Amicus Curiae Brief — Friedrichs v. Cal. Teachers Ass'n, 135 S. Ct. 2933 (2015) (No. 14-915)

Supreme Court, U.S.

FILED

SEP 11 2ui9

No. 14-915 OFFICE OF THE «..

3n the Supreme Court of the Anited States

oo

REBECCA FRIEDRICHS; SCOTT WILFORD; JELENA

FIGUEROA; GEORGE W. WHITE, JR.; KEVIN ROUGHTON;

PEGGY SEARCY; JOSE MANSO; HARLAN ELRICH; KAREN

CUEN; IRENE ZAVALA; AND CHRISTIAN EDUCATORS

ASSOCIATION INTERNATIONAL, PETITIONERS

Vv.

CALIFORNIA TEACHERS ASSOCIATION, ET AL.

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF OF AMICI CURIAE STATE OF

MICHIGAN AND SEVENTEEN OTHER STATES

IN SUPPORT OF PETITIONERS

Bill Schuette

Michigan Attorney General

Aaron D. Lindstrom

Solicitor General

Counsel of Record

P.O. Box 30212

Lansing, Michigan 48909

LindstromA@michigan.gov

(517) 373-1124

Kathryn M. Dalzell

Assistant Solicitor General

Attorneys for Amicus Curiae

State of Michigan

QUESTION PRESENTED

Whether Abood v. Detroit Board of Education,

431 U.S. 209 (1977), should be overruled and public-

sector “agency shop” arrangements invalidated

under the First Amendment.

il

TABLE OF CONTENTS

TET SOCAL TET i

_ «EEC CaN Ne ii

I a atid iv

Interest of Amici Curiae and Summary of

SII idinicdinecnsesenntintnnidététmelenibenimmearmseieiensenie 1

Fe cncnntentenncsnccatiinetinaienantengstasdninianimimmmnenpmneie 3

I. In the public sector, core collective-

bargaining topics implicate policy matters of

Is cccccecetestecststnetemarttemeeminem 3

A. The State coerces political speech when it

requires government employees to pay

for public-sector bargaining........................... 4

B. The policy debates in public-sector

bargaining concern more than just topics

incidental to the core mission of

I cniesncesnttecnccsnannniebinnnionnenneseemnnans 7

C. Collective bargaining affects public policy

in ways not meaningfully different from

PETIT -ccnscsnsensseniesininiantennasinisnisusiguntntuenbianetens 8

II. The policy consequences of public-sector

bargaining are direct and significant. ................. 9

A. Collective bargaining helped cause

multiple municipal bankruptcies. ............... 11

Se & — SRE EEeeeee 11

Se — ENE Ear 17

3. San Bernardino, California................... 19

B. Public-employee benefits are also of

significant public interest at the state

TTT dutetnesnceneteitigntinanpanneniiiiieatinintasineeimemanatasnie 20

C. Collective bargaining can also have

significant non-fiscal effects—for

example, impeding environmental

compliance. ..................++. ainatubapapinbedemmmannsenes 25

Tee ET 33

iv

TABLE OF AUTHORITIES

Cases

Abood v. Detroit Board of Education,

TC nen passim

Harris v. Quinn,

eee passim

In re Pension Reform Litig.,

fe 21, 22

Jones v. Mun. Employees’ Annuity and Ben.

Fund of Chicago,

No. 14CH20027, 2015 WL 4662009 (Ill. Cir.

Ct., Cook Cty., dul. 24, 30165) .........cccccccccssessccees 21

Knox v. Serv. Employees Int'l Union, Local 1000,

Ni nrrerremnnnetnennemmanens 6, 9

Lehnert v. Ferris Faculty Ass'n,

Fee 6, 11, 17, 32

Machinists v. Street,

ET Ee 5

Madison Teachers, Inc. v. Walker,

851 N.W.2d 337 (Wis. 2014)...............ccccceeeeeeeeees 22

Railway Employees’ Department v. Hanson,

| TE TE amen 5

Senior Accountants, Analysts & Appraisers Ass'n

v. City of Detroit,

553 N.W.2d 679 (Mich. App. 1996)................... 13

United States v. City of Detroit,

No. 77-71100, 2011 WL 4014409 (E.D. Mich.

Wi ee icictentsensisccserenciingmniienineemnani 27, 28, 29

INTEREST OF AMICI CURIAE AND SUMMARY

OF ARGUMENT

Does collective bargaining in the public sector

implicate matters of public concern, or does it

“pertain[] mostly to private concerns” involving only

the government’s interests as an employer, rather

than as a sovereign? Harris v. Quinn, 134 S. Ct.

2618, 2654 (2014) (dissent). The answer to that

question is significant to the states, and it is simple:

it does implicate matters of public concern. Consider,

for example, Detroit’s recent bankruptcy: Detroit's

$3.5 billion in unfunded pension liabilities was a

matter of great public concern not just for the city,

but for all of Michigan.

In Abood, this Court concluded that state

interests in labor peace and preventing free-riding,

which purportedly justified allowing a private

employer to coerce private-employee speech on

matters that largely have no public policy

implications, equally justified allowing the

government to coerce public-employee speech on

matters with significant public policy implications.

The Court thus held that it is constitutional to

require a public-sector employee to fund union

collective bargaining. At the same time, however, the

Court recognized that it is unconstitutional to

require the employee to fund the union’s other

political activities. This distinction assumes either

that the core subjects addressed in public-sector

bargaining—pensions, wages, and the size of the

workforce—lack any public-policy implications, or

that sufficient state interests exist to justify over-

riding public employees’ First Amendment rights.

Neither premise is true. It is time to abandon the

meaningless distinction between collective bargain-

ing and other political activity. In the public sector,

core collective bargaining topics such as wages,

pensions, and benefits inherently implicate public

policy, and in ways that matter. Like lobbyists,

public-sector unions obtain binding agreements from

the government that have enormous public impact—

all without the natural counterweight of a financial

market that exists in the private sector. In the public

sector, it is taxpayers, not business owners and

consumers, who foot the bill—and the bill is often

steep.

