedures (including any administrative or judicial review thereof) shall have been availed of and exhausted, no dispute, claim, or complaint by an objecting bargaining unit member concerning the application and interpretation of this article shall be subject to the grievance procedure set forth in this Agreement. 

This notification clause requires agency fee payers with dues disputes to exhaust internal union-controlled procedures—procedures established by the very union they are opposing—before the matter can be heard in other administrative or judicial forums. Only a small number of the collective bargaining agreements reviewed even provide the terms of the "Policy Regarding Objections to Political-Ideological Expenditures."

The May 1998 U. S. Supreme Court decision, Air Line Pilots Association v. Miller, has established that nonunion agency fee payers have the right to settle their dues disputes in the forum of their choosing, whether or not they have exhausted the internal union-controlled procedures. The Court held that when a union attempts to bind an agency fee payer to a dispute procedure not of his choosing, it frustrates his ability to exercise his constitutional rights; he is therefore free to pursue an impartial decision maker. 

The Miller case may have legal implications concerning the validity of teacher contracts that compel exhaustion of a union-controlled dues dispute process. (Please see Section 2 for a discussion of the Miller decision.)

Some current collective bargaining agreements mandate that the amount of the service fee paid by agency fee payers be the same as full membership dues. This is in direct violation of U. S. Supreme Court decisions which provide that objecting employees can be forced to pay only those charges directly attributable to collective bargaining.

Unions often negotiate contract provisions that require new (probationary) employees to immediately apply for full union membership—usually within thirty days of their start date—despite the fact that probationary employees receive only limited representation protection. The agreement in at least one district requires this application to be made within the first week of employment. No contracts, however, specify that the application is not required until the employee ceases to be on probation. 

Unions also frequently specify narrow time periods during which employees may resign their membership in favor of becoming agency shop or service fee payers. Unions may also limit the times when they will accept payment of service fees. If an employee were to challenge these practices in court, they would likely be ruled unconstitutional.

Almost every collective bargaining agreement stipulates that dues will be automatically deducted from employees’ paychecks from year to year, while those who object to this deduction must renew their objection annually. These provisions have the effect of limiting the number of objectors by making the act of objecting more burdensome.

Although PA 117 of 1994 requires unions to obtain annual consent from individual employees for the deduction of political action committee contributions, unions are unwilling to allow members that same latitude of choice over standard compulsory dues. Teachers must expressly agree each year to every other payroll deduction, but they are denied that right when it comes to union dues. Conversely, employees must annually notify the union in writing when they wish to be agency shop or service fee payers.

Recommendations

1. School boards should, through negotiations, remove union security clauses from their collective bargaining agreements.

The coercive and unfair nature of such clauses negatively affects school employees’ morale, productivity, and professionalism and, ultimately, student achievement. Eliminating them would alleviate these problems and return more money to the paychecks of hardworking teachers. Unions that excel in representing their members will have no difficulty attracting and keeping the voluntary support of those members.

Teachers themselves should explore all their options for representation. Members of unaffiliated independent teacher unions pay dues as low as $40 per year while enjoying the same rates of pay and benefits as those who are required to support state and national affiliates through higher fees. These independent teacher unions typically have the resources to provide the same membership services as the affiliated unions, including liability, legal representation, and professional negotiating. 

2. If the school board chooses not to eliminate the union security clause, it should change the agreement to reflect the board’s refusal to serve as union collection agent and record keeper. 

The school funds spent on these functions could be better directed toward education. Districts themselves can also be held liable under the Weaver v.University of Cincinnati court decision (discussed in further detail in Section 2 on page 43) for the amount of any dues illegally collected from employees. Some district contracts wisely provide that the school board will not be a party to any dues or service fee collection action the union may pursue.

School boards should uphold the rights of employees and protect themselves from liability by inserting language that protects from termination teachers who fail to pay union fees. Language that accomplishes this is found in a few existing agreements and specifies that "the payment of the service fee is a condition of employment: provided, that the non-payment of the service fee shall not cause the discharge of any teacher."

3. If the school board chooses not to eliminate the union security clause, it should ensure that any negotiated contract language affords the maximum constitutional protections to agency fee payers. This includes not binding them to an unfair, union-dominated dues dispute procedure.

Agency fee payers (nonunion employees) who object to the amount of the service fee they are compelled to pay are entitled to have their objections heard before an impartial decision maker. School boards should protect the rights of agency fee payers by inserting language into the appropriate area of the union security clause as follows:

Pursuant to Chicago Teachers’ Union v. Hudson, 106 S. Ct. 1066 (1986), public employees who object to the payment of union dues have a right to pay for only direct collective bargaining costs through the payment of an agency or service fee. Objecting fee payers have the right to have their objections heard by an impartial decision maker and to have their fees held in escrow until such dispute is resolved.

The Hudson decision upheld similar constitutional rights, and is discussed in Section 2.

4. If the school board chooses not to eliminate the union security clause, it should avoid bargaining contract provisions that needlessly limit or restrict employees’ freedom to resign from the union.

Provisions that restrict employee resignation from the union to a limited time period, such as one month out of the year, are constitutionally suspect and susceptible to legal challenge. The MEA represents to its membership that withdrawal of membership and designation for payment of the agency fee can only occur during a narrow window of time each year, during the month of August. This restriction has not been found to be constitutionally valid.

5. If the school board chooses not to eliminate the union security clause, it should avoid negotiating any language that requires the service fee paid by objecting nonunion employees to be the same as the amount of full union dues.

Requiring equivalent union dues and agency fees is in direct violation of U. S. Supreme Court decisions that hold that agency fee payers who object can be compelled to pay only those charges directly attributable to collective bargaining representation. 
  
 

Improvement #4: Limit "Just Cause" Discipline and Discharge Clauses

"Just cause" refers to contractually established standards of conduct that an employee must breach before he can be disciplined or discharged. Due process is the legal procedure instituted when an employer wishes to discipline or discharge an employee who has breached the "just cause" standard.

"Just cause" is distinct from an "at will" employment arrangement. "At will" means either party may terminate the employment relationship at any time for any reason. The "just cause" standard, on the other hand, is typically applied to employees who have a property interest in the employment relationship. Teachers who have received tenure status, for example, enjoy property rights in their employment relationships. 

