Publications

Bargaining Climate in 2001: Outlook Mixed (2001)

by Mark Murphy

It’s a mixed forecast for AFSCME affiliates negotiating major contracts this year. Amid signs of economic slowdown, many jurisdictions will be trying to restrain or cut costs, and may look to public employee collective bargaining agreements. Some elected officials are seeking to cut public employment and weaken their unions. And health benefit cost increases have returned, causing some employers to seek greater employee contributions.

Despite the short-term uncertainty in the economy, however, the overall outlook remains bright, and decent settlements are still a reasonable expectation. Affiliates should be prepared to defend their economic proposals by questioning employers’ “doom-and-gloom” fiscal picture, and by reminding them of the long-term view of economic conditions. Members need to organize to fight politically motivated attacks on their standards.

Economic Outlook

The evidence is clear that the U.S. economy has cooled off from the growth we enjoyed for the past eight-plus years. What is not so clear is just how much the economy has slowed. Basic economic conditions — rising worker productivity, low inflation, continued consumer spending and low unemployment — remain in place. The consensus forecast among economists is for growth of 2 percent in 2001, with roughly 3 percent growth for the following two years.

While economic predictions show continued growth, they have been getting more negative in recent months. The decline in the stock market, a series of layoffs, and other bad economic news has increased pessimism among many consumers and forecasters. It did not help that, as Diane Swonk, chief economist with Bank One of Chicago, said, “the new President used the ‘R’ word [recession] to shore up support for a tax cut.” If bad news continues, we may see economic forecasts worsen in the near future and our chances of a recession will increase.

States' Fiscal Health

For AFSCME affiliates, the biggest impact of the slowing economy will be felt in the state and local budgets. The past several years have been very good for states’ finances, and state governments have cut taxes for the seventh straight year — this year by a combined $5.8 billion. Now, some states are facing pressure because economic growth is no longer making up for the tax cuts, and revenues are coming up short. In addition, state Medicaid costs are on the rise once again, causing about half the states to spend more than planned. This double-squeeze has led 11 states to call for spending cuts, according to the National Council of State Legislatures.

Overall, however, state finances are still healthy. Most states do not expect to have to make spending cuts to balance their budgets. Many states still have large surplus fund balances and “rainy-day” funds that can be tapped to handle short-term revenue shortfalls. In fact, 10 states are even considering additional tax cuts.

Employer Expectations

Public- and private-sector employers surveyed by the Bureau of National Affairs (BNA) expect to negotiate contracts with annual wage increases of about 3 percent in 2001. Data compiled by BNA in the first 10 weeks of 2001 showed that the weighted average first-year wage increase was 4 percent, compared with 3.5 percent in 2000. State and local government contracts provided a median increase of 3.5 percent, compared with 3.2 percent in 2000. Continued economic growth and low unemployment have forced employers to raise wages in order to attract and retain workers.

Pres. George W. Bush’s budget calls for raises of 3.6 percent for federal employees. States have budgeted for an average 3.1 percent wage increase for their employees for fiscal 2001, according to the Fiscal Survey of the States.

Employee Benefits

Health Insurance

Last year the tight labor market discouraged employers from increasing employee health care costs. The 1999 Mercer/Foster Higgins National Survey of Employer-sponsored Health Plans found that only 21 percent of surveyed public and private employers planned to increase employee costs. Although the labor market is still tight, the 2000 Mercer Survey found that 40 percent of surveyed employers plan to increase employee health insurance cost sharing in 2001. More than half of employers surveyed by BNA will seek higher premium contributions, deductibles or co-payments from employees.

The survey found that the cost of retiree coverage is increasing even more rapidly than the cost of active employee coverage. Pre-Medicare-eligible retiree costs increased 10.6 percent and Medicare-eligible retiree increases closely parallel the increases in prescription drug costs, or about 20 percent. As a result, the percent of employers offering health coverage to pre-Medicare-eligible retirees dropped from 35 to 31 percent and the number offering coverage for Medicare-eligible retirees fell from 28 to 24 percent.

Finally, defined contribution health plans are gaining employer attention as a way of reducing health care costs. As with defined contribution retirement plans, these health plans shift costs and risk from employer to employees. At this point, interest in these plans has been mostly confined to small private-sector employers.