The issue presented in this case is significant to

the states, and amici States support Petitioners’

arguments. Amici States have a vital interest in

protecting the First Amendment rights of public

employees, and in the fiscal health of state and local

governments. But rather than re-urge Petitioners’

arguments here, amici States limit their discussion

to the direct and substantial public impact that

public-sector bargaining has on core employment

issues, and to the illusory nature of Abood’s

distinction between that activity and other political

or ideological activity, as illustrated by recent

examples from several states and municipalities. As

these and countless other examples make clear,

collective bargaining in the public sector is at core a

political activity with direct and _ significant

implications for the public at large—not merely a

“private concern[]” between employer and employees.

The constitutional analysis should reflect the reality

of public-sector bargaining.

ARGUMENT

I. In the public sector, core _ collective-

bargaining topics implicate policy matters

of great public concern.

In Abood v. Detroit Board of Education, 431 U.S.

209 (1977), this Court drew a line between, on one

hand, union expenditures for political or ideological

purposes unrelated to collective bargaining, and, on

the other, expenditures related to _ collective

bargaining, contract administration, and grievance

adjustments. Jd. at 225-37. The Abood Court held it

unconstitutional to force public-sector employees to

contribute to the former category of union

expenditures, reasoning that “in a free society one’s

beliefs should be shaped by his mind and his

conscience rather than coerced by the State.” Jd. at

234. Citing the principle that the state cannot

compel an individual to associate with a political

party as a condition of public employment, the Court

held that the First Amendment likewise prohibits a

state “from requiring [public employees] to

contribute to the support of an ideological cause he

may oppose as a condition of holding a [public] job[.]”

Id. at 235.

Despite this promising beginning, the Abood

Court nonetheless held that the First Amendment is

not offended by requiring public employees to

subsidize a union’s collective bargaining activity.

While the Court noted several distinctions between

collective bargaining in private versus public

employment, the Court ultimately held that a public

employee does not have “a weightier First

Amendment interest than a private employee in not

being compelled to contribute to the costs of exclusive

union representation.” Jd. at 229.

A. The State coerces political speech when

it requires government employees to

pay for public-sector bargaining.

As this Court recognized both in Abood and

recently, however, public- and _ private-sector

bargaining are not analogous. For one, it is the state,

not a private employer that is directly forcing

subsidization of union speech in the public sector. Jd.

at 250 (Powell, J., concurring); Harris v. Quinn, 134

S. Ct. 2618, 2632 (2014). For another, the public

significance of the coerced speech differs in the

private and public sectors, though the core

bargaining topics may at first blush appear to be the

same.

It is largely undisputed that collective bargaining

in both the public and private sectors touches on hot-

button political issues. As Abood recognized, “[t]o

compel employees financially to support their

collective-bargaining representative has an impact

upon their First Amendment interests.” Abood, 431

U.S. at 222. “An employee may very well have

ideological objections to a wide variety of activities

undertaken by the union in its role as exclusive

representative”:

His moral or religious views about the

desirability of abortion may not square with

the union’s policy in negotiating a medical

benefits plan. One individual might disagree

with a union policy of negotiating limits on

the right to strike, believing that to be the

road to serfdem for the working class, while

another might have economic or political

objections to unionism itself. . The

examples could be multiplied. [Jd.]

The Abood Court noted that under Railway

Employees’ Department v. Hanson, 351 U.S. 225

(1956), and Machinists v. Street, 367 U.S. 740 (1961),

the problems of labor peace and free-riding justified

compelling private employees to contribute to the

costs of exclusive union representation. And the

Abood Court reasoned that such rationales applied

equally in the public sector. Id. at 222-30.

But aside from overlooking the significance of the

different actors involved, the Abood Court failed to

account for the difference between the core union

speech—i.e., speech on basic levels of wages,

pensions, and other employment benefits—

involuntarily subsidized by dissenting private-sector

employees and that subsidized by their counterparts

in the public sector. Harris, 134 S. Ct. at 2632. In the

public sector, these bread-and-butter bargaining

topics are important public policy issues because of

their impact on the public fisc and the allocation of

resources, whereas those same topics in the private

sector are generally not of public interest. Id.

When the party on the opposite side of the table

is the government, bargaining is unavoidably about

the use of public resources and about how elected

officials will govern. Bargaining concessions affect

fundamental public policy issues such as wages,

merit pay, pensions, hours, benefits, and other terms

of public employment—the balancing of which

affects, for example, the level of public services,

priorities within state and local budgets, creation of

bonded indebtedness, and tax rates. Abood, 431 U.S.

at 258 (Powell, J., concurring). And “[p]ublic-

employes salaries, pensions, and other benefits

constitute a substantial percentage of the budgets of

many States and their subdivisions.” Knox v. Serv.

Employees Intl Union, Local 1000, 132 S. Ct. 2277,

2295 (2012).

These are topics about which employees as voters

are likely to hold strong personal views. See Section

II. Contra Lehnert v. Ferris Faculty Ass’n, 500 U.S.

507, 521 (1991) (“[U]nlike discussion by negotiators

regarding the terms and conditions of employment,

lobbying and electoral speech are likely to concern

topics about which individuals hold strong personal

views.”). As this Court has recognized, such topics

are “a matter of great public concern” in the public

sector. Harris, 134 S. Ct. at 2642-43. In the public

sector, we are all shareholders. A government

employee might have strong policy objections to a

position advanced by the union on a core collective

bargaining topic, in a way for which there is no

analogy for an employee of a private business. The

government’s relationship to its employees is

inextricably intertwined with issues of public policy.

Thus, the public significance of the collective-

bargaining speech at issue—wages, pensions,

benefits, and other terms and conditions of

employment—is entirely different in the public and

private sectors, though the topics abstracted from

their contexts may appear to be the same.

B. The policy debates in public-sector

bargaining concern more than just

topics incidental to the core mission of

bargaining.