Many school boards seem not to understand the implications of the "just cause" standard, as evidenced by the number of contracts that extend this standard to all employees in the bargaining unit—including probationary teachers who are still being evaluated for their competence. After all, it sounds reasonable that no employee should be disciplined or discharged unless there was both justice and cause. However, the "just cause" legal standard is not that simple. 

Analysis

The "just cause" standard and the resulting due process proceeding for employee discipline or discharge is a burdensome and time-consuming process for districts that wish to remove ineffective, unproductive, or even criminal teachers from the classroom. 

Under this standard, a school board can face increased and unplanned expenses in processing employee discipline and discharge matters, including substantial liability for teacher re-instatement or back pay in the event of an unfavorable arbitration or tenure ruling. 

Unions do have a legal obligation to represent their members when discipline or discharge is unwarranted or in violation of the collective bargaining agreement. However, the "just cause" standard has sometimes been stretched to include situations that make a travesty of procedural protections intended to guard good teachers from arbitrary and capricious decisions. 

One of the most outrageous examples took thirteen years of litigation and cost the Ann Arbor Public Schools district in excess of $350,000 in attorney fees and back pay for an ex-teacher who was imprisoned in Jackson for murder.

An employer must be able to answer "yes" to all seven of the following questions in an arbitration hearing to successfully sustain a "just cause" discipline or discharge decision:

• Did the employer forewarn the employee of possible disciplinary consequences of conduct?

• Was the rule or directive involved reasonably related to the orderly, efficient operation of the business?

• Before administering discipline, did the employer properly investigate to determine that the employee did violate or disobey the rule or directive?

• Was the employer’s investigation done in a fair and impartial manner?

• Through the investigation, did the employer obtain enough evidence to prove the employee was, in fact, in violation of the rule or directive?

• Was the rule, directive, and penalty applied fairly and without discrimination?

• Was the discipline applied reasonably related to the gravity of the offense and was the amount of discipline reasonable given the employee’s overall record? 
  
 

Some arbitrators have held that the standard of progressive discipline does not apply to certain offenses: alcohol on the job, theft, lying, cheating, and violations of criminal statutes reasonably related to the performance of the employer’s business operation. Any off-duty misconduct must also be reasonably related to the employer’s business purpose. 

School officials are often suspicious of the extent to which a union will pursue a matter and, as a result, may fail to discipline or discharge poor or disorderly teachers until well after their conduct has deteriorated seriously. School officials who fear legal action from unions may choose to retain teachers who are not effective or productive in educating students. They may also give large severance settlements instead of discharges to poorly performing teachers or supply good recommendations for poor teachers seeking employment at another school. 

The collective bargaining agreements in many districts extend the "just cause" discipline and discharge standard to cover probationary teachers, even though school boards are legally obligated to provide "just cause" only to tenured teachers. 

Recommendations

1. School boards should limit the "just cause" standard to cover only tenured teachers, and provide a less rigid standard for probationary teachers who are still being evaluated for their competence.

School boards should carefully review their collective bargaining agreements for any language that makes a "just cause" standard applicable to probationary teachers, and instead specify an annual employment arrangement for them with the following language: 

Probationary employees are employed on an annual contract basis, renewable on an "at will" basis during their probationary period of employment, and may be disciplined during that period for any reason as determined appropriate by the school board.

2. School districts should update their collective bargaining agreements to reflect changes in the law regarding the length of teachers’ "probationary" status.

In 1994, the Michigan Teacher Tenure Act was amended to establish a four-year probationary period for teachers before they could gain tenure. There are still more than 200 collective bargaining agreements that contain the pre-1994 provisions of a two-year probationary period with a possible extension for a third year. 

School boards should modify their agreements to reflect present law, and take advantage of the longer probationary period to thoroughly evaluate teachers before allowing them tenure and a "just cause" standard of discipline and discharge.

3. School boards and administrators should carefully follow the established seven-point test when building a case for the "just cause" discipline or discharge of a tenured teacher.

Arbitrators are unlikely to uphold the discipline or discharge of an employee if the school district does not properly follow and document the steps showing "just cause." School boards and administrators who adhere to the requirements for "just cause" will avoid costly and unfavorable arbitration rulings. 
  
 

Improvement #5: Strengthen Teacher Evaluation Clauses

School boards and administrators are responsible for the education of children. This obligation is inconsistent with protecting the employment of poorly performing or behaving teachers. Accordingly, school districts must take steps to ensure that the process of teacher evaluation serves the primary consideration of delivering quality education to students, while avoiding any potential harm that may result from unqualified or otherwise unfit personnel remaining in the classroom.

The teacher evaluation plays an important part in a school’s ability to effectively educate its students. School officials must be able to evaluate the competency and performance of each teacher in order to judge how well he uses his skills to help students learn and achieve. 

Each evaluation is part of a continuum that builds over time. Thus, a proper teacher evaluation must go beyond the mere "performance" of an instructor standing in a classroom lecturing; it must address a teacher’s overall ability to establish and maintain a positive learning environment for students. School boards and administrators must keep this focus in mind as they bargain contract language that affects these evaluations.

Analysis

NEA President Bob Chase recently acknowledged that, "the heart of education is this: the daily engagement between teacher and pupil, and the commitment that both parties bring to the task." Yet unions such as the MEA often demand uniformity in the teacher evaluation process—a cookie-cutter approach that ignores the differences in goals, objectives, standards, and style between elementary and secondary teaching. 

Collective bargaining agreements in Michigan, with few exceptions, place more restrictions on school administrators’ rights to evaluate their teachers than do any statutory requirements. For example, the way a school conducts an evaluation today may affect how that evaluation can be used in future decision making. If an evaluator fails to immediately identify and address a teacher’s known problems or deficiencies during the course of an evaluation, then that evaluator may be prevented by contract from bringing up these problems or deficiencies during future evaluations or discipline proceedings.

Problems arise when teacher evaluators, for whatever reason, choose not to honestly confront poorly performing teachers during the evaluation process. For example, a school official may sometimes be tempted to rate an unsatisfactory teacher as satisfactory because the official believes that poor teacher evaluations reflect negatively on his own job performance. He may also fear that giving an unsatisfactory review to a teacher with problems may only compound those problems.

Awarding a satisfactory rating for unsatisfactory teacher conduct or performance may, however, result in worse problems down the road. Administrators who later want to address that particular conduct may be prevented from doing so by the pattern of past evaluations or the terms of the bargaining agreement.

