BEFORE THE ARBITRATOR

DAVID GABA

EMPLOYER'S POST-HEARING BRIEF

Adam S. Collier Bullard Smith Jernstedt Wilson 200 SW Market Street, Suite 1900 Portland, OR 97201 503-248-1134/Telephone 503-224-8851/Facsimile

Attorneys for Employer Tri-County Metropolitan Transportation District of Oregon

Dated: June 25, 2012

AMALGAMATED TRANSIT UNION, DIVISION 757, Union, and TRI-COUNTY METROPOLITAN TRANSPORTATION DISTRICT OF OREGON, Employer.

INTEREST ARBITRATION

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Table of Contents

I. INTRODUCTION .........................................................................................................1

II. THE ISSUES .................................................................................................................1

A. TRIMET’S LAST BEST OFFER ......................................................................2

1. Health insurance.....................................................................................2

2. Pension/retirement benefits. ...................................................................3

3. Seniority. ................................................................................................4

4. Payment for Union officers at grievance step meetings and Joint Labor Relations Committee meetings. ...................................................5

5. Child Care/Elder Care Assistance Program. ..........................................5

6. Transit Exchange Program. ....................................................................6

7. Benefits Coordinator Position. ...............................................................7

B. THE UNION’S LAST BEST OFFER ...............................................................8

III. DISCUSSION ................................................................................................................8

A. INTEREST AND WELFARE OF THE PUBLIC FAVORS TRIMET’S LAST BEST OFFER. ........................................................................................8

B. APPLICATION OF THE SECONDARY STATUTORY CRITERIA SUPPORT THE AWARD OF TRIMET’S LAST BEST OFFER. .................20

1. Relative inability to pay favors TriMet’s last best offer. .....................20

2. Comparison of overall compensation favors TriMet’s last best offer. .....................................................................................................28

3. The cost-of-living favors TriMet’s last best offer................................34

4. Ability to recruit and retain employees favor TriMet’s last best offer. .....................................................................................................35

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C. TRIMET’S PROPOSALS ARE REASONABLE AND NECESSARY, AND ITS LAST BEST OFFER CLEARLY IS MORE JUSTIFIED THAN THE UNION’S LAST BEST OFFER. ............................................................37

1. TriMet has demonstrated a compelling need for its health insurance proposal. ..............................................................................38

2. TriMet has demonstrated a compelling need for its retirement proposals. .............................................................................................44

3. TriMet has demonstrated a compelling need for its proposals related to grievance step meetings and JLRC meetings.......................46

4. TriMet has demonstrated a compelling need for its seniority proposal. ...............................................................................................48

5. TriMet has demonstrated a compelling need for its proposals regarding funding of Union programs. ................................................48

6. The Union’s last best offer is neither reasonable nor justified. ...........50

7. TriMet’s last best offer is not unfair or unreasonable. .........................53

IV. CONCLUSION ............................................................................................................56

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I. INTRODUCTION

This interest arbitration proceeding between Tri-County Metropolitan

Transportation District of Oregon (“TriMet” or “Employer”) and Amalgamated Transit Union,

Division 757 ("ATU” or “Union") concerns the unresolved terms of a successor collective

bargaining agreement between the parties. The agreement currently covers a bargaining unit of

approximately 2,026 employees in 76 different job classifications. (Ex E-60).

The parties stipulated that this matter is properly before the Arbitrator. A hearing

was conducted on May 14-17, 2012, for the purpose of presenting documentary and testimonial

evidence to the Arbitrator in support of the parties' Last Best Offers ("LBOs"), as it relates to the

statutory criteria which guide the Arbitrator in his selection of one of the last best offer packages

pursuant to ORS 243.746(5).

The parties agreed to submit closing arguments in the form of post-hearing briefs

by email to the Arbitrator on June 25, 2012. During the hearing, the Union challenged the

legality of TriMet’s retirement proposals and both parties presented expert witnesses (Aruna

Masih on behalf of the Union and Tom Kramer on behalf of TriMet) who testified regarding the

legality/illegality of the proposals. At the conclusion of the hearing, the parties stipulated that

they would not brief the issue of whether TriMet’s retirement proposal is lawful and that the

Arbitrator would not rule on that issue.

The following constitutes TriMet’s closing argument in this matter.

II. THE ISSUES

Because very little bargaining took place between the parties and the Union

throughout the bargaining period insisted on extending the terms of the labor agreement with no

changes, this proceeding involves a number of economic and language issues that remain

unresolved. The parties reached no tentative agreements during bargaining. Both parties are

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proposing a three-year term of agreement, which will expire on November 30, 2012. Although

TriMet is facing severe financial difficulties, the Oregon Employment Relations Board

prohibited TriMet from including a wage proposal in its last best offer that is different than the

current contract language. Therefore, regardless of which party’s last best offer is awarded, the

bargaining unit employees will continue to receive cost-of-living adjustments every six months

during the term of the new agreement, with a minimum annual increase of 3% and a maximum

annual increase of 5%.

The primary issues in dispute are economic, and are driven by the fiscal crisis

currently facing TriMet. The issues in dispute are set forth below.

A. TriMet’s Last Best Offer

1. Health insurance.

Under the expired collective bargaining agreement (CBA), TriMet offered two

health insurance plans to its bargaining unit employees and retirees – a Regence PPO plan and a

Kaiser HMO plan. As explained in detail at the hearing (and which will be summarized later in

this brief), the current Regence plan is one of the most generous health insurance plans (if not the

most generous) in existence and costs more than $30,000 per year for individuals with full family

insurance coverage. (See Ex E-77). Under status quo provisions of the expired CBA, TriMet

pays 100% of the monthly premium and the employees/retirees pay virtually nothing except a $5

co-pay for office visits and prescriptions. There are no deductibles and no co-insurance. As the

Union’s benefits coordinator, Molly Butler, testified, because of these provisions, it is nearly

impossible for an employee to reach the out-of-pocket maximum of $1,000.

TriMet has proposed to change the Regence plan design to a 90/10 co-insurance

plan retroactive to Dec. 1, 2009, which is the same plan that was available for TriMet’s non-

union employees and retirees at that time. (On January 1, 2012, TriMet’s plan for non-union

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employees was changed to an 80/20 plan.) Under its last best offer, TriMet’s proposed plan

design changes would reduce premium costs by approximately 15%, while TriMet would

continue to pay 100% of the monthly premium cost. The proposed plan is still very generous

and much better than what is offered by most employers (public or private). This plan design

change would also apply to retirees, whose health care benefit is defined by the plan active

employees enjoy. Consequently, TriMet’s proposal would begin to address TriMet’s $816

million unfunded OPEB liability, which stems largely from the retiree health insurance benefits

it provides.

TriMet has proposed no changes to the Kaiser plan design and will continue to

pay 100% of the monthly premium cost for the Kaiser plan for both employees and retirees.

Forty-two percent of TriMet’s union employees are enrolled in the Kaiser plan. Moreover, an

open enrollment period will occur immediately following the issuance of the Arbitrator’s

decision, which will allow individuals to switch from the Regence plan to the Kaiser plan, or

vice versa, if they so desire. (Testimony of McFarlane).

2. Pension/retirement benefits.

TriMet has proposed changes to the pension benefits available for existing retirees

and current employees. Currently, the pension benefit for existing employees and retirees

adjusts each year based on the wage adjustment of bargaining unit employees, which in the

expired contract was based on the CPI with a minimum increase of 3% and a maximum increase

of 5%. (See Jt Ex 1, p 132, par 5(c)). Under TriMet’s last best offer, following the Arbitrator’s

decision, the pension benefit will continue to adjust annually in accordance with the CPI, but the

minimum increase will be 0% and the maximum increase will be 7%. (See Ex E-2, p 136, par

5(c)). For current employees who retire after the Arbitrator’s decision, their pension benefit will

be adjusted based on 90% of the CPI (up to a maximum of 7%). (See Ex E-2, p 136, par 8).

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TriMet also has proposed that new employees hired after the Arbitrator’s decision

will be eligible for a defined contribution plan rather than a defined benefit plan. (Ex E-2, p 136,

par 9). The defined contribution plan would have the same elements as TriMet’s defined

contribution plan for non-union employees. Under the plan, TriMet annually would contribute

8% of the employee’s base wages and the employee also could contribute up to 15% if he/she

desired. (Testimony of deHamel; Ex E-68).

In addition, TriMet has proposed striking language that states “[r]etirement is at

30 years of service regardless of age, with no reduction for early retirement.” (Ex E-2, p 134, par

2(c)). TriMet’s proposal follows the parties’ intention when they negotiated the language. The

next sentence of the CBA specifically states that “[t]his provision will automatically expire on

the last day of the agreement and must be renewed in successive agreements.” (Id.) The effect

of striking the language is that the earliest employees will qualify for full retirement benefits is at

age 58 rather than simply after 30 years of service.

The purpose of TriMet’s pension and retirement proposals is to shore up its

pension plan which currently is only 56% funded and to begin to address TriMet’s $816 million

unfunded OPEB liability.

3. Seniority.

In its last best offer, TriMet has proposed that employees promoted to a non-union

position shall retain their bargaining unit seniority for five years from the date of their

promotion. (Ex E-2, p 21, par 1). Currently, there is no limit on how long an employee will

retain seniority in their last bargaining unit position after they have been promoted out of the

unit. (See Jt Ex 1, p 27, Section 13, par 1). The purpose of TriMet’s seniority proposal is to

prevent long-term management employees from bumping back into a bargaining unit position for

one day and then retiring in order to get better retiree benefits such as fully paid health insurance

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benefits (which contributes to TriMet’s rapidly increasing OPEB liability). Eligible TriMet

non-union retirees who satisfy the service and age requirements are eligible to receive the same

health care benefits, plan design, and cost-sharing received by active TriMet non-union

employees. Currently, they contribute 6% of the premium costs and it is an 80/20 co-insurance

plan. (TriMet’s non-union retirees hired on or after April 27, 2003, are required to pay the entire

cost of their retiree health insurance benefits.)

4. Payment for Union officers at grievance step meetings and Joint Labor Relations Committee meetings.

TriMet has proposed that, following the Arbitrator’s decision, it shall no longer be

responsible for paying Union officers to represent employees in grievance step meetings and in

Joint Labor Relations Committee (JLRC) meetings. (Ex E-2, p 2, par 6 and pp 4-5, Section 3,

par 1). Currently, TriMet is obligated to pay for a Union representative at each of the three steps

in the grievance procedure and to pay for up to two Union representatives at the JLRC meetings.

The purpose of these two proposals is to reduce costs. TriMet has faced a major budget shortfall

each of the past several years (as well as the upcoming year) and has been forced to respond to

hundreds of meritless grievances during this time – an average of more than 240 grievances per

year with a bargaining unit of only 2,000 members. Thus, this was an obvious area in which to

cuts costs. TriMet’s proposal essentially would prevent the union from filing and advancing to

arbitration meritless grievances against TriMet, for which TriMet must pay, and would require

the Union to pay for its own officers to attend JLRC meetings, which the Union has attempted to

use as an end-run around the grievance process in the past.

5. Child Care/Elder Care Assistance Program.

The Union purportedly operates a Child Care/Elder Care Assistance Program that

is intended to benefit its members. Under the expired agreement, TriMet contributed an annual

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amount to the Union to operate and administer the program. That amount was $55,000 in 2003,

$57,000 in 2004, $59,000 in 2005, $61,000 in 2006, $63,000 in 2007, and $65,000 in 2008.

TriMet has proposed to annually contribute $55,000 to the program for the years 2009, 2010, and

2011. (Ex E-2, p 26, par 12). A recent audit revealed that the program account balance is more

than $400,000. Ron Heintzman testified there are no Child Care/Elder Care centers in operation.

The Union did not make a proposal with regard to TriMet funding the program

during the term of the new agreement. Therefore, under the Union’s last best offer, TriMet

would not have to contribute anything to the Union to fund the program in 2009, 2010, and 2011.

