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Page 1 1 Presidential Emergency Board No. 243
2 between
3 National Railway Labor Conference
4 representing:
5 Union Pacific Railroad Company BNSF Railway Company 6 CSX Transportation, Inc. Norfolk Southern Railway Company 7 The Kansas City Southern Railway Company Alton & Southern Railway Company 8 The Belt Railway Company of Chicago Brownsville and Matamoros Bridge Company 9 Central California Traction Company Columbia & Cowlitz Railway Company 10 Consolidated Rail Corporation Gary Railway Company 11 Indiana Harbor Belt Railroad Company Kansas City Terminal Railway Company 12 Longview Switching Company Los Angeles Junction Railway Company 13 Manufacturers Railway Company New Orleans Public Belt Railroad 14 Norfolk & Portsmouth Belt Line Railroad Company Northeast Illinois Regional Commuter Railroad Corporation 15 Oakland Terminal Railway Portland Terminal Railroad Association 16 Portland Terminal Railroad Company Soo Line Railroad Company (Canadian Pacific) 17 South Carolina Public Railways Terminal Railroad Association of St. Louis 18 Texas City Terminal Railway Company Union Pacific Fruit Express 19 Western Fruit Express Company Wichita Terminal Association 20 Winston-Salem Southbound Railway Company
21 and their employees represented by:
22 Rail Labor Bargaining Coalition consisting of:
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Page 2 1 Brotherhood of Railroad Signalman Brotherhood of Locomotive Engineers and Trainmen 2 Brotherhood of Maintenance of Way Employes International Brotherhood of Boilermakers, Blacksmiths, Iron Ship Builders, 3 Forgers and Helpers Sheet Metal Workers' International Association 4 National Conference of
5 Firemen & Oilers
6 and a coalition of Rail Unions,
7 consisting of:
8 Transportation-Communications International Union American Train Dispatchers Association 9 International Association of Machinists and Aerospace Workers International Brotherhood of Electrical Workers 10 Transport Workers Union of
11 America
12 Panel Members: Ira F. Jaffe, Chair 13 Roberta Golick, Member Joshua M. Javits, Member 14 Gil Vernon, Member Arnold M. Zack, Member 15 on behalf of the Railroad
16 Carriers:
17 Donald J. Munro, Esq. M. Carter DeLorme, Esq. 18 Brian Easley, Esq. Jones Day 19 51 Louisiana Ave., NW Washington, D.C. 20001-2113 20 202-879-3939
21 on behalf of the Coalition of
22 Rail Unions:
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Page 3 1 Carmen R. Parcelli, Esq. Elizabeth Roma, Esq. 2 Guerrieri, Clayman, Bartos & Parcelli, PC 1625 Massachusetts Ave. NW 3 Suite 700 Washington, D.C. 20036-2343 4 202-624-7400
5 and
6 Michael S. Wolly, Esq. Zwerdling, Paul, Kahn & Wolly, P.C. 7 1025 Connecticut Ave. NW Suite 712 8 Washington, D.C. 20036-5420 202-857-5000 9 on behalf of the Rail Labor Bargaining Coalition: 10 Roland P. Wilder, Jr., Esq. 11 Stephen J. Feinberg, Esq. Baptiste & Wilder, P.C. 12 1150 Connecticut Ave., NW Suite 315 13 Washington, DC 20036 202-223-0723 14 10-19-11 15 CHAIRMAN JAFFE: I think we're ready to go on the
16 record. And we are now up to the carrier's
17 rebuttal case. At your convenience, Mr. Munro.
18 MR. WILDER: My (inaudible), Mr. Chairman. CHAIRMAN
19 JAFFE: Oh.
20 MR. WILDER: Yesterday, the Court asked Ms. Mallett
21 for a figure and I'm prepared to give that figure
22 to you. Cheiron has calculated that the zero
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Page 4 1 generic co-pay would save the national plan $4.76
2 per qualified employee per month or $16.4M from
3 January 1, 2012, to December 31, 2014. This was
4 based on some of the year 2009 data, and assumed
5 that a targeted mailing would be included in
6 rolling out the zero dollar generic co-pay. Now,
7 this information is submitted as a courtesy to the
8 board and of course, it is without prejudice to
9 the organization's position that the health plan
10 should be carried forward on a status quo basis,
11 and of course, it would be subject to what I say
12 in my concluding remarks tomorrow.