Some collective bargaining agreements allow for grievances regarding the content of teacher evaluations. Such provisions expose districts and administrators to costly and time-consuming arbitration proceedings. In Manhattan, New York, to discipline one incompetent teacher, a principal

. . . has spent close to 100 hours out of the [school] building over the past two years in grievance sessions at the district office, at the Board of Education, and at arbitration sessions. Although every one of [the principal’s] negative evaluations has eventually been upheld, he still must go through the process for another year before this one employee might have to face formal disciplinary charges—a process that can take several more years.

Recommendations

1. Michigan school board members and administrators should use the five points established under the Michigan Teacher Tenure Act when evaluating a teacher’s competency.

Unsatisfactory performance in any one of these five points is sufficient to determine that a particular teacher is not competent: 

1. knowledge of the subject;

2. ability to impart the subject;

3. manner and efficiency of discipline over students;

4. rapport with parents, students, and other faculty; and

5. physical and mental ability to withstand the strain of teaching. 
  
 

The course of action pursued by the school district with regard to a poorly performing teacher must be based on the extent or severity of the poor performance.

2. School boards should remove from their collective bargaining agreements any language that provides for grievances over the content of a teacher evaluation.

The content of teacher evaluations should be left to the sole discretion of school administrators, not to arbitrators in lengthy and expensive grievance proceedings. By making the content of evaluations a grievance matter, school boards wind up placing the judgment of arbitrators, who do not work with or see the teachers who are being evaluated, above the judgment of the school administrators, whose responsibility it is to observe and evaluate the teachers’ abilities.

3. School board members and administrators should take advantage of professional seminars to learn more about the statutes governing teacher evaluations, which evaluation procedures are most effective, and how to bargain appropriate language to make the most of this vital process. 

Improvement #6: Replace Seniority-Based Salary Schedules with Performance-Based Pay Scales

Most public school teachers in Michigan are paid according to a seniority-based salary schedule, which awards compensation according to a teacher’s years of experience and level of education. This is in contrast to most other areas of commerce and industry, where employees working under a "merit-based" schedule receive compensation that is commensurate with their job performance and productivity. 

Analysis

Under a seniority-based, or "single salary schedule," system, individual teachers have a reduced incentive to be innovative or excel in the classroom since their level of compensation is not tied to their performance. Despite this, most collective bargaining agreements in Michigan establish teacher salary schedules based solely on a teacher’s level of education and years of experience.

These salary schedules are organized into a "grid" which provides for automatic pay increases based upon the number of years a teacher has spent in the district, and the kind of college degrees or number of additional academic credit hours he has accumulated, or both. These increases are commonly referred to as "step" increases.

Typically, the foundation of the grid is the "base" salary, which is equivalent to the salary given to a first year teacher with a bachelor’s degree. The remainder of the grid is based upon a percentage of this base salary. For example, a second year teacher with a bachelor’s degree might receive a salary 1.04 times the base; and a first year teacher with a master’s degree might receive 1.10 times the base salary. 

As a consequence of this grid, school districts incur additional salary expenses every year even if there is no change in the base salary. The amount of each salary increase varies depending on the distribution of the district’s work force. Districts with more teachers at the lower salary steps, for example, will incur greater expenses than those with more at the top step. These increases may be as high as three percent.

If the base salary is also increased, the impact of the step increases is compounded. All associated costs, such as retirement contributions and Medicare and Social Security taxes, are likewise increased.

Many contracts also provide raises for teachers who have "maxed out" the grid at the top step. These raises are referred to as "longevity" steps—cumulative salary bonuses for teachers with many years of experience within a district—and do not appear on the salary grid. Nonetheless, they increase a school district’s overall salary and salary-associated expenses.

In most school districts, entry level teachers with only a bachelor’s degree and no prior teaching experience receive the base negotiated salary; few districts reserve the unrestricted right to establish the starting salary for a teacher on any step of the pay scale.

Similarly, all current collective bargaining agreements in Michigan require teachers with master’s degrees to be hired according to their step on the grid—even when a teacher is willing to work for a lower salary. At the same time, the majority of agreements cap the number of years of out-of-district experience for which a teacher may receive compensation.

Collective bargaining language regarding experience often limits a teacher’s salary increases to experience gained within his current district rather than including the total of his experience. The practical consequence of this salary system has been that experienced and highly educated teachers who want to switch districts often find that they cannot do so. Districts that may wish to hire such teachers are unwilling or unable to start them at a salary level commensurate with their credentials.

School districts using a single salary schedule also experience hiring limitations, often finding it difficult to attract good teachers in technical subjects. Many with advanced degrees in science, engineering, or computers prefer to work for employers that offer merit-based pay rather than for schools offering the inflexible pay scales of union contracts.

Teachers working under a seniority-based salary system face a number of disincentives and drawbacks. Such a system does not provide adequate incentives for them to continuously improve their job performance, teaching methods, or professional development in their subject areas. 

Without the incentives and motivation that come from the promise of additional compensation, teachers must instead be internally motivated to continue to improve the educational product they offer to students. Some teachers, to be sure, are strongly motivated by their passion for teaching—and it is precisely those teachers who deserve recognition through a merit-based pay system for their outstanding classroom contributions.

Another example of the seniority system’s inherent unfairness is that only teachers with a combination of both education and experience are able to reach the top of the salary schedule. In other words, a teacher who has worked in his district for over thirty years but lacks a doctorate, specialist, or master’s degree (plus a set number of academic course hours) cannot advance to the top of the salary scale, no matter how effective he is as an educator.

Seniority-based salary schedules also result in "wage compression." Wage compression occurs when the incremental rates of pay between the highest and lowest salaries become reduced through the application of wage increases to the lowest pay level. When each salary level is not equally increased, the difference between salaries shrinks, or becomes "compressed." There are practical financial reasons for applying wage increases to the lowest level salary, but the teachers at the top of the pay scale may resent this.

Despite this lack of flexibility and fairness in teacher compensation, many union officials maintain that seniority-based salary schedules that punish the very teachers they represent are the "fairest" system. One current contract provision even bluntly states, "Under no condition shall a teacher be compensated above his/her appropriate step on the salary schedule." Such contract language can serve only to dampen individual teacher motivation, initiative, and performance.