6. Transit Exchange Program.

Under the expired contract, TriMet contributed a monthly amount to the Union to

pay for a Transit Exchange Program for the purpose of “provid[ing] for the exchange of

information and ideas between national and international transportation industry association

executive officers.” (Jt Ex 1, p 34, par 14). Under the expired CBA, TriMet contributed $1,100

per month effective December 1, 2004, $1,200 per month effective December 1, 2005, $1,300

per month effective December 1, 2006, $1,400 per month effective December 1, 2007, and

$1,500 per month effective December 1, 2008. TriMet has proposed to discontinue funding the

Transit Exchange Program. (Ex E-2, p 27). The program essentially has paid for the Union’s

officers to take trips to Europe and TriMet has received no benefit from the program. Thus, it

was an obvious place for TriMet to try to cut unnecessary expenses.

Moreover, as TriMet has notified the Union prior to this arbitration, TriMet

providing travel funds that benefit ATU officers and for which TriMet derives no benefit, likely

is illegal under Employment Relations Board (ERB) precedent. In City of Portland, 8 PECBR

8115 (1985), ERB held that the payment of benefits to union-employed officers (in that case

healthcare benefits) is contrary to public policy and violates PECBA because it constitutes

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impermissible assistance in the “formation, existence, or administration” of the union under

ORS 243.672(1)(b). As such, the travel exchange program is illegal and unenforceable. Such a

provision also violates the Oregon Constitution because public funds must be expended for a

public purpose. See Carruthers v. Port of Astoria, 249 Or 392 (1968). ATU is a private

employer and its officers are employed by ATU. See Dinicola v. State, 246 Or App 526 (2011).

TriMet cannot expend public funds to support travel benefits of ATU’s elected officers for which

it receives no benefit. The Union did not make a proposal regarding the Transit Exchange

Program during the term of the new agreement. Therefore, under the Union’s last best offer,

TriMet would not have to contribute anything to the Union to fund the program in 2009, 2010,

and 2011.

7. Benefits Coordinator Position.

The Union maintains its own benefits coordinator to advise members of the

bargaining unit. Under the expired agreement, TriMet contributed a monthly amount to the

Union to pay for the benefits coordinator. The amount increased from $1,100 per month

effective December 1, 2004, to $1,500 per month in 2009. TriMet has proposed to cap the

amount it pays for the benefits coordinator position at $1,500 per month. (Ex E-2, p 16, par 2).

At the hearing, the Union’s benefits coordinator, Molly Butler, testified that the Union pays her

$800 per month and that she is the Union’s only benefits coordinator. Therefore, the Union

currently is netting $700 per month from TriMet’s monthly contribution for the benefits

coordinator.

The Union did not make a proposal with regard to TriMet funding the program

during the term of the new agreement. Therefore, under the Union’s last best offer, TriMet

would not have to contribute anything to the Union to fund the program in 2009, 2010, and 2011.

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B. The Union’s Last Best Offer

The Union has proposed to extend the contract for three years and maintain the

status quo with respect to all items except one proposal related to health insurance. Under the

Union’s proposal, employees would contribute 1.5% toward the monthly health insurance

premium effective January 1, 2011, and 3% toward the monthly health insurance premium

effective January 1, 2012. However, TriMet would be required to continue to pay 100% of the

monthly premium for retirees and their dependents throughout the term of the new agreement.

(Ex E-3). The Union’s proposal also would require TriMet to continue to offer the same health

insurance plans in effect under the terms of the expired agreement, with no changes to plan

design. Therefore, the Union’s proposal does nothing to address the incredibly high cost of the

premiums. In addition, because retirees would not be required to contribute toward the premium,

the Employer’s unfunded OPEB liability would continue to soar even higher. Also, as stated

earlier, under the status quo, the retiree health benefit is defined by what active employees

receive. The Union’s proposal for the first time ever to delink the retiree health benefit from the

active employee benefits would make it extraordinarily difficult to rein in TriMet’s “platinum”

retiree healthcare plan in the future because it is so difficult to reduce benefits once vested.

III. DISCUSSION

A. Interest and Welfare of the Public Favors TriMet’s Last Best Offer.

With regard to the essential issues before the Arbitrator – health insurance and

pension – and each of the other peripheral issues in dispute, TriMet’s last best offer best

promotes the interest and welfare of the public. ORS 243.746(4)(a) provides that such

consideration shall be given “first priority” by the Arbitrator. Although most arbitrators have

found it necessary to consider the “other factors” in ORS 243.746(4) to determine the interest

and welfare of the public, this is one of the rare cases where that is not required.

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Here, if the Union’s last best offer were to be awarded, the detrimental effect it

would have on the public is obvious. At the hearing, TriMet presented substantial and

undisputed evidence of the serious financial crisis it has been battling for the past several years,

which has necessitated more than $60 million in budget cuts. (Testimony of McFarlane). In late

2011, it became clear that TriMet was facing another $12 to $17 million budget shortfall with

respect to FY 2012-13. TriMet subsequently prepared a survey providing details about the

shortfall and various ways of addressing it, and sought public input regarding what steps it

should take in order to balance the budget. (Testimony of McFarlane; Exs E-9 through E-14).

TriMet received more than 16,000 comments from the public regarding how to address the

budget shortfall. (Testimony of McFarlane and Potter; Ex E-10, p 5).

Based on the public input, TriMet’s management proposed and the Board

ultimately took a number of actions to balance the budget including raising fares, discontinuing

the free rail zones, reconfiguring routes and reducing trips. (Testimony of McFarlane; Exs E-14

and E-15). TriMet’s actions addressed $12 million of the budget shortfall. The breakdown of

the changes made to balance the budget is as follows:

• Increase fares $6,000,000 • Eliminate Free Rail Zone $2,700,000 • Reduce service $1,100,000 • Reduce Streetcar funding $ 300,000 • Redefine LIFT boundaries $ 400,000 • Increase advertising revenue $ 300,000 • Internal reductions $1,200,000

Total 12,000,000 (See Ex E-110, p 3).

If the Union’s last best offer is awarded, TriMet will be faced with an additional $5 million in

expenses, which it will need to address immediately in the 2012-13 budget. (Testimony of

McFarlane and Potter; Ex E-1, p 78). Additional service cuts or fare increases would be

extremely painful for TriMet’s riders to absorb. If TriMet’s last best offer is awarded, the

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District will save $5 million this year in health insurance costs. Consequently, TriMet decided

not to implement the additional $5 million in cuts in advance of this arbitration award.

Both General Manager Neil McFarlane and Claire Potter, Director of Financial

Analysis, testified that the only way to cut another $5 million from the 2012-13 budget would be

by reducing service and/or increasing fares. (Ex E-1, p 78). Either way, reducing service and

increasing fares does not promote the interest and welfare of the public, and is

counterproductive. Tens of thousands of citizens in the Portland metropolitan area rely on

TriMet for transportation each day. Cutting service leads to a reduction in riders as some trips

simply become too inconvenient or difficult to make. Reduced ridership results in loss of

passenger fares which results in a need to either cut service further or raise fares. Similarly,

raising fares reduces ridership which causes the need to either raise fares even higher or to cut

service. It is a vicious downward spiral. (Testimony of McFarlane and Potter). High

unemployment rates and recessionary aftershocks all but guarantee lost fare revenue will not be

made up by increased revenue from payroll taxes.

Moreover, both McFarlane and Potter testified that cutting service simply is not a

solution to TriMet’s financial difficulties. TriMet needs to increase service as the region’s

population continues to grow in order to contain congestion and pollution, and to maintain the

region’s reputation as a good place for businesses and individuals to locate. That is TriMet’s

mission and purpose. TriMet cannot continue to cut service and raise fares without threatening

the mission and sustainability of the organization. (Testimony of Potter).

Furthermore, cutting service and raising fares most affects low-income citizens in

the Portland metropolitan area. Many of these people simply do not own a car or cannot afford

to put gas in their car. Approximately 16% of TriMet’s riders take the bus/light rail because they

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cannot drive, do not know how to drive, and/or do not own a car. (Testimony of Lomax; Ex

E-58, p 2). Reducing service and/or increasing fares would greatly impact their lives as well as

their standard of living.

It is important to recognize that TriMet’s financial situation is not a temporary

problem that will be resolved any time in the foreseeable future. As noted above, TriMet’s

financial difficulties have been ongoing for several years. In hindsight, it was extremely short-

sighted of TriMet’s former management team to enter into a six-year collective bargaining

agreement with the Union back in 2003. During the term of that agreement, the country entered

into its worst recession since the Great Depression. The Portland metropolitan area lost

approximately twice as many jobs (63,000) as compared to the 2001 recession (31,500 jobs).

This significantly reduced TriMet’s revenue from employer payroll taxes, during which time

TriMet’s union employees were guaranteed annual wage increases between 3% and 5% and

TriMet fully paid for extremely generous insurance benefits for employees, retirees and their

dependents, including an unheard of benefit that pays the healthcare costs for a surviving spouse

for 16 years after the death of the retiree.

McFarlane testified that TriMet long ago cut the fat from its budget and

subsequent cuts have been deep and painful. Exhibit E-1, pp 40-52, sets forth the numerous

steps TriMet has taken in recent years in an attempt to achieve fiscal stability. Those steps

include the following:

• In FY 2003, TriMet moved its non-union employees and retirees to the Regence 90/10 health plan, which required them to pay an annual deductible, 10% co-insurance, and premium cost sharing to cover dependents.

• In FY 2003, TriMet closed its defined benefit pension plan to new non-union employees, and opened a defined contribution plan for those employees in which TriMet contributes 8% of the employee’s salary (the

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same as TriMet has proposed for future union employees in its last best offer).

• In FY 2009, TriMet changed its policy to state that new non-union employees with 10 years of service are no longer eligible for retiree health insurance benefits unless they pay the full cost.

• TriMet has reduced its overall staffing by 10% since 2001, and many

employees have had their hours reduced. TriMet laid off a number of non-union employees in FY 2009 and FY2012.

• Since FY 2009, a wage freeze has been in effect for non-union employees.

• In FY 2012, TriMet’s non-union employees and retirees in the PPO health plan were required to contribute more toward health insurance including a $300/$900 annual deductible, 20% co-insurance, and a 6% premium contribution. In addition, the co-pays for non-union employees and retirees in the HMO health plan were increased to $10.

• TriMet has increased fares every year or every other year. Between 2000

and 2012, all fares have increased anywhere from 23% to 72% above the rate of inflation. In September 2012, TriMet is eliminating its downtown fareless rail service and significantly increasing adult fares.

• Beginning January 1, 2005, TriMet began to use the authority granted to it by the 2003 Oregon Legislature to increase the payroll tax by .01% per year over ten years. This is the most the law allows – and TriMet will continue to do so through 2014. However, TriMet promised the 2003 Oregon Legislature and employers that all of the additional revenue would be used to add new bus and rail service, not to pay for labor costs.

• TriMet has deferred replacing buses and equipment, and the average age

of its bus fleet is now twice that of the national average.

• TriMet has reduced cost growth associated with its ADA paratransit service in a variety of ways including reducing service boundaries and increasing fares.

• TriMet has reduced overtime hours, utilized American Recovery and

Reinvestment Act (ARRA) funds to avoid service cuts, added fare enforcers to bring fare evasion under control, and cut budgets across the board. (Testimony of McFarlane and Potter; Ex E-1, pp 40-52).

Although TriMet tries to avoid service cuts at all costs, it had no choice but to

reduce service in September 2009, December 2009, June 2010, and September 2010. TriMet has

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eliminated 13% of bus service hours since 2009, 10% of rail service on its three pre-existing

lines (Blue, Red and Yellow), and its originally planned service level on the Green line was cut

by approximately 33%. In short, 65 of 82 bus lines have had a reduction in weekly vehicle hours

and all four rail lines are operating under reduced service levels. In September 2012, TriMet’s

bus service will be reduced yet again with service reconfigured on 14 lines and reduced on

11 lines.

TriMet’s Board of Directors has been adamant about the need to create a

sustainable future for the agency by bringing bargaining unit wages and benefits under control.

