Cost Accounting in Local Government

Systemic Problems with Labor Negotiations

Many years ago, I audited a city in the San Gabriel Valley area of greater Los Angeles that was especially well-managed. One of the features that made this city exceptional was the process they used for labor negotiations.  Before telling you what they did, I would like to summarize what many cities are currently doing.

Under the Council-Manager form of local government, the council hires a city manager who hires, fires and directs
staff. The manager is an at-will employee of the city council and can usually be fired with minimal fuss.

This manager, either directly or with the support of the finance department and/or personnel department, negotiates with the various recognized employee groups over annual pay and benefit changes.  Since the negotiators usually benefit from whatever the employees receive, we have a classic case of the “Fox guarding the Hen House.”

There is no incentive, outside of professional integrity, to hold the line on employee total compensation. In fact, all the incentives seem to be stacked against making a “good” decision:

  • The negotiators generally receive the same benefit and compensation package that the employee groups receive.
  • Other “competitive” cities are using the same negotiation model and making it hard not to be “competitive.”
  • The reward for holding the line with employee groups can be psychologically difficult when the negotiators have to work with the same people on a daily basis.
  • The negotiator’s own retirement might be near and the fiscal impacts on the city might be far off.

So, what did this well-managed San GabrielValleycity do? They had an independent labor negotiator on retainer who was hired by the city council and reported directly to the council in closed-session. This negotiator had no “skin in the
game” and could make his/her best professional recommendation to the council. If the council was unhappy with the professionalism of the negotiator, it was easy to terminate the contract.

I won’t embarrass the city by naming it. I suspect that this practice ended many years ago. Yet, it is interesting to speculate how many cities today would be better off fiscally if the negotiators were not in-house.

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