Considering Public Sector Collective Bargaining? Here’s How to Protect Taxpayers and Workplace Freedom

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Twenty-eight years after Governor Doug Wilder signed it into law, the Virginia General Assembly lifted the ban on public sector collective bargaining. As of May 1st, localities in Virginia could give government unions a monopoly to represent all employees at a particular worksite.

However, the law passed in Richmond is unique from other states as it sets virtually no guidelines on what government unions can bargain over and how they can be formed. Thankfully, it also does not mandate public sector collective bargaining, allowing localities to keep the status quo that the Commonwealth has had for decades.

First and foremost, it should be pointed out that localities can reject public sector collective bargaining. There is good reason to do so, as simply administering the process is expensive. In fact, localities that are considering allowing bargaining are estimating hundreds of thousands or even seven figures for ongoing costs for negotiations and compliance. This spending will not go for better wages or benefits for current public employees or better services for citizens —it is simply to hire more employees to administer the infrastructure of bargaining.

The costs alone could be a large reason that, while the state law allows public employees to petition their local elected officials to vote on allowing bargaining, those representatives will vote no and keep the process that has worked in the Commonwealth for generations.

However, there may be some instances where a locality will allow public sector collective bargaining. For this reason the Thomas Jefferson Institute recently published “Recommendations and models for local collective bargaining in Virginia.”

While voting “no” or not voting at all if not required is the best option for Virginia localities, this “toolkit” outlines options for forming unions, protections for public employees, complying with state laws, and what topics a locality should bargain over (or not bargain over) if it must vote yes.

These include complying with Virginia’s secret ballot protection law, ensuring public employee votes to form a union are done securely and employee privacy is protected. Because unions will have a monopoly to represent all employees (even those who do not wish to join the union or be represented by it), the union should need a majority of all workers (not just those voting) to vote yes before they are given the privilege of collective bargaining.

Future employees should also not be locked into today’s decisions in perpetuity.  Unlike some other states where unions were voted in generations ago and simply remained, public employee should have the right to periodically vote on whether to keep the union at their workplace, vote it out, or select a different union.

Ordinances should also be specific about complying with the spirit and letter of Virginia’s transparency laws, ensuring that collective bargaining negotiations are conducted in the open, similar to other public meetings affecting Virginian taxpayers and citizens.

The Supreme Court has said that everything government unions do is political and public employees have a First Amendment right to choose to pay union fees or not. Public employees should be informed of these rights before any money is taken from them. Further to prevent misunderstanding or fraud, any ordinance should include language similar to a recent Indiana bill requiring public employers to confirm with the employees that they wish to pay dues before money is deducted from their paychecks. Alternatively, the locality could follow the lead of states such as Michigan which prohibit union dues being deducted from some public employees’ paychecks.

While public employees who work for the union may need to do some union business during the workday, they should not receive their taxpayer funded salaries during this time. Public employees should be allowed to use vacation time or take unpaid time off while doing union business but paying these employees to do union work on the taxpayer’s dime should be forbidden. Similarly, unions should pay fair market value for office space in public buildings or the use of government equipment.

The people’s local elected officials must have the final say over both budgetary (required by state law) and policy issues. The employer’s negotiating team and the union may agree to a tentative contract but it should not go into effect until the local elected body approves it. Similarly, arbitration, where an unelected arbitrator or arbitration panel writes the final contract, should be avoided.

Local ordinances allowing for public sector collective bargaining can also specify what unions can and cannot bargain over. The best model is Wisconsin which allows government union to bargain over wages only but limits that to inflation without a voter referendum.

If the locality must for whatever reason allow a broader scope of bargaining there are several things that should be expressly prohibited. These include:

Seniority pay systems: the ordinance should ensure that good employees can receive raises for how hard they work.  Local governments should not be constrained from compensating employees based on skill, effort and competence rather than merely “time served”;

General staffing and personnel decision: determination about who can be hired and staffing levels should be left to the employer;

Layoffs and last in first out: ordinances should prevent a collective bargaining agreement from dictating newer employees be laid off before more senior employees regardless of performance;

Ancillary services: localities should be free to do competitive bidding and should not be locked into buying services such as insurance from a specific provider because of a collective bargaining agreement;

Other issues that should be off the bargaining table include the school calendar and scheduling; discipline and grievances; pensions; performance evaluations; and school curriculum.

Many of the above issues are already prescribed by state law, especially for education employees and may not be bargained over anyway. As with any large-scale contract, local counsel should be consulted before allowing any specific subject in a collective bargaining agreement.

