INTEREST ARBITRATIONS

IN INTEREST ARBITRATION BEFORE MICHAEL E. CAVANAUGH, J.D., ARBITRATOR

INTERNATIONAL ORGANIZATION OF : MASTERS, MATES & PILOTS, : : INTEREST ARBITRATOR'S and : DECISION AND AWARD : : WASHINGTON STATE FERRIES, : : (Interest Arbitration, 2013-15 Masters’ CBA) : : : :

For the Employer: Paige Dietrich David J. Slown Attorney General’s Office 7141 Cleanwater Drive SW PO Box 40145 Olympia, WA 98504-0145

For the Union: Rhonda Fenrich Fenrich Gallagher Garrettson 423 Lincoln Street Eugene, OR 97401

I. INTRODUCTION The parties selected the Arbitrator, sitting alone rather than as the Chair of a panel, to decide issues they were unable to resolve in bargaining for their 2013-15 CBA. The current proceedings are subject to the revised procedures of RCW Ch. 47.64 which specifies the following factors as the guiding principles for an interest arbitrator’s award:

In making its determination, the arbitrator or arbitration panel shall be mindful of 1 2 the legislative purpose under RCW 47.64.005 and 47.64.006 and, as additional standards or guidelines to aid it in reaching a decision, shall take into consideration the following factors:

(a) The financial ability of the department to pay for the compensation and fringe benefit provisions of a collective bargaining agreement;

(b) Past collective bargaining contracts between the parties including the bargaining that led up to the contracts;

(c) The constitutional and statutory authority of the employer; (d) Stipulations of the parties; (e) The results of the salary survey as required in RCW 47.64.170(8); (f) Comparison of wages, hours, employee benefits, and conditions of employment of the involved ferry employees with those of public and private sector employees in states along the west coast of the United States, including Alaska, and in British Columbia doing directly comparable but not necessarily identical work, giving consideration to factors peculiar to the area and the classifications involved;

(g) Changes in any of the foregoing circumstances during the pendency of the proceedings;

(h) The limitations on ferry toll increases and operating subsidies as may be imposed by the legislature;

(i) The ability of the state to retain ferry employees; (j) The overall compensation presently received by the ferry employees, including direct wage compensation, vacations, holidays and other paid excused

1 “The state of Washington, as a public policy, declares that sound labor relations are essential to the development of a ferry and bridge system which will best serve the interests of the people of the state.” RCW 47.64.005

2 “The legislature declares that it is the public policy of the state of Washington to: (1) Provide continuous operation of the Washington state ferry system at reasonable cost to users; (2) efficiently provide levels of ferry service consistent with trends and forecasts of ferry usage; (3) promote harmonious and cooperative relationships between the ferry system and its employees by permitting ferry employees to organize and bargain collectively; (4) protect the citizens of this state by assuring effective and orderly operation of the ferry system in providing for their health, safety, and welfare; (5) prohibit and prevent all strikes or work stoppages by ferry employees; (6) protect the rights of ferry employees with respect to employee organizations; and (7) promote just and fair compensation, benefits, and working conditions for ferry system employees as compared with public and private sector employees in states along the west coast of the United States, including Alaska, and in British Columbia in directly comparable but not necessarily identical positions.” RCW 47.64.006.

WSF/MMP (Masters) CBA 2013-15

2 | P a g e

time, pensions, insurance benefits, and all other direct or indirect monetary benefits received; and

(k) Other factors that are normally or traditionally taken into consideration in the determination of matters that are subject to bargaining under this chapter.