13 CHAIRMAN JAFFE: Thank you, Mr. Munro, just want to
14 clarify so I understand. The cost figures that you
15 provided us, were they a comparison with the
16 existing plan, a comparison with the carrier's
17 proposal or a comparison with something else? I
18 think that covers the waterfront.
19 MR. WILDER: All right, my understanding subject to
20 correction is that it is based on the, carrying
21 the existing plan forward.
22 CHAIRMAN JAFFE: Fair enough. So we don't have the
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Page 5 1 comparison of the.I got it. I'm fine.
2 MR. WILDER: You asked for a comparative data with
3 respect to the employee contribution. That would
4 call for a different model, I guess is the right
5 term, than currently exists, and we're having some
6 difficulty with that blanket.
7 CHAIRMAN JAFFE: Thank you for the response.
8 MR. WILDER: You're welcome.
9 CHAIRMAN JAFFE: I think we're now ready to turn
10 back to Mr. Munro.
11 DONALD MUNRO: Thank you, Mr. Chairman, members of
12 the board. We're ready to proceed with the
13 carrier's rebuttal case. I would like to provide
14 you with just a brief road map of what we hope to
15 accomplish this morning. First we'll have a brief
16 presentation on costing, including our costing of
17 the extra compensation elements of the carrier's
18 proposal, as well as the union's extra
19 compensation proposals. Our purpose in doing so is
20 two-fold. One is to respond to the board's
21 questions regarding costs. The second is, I've
22 made the point at the outset that our case is
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Page 6 1 really about numbers, about data and we want to
2 demonstrate that there is a reasonable methodology
3 behind those numbers, so we want to show you to
4 the extent possible, the basis and assumptions and
5 math behind our calculations. Next we will have a
6 brief panel on compensation issues. This is
7 intended as largely a response to the testimony of
8 Mr. Roth. First Dr. Evans will return to discuss
9 why he believes that Mr. Roth is not accurate with
10 respect to his dismissal of wage premiums, or his
11 comments about the CPI and real wage growth, both
12 in the past and in the future. Second, Dr. Topel
13 will show that the impact of the existing premiums
14 is not theory, as Mr. Roth says, but has
15 measurable real-world consequences. Third, Mr.
16 Gray from AAR, who is the author of our Exhibit 8
17 will respond briefly. I promise briefly, to Mr.
18 Roth's comments on the degree in relevance of
19 current industry prosperity. We will then move to
20 the health and welfare rebuttal, where again, we
21 will address issues of costing, including
22 comparisons of capped versus uncapped options, as
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Page 7 1 well as comparisons under the carriers proposed
2 change versus unchanged, projected forward. We
3 will be providing some Excel data back up to that
4 as soon as we can generate it. Our healthcare
5 panel will also respond to the Cheiron analysis as
6 well as the testimony by Mr. Parker and Mr.
7 Hildenbrand. I promised that we would address work
8 rules on rebuttal. We will now plan to do so in
9 substantially abbreviated form, including a
10 presentation on expenses away from home by Scott
11 Weather from Norfolk Southern and Greg Koontz from
12 BNSF, followed by a presentation on vacations by
13 John Hennecke from the NRLC, and Bill Roe from
14 Union Pacific, as well as a short comment by Mr.
15 Crable from CSX on Mr. Pierce's comments regarding
16 the CSX agreement. Finally, again, a very brief
17 comment on cab conditions and information requests
18 that will be presented by Rob Karov from BNSF.
19 Finally, we will bring Mr. Gradia back to respond
20 to a sampling of some of the other assertions that
21 were made in the union's case in chief. It's not
22 an attempt to be comprehensive but rather to give
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Page 8 1 the board and opportunity to see the range of
2 issue son which we disagree. And my plan,
3 actually, I hope to accomplish is to do all of
4 this in four hours or less, including a break. So,
5 we will be moving quickly. I hope that will not
6 preempt you from asking any questions.
7 CHAIRMAN JAFFE: Thank you very much.
8 DONALD MUNRO: I should have mentioned, our panel
9 on costing. Mr. Gradia will be joined by Jeff
10 Rodgers, who is the Vice-Chairman of the National
11 Railway Labor Conference, and a member of the
12 carrier's bargaining committee.
13 CHAIRMAN JAFFE: Okay. If I could, I'll just remind
14 Mr. Gradia, he's still under oath for the
15 proceeding. I believe Mr. Rodgers hasn't been
16 sworn in yet. If we could ask the recorder to
17 please do so?