Allowing public sector collective bargaining will be a very difficult, time consuming, and expensive process. The easiest and most cost-effective route that protects public employees and stops a third party from coming between them and their employer is for localities to keep the status quo and vote no. If this is not possible local elected officials should first attempt to follow Wisconsin’s lead. If they must allow larger bargaining the several subjects outlined in the toolkit should be considered to be specifically taken off the table.

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Northam Regs Out of Step With Reality

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Despite the stunning and rapid success of the vaccines in arresting the spread of COVID-19, if you enter a Virginia workplace you go back in time to the pre-vaccine era of doubt and fear.

Virginia acted in haste in adopting permanent workplace rules related to COVID 19. Now that the Centers for Disease Control has relaxed many of its requirements and conceded that others were not backed up by evidence, the state’s employers are in limbo. The workplace regulations are now badly out of step.

There was no allowance for vaccinations in the regulations, which became permanent in January just as the population was starting to get shots.

Governor Ralph Northam was warned this would happen if the temporary COVID-19 rules were made permanent but barreled ahead to the applause of organized labor. The regulations carry the weight of law and can be enforced with severe sanctions, whether or not they are in direct conflict with the latest CDC guidance.

Outside of workplaces, Governor Northam has used an executive order to relax masking, social distancing and capacity rules effective May 28, but the underlying state of emergency remains in effect until at least June 30. At that point it could be extended. The workplace regulations cannot yet be changed.

In a joint letter, about 35 business organizations have asked the Governor to immediately lift the state of emergency that underlies the workplace regulations, and then quickly call back the state Safety and Health Codes Board which adopted the permanent regulation on a split vote. Only that board can amend the rules to reflect the current CDC advice and the success of the vaccines or repeal the regulations outright.

The joint letter, which the Thomas Jefferson Institute for Public Policy also signed, reads in part:

Now that Virginia is getting closer to fully re-opening the economy, business owners are faced with a legal predicament on whether to follow the science (CDC guidance and recent executive orders) or the permanent regulations (16 VAC25-220). There are several unanswered questions about how business owners should still operate since the COVID-19 regulations passed by the Safety and Health Codes Board are permanent. Will all of 16VAC25-220 be in place after the May 28th? Will they be in effect on or after the end of the State of Emergency on June 30, 2021?

…As the three critical pieces of the Permanent Standard – 1) social distancing, 2) wearing face protection and 3) increasing sanitation measures are expected to be removed on May 28th, there will no longer be a need for the Permanent Standard. The numerous conflicts between the changing CDC guidance, Executive Orders, and Permanent Standard are causing confusion and stress on Virginia’s employers and employees as they rebuild their businesses, as well as causing time allocation and costs on the agencies that are responsible for enforcement of the regulations.

Even before the recent collapse of the masking and other rules outside of the workplace, conflicts between the regulations, previous CDC guidance and simple common sense had sparked a massive effort by the state to respond to questions. Several answers in the “Frequently Asked Question” list seem to relax or downplay the regulations, but an FAQ written by a state bureaucrat does not override a regulation and release the employer from regulatory risk.

One FAQ answer cited by the business coalition letter seems to put a burden on an employer facing a complaint to demonstrate that employees have been vaccinated.

Our members would appreciate clarification regarding what qualifies to fulfill the “an employer can demonstrate” standard? Does an employer need to require a copy of an employee’s vaccination card? Is a written record of an employee’s status needed? Would requiring and maintaining this information place employers in violation of HIPPA rules, require small employers to institute specific security measures to protect an employee’s privacy and ensure other employees do not have access to a fellow employee’s medical history?

Lawyer and Richmond Times-Dispatch labor law columnist Karen Michaels wrote about the dilemma facing employers May 25. She quoted Richmond lawyer and Safety and Health Code Board member Courtney Malveaux, who voted against making the regulation permanent.

“The board intentionally dodged the issue of different rules between vaccinated and unvaccinated individuals, even though the vaccine was becoming available,” he said.

The state now has a standard based on the science of January in May. “From the beginning, VOSH [Virginia Occupational Safety and Health] should have embraced the science and should have required employers to follow the CDC guidance in real time. It still has an opportunity to do so now,” Malveaux said.

He recalled that an earlier draft of the standards contained a safe harbor provision providing that if the employer was complying with the CDC that the employer was in compliance with the (state) standards.

That safe harbor, which would have greatly reduced the current conflicts and confusion, was stripped out of the draft. Odds are research will continue and best practices will continue to change, and if any part of these regulations remain in force, that safe harbor should be added.