3 RCW 47.64.320(3). In addition, effective July 1, 2013 (which will be the effective date of the CBA before me) the WSF “Masters” (or “Captains” in the language of the statute) have been severed from the former bargaining unit which encompassed all licensed deck officers (i.e. it included Mates as well as Masters). The Masters have now been organized into a “newly-formed captains-only bargaining unit.” RCW 47.64.340. The Union notes that because Mates often “bump up” to act as Masters, the statute has created potential “skimming of bargaining unit work” issues that the Arbitrator must take into account in evaluating some of the parties’ respective proposals. At a hearing held at WSF headquarters in Seattle on August 7-9, 2012, the parties had full opportunity to present evidence and argument, including the opportunity to cross examine each other’s witnesses. The proceedings were transcribed by a certified court reporter, and I have 4 carefully reviewed the transcript in the course of my analysis of the issues. Counsel chose to argue the case orally at the close of the presentation of the evidence, and having carefully considered the issues in light of the parties’ presentations, I am now prepared to render the following interest arbitration award. 3 In interest arbitration proceedings under the prior statute, the Arbitrator was directed to award the “most reasonable” proposal on each discrete issue between the parties, i.e. the statute established what is commonly known as “baseball arbitration.” Under the current statute, by contrast, the Arbitrator is free to devise his or her own “best” solution to each disputed issue, applying the statutory criteria.

4 In light of the short statutory deadline for issuance of interest arbitration awards (30 days from the closure of the hearing but in no event later than October 1, 2012), as well as the fact I also heard another interest arbitration proceeding involving WSF and the MEBA bargaining unit (with the same deadline), rather than wait for the reporter to prepare the official transcript, I chose to utilize a rough draft copy provided to me in electronic form. In reading the draft transcript, I found few errors—mostly homonyms—and I am satisfied that my use of a rough transcript has not prejudiced the parties in any way.

WSF/MMP (Masters) CBA 2013-15

3 | P a g e

II. INTEREST ARBITRATOR’S DISCUSSION AND AWARD A. Background and General Considerations 1. The Bargaining Unit The Washington State Ferry System operates 23 vessels carrying both passengers and vehicles on scheduled runs across Puget Sound as well as to the San Juan Islands (including an international run through the Islands to Sydney, B.C.). The Masters at issue in this proceeding are in full command of the vessels and are charged by statute (RCW 47.64.340) with operating the vessel according to WSF performance standards, including managing the other shipboard 5 employees. Those employees include the other licensed deck officers (Mates, formerly contained in the same bargaining unit), as well as employees that have always been represented by different Unions in different units, e.g. deck hands (Able Bodied Seamen or “A/B’s” and Ordinary Seamen or “O/S’s,” represented by the Inland Boatmen’s Union or “IBU”), and licensed and unlicensed engine room employees (represented by the Marine Engineers Beneficial Association or “MEBA”). WSF Masters and Mates are licensed by the U.S. Coast Guard (“USCG”) to serve as “pilots” to navigate the vessels safely in the waters covered by the WSF 6 system routes, and they have served in that role for approximately fifty years. It is undisputed that Masters command a multi-million dollar asset of the State which, if operated improperly, could result in potentially catastrophic liability for damage to property and/or loss of life. 5 The Union notes that Masters are the only marine employees of the State—and perhaps the only employees of any kind—to have their duties and responsibilities defined by statute. Should there be any deviation from those standards, the Masters fear, they face potential personal liablity for the consequences which, for reasons that are not difficult to understand, could be catastrophic.

6 In general, each WSF vessel’s Coast Guard Certificate of Inspection (“COI”) requires, as part of the minimum manning standards applicable to vessels sailing in navigable waters, a Master with an appropriate pilot’s license (“pilotage”) for the waters served by WSF, as well as a First Mate with pilotage. See, e.g. Exh. U-35 (COI for the Yakima). In order to receive the appropriate pilotage, employees must have extensive experience sailing in the prescribed waters, and must then pass a test in which they recreate from memory a series of appropriate navigational charts, including details such as hazards, depths, the location and precise character of navigational aids like buoys and lighthouses, etc.