Pensions

Compared to health insurance benefits, employee pension plans face less pressure in 2001. According to the BNA survey, pension benefits will likely be modified only slightly or left intact by most employers. The prolonged stock market rise may be over, but many pension funds benefited from the increase, and now enjoy improved funding levels. The volatile stock market has also reduced the appeal of arguments by some conservative policy groups that employees should manage their own retirement savings. AFSCME has argued that that idea is dangerous. The financial markets are now making that clear. Nevertheless, ideologically motivated efforts to “privatize” pensions and Social Security must still be reckoned with. And, since most decisions concerning public-sector pensions are made in state legislatures rather than at the bargaining table, there may be continued assaults on our members’ retirement security.

With financial market returns coming back to historical levels, many employers will likely consider larger contributions to fund pension plans. Some states still do not have adequate funding to cover their employee pension liabilities.

Other Benefits

The small percentage of employers that offer benefits such as tuition assistance, transportation subsidies or subsidized home computers say they will keep the programs, with some employers adding benefits. Domestic partner health benefits remain scarce, however, and actually have declined, covering only 16 percent of firms surveyed by BNA, compared to 22 percent in 1999.

Key Upcoming Contracts

AFSCME Contracts

AFSCME affiliates will be negotiating a difficult contract in Florida and many large state contracts in the Midwest; and large local government contracts in the Midwest and West Coast expire in 2001. University and health care contracts in California, Florida and Massachusetts come due this year.

In addition to winning good economic settlements, laying the groundwork to maintain and build union density, and to increase bargaining power, is another measure of success. Even as we fight to build upon our hard-won economic gains in the coming year, negotiations can be a crucial vehicle for limiting contracting out, improving government services to enhance job security, reducing employer use of contingent workers, and opening up opportunities to organize employers’ unorganized workers — so-called “bargaining to organize.”

Major contracts coming due in 2001 for AFSCME affiliates include:

  • AFSCME Council 79 and the state of Florida
The contract for 85,000 employees expires June 30. This contract is not only the largest to be negotiated by an AFSCME affiliate in 2001, it promises to be the most contentious. Gov. Jeb Bush has proposed a plan to slash more than 4,000 jobs, privatize many state functions, eliminate civil service protections and restrict state employees’ ability to make political contributions by deductions from their paychecks — so-called “paycheck protection.” The governor’s efforts are largely viewed as a political payback for Council 79’s and AFSCME’s efforts for former Vice Pres. Al Gore in last year’s Presidential election, and the union has mounted a strong campaign to resist any rollbacks directed at state employees.
  • Wisconsin
This contract for 26,000 employees is being negotiated in the context of a budget shortfall caused in part by years of tax cuts, including a cut of more than $10 million last year. Gov. Scott McCallum has proposed using tobacco settlement money to make up the gap.
  • Other major state contracts coming due include Minnesota for 19,000 employees; Indiana for 9,000 employees; and Pennsylvania for 8,000 corrections officers. Negotiations with Governor Ventura of Minnesota are expected to be difficult, and a strike is possible.
  • Local government contracts that will be negotiated in 2001 include Cook County, Ill., for 5,600 employees; the city of Detroit for 5,500 employees; Hennepin County, Minn., for 4,500 employees; and the city of Los Angeles for 3,900 employees.
  • Another major contract coming due is the University of California patient care and service units contract, with a total of 16,400 employees. As a result of a new law permitting agency shop for UC workers, the union is mounting a major internal organizing drive. Other education contracts include the University of Florida for 7,000 employees; Prince George’s County, Md., Board of Education for 4,400 employees; and Harvard University and the University of Minnesota, for 3,500 employees each.

Other Unions

The major contracts of other unions expiring in 2001 include one of the nation’s largest, the National Association of Letter Carriers and the U.S. Postal Service; and some of the most contentious, such as the Screen Actors Guild and the American Federation of Television and Radio Artists and motion picture and TV producers, and the flight attendants and United Airlines. The possibility of a strike is relatively high in the motion picture/TV and airline industries. In addition, the Communications Workers negotiate many of their largest contracts with the telecommunications industry during 2001.

For more information, please email the Department of Research and Collective Bargaining Services  or call (202) 429-1215.

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