Chicago’s inspector general suggests unions negotiate commonsense provisions in government worker contracts

Among the inspector general’s suggestions are shortening the length of contracts, allowing subcontractors to take over more services, and keeping employee compensation in line with what taxpayers can afford.

Chicago is on the precipice of financial disaster. The city’s credit rating is junk, according to Moody’s. It owes more than $40 billion in pension debt. And it’s suffering from massive out-migration – losing more residents from 2015 to 2016 than any other city in the U.S.

One major factor contributing to Chicago’s fiscal woes: the cost of the city’s government worker union contracts.

After reviewing the city’s union contracts, the inspector general of Chicago is suggesting that the city and its unions put taxpayers first when negotiating new contracts.

“Contract negotiations are largely adversarial by nature, with each side seeking the best deal for itself,” Inspector General Joseph Ferguson wrote in his May 31 report. “Here, however, in the public sector, it is incumbent on both management and labor to acknowledge the presence of a third party with a powerful interest in the outcome; namely, the people of Chicago.”

Ferguson’s report offers insight into how union contracts affect taxpayers across the state. He also offers solutions to address the costly nature of union contracts.

Among several suggested changes, four stand out as necessary for negotiations with government worker unions across the state:

• The length of contracts should not be excessive.
• Wages should reflect what taxpayers can afford.
• Unions should agree to reasonable health insurance premium increases.
• Contracts should allow for flexibility in subcontracting government services.

Like other state and local government workers around the state, most of Chicago’s 30,000 employees are represented by government worker unions. Those unions negotiate wages and benefits and other terms of employment with the city.

Many of Chicago’s 44 union contracts were negotiated 10 years ago. All of them have expired or will expire this year. That gives the city a new opportunity to negotiate contracts that put taxpayers first.

Ferguson’s report urges the city and the unions to negotiate new contracts that “could greatly contribute to improving the city’s financial situation.”

That echoes what the Illinois Policy Institute has said for some time. To improve state and local economies, collective bargaining agreements with government worker unions should be fiscally responsible and take into account what is best for the taxpayers footing the bill.

Read on to learn more about Ferguson’s proposed solutions, and how these ideas could benefit taxpayers all over Illinois.

Lengthy union contract durations hurt taxpayers – and should be avoided

Many of Chicago’s 44 union contracts were ratified in 2007 – when the city’s revenues peaked.

That put taxpayers in a bind.

The following year saw the Great Recession. Chicago’s revenues still have not returned to 2007 levels. That means Chicagoans have been paying for government worker contracts they simply could not afford.

The inspector general’s report specifically noted the 10-year durations of many of the contracts was “excessive” and “unduly restrictive.”

City and union officials are not fortunetellers. They cannot know the fiscal future. But by negotiating excessively long contracts, they bind taxpayers to provide whatever wages and benefits are negotiated, even if there is severe economic downturn.

What’s more, lengthy contracts transcend city administrations. If Chicagoans are unhappy with the management of current city officials, lengthy contracts extend into and perhaps even past the elected terms of future mayors or aldermen. That’s not fair to the voters.

Chicago’s lengthy contracts were entered into by then-Mayor Daley’s administration as a means of bolstering an Olympic bid by allegedly securing “labor peace.” But excessive contract durations have been obtained by unions in other Illinois locations as well. In 2016, a teachers’ union in Palatine-area District 15 secured a 10-year contract that guaranteed wage increases over the contract’s duration, despite the fact that private sector earnings in the area had stagnated.

The next round of contracts in Chicago – and anywhere else in the state for that matter – should be for much shorter durations.

Wages negotiated should reflect what taxpayers can afford

The inspector general’s report suggested the parties take a “realistic approach” that “accounts for the city’s current financial and economic situation” when negotiating wages in the new contracts.

During the last 10 years, cost of living increased about 11.8 percent in Chicago. And median worker earnings in the city only grew 12 percent between 2009 and 2015, according to the U.S. Census Bureau.

But wage increases for city workers – negotiated in those 2007 contracts – went up by as much as 29 percent, vastly outpacing both inflation and income growth in the private sector.

The inspector general suggested tying any pay raises to increases in the Consumer Price Index, or CPI, or another similar economic indicator. Wisconsin has already taken a similar approach with unions that represent general municipal employees, limiting any wage increases to the CPI. And if, for example, a local government unit in Wisconsin wants to increase wages above the rate of inflation, that increase must be approved by voters via referendum.

Chicago doesn’t have to wait for such legislation. It can negotiate a CPI tie into its contracts now.

The need to rein in inappropriate pay increases is a message for unions across the state. Government worker unions should be more cognizant of what taxpayers can afford. A current example: The American Federation of State, County and Municipal Employees – the state’s largest government worker union – is demanding pay increases up to 29 percent, even as Illinois’ economy flounders. That’s unreasonable and unfair to the taxpayers who have to foot the bill.

It’s time for government worker unions to stop making unrealistic wage demands on the people of Illinois.

Unions should agree to reasonable contribution increases for health insurance premiums

The inspector general suggested that the city and its unions consider “reasonable across-the-board increases to union and non-union employees’ premium contributions” for health insurance.

Currently, the most a city employee contributes for health insurance is capped at $2,228.88 per year – and that’s for an employee with a family. Yet in 2016, the national average contribution for family coverage at companies with 200 or more employees was $4,917 per year.

That means city employees are paying less than half of what their peers in the private sector pay on average.

In addition to reasonable across-the-board contribution increases, the report offered a number of other suggestions, including adopting a program that has multiple tiers of coverage – from basic to “Cadillac” – with corresponding levels of employee and city contributions.

That is exactly what Gov. Bruce Rauner has tried to do with state employees represented by AFSCME. In addition to reasonable increases in employee contributions for health insurance, Rauner has offered multiple plans – with varying levels of contributions – to meet individual worker needs. But AFSCME has ignored the best interest of taxpayers and rejected Rauner’s health insurance proposal.

State and local officials should be given more flexibility in subcontracting services

Most of Chicago’s government union contracts place limits on subcontracting – i.e., they limit the city’s flexibility in contracting out certain municipal work to private entities.

The report notes that this impairs the city’s ability to “secure even reasonably short-term supplemental staffing or services in lieu of hiring additional employees or incurring excessive overtime and compensatory time expenses, to the possible detriment of operationally and fiscally optimal outcomes.”

In other words, these anti-subcontracting provisions cost the city more money. The city could potentially save on expenses by contracting out some work to private companies, but it is prevented from doing so by the contracts.

That suggestion, like the others, is not likely to be well received by Illinois’ government worker unions. Subcontracting limitations are found throughout state and local government union contracts.

Case in point: Subcontracting has been one of the major sticking points in negotiations between the state and AFSCME. In fact, the parties’ failure to agree on subcontracting provisions (the government wants more flexibility, and AFSCME wants to limit it) led the Illinois Labor Relations Board to determine that the parties are at an impasse in negotiations.

Negotiate contracts that take into account taxpayers’ best interests

For too long, government unions have had considerable power over the people they are supposed to serve.

The inspector general’s report is likely to raise the ire of government worker unions that want to continue business as usual. But taxpayers can’t afford the status quo. It’s time for unions to prioritize taxpayers in negotiating new contracts.