Moreover, the core of collective-bargaining activ-

ity in the public sector strikes at the heart of critical

public policy issues in a way that private-sector

bargaining simply does not. The purpose of collective

bargaining is to reach agreement that is favorable to

employees—as employees—on such basic topics as

the levels of wages, pensions, benefits, and other

terms and conditions of employment. These matters

are the very essence of bargaining. While working to

reach agreement on these matters may at times

require addressing hot-button political topics such as

abortion or religion, in both the public and private

sectors, those topics often arise as incidents to the

union’s core function in bargaining: to set the basic

levels of these terms and conditions of employment.

But in the public sector, intrusion into debated

policy matters ceases to be just a side effect of

bargaining, but instead becomes the essence of the

activity itself. Setting basic levels of wages, pensions,

benefits, and other terms and conditions of

employment—the very crux of bargaining—is of

great public concern in the public sector. The policy

debates that arise are not merely details, such as

whether company health insurance will cover birth

control, in a larger scheme that lacks public

implications. Instead, the basic question of how

much the State will pay its employees is a public

policy question unto itself.

Even if the interests in labor peace and

preventing free-riding could justify incidental

incursions into employees’ free speech rights, in the

name of fostering the larger, policy-neutral activity

of collective bargaining, those state interests cannot

justify an activity the very essence of which intrudes

on policy beliefs. Cf. Harris, 134 S. Ct. at 2654

(dissent) (“On the one side, Abood decided, speech

within the employment relationship about pay and

working conditions pertains mostly to private

concerns and implicates the government’s interests

as employer; thus, the government could compel fair-

share fees for collective bargaining. On the other side,

speech in political campaigns relates to matters of

public concern and has no bearing on the

government’s interest in structuring its workforce;

thus, compelled fees for those activities are

forbidden.” (emphasis added)).

C. Collective bargaining affects public

policy in ways not meaningfully

different from lobbying.

The nature of core bargaining speech is not only

different in the public and private sectors, but it is

indistinguishable from “other political or ideological”

speech by unions, the coerced support of which Abood

prohibited. In the public sector, both collective

bargaining and “political advocacy and lobbying” are

directed at the government, Harris, 134 S. Ct. at

2632, and often concern the very same topics. And,

just like lobbying, bargaining results in binding

agreements from the government on those matters.

In either case, “public employee unions attempt to

influence governmental policy-making.” Abood, 431

U.S. at 231. Indeed, “[t]he collective-bargaining

agreement to which a public agency is a party is not

merely analogous to legislation, it has all of the

attributes of legislation for the subjects with which it

deals.” Abood, 431 U.S. at 252-53 (Powell, J.,

concurring). Bargaining commitments are even

stronger in some cases than legislation: Once

executed, changing a collective bargaining agree-

ment can be difficult or impossible given that the

same political “party” (the union) is always in power

over those being represented (the public employees).

Il. The policy consequences of public-sector

bargaining are direct and significant.

Core public-sector bargaining activity affects

public policy in ways that are direct, concrete, and

often large—not merely in the indirect sense that

any decision by an elected official affects public

resources. Contra Harris, 134 S. Ct. at 2655 (dissent)

(“[T]his Court has never come close to holding that

any matter of public employment affecting public

spending (which is to say most such matters)

becomes for that reason alone an issue of public

concern.”). As this Court has recognized, a “public-

sector union takes many positions during collective

bargaining that have powerful political and civic

consequences.” Knox, 132 S. Ct. at 2289. The impact

of collective bargaining on matters of public concern

is not merely abstract or incidental; instead, it has

enormous consequences for, among other things, the

fiscal solvency of state and local governments. These

consequences demonstrate why issues at the heart of

public-sector bargaining are matters of great public

concern, and are not merely employment issues

between employee and employer.

10

For one thing, while bargaining in the private

sector naturally has the counterweights of supply

and demand and financial self-interest, public-sector

unions and their bargaining partners lack those

constraints. Abood, 431 U.S. at 228 (recognizing that

a public employer “lacks an important discipline

against agreeing to increases in labor costs that in a

market system would require price increases”). In

theory, a government official’s interest in keeping

votes and winning re-election should provide some

counterweight against acceding to unsustainable

benefits in response to union demands. But

experience has shown that this often does not occur.

What is more, collective bargaining in the public

sector also has substantial policy effects that

exacerbate the First Amendment problems created

by forcing employees to subsidize such speech. In

many instances, the existence of collective-

bargaining agreements creates a policy bottleneck

that makes it difficult, if not impossible, for elected

officials to address important policy matters through

legislation. Public-sector unions not only take

positions on politically charged issues in the course

of bargaining, but in some cases that bargaining

becomes the only mechanism by which those policy

issues can be addressed. Where public problems are

resolved solely through the collective-bargaining

process, a dissenting employee who disagrees with

his union’s collective-bargaining position not only

has to subsidize the union’s advocacy of that policy

position, but he also has little or no recourse in the

general political process. Forcing the employee to

fund his union’s policy monopoly permits the union

to “use each dissenter as an instrument for fostering

11

public adherence to an ideological point of view he

finds unacceptable.” Lehnert, 500 U.S. at 522

(internal quotations omitted).

While the examples abound of bargaining

directly implicating hotly debated political issues,

amici States draw this Court’s attention specifically

to occasions in which political positions taken on

central topics in public-sector bargaining have had

direct, intense, and far-reaching public effects.

A. Collective bargaining helped cause

multiple municipal bankruptcies.

Public-employee benefits—the staple of collective

bargaining—are of immense public concern

throughout the country. As this Court has

recognized, “the importance of the difference between

bargaining in the public and private sectors has been

driven home” in the years since Abood, given how

state and local expenditures on employee wages and

benefits have mushroomed. Harris, 132 S. Ct. at

2632.

1. Detroit, Michigan

The circumstances in Detroit are extreme in

degree, but not atypical in kind: collective bargaining

and the decisions that state and local governments

make regarding benefits to unionized employees play

a key role in the fiscal health of any local

government. The claim that these issues hover on

the periphery of public policy or are confined to the

employment relationship is belied by the reality of

collective bargaining. Detroit’s experience is a case

study.

12

For many years, the City of Detroit’s workers

enjoyed steady rates of return on their Annuity

Savings Plan investments. This would be quite

understandable if the returns came from the

investments, but they did not: the returns persisted

regardless of how the investments actually

performed, with the supposed investment returns

being paid out of city funds during years when the

investments actually lost money.