Unions such as the NEA remain opposed to changes in the seniority-based salary system. The NEA "believes that performance pay schedules, such as merit pay, are inappropriate." The NEA’s 1997-98 Resolutions further hold that salary schedule systems must be established based on "preparation, professional growth and length of service and exclude any form of merit pay." 

School districts attempting to establish performance-based pay schedules for their teachers have invariably met with union resistance. However, some districts such as Saginaw have been successful in bargaining a portion of their teachers’ salaries based on the requirement that teachers meet certain district-wide goals adopted by the school board.

Recommendation

School boards should remove seniority-based salary schedules from their collective bargaining agreements and institute performance-based pay scales that reward outstanding teachers, encourage innovation, and attract the best people for the important job of educating tomorrow’s leaders.

A performance-based salary schedule can be based on either teacher performance or student performance. The Michigan legislature in 1995 strengthened school districts’ rights to create performance-based salary systems when it passed PA 289 into law. PA 289 states in part that, "A school district or intermediate school district may implement and maintain a method of compensation for its employees that is based on job performance and job accomplishments."

In 1993, AFT union president Albert Shanker himself proposed performance-based pay, acknowledging that such a system could be developed without being anti-union and its flaws "would be very small compared to what we have now or compared to what you would have without such a system." 

Improvement #7: Examine and Competitively Bid Health Care Benefit Options

Teacher salaries and benefits are by far the largest expenditure in every school district. In Michigan, such expenditures average around 82 percent of the entire budget. Benefits packages by themselves take up roughly 25 to 30 percent of the compensation budget, and health insurance is typically the second-largest item in the annual budgets of school districts, just behind salaries and wages. With health care costs rising and school district revenue projections remaining flat, school districts now more than ever must be value-based purchasers of employee benefits.

Analysis

Former teacher and union leader Myron Lieberman explains that unions encourage increases in benefits over salary increases so that "the salary schedule doesn’t look as high, which helps unions maintain public support. The other benefit is that they’re able to tell teachers what a terrific deal they got." Yet union leaders often argue that teachers aren’t getting paid enough—giving voters the sense that schools are underfunded. 

In Michigan prior to 1994, the primary insurance plan options for school districts were as follows:

• the MEA-controlled Michigan Education Special Services Association (MESSA), 

• the School Employers Trust (SET), 

• Blue Cross and Blue Shield of Michigan (BCBSM), 

• health maintenance organizations (HMOs), or 

• third party administrators (TPAs), or 

• modified traditional plans developed in conjunction with TPA services. 

Two changes since 1994 have had an impact on the packaging and delivery of health care benefits to school districts in Michigan. One is in the way BCBSM is marketing its products; the other is the increased popularity of managed care products. Both changes are convincing many school boards, administrators, and union members to consider different options for their health care plans, rather than "rubber stamping" MESSA as their insurance carrier.

In the past, most Michigan school administrators automatically turned to the high-priced, union-run MESSA because they were unwilling to battle with the union for changes in employee health care plans. Since revenues could always be increased through regular millage campaigns, many assumed cost considerations were relatively unimportant. MESSA’s stronghold in the school market is largely due to this miscalculation and also to its former ability to leverage strikes to exact yearly average benefit increases in excess of nine percent for the last ten years. 

A June 1997 Michigan Insurance Bureau audit revealed that MESSA had a surplus of $105 million in excess premiums. MESSA’s effective premium rate increase, for July 1, 1998 to June 30, 1999 as approved by the Michigan Insurance Bureau, is 10.97 percent. In order to comply with the terms of its 1996 settlement agreement with the state of Michigan, MESSA will apply $29 million of its surplus from excess premiums toward reducing the final rates charged to its members. 

Some school boards have objected to using MESSA, a wholly owned subsidiary of the MEA, because a portion of the school districts’ health care premiums is used to bolster the political and organizational strength of the MEA.

Funding changes necessitated by Proposal A of 1994 are also compelling many school boards to seek lower cost alternatives to MESSA which maintain current employee benefit levels. Now that changes in the law wrought by PA 112 have eliminated union strike pressure, over 300 districts still using MESSA have the opportunity to explore ways to better manage their resources within existing funding levels.

Unfortunately, even after the PA 112 reforms, many school districts are prevented from changing their health care plans because they failed to negotiate the proper language into their collective bargaining agreements. The areas of an agreement that address funding, specific benefits, and the relationship between the agreement and the master insurance contracts are critical for control of health care plans. Yet in many cases district officials have not evaluated this language for years. 

Recommendations

1. School districts should take advantage of changes in the law to regain control of, and restore flexibility to, health care decision making by (a) removing any contract language that identifies a specific health care insurance administrator, and (b) naming themselves as policyholders for their insurance plans.

(a) Budget pressures and responsible management require school districts to maintain maximum flexibility to choose the most cost-effective ways to provide their employees with bargained benefits. Districts that have found themselves contractually "locked in" to using the expensive union-run plans now regret surrendering the freedom to choose other administrators.

Accordingly, district negotiators should bargain specific benefits without naming any specific administrator. Depending on the negotiated language, a change in insurance administrator or the method of funding should not affect the collective bargaining agreement as long as the benefit levels are bargained in good faith.

(b) PA 112 has made the right to name the holder of a school district’s health care insurance policy a prohibited subject of bargaining. School districts should take this opportunity to name themselves as policyholders to the insurance plans they choose. Districts gain a number of benefits from such a move, including the following:

• The ability to acquire the claims history data associated with their chosen health care benefit plan. A claims history is a listing of the type and amount of the medical claims made by employees covered by a health care plan. Having the claims history allows a district to evaluate its own data and is essential for acquiring competitive bids from different insurance providers. This information does not violate employees’ privacy rights and is necessary for making sound business decisions.

• The opportunity to manage components of the plan such as prescription drugs, mental health benefits, and provider network development.

• The opportunity to purchase supplemental programs independently (e.g., life, disability, dental, and vision insurance). This allows school districts to obtain the best value by packaging benefits to fit the needs of the district and its employees. 
  
 

Districts using MESSA as their insurance administrator have experienced reduced control over their health care plans because MESSA names itself as the policyholder for the plans it takes out on behalf of districts, and refuses to share certain vital information about those plans with school boards and administrators.

2. School boards should competitively bid health care plans in order to minimize their expenditures while maximizing the quality of employee coverage.

