Labor pacts could test city’s new financial review panel

The newly formed Detroit Financial Review Commission may not have quite as much power as the New York oversight board that was its inspiration — especially once a few bankruptcy-era union contracts are up for renegotiation in the coming years.

The commission members, appointed by Gov. Rick Snyder last week to serve along with Detroit Mayor Mike Duggan and Detroit City Council President Brenda Jones, will meet again Nov. 21 and Dec. 5. The commission will begin likely monthly and as-needed meetings to supervise Detroit’s post-bankruptcy financial plans.

Under Public Act 181 of 2014, the state law signed by Snyder in July to authorize the commission, the panel will review and approve a four-year financial plan for the city and its operating budgets. It also has final approval of any labor contracts with Detroit’s more than 40 employee unions.

The remaining commission members appointed were Lorron James, vice president of business affairs at James Group International; Darrell Burks, former senior partner of PricewaterhouseCoopers LLP; Tony Saunders, former director of Conway MacKenzie Inc.; Bill Martin, real estate developer and former University of Michigan athletic director; and Stacy Fox, founder and principal of The Roxbury Group, and a former deputy emergency manager of Detroit.

An exception to the commission’s labor contract oversight is when it comes to anything that invokes Public Act 312 of 1969, which provides mandatory binding arbitration for labor disputes with police and fire. The review team can, however, make its case and argue the city’s financial condition to an arbitrator or panel in those disputes, per the new public art.

The New York State Financial Control Board, created under the 1975 New York State Financial Emergency Act during New York City’s $3.3 billion fiscal crisis, also had broad labor contract oversight.

That panel famously rejected labor contracts negotiated for transit workers and with the city’s Board of Education for teachers, before relinquishing much of its power in 1986.

The issue may not surface for a while in Detroit, which adopted a new labor pact through bankruptcy mediation that expires in June 2019 with the Detroit Police Officers Association, its largest police union, representing more than 1,700 member officers, corporals and community affairs police.

Historically, Act 312 is the rule, not the exception, in resolving city police contract disputes. Even its last contract, a one-year deal adopted in 2013 before the city’s $18 billion Chapter 9 bankruptcy petition, was an arbitration ruling.

President Mark Diaz of the police officers association said last week the unions feel they are able to negotiate with the Duggan administration, but that the current pact ratified in August made some concessions to the city. And Act 312 wasn’t an option in fashioning that deal, because of some provisions in the 2012 state law giving broader powers to Detroit Emergency Manager Kevyn Orr.

“Historically, we’ve had to use 312 just as a means of getting closure,” Diaz said. “We are confident in our relationship with the new mayor and some of his assurances that public safety is a priority for the city, and that makes us fairly confident that we can reach resolutions before resorting to 312.

“However, in the event we do have to resort to it to gain finality, I am also confident in arbitration panels to give us correct decisions.”

The current contract only partly unwinds a set of wage cuts imposed by then-Mayor Dave Bing on police in 2012, offsetting a new pay increase with a 6 percent set-aside of base pay for officers to contribute to the Police and Fire Retirement System pension plan, and freezing compensation next fiscal year.

The local Review Commission will retain active oversight of city finances for at least three years — possibly much longer, depending on how quickly Detroit can meet various financial performance benchmarks. Then it moves to a less-active monitoring role for at least 10 years.

Depending on the political environment a few years from now, it’s possible that management may find Act 312 more appealing than police and fire labor unions do, said Patricia Nemeth, owner of Detroit-based Nemeth Law PC, which represents management in collective bargaining agreements and has represented municipalities in police/fire arbitration.

“Generally speaking, in the past it’s been the union who wants to go into 312. There’s a perception that they will get more from an arbitrator or panel of arbitrators than through the traditional negotiation process,” she said.

“But more recently, with the economy being poor for cities, it’s possible that influence will change as arbitrators can see how municipalities are in trouble financially.”

Rep. John Walsh, R-Livonia, who sponsored the original review commission bill, said there was not enough support in Lansing to amend Act 312 or to empower the new commission to override it. He also noted that the legislature already had made several modifications to Act 312 in 2011.

Chad Halcom: (313) 446-6796, chalcom@crain.com. Twitter: @chadhalcom

http://www.crainsdetroit.com/article/20141116/NEWS/311169971/labor-pacts-could-test-citys-new-financial-review-panel