Under the terms of the Plan, active city workers

could invest a percentage of their salaries into a

defined contribution plan that earned interest based

on a rate of return established at the discretion of

fund trustees. The trustees invested the annuity

plan contributions along with fund pension assets.

But instead of crediting to employees’ accounts the

actual or assumed rate of return, the fund trustees

“essentially operated the Annuity Savings Plan as a

guaranteed investment contract with a guaranteed

floor investment return approaching 7.9%.” (City of

Detroit, No. 13-53846, Bankr. E.D. Mich., Dkt. 4391,

Fourth Am. Discl. Stmt. (“Disc. Stmt.”), May 5, 2014,

at 106; Union testimony, MERC Hrg., Feb. 8, 2013

(“MERC Hrg.”), at 14-15.) In 2009, for example, the

General Retirement System fund lost 24.1% of the

value of its assets, yet it credited Annuity Savings

Plan accounts with a positive investment return of

approximately 7.9%. (Disc. Stmt. at 106.) The fund

paid the inflated rates by diverting hundreds of

millions of dollars from fund assets that were

intended to support the traditional defined pension

benefits. (Bankr. Dkt. 13, Charles Moore Decl., Jul.

18, 2013 (“Moore Decl.”), § 18.)

13

On the flip side of this coin, in years when fund

investments outperformed annual expectations,

instead of retaining and reinvesting the “excess,” the

City’s general pension fund paid out a portion of the

excess to retired pensioners and to the annuity

accounts of active employees. These bonus checks

became known as the “13th check” program, because

the additional check was in excess of the twelve

monthly pension checks the retiree would normally

receive in one year. (Discl. Stmt. at 106.) Unlike a

healthy investment system in which gains one year

make up for losses in the last, Detroit’s pension

practices “ensur[ed] that the net performance of the

[fund] would never exceed the assumed rate of return

in any given year and that [unfunded liabilities)

would continue to increase.” Jd. These practices

“deprived the [fund] of assets that would be needed

to support liabilities[.]” (Jd.; Moore Decl. § 19.)

Alarmed, Mayor Dennis Archer tried in the mid-

1990s to amend the “13th check” program through

the political process. The City proposed a charter

revision that would have altered the program, but

city unions obtained an injunction on the ground

that such action “represented unilateral changes in

the collective bargaining agreements ... concerning

matters that are mandatory subjects of collective

bargaining.” Senior Accountants, Analysts &

Appraisers Ass'n v. City of Detroit, 553 N.W.2d 679,

682 (Mich. App. 1996). While the injunction was

later reversed because “all parties agree[d] that the

challenged provisions {could not] be implemented,

even if enacted by the voters, without bargaining,”

id. at 683, the ballot proposal ultimately failed.

14

In November 2011, the City Council banned the

13th checks and ceased to guarantee minimum

interest rates for annuity accounts after an outside

statistician estimated that the practices had cost the

City $1.9 billion. (Bankr. Dkt. 1066-1, Joseph

Esuchanko Rep., Mar. 8, 2011, at 9.) But city unions

again fought the action, citing Michigan law that

pension plans are mandatory subjects of collective

bargaining. The Michigan Employment Relations

Commission agreed, but the City filed for bankruptcy

in the interim, and the matter was stayed.

The public impact of the pension fund practices—

a mandatory collective bargaining topic—is clear. In

addition to the cost of the practice to the City of

almost $2 billion, the decades-long bonus and

annuity payments increased the amount the City

needed to contribute each year to k-ep the pension

fund solvent. Because of these increases, in 2005 the

City borrowed $1.44 billion at high interest to plug

the unfunded pension liabilities gap. (Bankr. Dkt. 11,

Kevyn Orr Decl., Jul. 18, 2013 (“Orr Decl.”), 94 45—

48.)

Detroit’s unfunded pension liabilities ballooned

to one-fifth of its total debt at the time of its

bankruptcy filing in July 2013—the largest

municipal bankruptcy in this nation’s history. Of

over $18 billion in accrued obligations, the City’s $3.5

billion in unfunded pension liabilities topped its list

of the 20 largest unsecured claims. (Bankr. Dkt. 15,

List of Creditors Holding 20 Largest Unsecured

Claims, Jul. 18, 2013; Orr Decl. Ex. J, at 3;

Eligibility Op. at 8.) In addition, the City had

between $5.7 to $6.4 billion in other post-

15

employment benefit liabilities, almost entirely

unfunded. (Orr Decl. Ex. J, at 3—4; Eligibility Op. at

16.)

The City’s emergency manager, Kevyn Orr,

explained the central role that collective bargaining

played for the City. Orr informed the bankruptcy

court that “the negotiation of changes to pension and

retiree benefits” was “critical to any restructuring,”

given the “approximately $9 billion owed to these

constituencies,” and that such changes were

impracticable, “if not impossible,” outside of

bankruptcy. (Orr Decl. 4 106.)

In addition to the pension problems specifically,

Detroit’s high labor costs in general—also a subject

of collective bargaining—contributed to its bank-

ruptcy. Labor costs for General Fund active

employees (i.e, wages, pension, and benefits)

represented more than 41% of the City’s estimated

gross revenues for 2013. And onerous work rules

enshrined in bargaining agreements hampered the

City’s efficient functioning, including staffing based

on seniority rather than merit; “bumping” rights

based again on seniority; limitations on management

rights that impaired the City’s ability to manage

policies, goals, and the scope of operations for City

departments; arbitration rights that allowed

arbitrators to uphold future grievances based on

expired bargaining agreements or past practice; and

lack of reimbursement rights from unions. (Discl.

Stmt. at 116—17.)

Far from being analogous to a _ private

employment matter, issues at the heart of Detroit’s

collective bargaining contributed directly and

16

significantly to the City’s financial distress. Detroit’s

financial shortfalls and inefficiencies—of which

pension and other employment-related debts

constituted a large percentage—had enormous public

impact on the people of Detroit, the State of

Michigan, and beyond.