With respect to the most recent labor negotiations for a successor labor agreement, the Board

identified cuts that already had been made and adopted a policy as follows:

TriMet’s growing costs of employee wages and benefits, as well as retiree health benefits, will limit our ability to maintain and expand service to meet the needs of the public. The Board believes that, ultimately, all TriMet employees must carry their fair share of the burden of both greater customer demand and dwindling resources. * * * One specific area that the TriMet Board believes needs to be brought into line with what other governments and businesses provide in this region is health care costs. Over the past six years and into 2010 we have seen health care premiums for our employees and retirees increase by more than 70%. This is not sustainable. * * * The Board’s goal for the WWA negotiations is to bring TriMet’s health care and post-employment benefits in line with a sustainable financial forecast of future TriMet revenues. * * * To be sustainable, the future of TriMet’s benefits should not grow faster than the growth of TriMet’s underlying payroll revenues.”

(Ex E-4) (emphasis added).

Other outside parties familiar with TriMet’s budget have reached the same

conclusions as TriMet’s Board of Directors. For example, the Multnomah County Tax

Supervisory and Conservation Commission – the body that ensures local budgets comply with

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Oregon budget law – issued a recommendation on May 26, 2010, urging TriMet to address the

runaway costs of retiree health care benefits. The Commission stated:

The cost for other post-employment benefits (OPEB) being incurred for retiree health care and life insurance benefits is getting more expensive as costs escalate and as more employees retire. We commend TriMet for beginning to separate out the costs in this budget to provide more transparency for its citizens. However, it is questionable whether providing this level of benefit to employees is sustainable and we strongly urge the Board of Directors to take steps to address this issue. (Ex E-5).

Similarly, TriMet convened a General Manager’s Budget Task Force to review

and offer ideas for addressing TriMet’s current fiscal challenges and offering long-term strategic

advice. (Exs E-6 and E-7). The General Manager’s Budget Task Force consisted of 12 members

which included a diverse group of transit riders (both choice and transit-dependent) as well as

business and community representatives. (See Ex-7, p 6). The Task Force issued a report on

April 19, 2012, stating that “critical changes” need to be made and that labor costs are the “most

pressing” issue. (Ex E-7, p 3). The Task Force concluded its report by stating:

TriMet has begun to address the issue of unsustainable labor costs by reforming management and non-represented employee health insurance and retirement plans. However, to provide a sustainable financial future for TriMet, the TriMet Board of Directors must also take a firm stand in support for bringing all labor costs, especially health care costs for active and retiree union members and their families, in line with costs similar to transit agency peers and other public agencies in Oregon.

Nothing less will bring TriMet back from the brink. (Ex E-7, p 5) (emphasis in original).

In addition, the Portland Business Alliance – which advocates on behalf of more

than 1,300 employees in the Portland metropolitan area – issued a letter dated April 3, 2012,

stating that TriMet needed to begin controlling its labor costs before the Alliance would work

with TriMet on a range of strategies to support the long-term financial stability of the agency.

(Ex E-8). The letter specifically stated as follows:

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[W]e are also concerned with the task force finding that the long term viability of TriMet is seriously threatened by its large and rapidly accelerating cost of employee health care. Poorly constructed past labor agreements provide represented employees and their relatives health care benefits that are wildly expensive and vastly out of alignment with private and public sector benefits. The TriMet union is proposing a continuation of benefits that would cost $22,000 per year in health care costs for each union employee, nearly twice the industry average and twice that of non-union employees. * * *

We fully support the recommendations of your budget task force and encourage the board to take actions to:

• Pursue a workable collective bargaining statute at the state • Bring health benefits in line with peer agencies and employers in the

region • Prioritize changing retiree medical benefits and add employee

insurance contributions • Reform work rules to increase management controls beginning with

attendance and contracting out Strive for more flexible and shorter contract terms

Portland’s business community has a long and proud history of supporting public transportation. We have and continue to advocate for state, local and federal funding for transit, we have formed local improvement districts, taxing ourselves to help pay for new rail projects, and we have even advocated for an increase in the payroll tax on businesses to expand and improve service. But it’s impossible to expect increased taxes or fares to keep up with the explosive growth in the cost of essentially unlimited health care for TriMet’s represented employees and their relatives, and we will not consider further revenue measures until that cost structure is fixed. The Alliance stands ready to work with TriMet on a range of strategies recommended by the General Manager’s Budget Task Force to support the long-term financial stability of the agency, including revenue and fare policy, LIFT costs, service improvements and integration of new technologies. But, first, we need to see action on the most pressing issue, and that is controlling these unconscionably high labor costs. (Ex E-8) (emphasis added).

In addition, the public as a whole is very aware of the extremely generous health

insurance benefits TriMet provides for its bargaining unit employees and retirees, and has been

outspoken about the service cuts and fare increases that have been made to pay for the increased

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labor costs. The Oregonian and other local media have published numerous articles in the past

three years detailing TriMet’s financial difficulties and specifically focusing on TriMet’s

extremely generous health insurance benefits for current employees and retirees. (See Exs E-16

through E-56). The Oregonian Editorial Board repeatedly has condemned TriMet for its

financially unsustainable health insurance benefits. For example, in an editorial published on

December 24, 2009, the Editorial Board stated, “The cost of health insurance at TriMet has

gotten out of hand. The transit agency needs to do some very basic cost containment or it risks

running itself into the ground, both financially and politically.” (Ex E-20, p 1). The same

editorial noted that the “[t]hese high premiums do not appear connected to big wage

concessions” and concluded by stating, “Until TriMet shows significant progress on health

care, the agency shouldn’t ask the community for a single penny more.” (Ex E-20)

(emphasis added).

Similarly, in an editorial published on February 21, 2010, The Oregonian

Editorial Board pointed out that the cost of TriMet’s health insurance benefits “is borne

disproportionately by the employers who pay transit taxes and by the passengers who pay fares.”

(Ex E-23). The editorial concluded by calling on TriMet and the Union to “reset the balance on

health care coverage.” Id.

In yet another editorial published on April 4, 2011, The Oregonian Editorial

Board wrote, “Right now, TriMet is in a terrible financial squeeze, because of its unsustainable

health care costs. That has to be fixed…” (Ex E-33, p 2).

On January 16, 2012, another editorial was published which condemned the

foolishness of allowing transit workers to be “no strike” public employees. (Ex E-38). The

editorial specifically noted that “anything that tends to deepen or prolong the standoff between

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TriMet and the transit union is working against the public interest. The agency is sagging, and

it won’t be able to recover until the labor impasse declared midway through 2010 is resolved.”

Id. (Emphasis added).

On February 27, 2012, yet another editorial was published which noted that “the

health and future” of TriMet was at risk and that the public, the Union, and TriMet “[a]ll stand to

gain from recalibrating the union contract and putting TriMet back on track.” (Ex E-44).

On April 19, 2012, an editorial was published which correctly pointed out that

TriMet’s most recent budget cuts would most hurt the poor and the carless. (Ex E-47). The

same editorial noted that if the Union’s last best offer is awarded, “[t]hings would only get

costlier for riders, most of whom have seen their own wages and benefits trimmed in recent

years.” Id.

The negative press attention regarding the excessively generous wages and

benefits received by TriMet’s bargaining unit employees has affected TriMet’s ability to raise

funds to replace old equipment. Significantly, in November 2010, TriMet placed a $125 million

bond measure on the ballot that would have allowed it to replace a number of its old buses.

(Testimony of McFarlane). However, in the weeks leading up to the election, TriMet’s labor

costs were prominently mentioned in newspaper articles about the bond measure and the voters

rejected the measure. (See Exs E-26 and E-28). A follow-up article noted that a number of

voters indicated they voted “no” on the levy to send a message to the Union which was asking

for no changes to the labor contract even as TriMet was struggling with a major budget shortfall.

(Ex E-31). In yet another editorial published on January 27, 2011, the Oregonian Editorial Board

noted that because TriMet was “paying such exorbitant benefits – out of line even with other

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public-sector employees – TriMet could not argue with a straight face that it needed a bond

measure last fall. Voters quite properly defeated the measure.” (Ex E-32).

Although most arbitrators have found it difficult to give the interest and welfare

criterion first priority without considering it in the context of the secondary criteria, there have

been exceptions. For example, in City of Oregon City and Oregon City Firefighters Association,

IA-04-99 (1999), Arbitrator John Abernathy awarded the employer’s last best offer based on the

interest and welfare of the public criterion. Specifically, Arbitrator Abernathy stated:

Clearly the Union’s final offer package is in the best interests of the 18 members of this bargaining unit. That does not, however, make it in the best interests of the public. The interest and welfare of the Oregon City community is different and larger than the special interest of the Firefighter’s bargaining unit. Quality service at the lowest cost is the Community’s basic interest. The decline in City revenues…and increases in costs…have affected the City’s ability to continue providing quality services at the lowest possible price. (Emphasis added.)

Arbitrator Abernathy concluded by noting, “I find the secondary criteria need not be individually

addressed because of my findings and conclusions on the primary criteria.”

Like the employer in Oregon City, TriMet’s decline in revenues and increase in

costs has affected its ability to provide quality transportation services to the public at the lowest

possible price. As noted above, TriMet has been forced to increase fares and reduce services

numerous times in recent years to address its recurring budget crisis, and will be increasing fares

and reducing service again in September 2012. If the Union’s last best offer is awarded, TriMet

would be required to immediately cut another $5 million from its budget by raising fares and/or

cutting service yet again. Therefore, TriMet’s last best offer should be awarded because it

clearly is in the interest and welfare of the public. The hundreds of thousands of citizens living

in the Portland metropolitan area benefit from having access to affordable and reliable public

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transportation – not by having fares increased and service cut in order to provide the bargaining

unit with an extremely generous wage and benefit package.

Similarly, in Oregon State Police Officers’ Association and State of Oregon,

IA-15-03 (2004), Arbitrator Norman Brand stated: “In my view, this is the rare case in which

the interest and welfare of the public may be discernible from the context of the dispute.”

Arbitrator Brand noted that several factors supported the fact that the State’s last best offer was

in the interest and welfare of the public – internal equity (i.e., other employees not in the

bargaining unit had received a similar change to their wages and benefits); overwhelming

evidence that the employer was experiencing a fiscal crisis; bargaining unit employees still

would receive a fair compensation and benefits package; and the employer’s last best offer

would avoid the need for further service cuts.

Each one of the factors mentioned by Arbitrator Brand is present in this case.

Internal equity supports the award of TriMet’s last best offer given the fact that TriMet’s non-

union employees are in their fourth consecutive year of a wage freeze, contribute more to the

cost of their health benefits, their defined benefit plan has been closed to new hires, and retirees

hired after April 27, 2003, are no longer entitled to TriMet-paid health insurance benefits. In

fact, TriMet is not asking the bargaining unit to accept nearly the level of changes that have been

imposed on the non-bargaining unit employees. In addition, there is overwhelming evidence that

TriMet is experiencing a fiscal crisis as confirmed by its budget documents and the numerous

cuts identified above. It also is clear that the employees will continue to receive a fair

compensation and benefits package, particularly considering the fact that they will continue to

receive annual wage increases between 3% and 5% and a very generous health insurance

package in which they are not required to contribute to the monthly premium. Similarly, the

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evidence establishes that TriMet’s last best offer would avoid the need for further service cuts

and/or fare increases during the remainder of the term of the agreement.

In sum, this proceeding is unique like the City of Oregon City and State of Oregon

cases cited above, and provides ample evidence within which to award TriMet’s last best offer

based solely on the first statutory criterion. Even so, as discussed more completely in the

sections that follow, the secondary criteria in this case all point to the reasonableness and equity

of TriMet’s last best offer.

B. Application of the Secondary Statutory Criteria Support the Award of TriMet’s Last Best Offer.

1. Relative inability to pay favors TriMet’s last best offer.

As the statute and most arbitrators recognize, analysis of an employer’s ability to

pay is relative, not absolute. The statute provides that an arbitrator must consider:

The reasonable financial ability of the unit of government to meet the costs of the proposed contract giving due consideration and weight to the other services, provided by, and other priorities of, the unit of government as determined by the governing body. A reasonable operating reserve against future contingencies, which does not include funds in contemplation of settlement of the labor dispute, shall not be considered as available toward a settlement. ORS 243.746(4)(b).

Rather than look at whether the unit of government has an absolute dollar amount

that can be spent to meet the costs of the proposed contract, the statute requires a contextual

inquiry into TriMet’s reasonable (or relative) ability to meet the proposed costs. The context

includes other priorities competing for the same budgetary dollars. If the cost of the Union’s last

best offer would force TriMet to pay for it from a reasonable operating reserve, or would cause

adverse effects on TriMet’s services, then TriMet does not have the statutory “reasonable

financial ability…to meet the costs of the proposed contract.” ORS 243.746(4)(b).