WSF/MMP (Masters) CBA 2013-15

4 | P a g e

There are three categories of Masters in the new unit. Each vessel has one designated Staff Master, a position bid on the basis of seniority. The Staff Master is a “first among equals” who coordinates with the regular Masters on other shifts on the same vessel to ensure that maintenance and supply issues are handled appropriately (and who usually accompanies the vessel to a shipyard for repairs), while also acting as one of the regular Masters on a prescribed shift. Relief Masters bid by seniority to become part of a pool available to replace Masters who are unable to complete a scheduled run because of vacation, illness, or other kinds of absences. Relief Masters are required to be familiar with every vessel in the fleet and with every WSF run so as to be able to step in, often on short notice, to act as Master anywhere in the system. They may work any shift on a given day and often must travel long distances to begin their assignments, particularly the more junior Relief Masters who are less able to pick the more desirable available runs (and may be involuntarily assigned by reverse seniority to the runs no one else wants to take). 2. The Statutory Criteria and “Ability to Pay” In evaluating the parties’ respective proposals, I am required to apply the statutory criteria quoted above. Those criteria, to the extent applicable to any specific issue that has been certified for interest arbitration by the Public Employment Relations Commission (“PERC”), will be discussed below. One of the criteria, however, is applicable to virtually every issue before me, at least to some extent, and thus deserves a detailed discussion at the outset, i.e. “the Department’s ability to pay for the compensation and fringe benefit provisions of a collective bargaining agreement.” RCW 47.64.320(3)(a). With respect to each Union proposal to which a cost may reasonably be attached, the State has argued here that the Department’s current financial condition, as well as the projected finances of the Department for the 2013-15

WSF/MMP (Masters) CBA 2013-15

5 | P a g e

biennium, do not permit the State to agree to any cost items beyond the restoration (“snap-back”) of an agreed 3% across the board pay reduction the members of the unit agreed to take in FY’s 2011-12 in light of the State’s dire financial condition. See, Exh. J-1 § 6.03. Because of continuing deficits in projected revenue as compared to projected ferry operations expenses, the State contends it can afford no more in wages and benefits for this unit than the restoration of this temporary 3% wage reduction. The primary evidence relied upon by the State in support of its argument is the testimony of Erik Hansen, a knowledgeable budget analyst with the Office of Financial Management (“OFM”) who is assigned to WSF as well as to some other “clients.” Mr. Hansen presented a Power Point outlining the sources of Department revenue—the most salient point being that the 7 Department receives most of its funding from federal and State gas taxes while fare revenue covers a range of 65-70% of the cost of ferry operations from year to year. Hansen also described the limitations the Department faces in moving funds between accounts, e.g. the WSF “capital” account for construction of new vessels and shoreside terminal facilities may not, as a matter of law, be utilized for daily operations of the vessels. On the other hand, the Legislature recently increased some license fees, permits, and other sources of revenue, and in the Legislature’s 2012 Financial Plan, $3.5M of those increased funds were earmarked for the Major Transportation 8 Accounts (including ferries) in 2011-13 as well as an additional projected $35M out of $183.5M 7 One difficulty facing the Department is that gas tax revenues are projected to decrease for several reasons. As the price of gas increases, people tend to drive fewer miles—which lowers gas tax revenues because those taxes are assessed at a flat per gallon rate, not as a percentage of the cost. Moreover, increased minimum mpg standards for vehicles, scheduled to rise to 50 mpg by the middle of the next decade, will inevitably reduce the demand for fuel, as will the projected increases in the number of hybrids and plug-in electric vehicles. Even when gas prices decline after a temporary spike, commuters and others have often changed their traveling habits and do not necessarily resume their prior level of driving. As a consequence, gas tax revenues may reasonably be expected to decline over time. Exh. S-5, Slide 10.

8 The $35M allocated to ferry operations for 2013-15 is the largest single allocation within the Legislature’s direction as to how the additional transportation revenue of $183.5M should be spent. Exh. S-5, Slide 8.