As Bankruptcy Judge Steven Rhodes found,

Detroit’s financial situation “causfed] its nearly

700,000 residents to suffer hardship” and “danger[].”

(Eligibility Op. at 139.) Detroit’s municipal taxes

were at the highest legal limit, yet Detroiters

received greatly diminished public services as the

City diverted money away from such basics as

maintaining street lights and emergency response

times. (Bankr. Dkt. 1, Petition, Jul. 18, 2013, Ex. A,

at 3; Orr Decl. 94 29-30.) In 2013, for example, the

average response time for top-priority emergency

calls was 58 minutes, compared to the national

average of 11 minutes. (Eligibility Op. at 21.) Forty

percent of the City’s streetlights were not working.

(Id. at 20.) The crime rate was five times the

national average, and equipment for police, EMS,

and fire services was outdated and inadequate. (/d.

at 20, 139.)

The State also felt the effects of Detroit’s

collective-bargaining shortfalls specifically, pledging

$350 million to cover the City’s pension shortfalls.

(Bankr. Dkt. 8272, Order Confirming Eighth

Amended Plan, Nov. 12, 2014, App. 1, at 55.)

The City of Detroit’s dispute with unions about

controversial pension fund practices illustrates the

direct and far-reaching public consequences of policy

topics at the heart of collective bargaining. Contra

17

Harris, 134 S. Ct. at 2655 (dissent) (“[T]his Court has

never come close to holding that any matter of public

employment affecting public spending (which is to

say most such matters) becomes for that reason

alone an issue of public concern.”). Because of their

significant fiscal impact, the public, including public

employees, might well have strong views about the

City’s pension practices. Contra Lehnert, 500 U.S. at

521 (“(Ujnlike discussion by negotiators regarding

the terms and conditions of employment, lobbying

and electoral speech are likely to concern topics

about which individuals hold strong personal

views.”). Compulsory agency fees force public

employees to fund very specific points of view on

these deeply important questions of fiscal policy. In

short, collective bargaining affects public policy no

less than does the supporting of candidates or

parties.

2. Stockton, California

While Detroit is a leading example, it is only one

of multiple recent municipal bankruptcies in which

public-employee benefits have played a causal role.

The City of Stockton, California, for example,

filed for bankruptcy in 2012, citing among other

causes “unsustainable labor costs, retiree health

benefits, and public debt.” (City of Stockton, No. 12-

32118, Bankr. E.D. Cal., Dkt. 1134, Discl. Stmt., Oct.

10, 2013, at 21.) The city took “drastic steps” to avoid

insolvency, including renegotiating labor contracts,

deferring payouts to retiring employees, and

instituting “massive reductions in its workforce and

employee compensation.” (Jd. at 25.) By reducing

pay, pensions, benefits, and operational hours, and

18

by imposing furloughs and a hiring freeze, the city

was able to save approximately $90 million over

three years. (/d.)

Labor unions responded to the city’s cost-saving

measures by suing the city. (dd. at 11.) After

successful mediation, the city was able to renegotiate

its labor agreements. (/d. at 2.) But the savings were

not enough. Even after the cuts, the city was still

$25.9 million underwater. (Jd. at 11.)

As in Detroit, Stockton’s financial strain had a

vast impact on the public interest. The city explained

in bankruptcy that it “could not continue to make

additional service reductions without jeopardizing

the health, safety, and welfare of its residents.” (Jd.

at 25.) Any further financial strain would require the

city to shut down its library system, eliminate

recreation programs, close all community centers,

and close fire stations. (Jd. at 13.) And any further

reduction in pension benefits would lead to a “mass

exodus of City employees” with “catastrophic”

consequences for the city’s ability to provide “even

the most basic of essential public protections.” (/d. at

23-24.)

The inflated compensation and benefits that

preceded Stockton’s bankruptcy harmed the interests

of city employees not just as citizens, but also as

employees. While in theory unions garnered those

benefits in the employees’ best interests, the city

noted that “the constituencies that will bear the

greatest burden” of the city’s bankruptcy are its

public employees. Those employees held approx-

imately $545 million in claims but agreed, out of

necessity, to accept less than a penny to the dollar

19

($5.1 million) in satisfaction of those claims. (Jd. at

12.) And the city’s new labor agreements eliminated

retiree health benefits worth approximately $1

billion. (/d. at 12—13.) Had they had a choice in the

matter, Stockton’s employees may well have objected

to the inflated benefits obtained through collective

bargaining, both as citizens interested in the city’s

public services and as employees interested in a

reliable financial future.

3. San Bernardino, California

A similar story played out in San Bernardino,

California, which filed for bankruptcy in 2012. The

city cited labor costs as its “largest General Fund

expenditure,” projected to account for roughly 78% of

all General Fund expenditures in the 2012—13 fiscal

year. (City of San Bernardino, No. 6:12-bk-28006-MJ,

Bankr. C.D. Cal., Dkt. 1504, Discl. Stmt., May 29,

2015, at 19-20.) As of June 2012, the city’s unfunded

pension liability reached approximately $323.1

million, created primarily by decisions to approve

enhanced pension benefits and exacerbated by,

among other factors, a decision to approve enhanced

benefits on a retroactive basis without funding them.

(Id. at 16-17.) The city’s budget deficit was projected

to grow approximately $49 million each year for the

next five years due to, among other things,

increasing pension and other post-retirement benefit

costs and unfunded liabilities in retiree health. (/d.

at 21-22.)

For several years before filing for bankruptcy,

the city tried to balance its budget by negotiating

reductions in employee costs and eliminating

positions, “which resulted in service level reductions

20

to the community.” (Jd. at 19-20.) While the city was

able to negotiate labor concessions with most city

employees, resulting in savings of $10 million

annually, it could not reach agreement with the city’s

fire safety union. When the city imposed salary cuts

unilaterally in response, the union filed a lawsuit

and obtained a judgment against the city. (/d.)

As in the above examples, San Bernardino’s

bankruptcy has harmed both the public and the city’s

employees. The citys budget cuts forced it to

decrease its services to the community and, as in

Stockton, risked an exodus of city employees. (Jd. at

18-20.) And its unsustainable labor commitments

have forced it to consider contracting private

agencies for city services, a strategy designed to

decrease the number of public employees and

corresponding pension obligations going forward. (Id.

at 18.)