The additional cost of each party’s last best offer is set forth in Exhibits E-74

through E-76. The total difference in cost between the two proposals over the proposed three-

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year term of the agreement is slightly more than $12 million, due almost entirely to the parties’

divergent health insurance proposals. (See Exs E-74 and E-75). As noted above, TriMet already

slashed $12 million from its upcoming 2012-13 budget, and will be forced to immediately cut

another $5 million through fare increases and/or service cuts if the Union’s last best offer is

awarded.

TriMet’s financial difficulties and its need to reduce the rate of labor cost growth

repeatedly have been addressed in its recent budget messages. For example, the 2009-10 Budget

Message stated:

As a result of declining regional employment, TriMet is projecting underlying growth average negative 3% in employer payroll tax revenues beginning January 1, 2009 and ending December 31, 2009, and 0% underlying growth beginning January 1, 2010 and ending June 30, 2010.

* * *

[R]evenues from self-employment declined 2.7% in FY 08, and are expected to decline 6% in FY 09 and 5% in FY 10. State-in-lieu tax revenues are expected to decline 2% in FY 09 and 3% in FY 10.

Payroll, self-employment and State-in-lieu tax revenues account for $216 million, or 54% of TriMet’s FY 10 operating revenues. (Ex E-69, p 2).

At the same time, the 2009-10 Budget Message noted that TriMet needed to increase its

contributions for its defined benefit pension plans by approximately $7.5 million in FY 10 to

offset stock market losses, and that its retiree medical costs substantially increased due to rising

health insurance costs and additional retirees. (Ex E-69, p 5).

The 2010-11 Budget Message also addressed TriMet’s reduced revenues and

increased operating costs, and concluded:

TriMet must make additional continuing expenditure savings to maintain fiscal stability. The forecast, but not the budget, assumes savings and a reduction of cost growth in both management and union retiree health benefit plans.

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Without these savings, TriMet will have to reduce service further. (Ex E-70, pp 8-9) (emphasis added).

Likewise, the 2011-12 Budget Message again addressed TriMet’s continuing

fiscal challenges and stated:

It is imperative that wage growth and benefits for active and retired union employees are in closer alignment with other public sector employees in Oregon, as that is essential to maintaining fiscal stability without additional service cuts. The continuation of current benefits levels and wage provisions found in the expired WWA would result in the need to cut service 10% in FY12, followed by additional service cuts year after year. TriMet’s operating revenues simply do not keep pace with wage and benefit growth of the past. Between 2003 and 2009, the period of the last labor contract, payroll, pension and medical benefit expenses for active union employees increased 36%, while underlying growth of payroll taxes was 29%. The number of active union employees in that period increased just 1%. Between FY00 and FY10, active and retiree medical benefits increased from 12% of underlying payroll tax revenues to 28%. If these trends continue, active and retiree medical expense as a percent of payroll tax revenues is projected to be 62% of underlying payroll taxes by FY20, undermining the financial stability of the District. (Ex E-71, pp 2-3) (emphasis added).

TriMet’s most recent Budget Message for 2012-13 again addressed the fact that it

was facing yet another revenue/expenditure gap caused in large part by its unsustainable labor

costs, and stated:

To assure TriMet’s future financial stability and meet the transit goals of the region, TriMet must continue to improve its financial position by addressing the following areas:

• Bring employee compensation in line with market. • Reduce retiree medical costs and fund existing liabilities with deposits to an

OPEB trust. • Increase the funded ratio for existing pension funds, and • Increase cash reserves. (Ex E-72, p 12).

This is not a case of TriMet crying wolf about its financial situation or the

unsustainable costs of bargaining unit wages and benefits. The statements of concern and

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forewarning in the budget messages have come to fruition. For example, TriMet indeed had to

reduce rail and bus service by more than 10% as the 2010-11 and 2011-12 Budget Messages

warned due to its inability to reduce the cost growth of wages and benefits for its union

employees and retirees. The specific cuts TriMet already has made were addressed in previous

section above, and will not be repeated here. However, there can be no question that TriMet’s

financial health is in serious jeopardy and will continue to deteriorate each year that nothing is

done to address the growth of its healthcare costs for union active employees and retirees.

TriMet’s financial difficulties stem not only from both the unsustainable wage

and benefit package found in the collective bargaining agreement, but from the effects of the

recession. Payroll taxes, passenger revenue, and federal funds constitute approximately 90% of

TriMet’s operating revenues. (Testimony of deHamel; Ex E-1, p 76). However, the loss of jobs

stemming from the recession has greatly impacted TriMet’s revenue from payroll taxes. (Ex E-

1, pp 72-75). The recession wiped away six years of job increases and the unemployment rate

continues to be high – currently more than 8%. (Testimony of deHamel; Ex E-1 pp, 73-74).

Both the payroll tax and passenger revenue depend on high employment levels for strong

growth. (Testimony of deHamel). In addition, federal transit funding is projected to be cut 5%

in FY 2012-13. (Testimony of deHamel; Ex E-1, p 76).

TriMet has almost no ability to increase its revenues to offset the rising labor

costs. Although TriMet has increased the payroll tax rate by .01% each year since 2005, that

revenue can only be used to fund new services. The additional revenue cannot be used to fund

increased labor costs. (Testimony of deHamel and Potter; Ex E-1, p 77). TriMet already has

increased revenue by asking customers to pay more to ride. From 2000 to 2012, TriMet’s

customers have seen their fares increase at a rate substantially higher than inflation. In

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September 2012, the fareless rail zone will end. Fares simply cannot be raised further without

losing substantial numbers of rides – a prospect clearly contrary to the public welfare.

TriMet’s expenditures have significantly exceeded revenues in the past ten years.

Revenues increased by $113,525,074 over that period while expenditures increased by

$139,877,689. (Testimony of deHamel; Ex E-1, pp 67-68). The wages and benefits of

bargaining unit employees and retirees have been a major cause of the revenue and expenditure

imbalance. During the period of the expired labor agreement (FY 2003 through 2009), the

bargaining unit payroll, active and retiree medical costs and pension costs increased by $58

million (39%), while underlying growth in the payroll tax revenues increased by just $40 million

(28%). (Testimony of deHamel; Ex E-1, p 69). There was no increase in the number of

bargaining unit employees during that period.

Under the terms of the expired CBA, TriMet is required to provide retirees (ages

55 to 65) with a 100% company-paid health insurance benefit that is the same as the active

employee plan. Spouses and dependents are included. In addition, TriMet entirely pays the cost

of a Medicare risk plan for those retirees over 65 (along with spouses). (Testimony of deHamel;

Ex E-1, 83). Employees become eligible for this benefit after just ten years of service. TriMet

currently has over 1,200 covered retirees and is projected to have 2,050 covered retirees and

surviving spouses by 2030.

TriMet’s fully paid retiree health benefits are the major cause of its significant

OPEB liability. “OPEB” is short for “other post-employment benefits.” It refers to non-pension

benefits payable to retirees – specifically medical, dental, and vision coverage. (Testimony of

deHamel; Ex E-66). GASB 45 requires government financials to recognize OPEB costs as they

accrue. Id. As noted above, as of the date of the last audit (January 1, 2010), TriMet’s OPEB

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liability was $816,544,000, which equates to 592% of TriMet’s total payroll. (Testimony of

deHamel; Exs E-65, p 31, and E-67). That was up from $632,204,000 on January 1, 2008. Id.

When the next audit numbers are published, it is expected that TriMet’s OPEB liability will be

more than $1 billion. (Testimony of deHamel and Potter).

TriMet’s OPEB liability is higher than the unfunded retiree health benefits

liability of 13 states including Oregon. (See Ex E-78, p 6). More significantly, TriMet’s OPEB

liability as a percentage of total budget (82% in FY 2011-12) is higher than all but four states.

(See Ex E-79, p 43).

TriMet has created, but not funded, a trust fund for future net OPEB obligations.

(Testimony of deHamel; Ex E-65, p 30). The reason for that is because TriMet simply is

financially unable to begin funding the OPEB obligation. In order to fund the OPEB obligation,

TriMet would have had to make a contribution of $77,664,000 in 2011. (Testimony of deHamel;

Ex E-65, p 30). That represents the level of funding which, if paid each year, would pay current

retiree benefits, amortize the unfunded actuarial liability over 28 years, and fund benefits which

currently are accruing but not yet payable. (Testimony of deHamel; Ex E-66, p 2). Due to its

inability to fund the OPEB trust, TriMet instead has simply tried to keep its head afloat while

funding OPEB on a pay-as-you-go basis. (Testimony of deHamel and Potter). Given the public

outcry resulting from TriMet’s actions to close a $12 million deficit, the public consequences of

adding another

Employee and retiree medical costs alone have grown from 12% of TriMet’s

payroll tax revenue in FY 1999-00 to 29% of the payroll tax revenue in FY 2010-11. (Ex E-1,

$77 million annually just to hold the OBEB liability where it is now, is

unimaginable. However, TriMet’s OPEB obligation will grow each year that the annual required

contribution is not paid in full. (Testimony of deHamel; Ex E-66, p 2).

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p 82). If the trend continues, employee and retiree medical costs are projected to eat up 42% of

payroll tax revenues by FY 2016-17 and 52% by FY 2019-20. (Ex E-1, p 82). That is only

TriMet’s pay-as-you-go costs and does not include any annual required contribution to fund the

OPEB obligation. (Testimony of deHamel and Potter).

In addition to the $816 million OPEB obligation, TriMet also has an unfunded

union pension liability of $228.5 million. In fact, TriMet’s funded pension ratio of 56% is lower

than all but one state (Illinois). (See Ex E-1, p 84 and Ex E-78, p 3). Moreover, the union

pension plan assumes a 7.75% return rate on investments, which is a very high assumption and

will likely lead to a higher unfunded liability in the future. (Testimony of deHamel). Currently,

it costs $34 million per year to fund the union pension and that amount rapidly has been

increasing. Each .25% reduction in rate assumption equates to $1.8 million in additional annual

funding cost to TriMet. (Testimony of deHamel; Ex E-1, p 84).

Over 50% of TriMet’s general fund budget already goes toward personal services

(wages and benefits) and retiree benefits (OPEB and pension contributions). (Testimony of

deHamel; Ex E-1, p 66). That percentage will continue to rise given the fact that the number of

retirees is projected to increase by more than 70% by 2030. (Testimony of deHamel).

To the extent the Union may argue that TriMet has cash reserves it can use to pay

for the additional costs of the Union’s last best offer, that is not the case. Because TriMet’s

cumulative revenues are lower than its cumulative expenditures most months of the year, TriMet

needs a minimum of three months of unrestricted cash ($115 million in FY 2011-12) at the start

of the fiscal year to meet expenses during the year. (Testimony of deHamel; Ex E-1, p 90).

However, TriMet currently has only 1.9 months of unrestricted cash reserves which is the lowest

balance it has had in the last ten years. (Testimony of deHamel, Ex E-1, p 88). TriMet’s goal of

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three months of unrestricted cash reserves is consistent with Government Finance Officers

Association (GFOA) best practice recommendation. (Testimony of deHamel). TriMet’s cash

reserves are not available to fund the cost of the Union’s last best offer. Rather, they are a one-

time only resource and the minimum needed to manage the agency’s finances. Using a one-time

resource to offset a continuing revenue-expenditure imbalance leads to financial instability

instead of solving the revenue-expenditure imbalance. Utilizing cash reserves to pay for union

compensation would simply lead to more service cuts and fare increases. (Testimony of

deHamel; Ex E-1, pp 86-93).

Moreover, the evidence established that even if the local economy grows at a

higher rate than expected, it will not resolve TriMet’s fiscal difficulties. As deHamel testified,

even if TriMet has payroll tax growth of 5% in FY 2012-13, and 4.7% in FY 2013-14, 2014-15,

and 2015-16 (which is far above projections in the most recent forecast), it still would not be

sufficient to cover the increased costs of bargaining unit wages and benefits. (See Ex E-1, p 71).

