Why Mayor was right not to appeal police arbitration

BY THE TIME you read this, the Philadelphia Federation of Teachers will have ratified a proposed contract granting teachers two separate 3 percent raises over the next three years.

This comes a month after a police arbitration award granting police 7 percent in raises over the next five years.

Though we make it a point to not comment on union negotiations, or the terms of those negotiations, we will venture to say this: It's hard to fathom how any public servant will be getting any kind of raise in cash-strapped city and state in the throes of an ailing economy, populated by a rising tide of the unemployed and the poor. Not that police and teachers are not hardworking and don't deserve raises. But with earnings of American workers remaining essentially stagnant over the last decade, it's safe to say that there are few workers who don't deserve a raise. But there's a bizarre disconnect between raises for public servants and the shrinking pots of wage-tax and property-tax revenue needed to pay for them.

That said, these are negotiated contracts, and the unions have done their job for their members.

Apparently, we're not alone in worrying about the impact of those raises, especially those for the police. Mayor Nutter's decision to let the Monday deadline pass without appealing the police arbitration award drew fire this week. Both supporters and his loyal opposition say the city simply can't afford to pay more in salaries, and that the mayor is irresponsible for not appealing.

But on this one, the mayor is right. The reality of any appeal is that it jeopardizes other aspects of the award, and the big wins in the arbitration - a recasting of health and pension benefits - are far too valuable to risk.

The point is, it's not wages that have created the most havoc on the city budget; it's the spiraling costs of health care and pensions, made even worse by the city's inability to impose any controls over those costs.

For example, between 2001 and 2008, city spending on health care rose 123 percent; pension costs rose 100 percent. That's in seven years.

In 2004, for example, police arbitration awarded a 6 percent increase in health costs; Mayor John Street did not appeal this.

But to understand the significance of the change, consider that last year, the city paid $5 million more than the union spent on health care; such overpayment has allowed the FOP's Joint Trust to amass a $47 million reserve. That will change when the union goes to a mandated self-insurance plan.

On pensions, the arbitration panel mandated a structure that will have new members contributing more to their pensions. In essence, that means the city and union members now share the risk of the pension plan's performance. In the past, a guaranteed 8.25 percent return on pension plans was shouldered by the city. Because of years in which the market tanked, that became a whopping cost that just kept growing.

In the long run, hundreds of millions of dollars can be saved. There may be little short-term appetite for the raises or for what the city will have to do to pay for them. But the city's fiscal troubles are due in part to the refusal to look at the long term. The police arbitration provided critical structural changes that seemed impossible to achieve. Too bad the thank-you notes can't be written for another decade or two.