B. Public-employee benefits are also of

significant public interest at the state

level.

The current crisis in public-employee benefits

extends far beyond fallen municipalities. As of 2010,

the gap between states’ assets and their obligations

for public-sector retirement benefits was $1.38

trillion. (PEW Center on the States, The Widening

Gap Update, June 2012, http://goo.gl/rclKjR.) A

combination of investment return shortfalls, missed

contributions, and unfunded benefit increases left

states with a $452 billion unfunded liability for

pensions alone in 2008, and by 2010 that pension gap

had grown to $757 billion. (PEW Charitable Trusts,

The Fiscal Health of State Pension Plans, Apr. 8,

21

2014, http://goo.gi/NvyNkH.) California—a respond-

ent in this case—had nearly $170 billion in pension

debt as of 2013. (PEW Charitable Trusts, The Fiscal

Health of State Pension Plans, Jul. 31, 2015,

http://goo.g/SLDpi2.)

The PEW Center on the States has warned that

many states “will not be able to keep up in the long

term without some combination of higher contribu-

tions from taxpayers and employees, deep benefit

cuts, and, in some cases, changes in how retirement

plans are structured and benefits are distributed,”

id.—all traditional topics of collective bargaining.

(See PEW Center on the States, The Widening Gap

Update June 2012, http://goo.gl/rclKjR.)

Illinois, for example, is burdened by over $100

billion in unfunded liabilities for its state-funded

retirement systems. In re Pension Reform Litig., 32

N.E.3d 1, 9 n.5 (ll. 2015); Comm’n on Gov't

Forecasting and Accountability, Special Pension

Briefing, Nov. 2014, at 1-2, http://goo.gl/mvvpyB.

While public-employee unions, the City of Chicago,

and the state legislature have attempted to negotiate

a solution to the State’s ballooning benefits debt—

negotiations the Cook County Circuit Court

described as “no different in concept than legislative

advocacy on behalf of any interest group supporting

collective interests to a lawmaking body”—unions

have halted various reforms through litigation under

the state constitution’s pension-protection clause. Jn

re Pension Reform Litig., 32 N.E.3d at 4; Jones v.

Mun. Employees’ Annuity and Ben. Fund of Chicago,

No. 14CH20027, 2015 WL 4662009, at 31 (Ill. Cir.

Ct., Cook Cty., Jul. 24, 2015).

22

Illinois’s unfunded pension liabilities are of

immense public concern to its citizens. The state has

described its pension shortfall is “one of the most

difficult problems” its government has faced “for

more than three decades,” and has acknowledged

that “[u]nsustainable pension costs are squeezing

core programs in education, public safety, and

human services, in addition to limiting [the State’s]

ability to pay [its] bills,” resulting in downgrades in

the State’s credit rating. State of Illinois, Release No.

9389, 105 S.E.C. Docket 3381 (Mar. 11, 2013), 2013

WL 873208, at *4; In re Pension Reform Litig., 32

N.E.3d at 10. How the state and its public-employee

unions decide to address this problem will have

significant effects not only for its employees, but for

its citizenry at large.

Just next door, Wisconsin’s recent experience has

shown the dramatic fiscal impact of curbing public-

sector collective bargaining. In March 2011, the state

legislature passed Act 10—a budget repair bill that

significantly altered Wisconsin’s public-employee

labor laws. Madison Teachers, Inc. v. Walker, 851

N.W.2d 337, 346 (Wis. 2014). Act 10 gave local

governments the tools, such as increasing employee

contributions to retirement and removing benefits

from collective bargaining, to make up for reductions

in local aids that were necessary to balance a multi-

billion dollar deficit in the 2011 biennial state

budget. Number of Wisconsin Teachers, School Staff

Increases in 2013, Wisconsin Taxpayers Alliance,

Aug. 20, 2013, http://goo.g/6VQy4i. The collective-

bargaining changes “allowed districts to change

health plans, require higher copays and deductibles,

23

and make other changes to benefits,” with the goal of

minimizing or avoiding layoffs. Id.

While there has been debate about Act 10 as a

policy matter, it is undeniable that it has had a

public impact. According to one study, increased

employee pension and health insurance contributions

“helped Wisconsin not only balance its budget, but

cut income taxes by nearly $650 million and property

taxes by $100 million” over a two-year period. Nick

Novak, Update: Act 10 Savings Up to $2.7 Billion,

Maclver Institute, Oct. 24, 2013, http://goo.gl/

EsuQME.

Impacts on municipalities and local school

districts were equally pronounced. Instead of rising

an average of 2.2% per year, as it had from 2006

through 2011, municipal spending fell 3.0% in 2012.

Municipal Spending Declines, Wisconsin Taxpayers

Alliance, Sept. 3, 2014, http://goo.gi/ksPW2S. The

Milwaukee County Board, for example, projected $24

million in savings for its 2012 budget, and $101

million in 2020, largely from higher employee health

and pension benefit contributions. Steve Schultze,

County Board Overrides Most of Abele’s Budget

Vetoes, Nov. 16, 2011, http://goo.g/Om8yUh; Nick

Novak, Update: Act 10 Savings Up to $2.7 Billion,

Maclver Institute, Oct. 24, 2013, http://goo.gl/

EsuQME.

In local school districts, total school spending

dropped $584 million in 2011 through 2012, with

63% of that coming from benefit savings. School

Districts Benefit Costs $366 Million Lower in 2012,

Wisconsin Taxpayers Alliance, Nov. 12, 2012,

http://goo.gl/wftDiu. Several school districts were

24

able to save money by redesigning their employee

health plans, due to increased competition among

providers, lower premiums, and higher employee

contributions. See, e.g., id.; Cost-Saving Moves Help

MPS Over Time, Milwaukee Journal Sentinel, Dec.