In order to become fiscally sound, deHamel testified that TriMet needs to take a

number of steps with the following being the most important: (1) bring total compensation of

bargaining unit employees in line with the market; (2) reduce retiree medical costs and fund

OPEB trust; (3) increase union pension funded ratio (which currently is just 56%); (4) restore

capital maintenance and replacement investments; and (5) restore service cuts. (Ex E-1, p 81).

Even if TriMet’s last best offer is awarded, it would have a long way to go in order to

accomplish these steps. Nonetheless, TriMet’s last best offer is an important first step. It would

begin to address the excessively high cost of employee and retiree medical insurance, and initiate

steps to shore up the union pension plan.

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In sum, TriMet does not have the ability to pay the proposed costs of the Union’s

last best offer, and will immediately have to make additional service cuts and/or increase fares if

the Union’s proposal is awarded. For these reasons, the reasonable ability to pay criterion favors

TriMet’s last best offer.

2. Comparison of overall compensation favors TriMet’s last best offer.

TriMet’s bargaining unit employees are extremely well paid in comparison to

their peers. ORS 243.746(4)(d) instructs arbitrators to consider “[t]he overall compensation

presently received by the employees, including direct wage compensation, vacations, holidays

and other paid excused time, pensions, insurance, benefits, and all other direct or indirect

monetary benefits received.” In addition, the statute instructs arbitrators to consider the overall

compensation in relation to that offered in comparable communities:

Comparison of the overall compensation of other employees performing similar services with the same or other employees in comparable communities. As used in this paragraph, “comparable” is limited to communities of the same or nearest population range within Oregon. Notwithstanding the provisions of this paragraph, the following additional definitions of “comparable” apply in the situations described as follows:

(A) For any city with a population of more than 325,000, “comparable”

includes comparison to out-of-state cities of the same or similar size; (B) For counties with a population of more than 400,000, “comparable”

includes comparison to out-of-state counties of the same or similar size; and (C) For the State of Oregon, “comparable” includes comparison to other

states. ORS 243.746(4)(e). Because transit workers did not become eligible for interest arbitration until 2007,

ORS 243.746 (which was enacted in 1995) does not specifically address whether a large transit

district such as TriMet should be compared with smaller transit districts in Oregon or similarly-

sized transit districts outside of Oregon. However, given the fact that the legislature made

exceptions for large cities and counties in Oregon to be compared with out-of-state cities and

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counties of a similar size, it seems likely that the legislature would expect a large transit district

like TriMet to be compared to transit districts outside of Oregon that serve a population similar

in size to the Portland metropolitan area.

TriMet presented an expert witness, Greg Dash, who possesses more than 40

years of experience as a compensation consultant in the transit industry. (See Ex E-83). TriMet

introduced comparator data prepared by Dash for each of TriMet’s four largest bargaining unit

classifications – Bus Operator (1,042 employees), Light Rail Operator (149 employees),

Journeyman Mechanic (145 employees), and Light Rail Mechanic (89 employees). (See Ex E-

60). Charts were prepared for each of those four classifications comparing employees at the

three-year, 15-year, and 30-year levels. (Exs E-84 through E-95).

The charts compare the total compensation received by TriMet’s employees to the

total compensation received by employees in the same job classifications at 11 other large transit

districts – Dallas Area Rapid Transit, Denver Regional Transportation District, Lane Transit

District (Eugene, Oregon), Alameda-Contra Costa Transit District (Oakland), Sacramento

Regional Transit District, Utah Transit Authority (Salt Lake City), San Diego Transit

Corporation, San Francisco Municipal Transportation Agency, Santa Clara Valley

Transportation Authority (San Jose), Orange County Transportation Authority (Santa Ana), and

King County Metro Transit (Seattle). Dash testified that he selected nine of the eleven

comparators (all but Dallas and Eugene) because, like TriMet, they serve large metropolitan

populations in the Western United States. He included Dallas as a comparator to give TriMet

another comparator for Light Rail Operators and Light Rail Mechanics, since some of the other

comparators do not operate a light rail system. At TriMet’s request, Eugene (Lane Transit) also

was added as a comparator because it is the second largest transit district in Oregon after TriMet.

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Because the cost of living differs significantly among the various comparators

(e.g., the cost of living in San Francisco obviously is much higher than Portland and the cost of

living in Portland is higher than Dallas), the first page of each of the comparator exhibits

includes an ACCRA adjustment to account for the cost of living difference between the

comparators. The second page of each of the comparator exhibits reflects the comparator data

without the ACCRA adjustment. The ACCRA adjustment is based on the ACCRA Cost of

Living Index for 2011 (annual average data). (Testimony of Dash; Ex E-97). The ACCRA Cost

of Living Index is produced by the Council for Community and Economic Research and is

designed to provide a useful and accurate measure of living cost differences among urban areas.

Id. The ACCRA Cost of Living Index is widely accepted and is the cost of living index utilized

by the United States Census Bureau. (Testimony of Dash; Ex E-98).

The charts reflect that TriMet’s bargaining unit employees receive a total

compensation package that is far above the average of the comparators. For example, the total

compensation per base hour of a three-year bus operator at TriMet is nearly 56% higher than the

comparator average. (Ex E-84, p 1). A 15-year bus operator is compensated 47.5% above the

comparator average and a 30-year bus operator is compensated nearly 52% above the comparator

average. (Exs E-85, p 1, and E-86, p 1). Even if the employer medical and dental insurance

contribution was excluded, TriMet’s total compensation would still be 39.9% ahead of the

comparator average at the three-year level, 26.3% ahead at the 15-year level, and 32.9% ahead at

the 30-year level. (Exs E-84 through E-86, p 1). Moreover, TriMet’s total compensation for bus

operators would still be 35% to 43% ahead of the comparator average even if it were not

adjusted for cost of living differences. (Exs E-84 through E-86, p 2).

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TriMet also compares extremely favorably to the comparators in terms of total

compensation received by employees in its other three largest classifications. For example, the

total compensation per base hour received by a TriMet light rail operator exceeds that of the

comparator average by a whopping 53.4% at the 3-year level, 49% at the 15-year level, and

52.7% at the 30-year level. (Exs E-87 through E-89, p 1). If the employer medical and dental

insurance contribution was excluded, TriMet’s total compensation would still be ahead of the

comparator average by 35.9% at the 3-year level, 27.3% at the 15-year level, and 33.5% at the

30-year level. (Exs E-87 through E-89, p 1). In addition, TriMet would be 40% to 53% ahead of

the comparator average without factoring in the ACCRA adjustment. (Exs E-87 through E-89,

p 2).

Similarly, the total compensation per base hour received by a TriMet journeyman

bus mechanic exceeds that of the comparator average by 28.7% at the 3-year level, 35.7% at the

15-year level, and 41.8% at the 30-year level. (Exs E-90 through E-92, p 1). If the employer

medical and dental insurance contribution was excluded, TriMet’s total compensation would

surpass the comparator average by 9% at the 3-year level, 15.8% at the 15-year level, and 23.4%

at the 30-year level. Id. Excluding the ACCRA adjustment, TriMet would still be ahead of the

comparator average by 16.8% at the 3-year level, 21.4% at the 15-year level, and 29% at the 30-

year level. (Exs E-90 through E-92, p 2).

The total compensation per base hour received by a TriMet light rail mechanic

exceeds that of the comparator average by 24.8% at the 3-year level, 33% at the 15-year level,

and 37.3% at the 30-year level. (Exs E-93 through E-95, p 1). If the employer medical and

dental insurance contribution was excluded, TriMet’s total compensation would still surpass the

comparator average by 4.7% at the 3-year level, 11.2% at the 15-year level, and 18.3% at the 30-

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year level. Id. Excluding the ACCRA adjustment, TriMet would remain ahead of the

comparator average by 15.5% at the 3-year level, 23.2% at the 15-year level, and 27.5% at the

30-year level. (Exs E-93 through E-95, p 2).

Thus, it is clear from the comparator data that TriMet compensates its employees

extremely well. Moreover, under TriMet’s last best offer, its position in relation to the

comparators over the life of the agreement will not change given the fact that the employees are

guaranteed annual wage increases between 3% and 5%, and will not have to make any

contribution to the insurance premium. The employees of five of the comparators received no

wage increases under the terms of their most recent collective bargaining agreements, and none

of the comparators provided wage increases of 3% or more during any year of their respective

contract term. (Ex E-112, Table 11).

At the hearing, the Union objected to the comparator data prepared by Dash and

argued that it was irrelevant under the statute. However, the statute very clearly states that the

Arbitrator should compare “the overall compensation of other employees performing similar

services…in comparable communities.” To the extent the Union believes the out-of-state transit

districts are inappropriate comparators, comparison to the in-state comparators paints the same

picture.

TriMet’s wages and benefits are significantly above that offered by its local peers.

Next to TriMet, the three largest transit districts in Oregon and Southwest Washington are Lane

Transit (Eugene, Oregon), Cherriots (Salem, Oregon), and C-TRAN (Vancouver, Washington).

ATU Local 757 represents the bargaining unit employees at all three of those transit districts.

(Testimony of Potter). Based on TriMet’s last best offer, the current top step hourly wage rate

for TriMet’s bus operators is significantly more than the others -- $26.43 at TriMet, $23.79 at

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C-TRAN, $21.98 at Cherriots, and $21.72 at Lane Transit. (Testimony of Potter; Ex E-1, p 136).

When longevity pay is added in, the disparity is even greater. (Ex E-1, p 137).

TriMet’s mechanics also are paid significantly more than employees in the same

positions at Lane Transit, Cherriots, and C-TRAN. (Testimony of Potter; Ex E-1, p 138). The

more senior TriMet mechanics earn $6 to $7 more per hour than their local peers. Id. TriMet’s

cleaners/janitors also are paid between $2 and $4 more per hour than their local counterparts.

(Ex E-1, p 139). The total compensation offered by TriMet in its last best offer is approximately

25% to 30% more than the average compensation of the local peer group. (Ex E-1, pp 147-48).

TriMet’s proposed health insurance plan also is better than the plans offered by

Lane Transit, Cherriots, and C-TRAN. The other local transit employees pay co-insurance,

higher co-pays, and have higher deductibles and out-of-pocket maximums than what TriMet is

proposing. (Testimony of Potter; Ex E-1, p 140). TriMet’s proposed prescription drug benefit

also compares favorably with the local peers. (Ex E-1, p 141).

Similarly, TriMet’s pension benefits and retiree medical benefits are far superior

than those offered by its local peers. (Ex E-1, pp 142-43). As a consequence, TriMet’s

unfunded pension and retiree medical liabilities dwarf that of its local peers. TriMet’s unfunded

pension liability is 192% of payroll. As noted previously, its unfunded OPEB liability is 592%

of payroll. By contrast, Lane Transit has the highest unfunded pension liability of the local peer

group at 120%. Cherriots has the highest unfunded OPEB liability at 41%. (Testimony of

Potter; Ex E-1, p 144).

TriMet also introduced an exhibit comparing the top hourly wage rate of its bus

operators with the top hourly wage rate of bus operators employed by 14 other local employers

whose employees are represented by ATU Local 757. (Ex E-96). This information was taken

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directly from the Union’s website and confirms that TriMet’s operators are paid significantly

more than employees performing the same or similar duties for other employers in Oregon and

Washington. The data reflects that TriMet’s operators are paid anywhere from $3.64 to $11.67

per hour more than the other ATU-represented operators. (Ex E-96). The disparity will be even

greater once TriMet’s operators receive the retroactive wage increases that will go into effect

following the Arbitrator’s decision.

Therefore, regardless of whether local comparators or out-of-state comparators

are considered, the evidence overwhelmingly supports the conclusion that overall compensation

favors TriMet’s last best offer. Although the Union obviously dislikes the comparator data, it is

one of the secondary criteria under the statute and must be considered. The Union chose to

present no comparator data, which reflects its implicit recognition that the bargaining unit

employees receive a total compensation package that surpasses what similarly-situated

employees receive elsewhere – whether locally or out-of-state.

3. The cost-of-living favors TriMet’s last best offer.

ORS 243.746(4)(f) directs arbitrators to consider “[t]he CPI-All Cities Index,

commonly known as the cost of living.” This criterion also supports TriMet’s last best offer.