WSF/MMP (Masters) CBA 2013-15

6 | P a g e

9 expected to be brought in during the 2013-15 biennium. See, Exh. S-5, Slide 13. Nevertheless, the Ferry Operations Budget is projected to end the current biennium with just $7.5M as an ending balance and to face a deficit of $33.2M at the end the 2013-15 biennium. Id. The Union counters with the argument that farebox revenues have been above projections recently, and sources of additional funds seem to be on the horizon, including revenue from 10 selling advertising on the vessels and from various federal grants. But given the still uncertain state of the economy, I hesitate to put too much stock in recent gains in fare revenue. See, e.g. Exh. U-29 (noting a 1.2% increase over projected fare revenue for Q2 2012).That is so because the evidence established that comparing the current quarter to the equivalent quarter in the prior year is much less instructive than considering annual year-over-year trends. See, e.g. Exh. U-34 (June 2012 Transportation Forecast Summary) (projected revenues are up 2.8% from the prior forecast due to new Legislative fee increases, but a mixed overall economic picture results in a projection that “revenues [will be] slightly higher in the near-term [with] no change in growth rates in the long-term”). Moreover, any increases in revenue may well be inadequate to keep up 11 with rising costs in other areas of WSF operations, and taking those projected expenses into 9 In the just concluded interest arbitration hearing involving WSF and MEBA, which I conducted subsequent to the hearing in this matter, Mr. Hanson also noted that the Legislature has exempted WSF from the local sales tax on purchases of fuel for the ferries, resulting in a projected savings of $11M in 2013-15. However, because that evidence was not presented in this hearing—and thus the Union had no opportunity to weigh in on the significance, if any, of that fact—I do not feel it would be appropriate for me to consider that testimony here.

10 I think it is fair to say, however, that the potential federal grants cited are uncertain, both in whether they will actually happen and in what amounts. Moreover, all of the potential grants identified appear to be limited to capital projects and would presumably not be available for operations expenses such as wages and benefits for WSF employees (although conceivably, if awarded those grants could replace unrestricted funds that the Department might have intended to transfer to the Ferry Capital Account). On the other hand, the Legislative Plan projects a deficit of more than $100M in the Capital Construction Account at the end of 2013-15 biennium, so there is little, if any, evidence that capital grants could actually result in an increase in the operations account for improvements in wages and working conditions.

11 For example, in 2011-13 fuel has accounted for 30.2% of the WSF Operations Budget as of August 2012, and I take arbitral notice of recent substantial increases in the cost of petroleum products.

WSF/MMP (Masters) CBA 2013-15

7 | P a g e

account, the Legislative Plan anticipates a $33.2M deficit at the end of the next biennium, even after the Legislature has planned to provide additional funding for transportation accounts of 12 more than $35M over two successive bienniums. For all of the above reasons, I take seriously the State’s pleas of financial difficulty even though it is clear to me that the situation is not nearly so dire as it was two years ago when the 13 State’s General Fund faced projected multi-billion dollar deficits. When the State faced those conditions, to their credit the marine employee unions (including MMP) agreed to substantial give-backs in order to assist WSF in maintaining a level of service expected by the citizens of the State. For that reason alone, these employees deserve some consideration now in return. In any event, however, the “ability to pay” factor is not the sole factor I should take into account in determining whether disputed items should be included in the CBA. One of the foremost purposes of the statute under which I derive my authority (based on appointment as Arbitrator by the parties) is, to the extent reasonably possible, to ensure that WSF employees receive wages, benefits, and working conditions on a par with comparable employees on the West Coast of the United States and in British Columbia. RCW 47.64.006. Those comparable employers include the Alaska Marine Highway System, BC Ferries, and Black Ball Transport (Port Angeles-Victoria), as well as operators of passenger only vessels (or one small passenger/vehicle ferry), including the Golden Gate Ferry Corporation (San Francisco Bay) and the Marine Divisions of Pierce, King, Skagit, and Whatcom Counties. Taken as a whole, the evidence (discussed in 12 In one sense, projected deficits are misleading because the Department, by law, may not spend more money than it has been allocated in the budget process. Thus, the ferry operations account cannot end the 2013-15 biennium more than $30M in the red as projected. On the other hand, the size of the deficit indicates the enormity of the gap in ferry operations funding that must be filled, either with revenue enhancements such as fare increases or higher taxes, reduced ferry operations expenses (say, through reductions in service), and/or diversion of funds currently allocated to other State functions toward ferry operations instead.

13 Nevertheless, the most recent budget outlook projects a deficit of $492M at the end of FY 2015, and that deficit would actually exceed $1B if the State chose not to utilize the Budget Stabilization Account (“rainy day fund”) to help close the gap. Exh. S-26.

