Focus on Finance: the Push and Pull of Los Angeles Labor Negotiations

In 2009, Miguel Santana was nominated by Mayor Antonio Villaraigosa and confirmed by the City Council as the City Administrative Officer for Los Angeles. His office oversees the City’s $7.25 billion budget and labor negotiations. Prior to this position, Santana served as one of five Deputy Chief Executive Officers for Los Angeles County. He has a BA in Sociology and Latin American Studies from Whittier College and Masters Degree in Public Administration from Harvard University.

Over the summer, Dan Pellissier, President of California Pension Reform, said LA is headed the way of Detroit. He’s not the only one. Former Mayor Richard Riordan predicted that the city would likely declare bankruptcy by 2014. In your opinion, why isn’t the City of Los Angeles at risk of bankruptcy?

Because we have strong fundamentals, our population continues to grow. We have a diverse economy. It’s not reliant on one particular industry. Our property values continue to rise. We are part of California, which is getting stronger. We have a link to the global economy with the port running between Long Beach and LA—one of the largest ports in the country, one of the largest in the world. We have an international brand. Tourism is at an all-time high. The city hasn’t been safer since the 1950s. So when you look at all of that, the fundamentals of the city and the region are strong.

On the down side, unemployment is still high—it hovers between ten and 11 percent. Our education system is still not graduating our kids. We have growing disparity between the rich and the poor. But those challenges exist throughout the country.

Four years ago, we forecasted that the city would face a deficit of $1 billion by the 2013-2014 fiscal year if the city continued on the track of revenues and expenditures we were on. That prompted us to take action. We renegotiated our contracts. We changed our pension formulas, adopting new pension tiers. We reduced the size of government. We started focusing on our core services. We’ve been able to reduce that deficit to $220 million. We still have deficits in front of us, but we’ve made progress.

There is no panacea, no silver bullet, no one simple answer. We have to continue to take it an issue at a time, a negotiation at a time, maintaining discipline. Not growing the workforce back to where it used to be. Not giving raises we can’t afford. It’s not easy, but we haven’t given up. Bankruptcy is the last option, when you have no other options, and the city continues to have a number of other options. We’re nowhere near bankruptcy.

Many observers say that the municipal elections earlier this year dealt a significant blow to the public unions in Los Angeles. How would you describe the political power of public unions in LA today?

Unions are powerful in every municipality, particularly in large cities. LA would be one of those places. But I think the question is, what is the impact? One thing that I often tell labor leaders is that no one has a greater interest in ensuring the city is fiscally sound than the men and women who work for the city. We have that mutual respect for each other and that common ground. We have to figure this out together. We can’t do it on our own. The challenge is we have different approaches, different ways of defining what success looks like. We also struggle over whether it’s about surviving one more year or about surviving the long term.

Despite those differences, we’ve made progress. I recently negotiated a deal with the most powerful union in the city, the International Brotherhood of Electrical Workers, Local 18, which funded the campaign against the current mayor. It was done with the two of us sitting across a table from one another. We didn’t like each other when we started, but we have a healthy respect for each other today. What came out of it was a common understanding of where we want to be.

His union was entitled to receive a raise in October. In California, controlling salaries is one of the only ways to control pension costs because public pensions are a vested right. So, we sat down and said, “If we want to control our pension costs, let’s defer that raise. Let’s defer it for four years.” We did that. Here’s a union that hasn’t gone without a raise since 1990. But the union understood the best way to control pension costs was to keep salaries flat. We not only pushed out a raise that the union was entitled to receive for four years, but they’re going to get three years of zero before that.

They were able to go back and sell it to their members, I was able to sell it to our mayor and council, and we found a solution. When we actually sit down around the table and negotiate, when we lay out our bottom line and they lay out theirs, and we try to find areas of mutual interest, some movement and progress can be made.

How have you been so successful in your negotiations with the unions, especially since labor leaders were vocal in calling on the mayor not to retain you as City Administrative Officer?

What really matters is that each side is not afraid to play its respective role. Whether I like it or not, I represent management. I get my bargaining instructions from the city’s elected leadership. Once we’ve established that, then as long as we’re clear, we’re fair, and we’re transparent, you can find a reciprocal ear on the other side.

You can’t do everything. You have to make decisions. We decided we were going to go after the big things as opposed to the smaller things. The smaller things are often the things that get headlines in the L.A. Times—about this bonus that exists that was established in 1972, or this work rule that seems egregious compared to the private sector. It’s not to say those things aren’t important—they’re very important—but I was interested in going after the billion-dollar savings. We’ll take on the million-dollar savings later. When you approach that with labor and say let’s go after the big things this time around, I think there’s an interest and willingness to engage.

What does the future look like for municipalities?

What’s happened since 2008 has had a permanent impact on the economy. What’s going on among all of our cities is a conflict over a structure and an organization of government that may not be the most relevant or the most effective in light of the new economy. None of us have figured out what it needs to be. We’re all trying to figure it out.

It worries me. There’s an important role for government. There are certain things only government can do. Government has to survive. That means we have to adapt. These conflicts and tensions that occur, this push-and-pull that’s taking place, it needs to translate to something bigger. It’s not going to come from Washington—they’re the epitome of what’s wrong. It’s going to have to happen on the local level.