Report on Local No. 952 Compensation Package Analysis

Kristen Monaco, PhD

kmonaco@csulb.edu

562-985-5076


Teamsters Local No. 952 is currently in negotiations with Orange County Transportation Authority regarding the contract covering Coach Operators. The purpose of this analysis is to compare the real (corrected for inflation) value of the OCTA and Teamster proposals for the total compensation package.

The current contract would cover the period 2007-2009. The prior contract covered the period 2004-2006. The contract allowed for annual wage increases to cover increases in the cost of living. These increases were based upon a forecast of the CPI-U for Los Angeles, Orange, and Riverside Counties conducted by Chapman University. The forecast and actual annual percentage changes in the CPI for the region are presented below.



Table 1: The Difference Between the Actual and Forecasted CPI in the Last Contract Period

Year
Chapman Forecast
Actual
Difference

2004
2.83%
3.34%
0.51%

2005
3.05%
4.46%
1.41%

2006
3.16%
4.6% (estimated)
1.44% (estimated)




Since the compensation package did not keep pace with actual inflation, the actual value of the package declined 3.39% (compounded over the three year period) by the end of 2006. OCTA has proposed that this underage be addressed by increasing the total value of the compensation package under the current contract by 3.39% above the cost of living increases forecast for the upcoming three year period. However, their prescription allocates this underage to the current contract in the same manner as it occurred in the last contract period: 0.51% in the first year, 1.41% in the second year, and 1.44% in the third year. Though the total underage will compound to 3.39%, this underage occurred over the three year period ending with 2006 and will not be completely addressed until 2009 which means the reduction in the real value of the compensation package will continue to erode since the underage persists for three years (absent any additional under-forecast in the Chapman CPI).



We first consider a scenario where all of the underage is added back to the total compensation package in the first year (referred to as “front-loaded underage).



Table 2: Front-Loaded Scenario

Year
Chapman CPI Forecast
Front-Loaded Underage
Annual Increase

2007 (year 1)
3.30%
3.39%
6.69%

2008 (year 2)
2.98%
0%
2.98%

2009 (year 3)
3.08%
0%
3.08%




Three scenarios are considered in this analysis. First, the OCTA proposal, where the underage is corrected over three years; second, the front-loaded scenario, where the underage is addressed in the first year of the contract; and, third, the Teamster proposal with corresponding annual increases of 5%, 4%, and 5%. These proposals and the compounded percentage increases are presented below.



Table 3: Compound Percentage Increase in the Compensation Package for Three Scenarios

Year
OCTA Proposal
Front-Loaded Underage
Teamster Proposal

2007 (year 1)
3.81%
6.69%
5%

2008 (year 2)
4.39%
2.98%
4%

2009 (year 3)
4.52%
3.08%
5%






Compound increase
13.27%
13.25%
14.66%




While the compound increase on the OCTA proposal appears larger than the front-loaded underage scenario, it is important to address the fact that under the OCTA and also the Teamster proposals the delay in addressing the underage from 2004-2006 will lead to the continued erosion of the total compensation package. To illustrate this, we calculate the real value of the three scenarios, deflating the annual compensation package to the 2007 base using the CPI forecast for 2007-2009 provided by Chapman University (103.03 in year 1, 106.38 in year 2, 109.65 in year 3). We assume a total cost of $63.5 million and a base CPI of 100. The top portion of the table below presents the nominal costs (the money value in the given year) of the three scenarios and the bottom portion presents the real costs (values adjusted for the price level in each year).



Table 4: Nominal and Real Costs of Contract for Three Scenarios

Year
OCTA Proposal
Front-Loaded Underage
Teamster Proposal

Nominal Costs

2007 (year 1)
$65.92 M
$67.75 M
$66.68 M

2008 (year 2)
$68.81 M
$69.77 M
$69.34 M

2009 (year 3)
$71.92 M
$71.92 M
$72.81 M

Total
$270.16 M
$272.93 M
$272.33 M






Real Costs

2007 (year 1)
$63.81 M
$65.58 M
$64.55 M

2008 (year 2)
$64.69 M
$65.58 M
$65.18 M

2009 (year 3)
$65.69 M
$65.58 M
$66.40 M

Total
$194.09 M
$196.75 M
$196.13 M




In sum, although the OCTA proposal acknowledges the underage from the last contract, this underage is not fully corrected. Fully addressing this underage would cost approximately $2.64M in current dollars. To illustrate the problem inherent in not fully correcting the underage, consider a hypothetical individual with a compensation package (value of salary and benefits) worth $65,000 in 2003. If this individual’s compensation had kept pace with inflation, it would have been $73,395 in 2006. Under the annual adjustments using the Chapman University forecast, the compensation package would have been $71,055 in 2006, a difference of approximately $2340. If this underage is addressed by the proposed OCTA plan, the compensation package will be $77,915 in 2009, while a scenario where the underage is addressed fully in the first year of the contract (or one that has kept pace with inflation for the entire period 2004-2009) will result in total compensation of $80,481, a difference of $2566.



It is also important to note that the CPI forecast by Chapman University is based on actual CPI data from the third quarter of 2006. While the forecast for the first quarter of 2007 is accurate, it is likely that high gas prices experienced over the last few months will cause the actual CPI to once again exceed the forecast, eroding the real earnings of coach operators.