WSF/MMP (Masters) CBA 2013-15

8 | P a g e

greater detail later) establishes that the members of this bargaining unit trail their statutory comparables by a substantial amount in wages and benefits. Consequently, in reaching my decision here, I must take seriously the express statutory purpose of protecting these employees, where reasonably possible, from the erosion of their relative wages and benefits— even during difficult economic times for the State. In light of the current Legislative Plan’s projection of a substantial deficit in the ferry operations fund for the 2013-15 biennium (as well as deficits in most of the other transportation 14 accounts), I concede that it may be very difficult for the Governor to include in the proposed 2013-15 biennial budget (and for the Legislature to fund) additional wages and/or benefits beyond the 3% snap-back, particularly if the goal is to maintain ferry service at current levels. That is, additional ferry operations revenue would either have to be transferred from other worthy programs with their own constituencies (assuming those funds were not dedicated by law 15 to those other programs) and/or be generated by additional increases in fares, taxes, and/or license and permit fees, beyond those enacted in 2012—at a time when many citizens are 16 staunchly opposed to such increases. Much of the financial difficulty of the ferry system, in 14 The Major Transportation Accounts projected to be in deficit condition at the end of the 2011-13 biennium (four accounts totaling a negative $180.4M) overwhelm the account balances projected to be in the black (four accounts totaling $22.8M). See, Exh. S-5, Slide 13. Moreover, three of the four “in the black” accounts are projected to have surpluses of $770K or less (essentially a non-surplus position), and the ending balance in the other—the Highway Safety Account—is projected at just $21.5M. Thus, only the Highway Safety Account appears to offer any hope of transferring available transportation funds to ferries. But simple arithmetic establishes that even if the Department shifted the entire Highway Safety balance to ferry operations, it would not be enough to cover the projected ferry deficit. In addition, the other transportation accounts projecting deficits that the Highway Safety Account surplus might be used to soften include highway maintenance, transit, light rail, and the Washington State Patrol—each of which reflects an important State function in its own right.

15 For example, a commission appointed by the Governor projects that at least $3.1B in additional revenue will be required in the next decade to maintain 90% of the State’s highways in “fair or good” condition and to maintain ferry service at current levels. Revenue enhancements enacted by the Legislature in 2012 are projected to generate only $800M of that total. Thus, other critical areas of the transportation budget will be competing for available funds as well.

16 I note that the Legislative Plan assumes annual fare increases of 2.5% for FY 2014 and beyond, coming on top of 2.5% increases in FY’s 2010 and 2011, as well as 5.5% in FY 2012. Exh S-5, Slide 12. Thus, the Legislature has not

WSF/MMP (Masters) CBA 2013-15

9 | P a g e

fact, traces its origin to the voters’ passage of I-695 ($30 car tabs) a decade or so ago, a 17 successful voter initiative that deprived the Department of a significant source of revenue. It may well be that the citizens of Washington, at least collectively, want to have their cake (a robust ferry service) and eat it too (with limited increases in taxes and fares to fund it), but that is the reality WSF faces even if it is unfair that State employees have to bear so much of the resulting burden. In the end, as several WSF and OFM witnesses testified, the current fiscal climate presents difficult policy choices for the State—choices that are inescapably bound to politics. What level of increases of fares, taxes, licenses, etc.—or reductions in WSF service levels—are politically feasible? Which of the many worthy undertakings of the State might be cut back, deferred, or altogether abandoned so that WSF employees might bear less of the burden of 18 keeping the system alive and fiscally healthy at current levels of service? Thankfully, those thorny choices are not mine to make. Instead, the statute contemplates—appropriately, in my view—that ultimately the Governor and the Legislature must determine the ferry wages and 19 benefits that they are willing to fund. But because I am directed by statute to recommend an appropriate compensation level for the employees in this unit in light of the statutory been averse to reasonable fare increases. Even with these past and assumed future fare increases, however, the ferry operations account is still projected to end the decade with a deficit of $341.9M. Id., Slide 13.

17 As a testament to the political implications of taxpayer resistance to higher fees, the Legislature adopted the major components of I-695 even though the Washington Supreme Court had invalidated the initiative on procedural grounds.