Competitive bidding among a variety of health care providers and administrators allows school districts to identify the most cost-effective supplier of benefits. 

Districts that have sought bids and ultimately switched from MESSA to other insurance carriers have saved from 6 to 28 percent on the cost of providing identical coverage to their employees. That has translated into saving as much as $500,000 per year.

3. School district negotiators should come to the bargaining table prepared with benefits proposals that are based upon structured total compensation models. 

The school board is responsible for the thorough analysis of all cost and budget controls for each line item, including payroll, benefit, and pension funding. Using total compensation models provides a thorough analysis by calculating the cost of every portion of employee wages and benefits, including paid leave, fringe benefits, employer-related costs such as Social Security and workers’ compensation taxes, and other expenses. 

School districts must take care to bargain for benefits language that allows flexibility in health care funding, including the option of self-funding either all or part of their health care plans. Negotiators should be well-versed in all aspects of current and proposed vendor contracts. The well-prepared district negotiating team comes to the bargaining table with knowledge gained from evaluating a variety of health care plans.

4. School boards must work with employee unions to develop trust and a recognition of the need for change. 

Teachers and other district employees may be suspicious of changes in their health care benefits, fearing the reduction or elimination of benefits they currently enjoy. Less expensive alternatives to union-run plans that provide the same level of coverage do exist. Boards and employees should work together to implement the best alternative plan that fits everyone’s needs. Teachers should always be informed about any proposed changes in their level of health care benefits. 
  
 

Improvement #8: Eliminate Class Size Limitation Clauses

The number of students per teacher in a classroom has been an issue in collective bargaining since the first contract negotiations began in Michigan more than thirty years ago. Unions maintain that smaller classes allow teachers to spend more time with each student, thus boosting educational achievement. Consequently, many of Michigan’s school districts have negotiated language that affects class size into their bargaining agreements. 

Analysis

Over a third of collective bargaining agreements in Michigan currently establish a maximum number of students for each class and provide for mandatory teacher salary bonuses any time this maximum is exceeded. Some contracts mandate that teachers be paid an additional $1 to $4 per day for each student over the maximum. Other contracts specify a $75 bonus per additional student per semester. 

Negotiating smaller class sizes has proven to be a costly arrangement for school districts, especially those with growing student populations. Smaller classes mean that more teachers must be hired and put onto the district’s payroll, which causes education costs to increase. An analysis of union proposals from 1966-1968, the first two years after collective bargaining was in effect in Michigan, revealed that the proposed class size provisions would have added $3 million to $6 million to affected schools’ budgets. School officials admitted that the proposals "would have been extremely costly to grant because of the necessity of hiring many new teachers."

Charles Rehmus and Evan Wilner concluded in The Economic Results of Teacher Bargaining: Michigan’s First Two Years:

Most teacher bargaining requests have included proposed limitations on class size. While school administrators and most school board members are sympathetic with the teacher preference for smaller classes, class size limitations have severe cost impact. A simple example makes the point. Reduction of average class size from 30 to a negotiated maximum of 25 students in a class would result in a 16-2/3-percent increase in teacher salary costs.

Establishing class size requirements within a collective bargaining agreement restricts the school administration’s decision making about the most effective use of staff, space, and scarce financial resources. 

There is also no evidence that supports the main justification for these proposals; namely, that smaller classes produce improvements in student performance. Education reformer Chester Finn explains the cycle: 

Parents take for granted that smaller classes mean better education. Teachers cheer any move to shrink their classroom populations. Unions get more members. Administrators get more staff.… [yet] there’s no credible evidence that across-the-board reductions in class size boost pupil achievement. 

Finn goes on to cite University of Rochester economist Eric Hanushek’s recent study of the relationship between class size and student performance. Hanushek reportedly found that between 1950 and 1994 the student-to-teacher ratio dropped by 35 percent, from an average of 30 students per class to the current average of 22. At the same time, spending has increased to its highest level and student performance on standardized tests has not improved. Hanushek concluded that "there is little systematic gain from general reduction in class size."

Recommendation

School districts should remove class size limits from collective bargaining agreements. 

Proposals to reduce the student-to-teacher ratio are costly to districts and needlessly restrictive on administrators who must decide on the most effective uses for available resources, including teachers. The school board and administrators should be left free to decide how best to allocate scarce resources. 
  
 

2. Court Decisions

Many current contracts between Michigan’s school districts and teacher unions fail to protect the constitutional rights of teachers as upheld in a number of decisions by various courts, including the U. S. Supreme Court. School boards that fail to consider the legal requirements placed upon them by these court decisions can leave themselves exposed to employee lawsuits and other liabilities, draining more funds away from their mission of educating children.

For example, over two dozen current collective bargaining agreements do not notify teachers of their basic right to refuse union membership and to instead pay only an "agency service fee" to cover the costs of collective bargaining.

Staying informed about new laws and legal requirements can be a tedious and time-consuming chore. Even so, school boards have an obligation to themselves, the taxpayers they represent, and their employees to negotiate contracts that conform to the law and respect the constitutional rights of everyone involved.

Following are seven court decisions that school boards must consider when negotiating collective bargaining agreements with unions. Most of these decisions involve suits brought by objecting Michigan workers, but those that do not are still applicable to public school collective bargaining in this state. The message is clear: School districts must uphold the rights of their employees in any contractual agreement. 

Abood v. Detroit Board of Education

The 1977 U. S. Supreme Court decision in Abood v. Detroit Board of Educationfound that forcing public school employees to pay union dues affects their First Amendment rights. The Court held that a government employer and union may reach an agreement requiring employees to pay an agency service fee to cover the costs of collective bargaining, contract administration, and grievance adjustment. However, the decision clarified that objecting employees have a constitutional right to withhold payment of any union fees that support political and ideological causes. 

In other words, those objecting employees can be compelled to pay only those expenses directly related to collective bargaining. Under Abood, all public employees have a constitutional right to "prevent the Union’s spending a part of their required service fees to contribute to political candidates and to express political views unrelated to its duties as exclusive bargaining representative." 

School boards that negotiate contracts requiring employees to pay union representation fees are acting within their own discretion to force employees to join unions and are therefore legally liable for any failure to protect the rights of objecting employees. Under Abood, employees must be given the clear choice of either joining the union and paying full dues or else paying only a service fee to cover the direct costs of collective bargaining. Contracts that fail to give employees this choice violate the employees’ constitutional rights.  