Posted in Regulation, State Government | Leave a comment

With Tax Revenue Exploding, Virginia Should Boost Standard Deduction, Index for Inflation

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One of the big financial winners with the May 1 Virginia minimum wage increase is the state itself, because the entire raise is subject to a 5 percent state income tax. With its low standard deduction and personal exemption amounts, Virginia squeezes income tax out of even its lowest wage workers.

In light of the massive tax increases Virginians have seen due the Governor Ralph Northam’s recent policy changes, some of the heaviest falling on the state’s businesses, it is clear the state is on a sound financial footing. Another major surplus of more than $500 million looms. The initial 2019 promise made by the legislature to continue efforts for tax reform, abandoned by both parties after the 2019 election, should be revived.

The recommended focus remains the same as the Thomas Jefferson Institute position two years ago:

  • Virginia needs to substantially increase the standard deduction it offers to all taxpayers, with the goal of matching the amount offered on their federal taxes. That would be an increase from $9,000 tax free income for a couple filing jointly to $25,100 for that same couple, removing more than $16,000 from taxable income. An individual’s standard deduction is $12,550.
  • Virginia needs to index its tax code to inflation, again mirroring federal practice. Failure to do so, and allowing tax rates to increase due to inflation, is itself a form of tax increase. This is even more important now because the massive federal deficit spending on individual cash benefits, and other federal actions to overheat the economy, are likely to produce the kind of inflation many of us remember from the 1970s.

Complaints that the state cannot afford this should be hooted down, although it may need to be phased in, starting with a standard deduction increase to $6,000 for an individual and $12,000 per couple. State General Fund tax revenues are up about 30 percent in just four years, and the explosion from the tax increases and super-heated economy is just starting. If the Biden Administration gets even part of the tax package it wants through Congress, Virginia will quickly conform to any of the changes that produce additional revenue for the state. Most of them will.

The next Governor and 2022 General Assembly should act immediately to protect Virginia families and the Virginia economy from what is coming. Shielding a higher portion of every Virginia family’s income from income tax is easy to explain and provides a level tax benefit to rich and poor. As a portion of income, it is of far greater benefit to the lower income workers.

In 2019, Virginians were asked about doubling the standard deduction as a method to return some of the coming state tax bonanza due to the 2017 federal tax bill. By wide and bi-partisan margins they endorsed the idea, but the General Assembly took only a small step and raised the deduction 50 percent. A major increase in the standard deduction will be just as popular today, if not more so.

The Thomas Jefferson Institute also recommended changes to the corporation income tax in 2019, which again were roundly ignored by leaders of both parties. It was clear that the federal rules changes in the Tax Cuts and Jobs Act of 2017 would produce an avalanche of new state corporate taxes unless we made state-level adjustments. Fixing that is of lower priority than the other two goals, a meaningful standard deduction and annual inflation adjustments.

Much of Virginia’s business income is reported and taxed on individual returns, since many businesses are not structured as corporations. An increase in the standard deduction is of direct benefit to those unincorporated business owners. For corporations, the higher standard deduction is of benefit to employees and stockholders but not the business entity.

The General Assembly has now decided to increase the state’s fuel taxes annually to keep up with inflation in future years. It has voted to raise the minimum wage annually due to match inflation. It is long past time to give the same protection to Virginia’s taxpayers. The current chair of the House Finance Committee in the General Assembly, Delegate Vivian Watts, D-Annandale, has introduced an indexing bill already, but so far has been unsuccessful.

Many Democrats share the desire to reduce income taxes on Virginia families by working up from the bottom but prefer to do it with a mechanism called the Earned Income Tax Credit. Recent General Assemblies have also considered and rejected efforts to make that tax credit “refundable,” meaning that taxpayers who qualify could actually receive an annual check from the state. The proposal is likely to surface again.

That approach does nothing to reduce the tax burden on middle income Virginians because the EITC phases out quickly as income rises. And it involves the state taking the taxes out of paychecks and then returning them at a later time, rather than simply not taxing it in the first place. EITC becomes just another government entitlement, more bureaucracy.

Many Democrats also oppose the idea of a higher standard deduction because the benefit is nearly universal, reaching even higher income families if they do not take itemized deductions. If the federal tax changes President Joe Biden wants are enacted, the higher state standard deduction will make only a small dent in higher tax bills coming their way.

Finally, matching the federal standard deduction brings Virginia into line with a number of other states competing with Virginia for new jobs and residents. The District of Columbia and South Carolina match the federal amount, and North Carolina comes close. For most low income Virginia workers and many retirees, there would be zero income tax, the same as in Florida, Texas, or Tennessee.

