(Editor’s note: This is an edited version of an Op-Ed that appeared in the Lansing State Journal on July 9, 2011.)

After much Sturm und Drang, the state Legislature has finally produced its revisions to the process for arbitrating labor disputes involving police and firefighters. It’s doubtful that the new bill will accomplish much. If legislators are serious about wanting to help municipalities balance their budgets, they will have to do more.

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Binding arbitration for police and firefighter contract disputes under Public Act 312 is slow and  expensive — a typical arbitration process takes longer than a year — and a task force convened by Gov. Jennifer Granholm found that arbitration added 5 percent to the cost of local government. With overly generous government employee benefits continuing to present a burden for taxpayers, it is imperative that the Legislature gets these costs — often exacerbated by arbitrators’ decisions — under control.

The new law requires arbitrators to consider a local government’s ability to pay as the chief consideration in the decision-making process. They must also look at the wages and benefits of other workers employed by the same local government. But what effect this will have is entirely speculative, because the arbitration award is still not subject to any effective review. Arbitrators will have a lot of room to fudge numbers. Earlier versions of the bill would have prevented arbitrators from presuming that taxes could be raised to satisfy union demands. The final bill removed that rule.

In practical terms, the award will still be up to the arbitrator’s discretion. Most already go through the motions of considering the government’s financial situation. Whether they’ll do more than that remains to be seen.

The problem with arbitration, ultimately, is that one individual, the chairman of the arbitration panel, makes all the decisions. He is not accountable to local taxpayers for the consequences of his decisions. The chairman knows that he cannot do too much to anger unions or local officials, otherwise he won’t be selected for any more arbitrations. Hence, arbitration awards are basically an exercise in difference-splitting rather than a serious effort to investigate local finances and come up with a fair contract that taxpayers can afford. The new process makes arbitrators jump through an extra hoop, but doesn’t change the incentives.

Because of the cost, time and ambiguity of the process, binding arbitration should be abolished. If the Legislature is unwilling to repeal PA 312, it should at least be willing to put the burden of proof on the union to show that its demands can be met without tax increases, and should allow a judge to review the arbitrator’s handiwork. Without that, taxpayers are stuck with arbitrators making guesses and splitting differences with little attention paid to the public interest.

On the whole, the bill itself looks like an exercise in splitting differences between local governments who need relief from burdensome arbitration awards, and police and fire union officials who want the status quo, ignoring the dire financial condition of many Michigan cities. One wonders if this bill itself wasn’t written by an arbitrator.


Paul Kersey is director of labor policy at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.