The CPI data reflects that wages of TriMet’s bargaining unit employees have far

outpaced the cost-of-living in recent years and will continue to do so through the three-year term

of the new agreement. In fact, TriMet introduced an exhibit which shows that the wages of

bargaining unit employees have outpaced the CPI by 15.3% since 2000. By contrast, the wages

of TriMet’s non-union employees outpaced the CPI by only 0.3% over the same time period.

(Ex E-1, p 164).

Under TriMet’s last best offer, wage increases will continue to exceed the pace of

the CPI over the course of the new contract. Because more than two-and-a-half years of the new

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three-year agreement already have passed, the CPI-based wage adjustments for the new contract

already are known. The CPI changes and wage adjustments under the new contract are as

follows:

CPI change

12/1/09 0% 0%

Wage adjustment

6/1/10: 0% 3%

12/1/10: 0.51% 0.51%

6/1/11: 0.64% 2.49%

12/1/11: 2.08% 2.08%

6/1/12: 1.23% 1.23%

Compounded Total 4.53% 9.64%

(See Ex E-1, p 28).

Thus, TriMet’s proposal guarantees that wage increases will more than double the

CPI over the life of the new agreement, resulting in a significant increase in the standard of

living for TriMet’s union employees and in stark contrast to the general public. The Union

presented no evidence on this issue. Therefore, the cost of living factor favors TriMet’s last best

offer.

4. Ability to recruit and retain employees favor TriMet’s last best offer.

The statutory criteria also reference “[t]he ability of the unit of government to

attract and retain qualified personnel at the wage and benefit levels provided.” ORS

243.746(4)(c). TriMet presented undisputed evidence that it has no problem attracting or

retaining qualified personnel. The Union, on the other hand, failed to present any evidence at all

regarding this issue.

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Angela Burns-Brown, TriMet’s Human Resources Recruiting Manager, testified

that TriMet’s bus and rail operators are promoted internally from its pool of part-time bus

operators. TriMet attracted 1,371 applicants for 53 part-time bus operator positions in 2008, 604

applicants for 30 part-time bus operator positions in 2010, and 2,365 applicants for 83 bus

operator positions in 2011. (Ex E-1, p 118). There were no positions available in 2009 due to

implementation of austerity measures and service reductions. Even though TriMet trains its

drivers internally and does not require prior driving experience, approximately 30% of its

applicants are experienced bus drivers and apply at TriMet because the wages and benefits are so

much better than other employers offer. (Testimony of Burns-Brown; Ex E-1, p 119).

Similarly, TriMet attracts numerous qualified applicants for its service worker

positions. In 2008, 1,135 individuals applied for 34 job vacancies. In 2010, TriMet had 1,389

applicants for 38 job vacancies. In 2011, TriMet had 1,100 applicants for 26 job vacancies.

There were no service worker positions available in 2009. (Testimony of Burns-Brown; Ex E-1,

p 118). Thus, TriMet has had no shortage of applicants for either its operator or service worker

positions.

The evidence also established that TriMet does not have any problem retaining

bargaining unit employees. TriMet’s turnover rate for bargaining unit positions has been less

than 3% during each of the past four years. That includes both voluntary and involuntary

separations. (Ex E-1, p 116). A turnover rate that low is virtually unheard of in any profession

and merely confirms that TriMet’s wage and benefit package (including retirement benefits) is

far superior than individuals in similar positions receive elsewhere. See, e.g., State of Oregon

Corrections and AOCE, IA-18-01 (2002) (evidence of 51.8% turnover during the past five years

in the bargaining unit, in and of itself, was not evidence of a retention problem; the lack of

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convincing evidence by the union amounted to default in favor of the employer’s last best offer).

Moreover, Ms. Burns-Brown testified that during the 5½ years she has worked at TriMet, she has

never heard of an employee leaving his/her employment because the employee found similar

work elsewhere that provided better wages or benefits than what TriMet offers.

As noted above, the Union presented no evidence of a recruitment or retention

problem. Therefore, in light of the evidence presented at the hearing, this factor favors TriMet’s

last best offer.

C. TriMet’s Proposals are Reasonable and Necessary, and Its Last Best Offer Clearly is More Justified than the Union’s Last Best Offer.

In its opening statement, the Union argued that because TriMet is proposing the

majority of the changes to the contract language, it bears the burden of proving a compelling

need for each of the changes. That is not true. In Federation of Oregon Parole and Probation

Officers and Josephine County, IA-03-07 (2008), Arbitrator Norman Brand rejected a party’s

contention that the party whose last best offer diverges most from the status quo bears the burden

of proof. As Arbitrator Brand stated, there is “no statutory language that assigns the burden of

proof to either side. The statute simply says the unresolved mandatory subjects in the LBO

packages ‘shall be decided by the arbitrator,’ using the statutory criteria.”

Similarly, in Marion County and Marion County Law Enforcement Association,

IA-04-05 (2005), Arbitrator Thomas Angelo stated:

Evaluating a proposed change in the status quo on the premise of burden of proof and “compelling” circumstances is largely a restatement of the venerable bargaining adage “if it ain’t broke, don’t fix it.” I disagree with the notion that every proposed change in the status quo requires passing a formulaic test, because I believe a proposal must be considered on its own merits, in light of statutory criteria, to determine if it simply represents a “better idea” even absent changed circumstance.

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Likewise, in Milwaukie Police Employees Association and City of Milwaukie,

IA-08-10 (2011), Arbitrator David Stiteler stated:

The Association argues that one of the factors an interest arbitrator must consider is whether a party is seeking to change the status quo, and if so, whether that party has shown a “compelling reason” for the proposed change. In fact, the Association states that this is the second factor to be considered after the interest and welfare of the public. Status quo is, however, not one of the express criteria for interest arbitration. Nonetheless, over the years, interest arbitrators have sometimes placed a heavier evidentiary burden on the party proposing to alter existing contract language or other aspects of the status quo. The rationale is that this best promotes the purposes of the interest arbitration process and the PECBA overall. I agree that stability and predictability are valuable in the labor-management relationship and continuation of the status quo may serve those goals. Because this is not a statutory factor, however, I believe that it must be applied as a balancing tool. That is, all things being equal under the statutory factors, the status quo proposal should ordinarily be favored.

Thus, the Union’s contention that TriMet is required to demonstrate a compelling

a need for each of its proposed changes should be rejected. The Arbitrator is required to simply

apply the statutory criteria to determine which party’s last best offer is better. In this case, the

statutory criteria clearly support the award of TriMet’s last best offer. However, even if TriMet

was found to bear the burden of proof in this case, it clearly has demonstrated a compelling need

for each of its proposals. The necessity and reasonableness of each of TriMet’s proposals is

discussed in more detail below.

1. TriMet has demonstrated a compelling need for its health insurance proposal.

As discussed in detail above, the current Regence health insurance plan for

TriMet’s active bargaining unit employees and pre-65 retirees is among the most generous and

costly health insurance plans found anywhere in the nation. Under the plan, the employees,

retirees and their dependents make no contribution to the premium, there is no annual deductible,

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no co-insurance, and essentially a member’s only out-of-pocket expense is a $5 co-pay for office

visits and prescriptions. (Testimony of Hein, Johnson, and Butler; Ex E-1, p 105).

The difference in cost of the two Regence health insurance plans proposed by the

parties is found in Exhibit E-77. The cost of the current plan (which the Union is proposing to

continue) is $2,580.75 per month (nearly $31,000 per year!!!) for those employees with full

family coverage and $2,807.85 per month (more than $33,000 per year!!!) for retirees with full

family coverage. (Ex E-77). However, if TriMet’s last best offer is awarded, the monthly

premium would be $2,201.95 for employees with family coverage and $2,357.60 for retirees

with family coverage. Therefore, the difference in cost between the two plans is significant –

nearly $380 per month for employees with family coverage and $450 per month for retirees with

family coverage.

The fact that the Union has proposed employees would contribute 3% toward the

monthly premium effective January 1, 2012, essentially does nothing for TriMet. That simply

means TriMet would pay $2,503.33 per month for employees with family coverage instead of

$2,580.75, and it would have no effect on retiree medical coverage because the Union has

proposed that TriMet would pay 100% of the insurance premium for retirees. TriMet’s last best

offer is far superior because it makes plan design changes that actually would reduce the cost of

the health insurance. At the same time, TriMet would continue to pay 100% of the monthly

premium, and the new health insurance plan would continue to be far superior than what most

other agencies offer.

As discussed above, the Union’s last best offer would cost approximately $12

million more than TriMet’s last best offer during the term of the new contract. (Testimony of

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Potter; Ex E-75). Essentially all of the cost savings of TriMet’s last best offer would come from

reduced health insurance costs. Id.

Under TriMet’s last best offer, the bargaining unit employees would still have a

health insurance plan far superior than what TriMet’s non-union employees receive. (See Ex

E-81). TriMet’s non-union employees currently are on a plan with 80/20 co-insurance and the

employees pay 6% of the monthly premium. (Testimony of Hein).

TriMet’s Benefits Manager, Ligena Hein, testified that when she began her

employment with TriMet in 2010, she was shocked to discover how generous and costly the two

bargaining unit health insurance plans were. Hein previously worked as a benefits manager for

both the Port of Portland (public sector) and Conway Trucking (private sector) and never saw or

even heard about a health insurance plan design as generous as TriMet’s bargaining unit

employees receive.

Similarly, Kari Johnson, a health insurance benefits consultant with Mercer for

the past 18 years, testified that the Regence plan available to TriMet’s employees and retirees is

the most generous and costly health insurance plan of any with which she is aware. Johnson

specializes in working with employers who have 1,000 or more employees in both the public and

private sector. She testified that while it was not uncommon to see plan designs like the Regence

plan offered 10 to 15 years ago, the plan is considered a dinosaur now. Furthermore, she

testified that the plan TriMet has proposed in its last best offer is still a very generous plan and

compares extremely favorably with plans offered by most employers in both the public and

private sector.

Importantly, even the Union’s benefits representative, Molly Butler, testified that

she is not aware of any employer (public or private) that currently offers a health insurance plan

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as rich as the current Regence plan which the Union has proposed to continue. Like Johnson,

Butler confirmed that the plan TriMet has proposed in its last best offer with 90/10 co-insurance

is still extremely generous and is better than most plans offered by other public employers with

which she is familiar.

By way of comparison to the health insurance plans offered by many of the other

largest public employers in Oregon, TriMet introduced a chart comparing the Regence plan

proposed in its last best offer to the plans offered by Metro, Port of Portland, City of Portland,

Portland School District, Clackamas County, Washington County, Multnomah County, and the

State of Oregon. (Ex E-1, p 110). The chart shows that TriMet’s proposed health insurance plan

is extremely generous compared to the other local public employers and includes lower

deductibles, a lower out-of-pocket max, and lower co-insurance rates. (Testimony of Potter; Ex

E-1, p 110). Moreover, unlike most other employers, under TriMet’s last best offer, the

employees and retirees still would not be required to contribute to the monthly premium.

TriMet’s retiree medical benefit may be the most generous offered by any other

public employer in Oregon, which explains why TriMet is faced with an $816 million unfunded

OPEB liability. Many public employers do not contribute anything towards health insurance for

retirees. Of those that do contribute, the amounts are significantly less than TriMet provides for

its retirees. (Testimony of Potter; Ex E-1, p 112). Similarly, TriMet’s defined benefit pension

plan and retiree medical benefit are far more generous than the reformed Oregon PERS and will

remain so under TriMet’s last best offer. Under the reformed PERS, pre-Medicare eligible

retirees are solely responsible to pay for all health insurance costs. (Testimony of Potter; Ex E-1,

p 113).

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At the hearing, TriMet introduced a Regence Health Care Services Report

providing information about health insurance usage by TriMet’s union and non-union employees

and retirees in 2011 compared to the remainder of Regence’s clients in Oregon. (Ex E-100).