Chicago Teachers Local 1 v. Hudson

In 1986, the U. S. Supreme Court ruled in Chicago Teachers Local 1 v. Hudsonthat a union must explain to nonunion workers the purposes for any fees it collects from them. Basing its decision on the earlier Abood case, the Court further found that unions must hold disputed fee money in escrow while resolving worker disputes before an impartial decision maker.

The Court considered it essential for unions to provide adequate information about the portion of financial cost charged for collective bargaining to employees who object to fee payments. School boards must therefore establish contractual agreements which minimize any possibility the objecting employee is subsidizing union political or ideological activities.

Currently, over 400 collective bargaining agreements in Michigan contain language that either explicitly informs teachers of the Hudson decision or alludes to the fact that employees who object to supporting the union’s ideological and political agenda have a forum to challenge their fee assessment. Yet the school board in each of these contracts has agreed with the union that the forum should be established and controlled by the union itself—the very organization with which the objecting employee disagrees. 

School districts that have agreed to these contractual terms have limited their employees’ Hudson rights to have their objections heard by a mutually agreed-upon and impartial decision maker. School boards should not accept any union-established procedure as sufficient protection of employee rights. Those collective bargaining agreements that do conflict with Hudson and other decisions which govern Michigan employment should be renegotiated to ensure that the constitutional rights of employees are protected and the school district is not exposed to liability.  
  
 

Lehnert v. Ferris Faculty Association

The U. S. Supreme Court’s 1991 decision in Lehnert v. Ferris Faculty Associationdiscovered that 90 percent of the NEA, MEA, and local union fees being charged to objecting faculty members was spent on union activities unrelated to collective bargaining. The Court again upheld the principle that objecting fee payers cannot be compelled to pay for a union’s lobbying, organizing, image building, public relations, or any other activities not directly related to collective bargaining representation. The Court also required the union to provide an audited accounting to objecting fee payers. 

Buzenius v. NLRB

Recently, the Sixth Circuit Court of Appeals determined in Buzenius v. NLRB that a union security clause requiring employees to become and remain "members of the Union in good standing" is inconsistent with an employee’s right to refuse to join a union and pay full dues. 

In this case, the collective bargaining agreement between the employer, Weyerhauser, and the union, United Paperworkers’ International, required each employee to remain a "member in good standing" of the union as a condition of employment. In effect, Weyerhauser became the union enforcer by agreeing to fire anyone who failed to pay the union’s required fees. 

The Court’s ruling that such contractual language misrepresented an employee’s legal rights reinforced a long-standing national labor relations policy that union membership is completely optional. 

In March 1998, the U. S. Supreme Court declined to review the Buzeniusdecision. It did, however, agree to hear another case involving the same issue. Marquez v. Screen Actors Guild is a case worth watching because a substantial number of current bargaining agreements contain some of the same language that the Sixth Circuit Court of Appeals voided in Buzenius.  

Air Line Pilots Association v. Miller

The U. S. Supreme Court ruled in the 1998 case Air Line Pilots Association v.Miller that agency fee payers with disputes over their assessed service fees need not first exhaust a union-controlled arbitration procedure before taking their disputes to an administrative or judicial forum. The Court held that the union requirement that nonunion airline pilots exhaust union arbitration did not meet the impartial decision maker requirement of Hudson.

Collective bargaining agreements that require union objectors to exhaust an internal union-controlled procedure fail to protect the constitutional rights of employees to the fullest possible extent and violate the essence of the Millerdecision. 
 

Bromley v. MEA/NEA, et al.

Bromley v. MEA/NEA, et al., pending before the U. S. District Court for Michigan’s Eastern District, is a suit brought by a Central Michigan University professor and other nonunion instructors against the MEA, asserting their right to meaningful disclosure of the union’s accounting figures. They contend that audited reports do not accurately calculate whether the expenses charged to them by the union are properly chargeable. After more than six years of litigation, the Court recently certified these objecting union fee payers as a class for the purposes of bringing a class action suit. 

In accordance with the dictates of Miller, Mackinac Center for Public Policy attorneys expect the Court to hold that union financial records are subject to all the discovery provisions permitted under federal law. Few, if any, of Michigan’s public school employers have informed their employees of their right to join this class action, and participate in discovering the inappropriate ways in which their union fees are often used.

Weaver v. University of Cincinnati

Perhaps the most important court case of which school boards should be aware is Weaver v. University of CincinnatiWeaver addresses something common in public school collective bargaining agreements: the indemnification clause. School boards rely on these clauses to protect them from any legal or financial consequences arising from their enforcement of union security procedures. 

In Weaver, the Sixth Circuit Court of Appeals ruled that public employers have an independent duty to inform their employees of their constitutionally protected rights affirmed in the Hudson decision. Indemnity clauses that specify a union will hold a school board harmless in any legal and financial actions resulting from dues or service fee check-off deductions are no protection to school boards. Any public school employer who participates in establishing procedures which fail to adequately protect employee rights can be held financially liable to aggrieved employees under Weaver.

Weaver has serious implications for public school employers. Employees who object to paying union service fees are more frequently contesting the amounts they are being charged for non-bargaining activities. Under Weaver, the Court held the public employer accountable for ensuring that all Hudson requirements are followed: "A clause that relieves the employer of all consequences for its failure to assume and conscientiously carry out its duties, including even the cost of defending legal actions, is against public policy." 

3. Conclusion

Collective bargaining as it is currently practiced must change to meet the increasing public demand for greater student achievement, lower costs, and more accountability in education. School board members and teacher union officials must redefine their relationship to again focus on their primary responsibility of delivering a quality education to every child entrusted to the public schools. 

Where school board members have been well informed and properly prepared to address union proposals, collective bargaining has been a successful vehicle for improving employee benefits while maintaining the educational welfare of students. Unfortunately, too many districts are operating under bargaining agreements that include language detrimental to both of these goals. Student performance and employee protection both suffer as a result.

School boards must therefore thoroughly research and understand the implications of court rulings, constitutional rights, and public employer legal responsibilities that affect collective bargaining. Armed with this information, district negotiators should then thoroughly review union contract language with an eye toward renegotiating or eliminating altogether any clauses that 

• restrict the board’s management rights;

• confer unnecessary and exclusive privileges to unions;

• misdirect scarce resources away from educational goals;

• surrender education policy decision-making abilities to unions;

• establish unreasonably restrictive teacher discipline, evaluation, and discharge procedures;

• agree to expensive employee benefits that could be provided at lower cost;

• mandate unfair, morale-sapping salary schedules; or

• abandon the district’s obligations to protect its employees’ constitutional rights. 
 