Posted in Economy, Government Reform, State Government, Taxes | 1 Comment

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Northam Tax Harvest Expands Again

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With the release yesterday of the April 2021 Virginia state revenue report, covering ten months of the fiscal year, a correction in an earlier report becomes necessary. Overall general fund state tax collections are not up 26 percent so far compared to four years ago, they are up almost 30 percent. Corporate income tax collections are not up 68 percent, but 86 percent over the same period four years ago.

Your correspondent regrets the error and admits jumping the gun after the March report knowing things would become more dramatic soon. Since the essence of good communication is repetition, expect another update in a month. And as has been the case for a while now, expect Governor Ralph Northam to seek to distract the voters from what is really going on.

From today’s news release:

“Virginia is posting the largest monthly revenue increase in the 21st century this month, in sharp contrast with many other states,” said Governor Northam. “Make no mistake—this is the result of strong fiscal management and Virginians doing the right things to put this pandemic behind us. People are getting back to work, businesses are investing, and we expect this surge to continue in the months ahead as our economy returns to full strength.”

“Make no mistake—this is the result of strong fiscal management…” the Governor said. Well, no, unless you count a host of tax increases to be “strong fiscal management.” Or unless you consider a set of federal bailout bills that flooded people with cash to spend as “strong fiscal management.” Stimulus yes, management no.

They don’t want Virginians to focus on the tax increases which have fueled this massive revenue explosion:

  • The state’s refusal in 2019 to properly adjust its personal income tax to counteract the tax boost it would get from the federal Tax Cuts and Jobs Act of 2017. The paltry change in the state standard deduction and miniscule pre-election tax rebates left the state still collecting billions in new taxes.
  • The 2019 General Assembly’s decision to impose its own version of a wealth tax on high income earners through a cap on itemized deductions.
  • The state’s refusal in 2019 to make any effort to protect its corporations from the state tax impact of the TCJA’s various changes in the rules, while accepting all those new rules changes.
  • The imposition of sales and use tax on all Internet-based commerce, part of a national wave following a Supreme Court decision.
  • A major tobacco tax increase including an expansion of that tax to liquid nicotine products.
  • And earlier this year, a refusal by the state to allow businesses a full state deduction for their Paycheck Protection Program grants, subjecting billions more to a state skim of about 6 percent.

This does not include or reference the motor fuel tax increases also imposed under this Governor, the carbon tax to be hidden on your electric bills, or the host of local taxes authorized for transportation and other functions.

“…in sharp contrast with many other states,” the Governor said. Well, no. That is not accurate, either. Quite a few other states are doing fine.

In December, the Tax Foundation looked at the first nine months of calendar year 2020 (January to September), which included the recessionary period. Overall state tax revenues were down only 4.4 percent for the period, and local revenues were up. There were winners and losers, of course, but only nine states were showing double digit percentage losses. Many of those were dependent on energy severance taxes.

Looking just at the second and third quarter, overall state revenues were down 8 percent, but the first quarter (pre-pandemic) had been strong, and the year finished strong. The economy has been on an upward swing for months now, not just in Virginia and despite the real pandemic peak in January.

The myth of a foundering economy and struggling states and cities continues to fuel massive federal “relief” spending, and earlier today the Governor issued another press release, a joint statement from him and his fellow Democrats (no Republicans mentioned) on how they intend to spend the next $4.3 billion in federal post-COVID emergency largess, with another $2.7 billion going direct to the state’s localities. The total is $7 billion, and a special session of the Assembly will be needed to parcel it all out.

Their priorities for the American Rescue Plan Act dollars are: Public health, business grants (watch out or they will be taxed), replenishing the unemployment insurance trust fund to prevent huge tax increases on employers, school construction and repairs and broadband.

The one thing the coming special session will likely not do is consider any tax relief for Virginians. In case you missed it, the most recent Biden Administration spending spree included a provision seeking to prevent any of the states getting the money from cutting their taxes. It is unprecedented federal interference with the financial independence of state governments.

Within the past few days, the U.S. Department of the Treasury issued complicated guidance on a number of issues raised by the Biden Administration legislation, and according to another Tax Foundation summary tax cuts are not totally prohibited. Wrote analyst Jared Walczak:

Crucially, Treasury proposes to use inflation-adjusted Fiscal Year 2019 tax revenue as a baseline for determining whether there has been a net tax reduction. This means that states can unequivocally cut taxes out of organic revenue growth. If a tax cut reduces revenue compared to what it would have been on a current policy baseline, but revenues are still up in real terms, this does not violate the provisions of the American Rescue Plan Act and would not lead to a recoupment of any federal funds.

Organic revenue growth? With the revenue explosion Virginia has enjoyed during these four taxing years, surely there has been enough of that to find some way to relieve Virginia families.

Posted in State Government, Taxes | Leave a comment