1, 2011, http://goo.g/JbGgAO (increased employee

contributions projected to reduce next-year deficit

from $24 million to $8 million, with savings of $900

million over 30 years); Dinesh Ramde, Madison

Matters: WEA Is Forced to Adapt, La Crosse Tribune,

Apr. 16, 2012, http://goo.gl/xSgcru (saving a projected

$2 million); Sharon Roznik, North Fond du Lac

School District Saves Big with New Health Insurance

Plan, Fond du Lac Reporter, Nov. 30, 2011,

http://goo.gl/vcQ010 (projected savings of $3.3 million

over two years); Patrick Anderson and Bob Seaquist,

Insurance Switch to Save Onalaska District $800K,

La Crosse Tribune, Mar. 28, 2012, http://goo.gl/

a6q3Q; Rick Romano, Elmbrook School District

Projects 2% Drop in Spending, Brookfield Now, Apr.

18, 2012, http://goo.gl/XK6idQ (saving $650,000 for

year, crediting Act 10); Dorothy Jasperson-Robson,

School District Insurance Change to Save $485,458,

Westby Times, Apr. 5, 2012, http://goo.gl/Xj6cO

(crediting Act 10).

School districts were also able to save money by

cutting down on government pension contributions.

See, e.g., Erin Richards, MPS to End Teachers’

Second Pension in 2013, Milwaukee Journal

Sentinel, Apr. 5, 2012, http://goo.gl/EtE8ro (projected

savings of $5 million per year by ending second,

supplemental pension); Amanda Podgorny, Rock

County Approves 2012 Budget, Beloit Daily News,

Nov. 15, 2011, http://goo.gl//8ZOnNX (projected

25

savings of $2.9 million per year); Bob Seaquist,

Onalaska District Looks to Save on Retirees,

Onalaska Holmen Courier-Life News, Mar. 1, 2012,

http://goo.g/OctZkN (projected savings of $7.3

million over 30 years). And while Act 10 resulted in

the reduction of teaching staffs in some districts, it

allowed other districts to add teachers or avoid

layoffs. See, e.g., Number of Wisconsin Teachers,

School Staff Increases in 2013, Wisconsin Taxpayers

Alliance, Aug. 20, 2013, http://goo.gl/6VQy4i;

Kathleen Foody, Marathon County Presents 2012

Budget, Wausau Daily Herald, Nov. 9, 2011,

http://goo.g//mOOXjT. Wisconsin’s experience, of

course, belies the claim that collective bargaining in

the public sector pertains mostly to private concerns

involving only the government’s interests as an

employer.

C. Collective bargaining can also have

significant non-fiscal effects—for

example, impeding environmental

compliance.

As daunting as current state and municipality

labor-related debt is, the public impact of collective

bargaining is not limited to financial matters. Take,

for example, Detroit’s environmental compliance.

The Detroit Personnel Department provides the

following job description for the official Horseshoer of

the city water department: “Under general

supervision, to shoe horses and to do general

blacksmith work in connection therewith”; “[h]aving

charge of a small blacksmith shop where horse

shoeing is the most important work done; individ-

ually performing such work as removing old shoes;

26

forging, shaping, hardening, tempering, fitting and

setting shoes to horses; welding corks to shoes;

trimming up hooves before and after shoeing;

making repairs to stable equipment, saddles, bridles

and other equipment requiring blacksmith work.”

(Detroit Personnel Dep't, Code 71-31-31,

http://goo.gl/Oubkt5. See also Master Agmt. between

the City of Detroit and Michigan Council 25,

AFSCME and AFL-CIO, Jul. 1, 2008—Jun. 30, 2012,

at 137, http://goo.gl/R6iZ 0 (listing horseshoer

position).)

The water department has no horses. Yet city

unions objected to the elimination of the Horseshoer

and other superfluous positions in 2012, following an

audit report that recommended cutting 81% of the

department’s work force over a five-year period and

outsourcing billing, maintenance, and _ other

functions. See John Wisely, Detroit Water Depart-

ment to Cut 81% of Workers Under New Proposal,

Detroit Free Press, Aug. 9, 2012, http://goo.gi/fufyuT.

The outside audit firm found staggering levels of

inefficiency and waste in the Detroit Water and

Sewerage Department (“DWSD”), including an

average cost of $86,135 per employee for close to

2,000 employees, when fewer than 400 would suffice.

The report also concluded that the Department’s 257

job classifications—containing three to five skill

levels per classification—could be reduced to 31.

Auditors estimated that the recommended reduction

and outsourcing measures would save the

Department roughly $900 million over a decade.

(Brian Hurding & Denise O’Berry, Organization

27

Assessment Presentation of Results, EMA, Aug.

2012, slides 26, 32, 35, 38, http://goo.gl/I113cn2.)

The DWSD’s inefficiencies, combined with the

department’s backlog in needed maintenance and

upgrades, and debt (the service of which took up 44%

of revenues), all led to dramatically inflated water

rates for the residents of the Detroit metropolitan

area. (Id. at slides 4-6; Stephen Henderson,

Intolerable Waste in Detroit’s Water Department,

Detroit Free Press, Aug. 9, 2012, http://goo.gl/zquhT.)

But the public impact of this waste was not

merely financial. In a September 9, 2011 order,

United States District Judge Sean Cox found that

the DWSD’s collective bargaining-induced ineffic-

iencies were preventing it from meeting its minimum

environmental requirements under the federal Clean

Water Act. Noting that the department had

remained in a recurring cycle of non-compliance for

over thirty years, Judge Cox listed several “root

causes” for the continued non-compliance, including:

“excessive and unnecessary delays in hiring qualified

personnel”; “the DWSD’s required use of the City’s

Human Resources Department, resulting in signifi-

cant delays in filling critical positions at the DWSD”;

“the City’s personnel policies, civil service rules, and

union rules and agreements, restricting the

compensation, recruitment and prompt hiring of

necessary personnel”; and “obsolete job descriptions

and qualifications.” United States v. City of Detroit,

No. 77-71100, 2011 WL 4014409, at *22 (E.D. Mich.

Sept. 9, 2011).