Every school district now has the ability through careful collective bargaining to effect reforms that will help meet the demands of parents, taxpayers, students, and teachers themselves. School board members must seize the opportunity to transform the bargaining process from an adversarial one into one focused on cooperatively improving the educational product, increasing value, and protecting the rights of all concerned. 

Endnotes

Margaret O’Connor, "The Price We Pay for Government Work," Viewpoint on Public Issues No. 95-35, December 4, 1995, Mackinac Center for Public Policy.

2 William G. Keane, Win Win or Else: Collective Bargaining in An Age of Public Discontent (Thousand Oaks, CA: Corwin Press, Inc., 1996), p. 4.

4 James D. Koerner, Who Controls American Education? (Boston: Beacon Press, 1968), pp. 36-37.

5 1947 PA 336, MCL 423.201, et. seq.; MSA 17.455(1), et seq.

6 OAG, 1947-48, No. 29, p. 170; OAG, 1947-48, No. 496, p. 380; OAG, 1951-52, No. 1368, p. 205.

7 1947 PA 336, MCL 423.201, 211 as amended provides: "Representatives designated or selected for purposes of collective bargaining by the majority of the public employees in a unit appropriate for such purposes, shall be the exclusive representatives of all the public employees in such unit for the purposes of collective bargaining in respect to rates of pay, wages, hours of employment or other conditions of employment, and shall be so recognized by the public employer: Provided, That any individual employee at any time may present grievances to his employer and have the grievances adjusted, without intervention of the bargaining representative, if the adjustment is not inconsistent with the terms of a collective bargaining contract or agreement then in effect, provided that the bargaining representative has been given opportunity to be present at such adjustment."

8 MCL 423.204. Repealed by 1965 PA 379, § 2.

9 Charles M. Rehmus and Evan Wilner, The Economic Results of Teacher Bargaining: Michigan’s First Two Years (Institute of Labor and Industrial Relations, University of Michigan), No. 6 of The Research Papers, 1968, p. 2.

10 Koerner, n 3 supra, p. 36.

11 Id.

12 Rehmus, n 8 supra, pp. 3-4.

13 Id.

14 Id., pp. 11-16.

15 HB 5128, House Legislative Analysis.

16 Michigan State AFL-CIO v Michigan Employment Relations Commission, Wayne Co. Circuit Court, case no. 94-420562-CL, 1995.

17 Michigan State AFL-CIO v Michigan Employment Relations CommissionMichigan Education Association v Governor, 453 Mich 362; 551 NW2d 165 (1995).

18 Mike Thompson, "Deal-Hammering Time Arrives In Saginaw," The Saginaw News, February 9, 1998, p. A1.

19 Detroit Police Officers Association v Detroit, 391 Mich 44; 214 NW2d 803 (1974).

20 Amalgamated Transit Union, Local 1564, AFL-CIO v Southeastern Michigan Transportation Authority, 437 Mich 441; 473 NW2d 249 (1991).

21 Detroit Police Officers Association, n 18 supra.

22 Kent County Education Association v Cedar Springs Public Schools, 157 Mich App 59; 403 NW2d 494 (1987).

23 North Dearborn Heights, 1966 MERC Lab Op. 434.

24 West Ottawa Education Association v West Ottawa Public Schools Board of Education, 126 Mich App. 306; 337 NW2d 533 (1983).

25 Id.

26 Taylor Federation of Teachers v Taylor School District Board of Education, 75 Mich App 476; 255 NW2d 651 (1977).

27 St. Joseph Public Schools, 1985 MERC Lab Op 454.

28 Woodhaven School District, 1982 MERC Lab Op 1540.

29 Spring Lake Public Schools, 1988 MERC Lab Op 362.

30 Garden City Public Schools, 91 MERC Lab Op 588 (1982).

31 Detroit Police Officers Association, n 18 supra, p. 55; Van Buren Public School District v. Wayne Circuit Judge, 61 Mich App 6; 232 NW2d 278 (1975).

32 Central Michigan University Faculty Association v. Central Michigan University, 404 Mich 268; 273 NW2d 21 (1978).

33 Id.

34 City of Saginaw, 1982 MERC Lab Op 727; City of Ishpeming, 1995 MERC Lab Op 687.

35 Genesee Co, 1992 MERC Lab Op 295.

36 First National Maintenance Corp. v. NLRB, 452 U.S. 666, 678; 101 S Ct 2573; 69 L Ed2d 318 (1981). 

37 Id.

38 Westwood Community Schools, 1972 MERC Lab Op 313.

39 Central Michigan University Faculty Association, n 22 supra, pp. 280-83.

40 West Ottawa Education Association, n 29 supra.

41 Bay City Education Association v Bay City Public Schools, 430 Mich 370; 422 NW2d 504 (1988) lv den 432 Mich 853.

42 Bullock Creek School District of Midland Co., 1970 MERC Lab Op 112.

43 Board of Education of the School District of the City of Detroit, 1974 MERC Lab Op 813.

44 Portland Public Schools, 1977 MERC Lab Op 1123.

45 John Pagen, "Michigan Learned These Seven Bargaining Lessons—the Hard Way," American School Board Journal, August 1975, p. 37.

46 Diane Divoke, "Teachers, Covet Your Policy Power," American School Board Journal, June 1979, pp. 30-31.

47 MCL 380.1202a; MSA 15.41202(1).

48 Wayne County Civil Service Commission, 1975 MERC Lab Op 1000.

49 Detroit Police Officers Association, n 18 supra, pp. 54-55.

50 Male v. Grand Rapids Education Association, 98 Mich App 742; 295 NW2d 918 (1980).

51 1994 PA 112, § 215 (3) and (4), MCL 423.215 (3) and (4).

52 Robert C. O’Reilly, "Things a Board Ought Never Bargain," presented at the Annual Meeting of the National School Boards Association, 1983, p. 2: "The discussion of an expanded bargaining concept for education has been offered only to demonstrate that school boards are so bounded by a short range view, and school administrators so unaware of some larger perspectives of labor relations, that boards are operationally wedded to a system that may not produce the best service in that school community for the money spent."

