Two years ago, during better economic times, the state and the largest public employee union went to a third party, but the two sides managed to strike a deal on a new contract before one was struck for them.

Today, as the economy falters and the state faces a budget deficit approaching $800 million, negotiations on a new two-year contract with the Hawaii Government Employees Association appear headed in that same direction.

An arbitration panel is set to begin hearing each side's final offer Sept. 4 before issuing a decision in December.

Both the state and the union remain hopeful for a repeat of 2007.

“;On both sides there's still hope,”; said Randy Perreira, executive director of the Hawaii Government Employees Association. “;As long as that's the case and there's some conversation going on, then hey, we're hopeful.”;

While formal negotiations last took place in July, Gov. Linda Lingle and members of her negotiating team have met informally with union leaders in recent weeks.

“;We're doing everything we can to get this resolved as quickly as we can so we can all get back to work,”; Gov. Linda Lingle said. “;Our job is not to settle contracts as an ongoing issue.

“;Our job is to deliver the best service we can to the public, and that's what we want to do.”;

Meanwhile, other public worker unions await the outcome of the HGEA talks, which would serve as a starting point for their new contracts.

Binding arbitration was restored for HGEA in 2003. One unit of the United Public Workers union also is subject to binding arbitration.

The process avoids a strike but requires both sides to abide by whatever decision is rendered by the neutral third party.

An arbitration panel consists of one representative from the union, one from the state and a neutral third party, typically a member of the New York-based American Arbitration Association.

That third party makes the process problematic, said labor attorney Michael Nauyokas, an arbitrator and mediator in Honolulu.

The association includes no local arbitrators, so it often is someone from the mainland “;who's insulated from the consequences of his award,”; Nauyokas said.

“;Whatever he gives, he jumps back in his plane, flies to the mainland and never hears about it again,”; he added. “;The rest of us have got to live here and deal with it.”;

The result often is a splitting of the difference between the two proposals.

Former Democratic Gov. Ben Cayetano had argued—and Lingle has taken a similar position—that arbitration always rewarded the unions because the third party simply has to take a middle ground between two extreme positions. Cayetano successfully lobbied the Legislature to rescind binding arbitration in 2001, but Democrats brought it back two years later.

Perreira called that position cynical.

“;The employers have historically taken unreasonable positions,”; he said. “;They've gone into arbitration offering zero, and as a result, an arbitrator is going to look at zero and say that is completely unreasonable—which they have.”;

According to a memo posted on the HGEA Web site on Aug. 11, a summary of the final position for bargaining unit 13 sent to arbitration calls for no pay increase or step movements for two years. A supplemental agreement would be negotiated “;for the purposes of implementing a furlough.”; The memo says the state's position is for a 14 percent pay cut and no step movements for two years.

What remains to be seen is whether the arbitrator will take into account the state's faltering economy when making a decision.

“;It puts the Legislature in a very difficult position next session,”; Lingle said, “;because if that arbitrator comes up with a settlement—whether I agree to it or not—I have to submit it to the Legislature and then they will be put in a position, in an election year, of having to raise taxes in order to pay for this binding arbitration settlement.”;

Senate Majority Leader Gary Hooser (D, Kauai-Niihau) said he is hopeful that a settlement can be reached soon, adding that if an arbitrator winds up deciding the contract, the Legislature will act responsibly.

“;I think we would need to—just like this last legislative session—look at all options,”; Hooser said.

During the 2009 session, lawmakers raised some taxes—including the hotel room tax and taxes on gasoline—and raided some special funds to help balance the budget.

“;I think all options are on the table,”; Hooser added. “;We can't just blindly cut or blindly lay off or take a broad brush. I think it has to be very selective, and in the end it'll probably be a combination of strategies similar to this last legislative session.”;

Q&A

BINDING ARBITRATION

QUESTION: What is binding arbitration?

ANSWER: Arbitration is a process in which a neutral third party decides on a new contract for state workers.

The unions and the state must abide by the arbitrator's decision. Unions covered by arbitration give up the right to strike. Both sides may continue bargaining while the process takes place, and any agreement that is reached before the arbitrator's decision would be honored.

QUESTION: Who is covered by binding arbitration?

ANSWER: All 29,700 state workers represented by the Hawaii Government Employees Association, and prison guards represented by Unit 10 of the United Public Workers union. The HGEA is the largest public worker union in the state and represents employees in seven bargaining units.

QUESTION: When will the panel make its decision?

ANSWER: The state and the unions have issued their final contract proposals to the arbitration panel, which is scheduled to begin hearing arguments Sept. 4. A decision is expected in December.

QUESTION: Who is on the panel?

ANSWER: The panel includes a representative for the union, a representative for the state and a neutral member, typically a member of the American Arbitration Association, based out of New York. For the 2009-2011 contract panel:

» Union representative: Larry Ishimi, former budget chief for previous Democratic administrations.

» Employer representative: Stan Shiraki, longtime member of the Department of Budget and Finance in Lingle administration.

» Neutral arbitrator: Philip Tamoush, AAA member from California.

CONTRACTS IN THE PAST

A look at recent arbitrated settlements between the state and the Hawaii Government Employees Association, representing 29,700 employees in seven bargaining units.

2007-2009 Contract

July 1, 2007, through June 30, 2009

» Units 2, 3, 4, 6, 8, 13: Settled on a contract while the arbitration hearings were taking place.

» Unit 9: Panel awarded 5 percent raise on July 1, 2007; a 4 percent raise on July 1, 2008; and continuation of step movement plan in each contract year.

2005-2007 Contract

July 1, 2005, through June 30, 2007

» Units 2, 3, 4, 6, 8, 13: Panel awarded 3.5 percent increases for all six units on Oct. 1, 2005, and Oct. 1, 2006, with step movements for eligible employees in following years.

» Unit 9: Panel awarded 2 percent across-the-board increases on July 1, 2005; Jan. 1 and Oct. 1, 2006; and April 1, 2007, with step movements for eligible employees on the same dates.

2003-05 Contract

July 1, 2003, through June 30, 2005

» Units 2, 3, 4, 6, 8, 13: Panel awarded 5 percent across-the-board increase, effective Jan. 1, 2005 (no retroactivity). The unit step movement plan continued at different levels for employees in the various units.

» Unit 9: Panel awarded 10 percent wage increase over the two-year period.

WHO HGEA REPRESENTS

Units represented by HGEA:

» Unit 2: Blue-collar supervisory employees

» Unit 3: White-collar nonsupervisory employees

» Unit 4: White-collar supervisory employees

» Unit 6: Educational officers

» Unit 8: Administrative, professional and technical employees of the University of Hawaii and the community colleges

» Unit 9: Registered professional nurses

» Unit 13: Professional and scientific employees

Source: Hawaii Government Employees Association