Finding specifically that “certain CBA [collective

bargaining agreement] provisions and work rules”

28

were “impeding the DWSD from achieving and

maintaining both short-term and _ long-term

compliance with its NPDES permit and the Clean

Water Act,” the court struck and enjoined then-in-

force CBA provisions or work rules that threatened

compliance and prohibited future CBAs from

containing terms that threaten long-term

compliance. United States v. City of Detroit, No. 77-

71100, Dkt. 2410, at *4—6 (E.D. Mich. Nov. 4, 2011).

In particular, the court:

e enjoined CBA provisions regarding “bumping”

rights (i.e., “any provisions in current CBAs

that allow an employee from outside the

DWSD to transfer (bump’) into the DWSD

based on seniority”);

e struck prohibitions on subcontracting or

outsourcing;

e limited excused hours for union activities to

attending grievance hearings and union

negotiations;

e ordered a review of employee classifications to

reduce their number and increase workforce

flexibility;

e ordered promotions to be based on skill,

knowledge, and ability, before taking

seniority into account; and

® enjoined provisions that prevented

management from assigning overtime work to

the most capable employees.

29

Id. at 7. Put simply, the court found that without

“fundamental corrective measures ... to address the

institutional and bureaucratic barriers’. to

compliance,” environmental compliance “will simply

not occur.” Jd. at 2.

Like Detroit’s pension problems, the DWSD’s

collective-bargaining activities directly created

problems of public concern. The effects of bloating

and bureaucracy in the water department were not

merely private concerns that implicated the

government’s interests as employer; instead, the

waste and inefficiency raised water rates for the

public at large and directly harmed the health of

Lake Erie. And while the optimum staffing levels to

achieve federal environmental compliance remain

subject to debate, there is no question that the

debate is about a matter of great public concern.

7 * .

These examples show not only that public-sector

unions advocate contentious policy positions on

topics at the heart of collective bargaining, but also

that those bargaining positions often have direct and

far-reaching public consequences. Detroit’s $3.5

billion in unfunded pension liabilities was not merely

a private concern that implicated the City’s interests

as an employer, just as its high water bills and thirty

years of environmental non-compliance were not

merely private concerns. These issues are instead of

great concern to the public at large.

Nor can it be assumed that the policies public-

sector unions advocate in bargaining provide a

benefit to all employees—either as citizens, or as

30

employees. While it may seem elementary in the

private sector that a higher salary or increased

pension is an individual good that all employees

would view as a benefit, that is not always true in

the public sector, where such benefits are

inextricably tied up with the public interest. To say

that core collective-bargaining topics like wages and

hours pertain mostly to private concerns minimizes

the public employee’s interest, as a citizen, in

responsible government, and it also assumes that

every such employee is only self-interested—i.e., that

he necessarily views a personal pay raise as a

benefit, to the exclusion of any other community-

oriented preferences on how public resources should

be allocated. Many public servants are motivated by

interests beyond their own individual interests. And

many would be concerned about a ballooning $3.5

billion debt and decades-long pollution of Lake Erie.

Nor are unions’ collective bargaining positions

always in the best interests of public employees as

employees. As the multiple recent municipal

bankruptcies show, it is often the employees

themselves who are hit the hardest when a city

cannot keep up with union demands. Forced to

choose between modest but reliable benefits that

may allow for long-term employment and robust

benefits of questionable long-term viability, an

employee may well opt for the former.

The above examples of public-sector bargaining

also illustrate that, in some instances, bargaining

not only involves contentious policy choices with

large consequences, it also becomes a policy bottle-

neck as nearly the only available outlet for

31

addressing a policy problem, absent a large-scale

systemic overhaul of the sort Wisconsin employed.

The City of Detroit made multiple attempts to

address its growing pension problem, including

through the political process, but it was stopped

every time with claims that the pensions could be

addressed only in collective bargaining. Stockton and

San Bernardino likewise ran headlong into litigation

when they tried to control their ballooning debt

without the unions’ blessing. Similarly, the Detroit

water department tried and failed for thirty years to

achieve environmental compliance, to the point that

a federal judge felt it mecessary to free the

department from some of its collective-bargaining

obligations. In such instances, public employees who

must pay agency fees are forced not only to fund

policy positions with which they disagree, on topics

that are core to collective bargaining, and which

have enormous public consequences, but they are

also forced to subsidize the union’s policy monopoly

in collective bargaining, with virtually no other

recourse in the general political process.

In short, given the enormous power of the

modern public-sector union and the often vast public-

policy consequences of its collective bargaining

activities, requiring a public employee to subsidize

those activities is materially indistinguishable from

the forced subsidization of a political party. Abood,

431 U.S. at 256 (Powell, J., concurring) (“[T]he

public-sector union is indistinguishable from the

traditional political party in this country.”); id. at

243—44 (Rehnquist, J., concurring) (“I am unable to

see a constitutional distinction between a govern-

mentally imposed requirement that a_ public

32

employee be a Democrat or Republican or else lose

his job, and a similar requirement that a public

employee contribute to the collective-bargaining

expenses of a labor union.”). The Constitution does

not permit this type of coerced political speech.

“Where the subject of compelled speech is the

discussion of governmental affairs, which is at the

core of our First Amendment freedoms, [] the burden

upon dissenters’ rights extends far beyond the

acceptance of the agency shop and is constitutionally

impermissible.” Lehnert v. Ferris Faculty Ass’n, 500

U.S. at 522. That should be the end of the matter.

33

CONCLUSION

This Court should overrule Abood v. Detroit

Board of Education, 431 U.S. 209 (1977), and hold

that compulsory agency fees to public-sector unions,

including for activities related to the union’s role as

exclusive bargaining representative, violate the First

Amendment.

Respectfully submitted,

Bill Schuette

Michigan Attorney General

Aaron D. Lindstrom

Solicitor General

Counsel of Record

P.O. Box 30212

Lansing, Michigan 48909

LindstromA@michigan.gov

(517) 373-1124

Kathryn M. Dalzell

Assistant Solicitor General

Attorneys for Amicus Curiae

State of Michigan

Dated: SEPTEMBER 2015

ADDITIONAL COUNSEL

Luther Strange

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Montgomery, AL 36130

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FI.

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35

Patrick Morrisey

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