Several items in the report stand out. First, the average medical per member per month (PMPM)

cost for a TriMet bargaining unit employee was $488.38 in 2011, compared to $319.13 for

TriMet’s non-union employees and $250.15 for Regence’s other Oregon clients in 2011. (Ex

E-100, pp 3-4). The employee cost share per medical visit (e.g., co-pays, co-insurance, etc.) was

3.0% for a TriMet bargaining unit employee in 2011, compared to 7.9% for TriMet’s non-union

employees and 12.2% for Regence’s other clients. Id. There was an even greater disparity for

employee cost share per prescription in 2011 – 6.5% for a TriMet bargaining unit employee,

compared to 18.8% for TriMet’s non-union employees and 25.4% for Regence’s other clients.

Id. The average pharmacy per member per month cost was $116.12 for TriMet’s bargaining unit

employees as compared to $60.87 for TriMet’s non-union employees and $44.79 for Regence’s

other clients. Id. TriMet’s bargaining unit employees also obtained a much greater number of

prescriptions per member – an average 19.8 compared to 11.7 for TriMet’s non-union employees

and 10.6 for Regence’s other clients. Id.

The disparity is similar when comparing health insurance usage and expenses for

retirees. The average medical per member per month cost of TriMet’s union retirees in 2011 was

$416.02 compared to $153.86 for TriMet’s non-union retirees. (Ex E-100, p 5). In terms of total

dollars, the cost was $3,259,522 for the union retirees and only $246,021 for the non-union

retirees. Id.

The last page of Exhibit E-100 also illustrates the fact that TriMet’s bargaining

unit employees are heavy users of health services. Specifically, it reflects that the average per

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member per month cost of chiropractic services for TriMet’s union employees was $48.89,

compared to $16.77 for TriMet’s non-union employees and $2.58 for Regence’s other clients.

(Ex E-100, last page). In addition, the bargaining unit employees made chiropractic visits at

more than twice the rate of TriMet’s non-union employees and more than 13 times the rate of

Regence’s other employees. Id. The reason for this is the plan design that provides for

unlimited chiropractic visits at only $5 per session. Such a benefit is extremely rare.

Nonetheless, the Union argued that the nature of TriMet’s jobs demand such a generous benefit.

TriMet’s proposal would not change the benefit, it only would require employees to pay a more

reasonable amount for unlimited access to chiropractic care. Similarly, the average per member

per month cost of office visits was $47.54 for TriMet’s union employees versus $28.21 for

TriMet’s non-union employees and $24.37 for Regence’s other clients. Id. There was a similar

disparity for surgeon/outpatient costs and other office services. Id.

The data in Exhibit E-100 confirms that individuals who incur virtually no out-of-

pocket costs for health care services are much heavier users of health services than those who

share in the up-front costs of medical care. It also explains why the Regence health insurance

premium is so expensive and why no other employers offer a similar plan. Ms. Johnson testified

that up-front cost sharing lowers the usage rate of medical care and generally is the biggest factor

in driving down the cost of health insurance premiums.

All of the above evidence demonstrates that there are compelling reasons for

TriMet’s health insurance proposal and that it clearly is more justifiable than the Union’s

proposal.

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2. TriMet has demonstrated a compelling need for its retirement proposals.

TriMet also has demonstrated a compelling need for its retirement proposals. As

discussed in detail above, the union defined benefit plan is significantly underfunded – only

55.9% as of July 1, 2011. (Testimony of deHamel; Ex E-65, p 46). The total unfunded amount

is $228,554,000. Id. TriMet’s retirement proposals are in the best interests of the current

employees and retirees, because these proposals are designed to ensure the stability of the plan

and to make sure the individuals receive the retirement benefits they are expecting. (Testimony

of deHamel).

Moreover, TriMet’s proposed changes to the pension benefits will have little

effect on the current employees and retirees. For current retirees, TriMet merely has proposed to

adjust the pension benefit each year based on the CPI with a minimum increase of 0% and a

maximum increase of 7%. For current employees who retire after the Arbitrator’s decision, their

pension benefit will be adjusted based on 90% of the CPI (up to a maximum of 7%). Thus, both

current retirees and current employees will continue to see their pension benefit adjust in

accordance with the CPI, although there will no longer be a 3% minimum adjustment and the

maximum adjustment has been increased from 5% to 7%. These changes are designed to shore

up the pension plan and to ensure that TriMet is able to fully fund the plan in the future.

TriMet also has proposed that new employees hired after the Arbitrator’s decision

will be eligible for a defined contribution (DC) plan rather than a defined benefit (DB) plan.

This proposal will have no effect whatsoever on the retirement benefits of current employees and

retirees other than providing more stability for the current union pension plan.

Although the Union alleged at the hearing that the terms of TriMet’s proposed DC

plan are vague and unclear, that is not true. TriMet’s proposal provides that the union DC plan

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will have the “same elements” as the current non-union DC plan. TriMet’s DC plan for non-

union employees is set forth in Ex E-68. Employees are eligible for the DC plan if they are

regularly scheduled to work at least 20 hours per week. (Ex E-68, pp 2-3). TriMet contributes 8

percent of an employee’s base compensation and each employee can elect to contribute up to

15% of their compensation. (Testimony of deHamel; Ex E-68, pp 4-5). Employees always are

vested 100% in their own contributions to the DC plan and become fully vested in TriMet’s

contributions after 36 months – one month of vesting for each 30 days of employment.

(Testimony of deHamel; Ex E-68, p 7). In addition, employees automatically become 100%

vested if they reach age 62, they die, or they suffer a disability. (Ex E-68, p 8). All of these

elements would be included in the proposed DC plan for union employees. There is nothing

vague or unclear about the proposal.

In addition, contrary to what the Union may argue, there is nothing about the

proposed DC plan that makes it inherently inferior to the DB plan. In fact, in some ways, it

clearly is better. For example, the vesting period for the DC plan is far superior to that of the DB

plan for bargaining unit employees, which requires employees to remain employed ten years

before they become fully vested. (Testimony of deHamel). As noted above, an employee in the

DC plan would be 100% vested in his/her own contributions immediately and would become

fully vested in the Employer’s contributions after three years. Although it is true under the DC

plan that the employee bears the risk of the rise/fall of the retirement amount, that could work to

the benefit of the employees as much as to their detriment.

In any case, TriMet’s proposal is designed to stabilize the current union DB plan,

which is significantly underfunded. As deHamel testified, TriMet’s union DB plan would be

placed on critical status and under federal oversight if it were a private pension plan subject to

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ERISA. Unless something is done to shore up the plan, TriMet very well could be forced to

default on its pension obligations or its other financial obligations in the future. TriMet’s DC

proposal would be “fully funded” with an employer contribution each payroll period, giving

employees significant security.

Similarly, TriMet demonstrated a compelling need to strike the contract provision

that states “[r]etirement is at 30 years of service regardless of age, with no reduction for early

retirement.” As noted previously, TriMet’s proposal actually tracks the parties’ intent when they

negotiated the language as the contract provision specifically states that it “will automatically

expire on the last day of the agreement and must be renewed in successive agreements.” The

effect of striking the language would prevent employees from qualifying for full retirement

benefits before the age of 58. That would significantly benefit TriMet by helping to address its

unfunded pension and OPEB liability.

3. TriMet has demonstrated a compelling need for its proposals related to grievance step meetings and JLRC meetings.

TriMet also has demonstrated a compelling need for its proposals that would

require the Union to pay for its own representatives during grievance step meetings and JLRC

meetings. TriMet introduced evidence establishing that between 2006 and 2011, the Union filed

1,448 grievances – an average of more than 241 grievances per year. (Testimony of Minor-

Lawrence; Ex E-101). Of the 1,448 grievances, the Union advanced 254 of them to arbitration.

(Ex E-102). The vast majority of the remaining 1,200 or so grievances were denied by TriMet

and dropped or withdrawn by the Union. (Testimony of Minor-Lawrence). However, the Union

advanced many of these grievances through all three steps of the grievance process before

dropping them. (Testimony of Minor-Lawrence).

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Under the current language of the CBA, TriMet is required to pay for a Union

representative to represent the grievance at all three steps of the grievance process. Therefore,

TriMet essentially has been forced to pay for the Union to advance meritless grievances against

TriMet. The cost to TriMet to pay for Union representation of employees during the grievance

procedure totaled more than $111,000 between 2006 and 2011. (Ex E-105, p 1). In addition,

TriMet lost a significant amount of productivity because maintenance employees are not

replaced during the time they serve as union representatives and, thus, their work sits idle while

they participate in the grievance step meetings. (Testimony of Minor-Lawrence).

TriMet also proposed that the Union be responsible for payment of its own

officers to participate in JLRC meetings. This proposal goes hand in hand with TriMet’s

proposal that would make the Union responsible for paying its own representatives during the

grievance step meetings. As Evelyn Minor-Lawrence testified, the Union in the past has

attempted to use the JLRC meetings as a forum to present and advance its grievances. TriMet’s

concern was that if it stopped paying for Union officers to represent individuals during grievance

step meetings but continued to pay for Union officers to attend JLRC meetings, then the Union

would begin regularly utilizing the JLRC meetings as a forum to advance meritless grievances.

Moreover, the undisputed testimony is that the parties have not had a JLRC

meeting since 2009. Therefore, TriMet’s proposal realistically should have little or no effect on

the Union. If the Union does not want to pay its officers to attend JLRC meetings and/or finds

them invaluable, no meetings need be scheduled.

In light of the above, TriMet’s proposal to require the Union to pay for its own

representatives during grievance step meetings and JLRC meetings is both reasonable and

justified.

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4. TriMet has demonstrated a compelling need for its seniority proposal.

TriMet also has demonstrated a compelling need for its seniority proposal which

would prevent an employee promoted to a non-union position from retaining their seniority for

more than five years from the date of the promotion. As explained previously, the purpose of

TriMet’s seniority proposal is to prevent long-time management employees from bumping back

into a bargaining unit position for one day and then retiring in order to get better retiree benefits

such as fully paid health insurance benefits. Although only a handful of management employees

have chosen this route, prohibiting long-time management employees from bumping back into a

bargaining unit position for one day before retiring will help TriMet to a small degree address its

unfunded OPEB liability. Significantly, TriMet’s proposal will have no effect on current

bargaining unit employees. Employees are not forced to promote out of the bargaining unit and

they will continue to have the option of whether to accept a promotion.

5. TriMet has demonstrated a compelling need for its proposals regarding funding of Union programs.

Like its other proposals, TriMet has demonstrated a compelling reason to limit or

eliminate the contributions it makes to various Union-controlled programs. As explained above,

TriMet has proposed to cap its annual contribution to the Child Care/Elder Care Assistance

Program at $55,000; to cap its monthly contribution to the Benefits Coordinator position at

$1,500; and to eliminate its monthly contribution to the Transit Exchange Program. The purpose

of all of these proposals is to reduce TriMet’s expenses. TriMet’s financial difficulties have been

explained in great detail above and will not be repeated in this section of the brief. However,

TriMet identified these provisions in the contract as areas where it could reduce its costs without

negatively affecting the bargaining unit employees.

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As set forth above, a recent audit of the Child Care/Elder Care Assistance

Program revealed that the program account balance is more than $400,000. (Ex E-73). At the

hearing, Union consultant (and former ATU 757 President) Ron Heintzman testified that this

program was “my baby” and that it was his intent to use the funds to build a child care facility

for the employees. However, Heintzman acknowledged that he has never shared that goal with

TriMet’s current management team. Given the massive account balance, the Union, thus far,

apparently has used little of the funds to assist individuals with child care or elder care needs.

Therefore, reducing TriMet’s annual contribution to the program from $65,000 to $55,000 not

only is reasonable but much less of a cut than would have been justified. The Union did not

present any evidence to establish why it needs more than $55,000 per year for the program.

Similarly, TriMet’s proposal to cap the amount it pays for the benefits coordinator

position at $1,500 per month is extremely reasonable and justifiable. In fact, at the hearing,

Molly Butler testified that the Union only pays her $800 per month for her work as the Union’s

benefits coordinator. Therefore, the Union currently is netting $700 per month from TriMet’s

monthly contribution for the benefits coordinator. In addition, TriMet has its own benefit

coordinator who assists bargaining unit employees with their needs. The Union failed to present

any evidence as to why it needs more than $1,500 per month for the position.

