Want to empower cities? Reform binding arbitration.

Local governments dominated domestic policymaking in 19th century America. In general, government was quite small, but most of the services that were provided, such as public education and road-building, were the responsibility of city and town officials.

The Brookings Institution and the political theorist Benjamin Barber have recently advocated for a return to something like the 19th century arrangement. They believe that, at a time when DC and many statehouses seem so corrupt, petty and ineffectual, if we want better policymaking, we should want it to be more locally-directed.

The American people on the whole seem sympathetic: According to a poll published in April, 63% of the American public has a “favorable” opinion of local government, putting it almost 40 percentage points ahead of the federal government (28% “favorable”).

To empower cities and expand their policymaking role, they must first be liberated them from harmful mandates. That should mean binding arbitration reform. Recent events in Scranton, PA and Boston, MA make clear what a nuisance this policy is.

Many blue states grant public safety unions the right to seek an independent arbitration process when negotiations with management hit an impasse. Officially, as the unions are apt to emphasize, this process must exist in order to prevent police or fire from going on strike.

But as the Empire Center pointed out in an analysis of binding arbitration in New York, strikes by public employee unions are illegal anyway and even unions without access to binding arbitration almost never strike.

Binding arbitration laws increase unions’ leverage because the settlements are consistently pro-labor. As Boston mayor Tom Menino put it, “Public safety unions have no reason to negotiate with us in good faith and settle contracts voluntarily because arbitrators have proven that they will always give them more.” Late Detroit Mayor Coleman Young said: ”Slowly, inexorably, compulsory arbitration destroys sensible fiscal management.”

Arbitrators base their settlements on what unions have received in past contracts, or what other unions in nearby communities have received, much more than what a city can afford. The Empire Center found that from 1974-2012, for unions outside of New York City, unions with access to binding arbitration saw their salaries increase almost three times faster than unions without it.

Scranton, PA’s internationally-notorious labor woes  began in October 2011, when the PA Supreme Court ruled that the city honor the terms of an arbitrator’s $17 million award to public safety unions, a substantial sum for a community of 76,000 with a $100 million operating budget. The following summer, struggling to find a way to pay for the settlement, Scranton’s mayor reduced all employees’ salaries to minimum wage.

The city eventually secured a bank loan to keep it temporarily afloat, but fiscal chaos reemerged last week when a judge demanded the city come up with the now $21 million+ still owed to the unions, threatening even to allow unions to seize city assets if other revenues can’t be found.

Scranton is poor and broke, having been in Pennsylvania’s Act 47 program for distressed cities for over two decades. Last summer, the city’s parking authority defaulted on bond payments. Scranton demonstrates the insanity of allowing arbitrators to award settlements based exclusively on their definition of what’s fair while giving, at most, token consideration to what’s affordable.

Boston’s experience with binding arbitration demonstrates how flagrantly undemocratic the process is. Last week, a Boston arbitrator awarded the Boston Police Patrolmen’s Association a 25% raise over six years, a value of $80 million.

The patrolmen’s award follows an even more outrageous 21.5%, five-year raise to the Boston firefighters union forced on the city in 2010 by the arbitration process. The origins of that $100 million plus increase lay in the Boston Firefighter Union’s resistance to random drug testing.  Since drug testing affects conditions of employment, the firefighters demanded a pay boost to agree to it. Anything less would have been leaving money on the table.

AAA-rated, and in possession of $68 million in collective bargaining reserves, Boston, unlike Scranton, will be able to pay for the police settlement, if at great inconvenience. The larger question for Boston is, can one imagine a less democratic process to shape fiscal policy? In this extremely liberal, pro-labor city, everyone seems to be against this settlement-the City Council Speaker, the mayor (“unreal“), both mayoral candidates, and both newspapers-and yet it or something close to it will likely go into effect.

Binding arbitration is supposed to be “binding” in the sense that the parties must accept the settlement, but it’s really cities that wind up being bound. Wages, normally thought of as operational expenses, turn into legacy costs. Unions drag out negotiations for years, as the old contract with its guaranteed pay bumps stays in effect,  and once employers settle up, it’s to pay employees for work they performed years ago.

Legally, cities will always be the creations of state government, never “nation states” of their own, and we’ll probably never see a full return to 19th century conditions. But small victories matter. Urbanists genuinely interested in giving cities’ more autonomy should target for reform those mandates now held in special contempt by local officials. This could be done either by revoking public safety unions’ right to pursue binding arbitration, or imposing, as New Jersey did, a firm cap on awards to ensure their affordability.

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