53 Whittemore-Prescott Public School Master Contract, 1994-1997, p. 1, provides, "As American culture becomes more urban and school systems grow in size, it is necessary that educational groups rather than individuals express conditions of employment."

54 Ronald R. Booth, "Collective Bargaining and the School Board Member: A Practical Perspective for the 1990s," Illinois Association of School Boards, 1993, pp. 11-12.

55 Id.

56 Reported by Myron Lieberman, unpublished manuscript, Education Policy Institute, September 26, 1996.

57 Thompson, n 17 supra.

58 Albert Shanker, "Al Shanker Speaks on Unions and Collective Bargaining," Education Week, May 14, 1997, pp. 35-36.

59 Damon Darlin, "To Whom Do Our Schools Belong?," Forbes, September 23, 1996, p. 66.

60 Shanker, n 57 supra, p. 36.

61 Kathleen Harward, Market-Based Education: A New Model for Schools(Fairfax, VA: Center for Market Processes, 1995), pp. 23-29.

62 1976 PA 451, § 1102, MCL 380.1102; MSA 15.41102.

63 Booth, n 53 supra, p. 15.

64 Quoted in Sol Stern, "How Teachers’ Unions Handcuff Schools," City Journal, Manhattan Institute, Spring 1997, p. 35.

65 Shanker, n 57 supra, pp. 35.

66 A nonscientific survey of various sized school districts across the state was conducted by the author, showing that salaries and benefits of all employees consumed an average of 82% of total school budgets.

67 O’Reilly, n 51 supra, p. 2.

68 Keane, n 1 supra, p. 25.

69 Telephone interview with the president of the Frankenmuth Teachers’ Professional Organization, February 25, 1998.

70 Thompson, n 17 supra.

71 MCL 423.215 (2).

72 City of Saginaw, 1990 MERC Lab Op 755.

73 Morley Stanwood Community Schools, Master Contract, 1997-2000, p. 2.

74 City of Westland, 1987 MERC Lab Op 793.

75 Comstock Park Public Schools, 1987 MERC Lab Op 267.

76 This sample clause is a composite of good management rights clauses found in several existing contracts, including the Fowler Public School Master Agreement, 1997-2000; Baldwin Community Schools Master Agreement, 1997-2000; and Ida Public Schools Master Agreement, 1996-1999.

77 MCL 423.211.

78 "Forced Unionism is Shutting Down American Education," National Right to Work Committee.

79 MCL 423.210 (1) provides that, "nothing in this act or in any law of this state shall preclude a public employer from making an agreement with an exclusive bargaining representative ... to require as a condition of employment that all employees in the bargaining unit pay ... a service fee equivalent to the amount of dues uniformly required of members ...." Subsection 2 further provides that, "if such requirement is negotiated ... all employees of the bargaining unit shall share fairly in the financial support" of paying the service fee. (Emphases added.)

80 Stern, n 63 supra, p. 40.

81 Caroline M. Hoxby, "How Teachers’ Unions Affect Education Production," The Quarterly Journal of Economics, August 1996, p. 671.

82 Id., pp. 701-12.

83 See, e.g., Pennfield Public Schools Master Agreement, August 20, 1996, art. II, p. 1.

84 Abood v. Detroit Board of Education, 431 U.S. 209, 234; 97 S Ct 1782, 1799; 52 L Ed2d 261, 283-84 (1977).

85 Chicago Teachers Union, Local No. 1 v Hudson, 475 U.S. 292, 309-310; 106 S Ct 1066, 1077-78; 89 L Ed2d 232, 238-39 (1986).

86 U.S. Sup. Ct., No. 97-428, May 1998.

87 See, e.g., New Buffalo Public Schools Agreement, 1997-1999, p. 7.

88 See, e.g., North Muskegon Public Schools Master Agreement, August 16, 1994, p. 67.

89 Ann Arbor Board of Education v. Abrahams, 202 Mich App 121; 507 NW2d 802 (1993). See also Internet URLhttp://www.mackinac.org/mea/xi.htm.

90 Grief Brothers Cooperage Corp., 42 LA 555 (1964).

91 Bob Chase, "Running on Empty: Why Our New Unions Must Put Teacher Quality First," Education Week, January 21, 1998, p. 14.

92 Stern, n 63 supra, p. 41.

93 MCL 38.101, et. seq.; MSA 15.2001 et seq.

94 See, e.g., Deckerville EA Contract, 1997-2000, p. 28.

95 1997-98 NEA Resolutions F-9.

96 1997-98 NEA Resolutions F-8.

97 Saginaw Public School Master Agreement, 1995-1998, Appendix A, p. 70.

98 1995 PA 289, § 1, MCL 380.1250.

99 Shanker, n 57 supra, p. 37.

100 See n 65.

101 DRM Stakor & Associates, Inc., school district strategic planning documents, 1990-1997.

102 Frank Webster, "Teachers Deserve Good Benefits; School Deserve to Know What They Cost," Viewpoint on Public Issues, No. 98-20, July 6, 1998, Mackinac Center for Public Policy.

103 Matthew Robinson, "Across the Table from Unions," Investor’s Business Daily, March 19, 1998, p. 1A.

104 Andrew P. Bockelman and Joseph P. Overton, Michigan Education Special Services Association: The MEA’s Money Machine (Mackinac Center for Public Policy, 1993), available on Internet at http://www.mackinac.org/studies/9310messa/index.htm.

105 See n 101.

106 As reported in Rehmus, n 8 supra, p. 10.

107 Id., p. 19.

108 Chester E. Finn and Michael J. Petrilli, "The Elixir of Class Size," The Weekly Standard, March 9, 1998, p. 16.

109 Id.

110 Id.

111 Abood, n 83 supra.

112 Id., pp. 209, 234.

113 Hudson, n 84 supra.

114 500 U.S. 507; 111 S Ct 1950; 114 L Ed2d 572 (1991).

115 124 F 3rd 788 (CA 6 1997).

116 U.S. Sup. Ct., No. 97-1056 (pending review).

117 U.S. Sup. Ct., No. 97-428, May 1998. 

118 U.S.D.C., E. D. of Mich, File No. 92-CV-10443-BC.

119 Weaver v University of Cincinnati, 970 F2d 1523 (CA 6 1992). 

120 Id., p. 1538.