TriMet’s proposal to eliminate its monthly contribution to the Transit Exchange

Program also is reasonable and justified. As McFarlane testified, TriMet receives no benefit

whatsoever from the Transit Exchange Program. Thus far, the fund has only been used to pay

for Union officers to make trips to Europe. TriMet has received no benefit from any of the trips

made by Union officers. Moreover, the most recent audit shows that there currently is a fund

balance of more than $69,000 for the Transit Exchange Program. The Union failed to present

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any evidence at the hearing regarding how the Transit Exchange Program benefits TriMet or

even the bargaining unit.

6. The Union’s last best offer is neither reasonable nor justified.

At the hearing, the Union presented no evidence to warrant the award of its last

best offer. In fact, the Union failed to present any evidence whatsoever that relates to the

statutory criteria found in ORS 243.746(4). Instead, the Union apparently believes that its last

best offer should be awarded simply because TriMet allegedly failed to adequately explain its

proposals during bargaining, is asking for too many changes to the contract, and that it would be

unfair to award TriMet’s last best offer.

The unreasonableness of the Union’s position throughout bargaining was

illustrated by the testimony of its primary witness, Ron Heintzman. Heintzman served as

president of Local 757 from 1988 to 2002, before becoming a Vice President of the International

Union and serving as President of the International Union for a few months. Although

Heintzman did not directly participate in the parties’ two bargaining sessions in late 2009, he was

involved from afar and eventually began communicating directly with Fred Hansen – TriMet’s

General Manager at the time – about the issues in dispute.

Heintzman acknowledged that the Union’s goal from the beginning was to simply

extend the collective bargaining agreement and continue all of the existing terms of the

agreement including the provisions requiring annual wage adjustments of 3 to 5% and fully paid

medical benefits. In fact, the Union’s initial proposal which it made on November 20, 2009, was

to extend the contract for two years. (Ex E-63). The Union’s proposal remained unchanged

throughout the bargaining period and up through mediation. The Union’s final offer filed on

July 21, 2010, was to extend the contract for three years. (Ex E-64). It did not propose to make

any changes to the contract – economic or non-economic.

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During this period of time, the parties exchanged numerous letters and emails, in

which TriMet provided great detail of its financial challenges and its need to make changes to the

contract in order to reduce labor costs. Heintzman testified that he was very aware of TriMet’s

claims that it was broke, but he did not believe those claims. In fact, Heintzman testified that he

still does not believe TriMet has financial difficulties and that, in his opinion, “an employer can

always afford to give the union what it is asking.” In addition, Heintzman testified that the

Union worked hard over the years to get the many favorable terms in the labor contract, and that

he was not about to give up any of the benefits the Union had bargained for in the past.

Heintzman’s testimony and the evidentiary documents refuted the claims of the

Union’s own attorney that the Union somehow was confused by the purpose of TriMet’s

proposals and/or did not understand them. Heintzman testified that the Union knew from the

beginning that TriMet was claiming it had financial difficulties and needed to reduce labor and

benefits costs. In fact, in TriMet’s letter to the Union dated September 14, 2009, in which it

opened the contract for bargaining, TriMet referenced many of the steps it already had taken to

reduce costs including reducing service, laying off staff, and freezing the wages of non-union.

(Jt Ex 6, Ex 1).

Heintzman specifically testified that the Union was never confused about any of

TriMet’s proposals and that it understood them from the beginning. In fact, the bargaining notes

from November 20, 2009, reflect that Steve Banta, TriMet’s spokesperson during bargaining,

informed the Union that he “would read aloud TriMet’s initial proposal document provided to

the union and would be pleased to clarify items or answer questions to aid in the union’s

understanding of the initial proposal which represents TriMet’s concerns with the existing

collective bargaining agreement.” (Jt Ex 6, Ex 8, p 6). Importantly, all of TriMet’s proposals in

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its last best offer were addressed in its initial proposal. After Banta read TriMet’s proposals, the

Union’s president, Jon Hunt, “expressed the union’s understanding of each section of the initial

proposal.” (Jt Ex 6, Ex 8, p 8). Heintzman testified that the Union fully understood TriMet’s

proposals – it just viewed them as takeaways and did not like them.

Heintzman also acknowledged that after the parties exchanged initial proposals on

November 20, 2009, the Union cancelled the next bargaining session on December 3, 2009,

despite repeated pleas by TriMet to keep the meeting and to bargain in good faith. (See Jt Ex 6,

Exs 10 through 13). Heintzman also acknowledged that, rather than bargain with TriMet, the

Union proceeded to publish a letter to Oregon’s Governor, the TriMet Board of Directors, and

local citizens condemning TriMet’s initial proposal and expressing “no confidence” in TriMet’s

General Manager, Fred Hansen. (See Jt Ex 6, Ex 14).

Heintzman further acknowledged that TriMet continued to urge the Union to

schedule another bargaining session but that Jon Hunt refused and instead told Hansen that he

needed to discuss the contract issues directly with Heintzman. (See Ex Jt-6, Ex 15). Heintzman

also acknowledged that he and Hansen subsequently exchanged several emails in which Hansen

explained TriMet’s proposals and financial difficulties in greater detail to the Union.

(See Jt Ex 6, Exs 16 through 21). Heintzman testified that he understood TriMet’s proposals but

that he simply would not agree to any of them.

In short, Heintzman’s testimony at the hearing completely refuted the Union’s

claim that it was confused by TriMet’s proposals and/or did not understand the purpose of the

proposals. Heintzman’s testimony confirmed that the Union simply did not like TriMet’s

proposals and refused to consider them because, in Heintzman’s own words, the Union was not

about to give up any of the benefits it had negotiated in past contracts.

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However, there is no statutory criterion that allows the Arbitrator to award the

Union’s last best offer on that basis. In addition, in spite of Heintzman’s refusal to believe that

TriMet was experiencing a financial crisis, there is a mountain of evidence that establishes

otherwise and that TriMet’s last best offer is in the best interest of the public.

7. TriMet’s last best offer is not unfair or unreasonable.

The Union claims that TriMet’s last best offer is unfair because its health

insurance proposal would be applied retroactively. However, both parties have made retroactive

health insurance proposals in this case. TriMet has proposed that employees and retirees on the

Regence PPO plan be moved to a different Regence plan with 90/10 co-insurance retroactive to

December 1, 2009. Meanwhile, the Union has proposed that employees contribute 1.5% toward

the monthly premium cost retroactive to January 1, 2011, and 3% toward the monthly premium

cost retroactive to January 1, 2012.

Neither party should be surprised at proposals with retroactive application.

Indeed, the course of bargaining over time has resulted in contract language, agreed to by both

parties, that essentially ensures proposals will be retroactively implemented. Unlike most

contracts, pursuant to which a demand to bargain triggers negotiations many months before the

contract ends, this contract has only a 60-day notice of opening. (Jt Ex 1, Article 1, Section 1,

Par. 1). PECBA’s 150-day period for bargaining has been in place for many years. ATU and

TriMet routinely have made their contracts retroactive to the expiration of the predecessor

contract. Consequently, any contract change effective for the term of the successor agreement

naturally will be applied retroactively.

Importantly, it should be noted that the Union has been aware of TriMet’s health

insurance proposal since the parties exchanged initial proposals on November 20, 2009, and the

parties would not be in the situation they find themselves today if the Union had been even a

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little bit reasonable during bargaining. However, given the fact that the Union absolutely refused

to agree to any concessions during bargaining to address TriMet’s fiscal crisis and given the fact

that more than two-and-a-half years have passed since the contract expired, the Arbitrator will

have to impose a health insurance proposal that is retroactive.

In addition, the Employment Relations Board (ERB) has found that TriMet’s

health insurance proposal is lawful. As discussed at the hearing, the Union challenged all of the

proposals found in TriMet’s final offer in an unfair labor practice complaint filed with ERB.

(See Ex U-10). A hearing was conducted in May 2011 and while a few of TriMet’s proposals

were found to be unlawful, ERB determined that all of the proposals currently found in TriMet’s

last best offer were lawful and valid. (See Exs U-14 and U-16). That includes TriMet’s health

insurance proposal which was worded exactly the same in the final offer as it is in the last best

offer (i.e., retroactive to December 1, 2009). (See Exs U-10 and E-2).

Furthermore, it is important to note that retroactivity works both ways. It can

work for a party and it can work against the party. In this case, both sides will benefit from the

retroactivity provisions in TriMet’s last best offer. Under the wage proposal, all of the

bargaining unit employees and retirees will receive retroactive wage/pension adjustments. The

amount of the retroactive wage payment will be around $3,000 for most of the employees.

(Ex E-115). The amount of the retroactive pension adjustment for retirees will depend on the

amount of their current monthly pension benefit.

The amount, if any, individuals would be required to repay TriMet under its

retroactive health insurance proposal is dependent on a number of factors including which health

insurance plan they are enrolled under, and whether they have single employee coverage,

employee plus spouse, employee plus children, or full family coverage. Individuals enrolled in

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the Kaiser health insurance option (42% of the employees) would not owe anything. (See Ex

E-116). Individuals with single coverage who are enrolled in the Regence Option 1 plan would

owe approximately $2,481 through July 2012, which likely would be more than offset by the

retroactive wage adjustment to which they are entitled. (See Exs E-115 and E-118). In addition,

the Employer plans to have an open enrollment period immediately following the issuance of the

arbitration award, at which time all employees and retirees can choose to switch to the Kaiser

plan. (Testimony of McFarlane). Individuals with single coverage who are enrolled in the

Regence Option 2 plan would owe approximately $2,265 through July 2012, which amount also

likely would be more than offset by the retroactive wage adjustment. (See Exs E-115 and

E-118). In the worst case scenario, an individual with full family coverage who is enrolled in the

TriMet Option 1 plan would owe approximately $6,627 through July 2012. (Ex E-118).

However, after offsetting that amount by the retroactive wage adjustment, the individual likely

would owe the Employer less than $3,700. While the Union may argue it is harsh and unfair to

require individuals to repay TriMet for retroactive premium costs, it is these individuals who

received the greatest benefit from the extremely generous health insurance benefits that were

provided.

In addition, it is important to note that the total compensation received by

TriMet’s bargaining unit employees surpasses the comparator average by thousands of dollars

per year. (See Exs E-84 through 96 and discussion above in Section III(B)(2)). Thus, even those

individuals who would owe TriMet money are in a much better position than employees who

perform similar work elsewhere.

Finally, how the Employer chooses to recoup the money from employees for the

retroactive health insurance change is not something the Arbitrator needs to address. Rather, the

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Arbitrator’s sole responsibility is to apply the statutory criteria in order to determine which

party’s last best offer should be awarded. In this case, all of the statutory criteria support the

award of TriMet’s last best offer.

IV. CONCLUSION

For the reasons set forth above, TriMet respectfully requests the Arbitrator to

award its last best offer package.

RESPECTFULLY SUBMITTED: June 25, 2012.

BULLARD SMITH JERNSTEDT WILSON By

Adam S. Collier Attorneys for Employer Tri-County Metropolitan Transportation District

200 SW Market Street, Suite 1900 Portland, OR 97201 503-248-1134/Telephone 503-224-8851/Facsimile

CERTIFICATE OF SERVICE -1- 606/32 00379401 V 1

CERTIFICATE OF SERVICE

I hereby certify that on June 25, 2012, I served the foregoing EMPLOYER'S

POST-HEARING BRIEF on:

Michael J. Tedesco Julie Falender Tedesco Law Group 3021 NE Broadway Portland, OR 97232 Facsimile: (503) 210-9847 Email: Miketlaw@miketlaw.com Email: julie@miketlaw.com

by mailing a true and correct copy to the last known address of each person listed. It was contained in a sealed envelope, with postage paid, addressed as stated above, and deposited with the U.S. Postal Service in Portland, Oregon.

by causing a true and correct copy to be hand-delivered to the last known address of each person listed. It was contained in a sealed envelope and addressed as stated above.

by causing a true and correct copy to be delivered via overnight courier to the last known address of each person listed. It was contained in a sealed envelope, with courier fees paid, and addressed as stated above.

by faxing a true and correct copy to the last known facsimile number of each person listed, with confirmation of delivery. It was addressed as stated above.

by emailing a true and correct copy to the last known email address of each person listed, with confirmation of delivery.

Adam S. Collier Attorneys for Respondent Tri-County Metropolitan Transportation District of Oregon