18 RECORDER: Raise your right hand. Do you swear the
19 testimony you are about to give in this case will
20 be the truth, the whole truth, and nothing but the
21 truth, under penalty of law?
22 KEN GRADIA: I do.
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Page 9 1 RECORDER: Take a seat.
2 MR. GRADIA: Good morning, Mr. Chairman, members of
3 the board. It seems like a long time between
4 innings before we got back up to bat but it's our
5 pleasure to address the board once again. As Don
6 mentioned, this presentation has two purposes.
7 First, to provide the board with greater detail on
8 the derivation and calculation of the two special
9 compensation elements that are contained in the
10 UTU agreement and are part of our proposal here.
11 Namely, cert pay and the entry rate bonus. This is
12 intended not only to assist the board in its
13 understanding of those proposals but also to
14 respond to some of the comments from the union
15 side, with respect the provision of equivalent
16 fair value as to those elements of compensation to
17 these coalitions within our proposal. Secondly, in
18 light of the board's keen interest in
19 understanding, to a greater degree, the likely
20 financial consequences of the many proposals
21 advanced by the coalitions here, we want to share
22 with you what we've been able to come up with
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Page 10 1 within the limited amount of time available to us,
2 frankly. To assess the impact of those proposals,
3 and we will share details and methodology and
4 assumptions with respect to each and every one of
5 those compensation.each and every one, excuse me,
6 of those proposals. And with that, let me turn to
7 the first part of or presentation, which deals
8 with the two special compensation elements. First
9 is certification pay. Here are the assumptions
10 with respect to methodology. First, no volume
11 growth, by which we mean is a static measure.
12 We're not assuming change with regard to any of
13 the metrics that I'm about to cover. We're using a
14 base year of 2010. The base year involves the NCCC
15 railroads, which are the five railroads previously
16 identified, plus Soo Line, so it's the six Class
17 Ones. We are using 2010 wages, source, through the
18 AAR. And as you know, the foundation of this piece
19 of compensation, special compensation, is tied to
20 STARTS. STARTS by qualified individuals with
21 respect to certification. Now, how do we derive
22 the STARTS that we would use to estimate the
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Page 11 1 impact? We started out with, okay, what is the
2 best measure available to us, with respect to
3 measuring STARTS that should attract the
4 certification pay allowance, the $5 per START. And
5 we went back and extracted STARTS on engineers
6 from the engineer population within these
7 railroads. Now, we needed to do an adjustment and
8 that adjustment is in the parenthetical, in B. A
9 portion of CSXT is not before you with respect to
10 wages and rules, as a result of a local agreement.
11 So, we had to take out that number of employees,
12 and it's 3950 as you'll see in the parenthetical.
13 We had to take them out from the start
14 calculation, also from the wage calculation as you
15 will see later. Secondly, we had to add to that
16 mix of job starts that would attract the
17 certification pay, RCO, remote control
18 assignments, which will also be eligible for the
19 $5 per START cert pay. So, the sum of those two
20 will equal, ultimately, the number of STARTS that
21 will generate this additional item of value. And
22 as we say in C, we are using 2010 UTU employee
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Page 12 1 data, sourced from the NRLC. Item three, I've
2 already covered. That information came from the
3 CSXT financial folks. Item four, the effective
4 date, the effective date of the certification pay
5 allowance is no sooner than July 1, 2012. It could
6 be later because if the FRA regulations dealing
7 with certification become effective at a later
8 date, that will be the effective date, so no
9 sooner than July 1. It may be later. Lastly,
10 because it is a flat allowance, a $5 allowance, it
11 is not subject to enlargement through the
12 application of general wage increases. Next slide,
13 please. So, here are the calculations from a
14 couple of different perspectives, and please note
15 that the.this subject matter is covered in
16 Carrier's Submission Number 3, Total Compensation,
17 pages 23 through 26 in text. This is a snapshot of
18 that information. In item number 1, I mention
19 using the engineer STARTS as the 2010 as a
20 surrogate for STARTS by conductors that will
21 attract the certification pay allowance. That
22 number is reflected in the first box. Added to
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Page 13 1 that are RCO starts, which will also be eligible
2 for the certification pay allowance. Total STARTS
3 the $4 million plus number. We've got a count of
4 UTU employees of some 30,000. We do the math and
5 you come up with STARTS per employee of
6 approximately 138. If you do that math, taking the
7 number of STARTS times the payment, you come up
8 with $21.2 million. If you take the $21.2 million
9 in item number two, divide by the UTU head count,
10 on a per employee per year basis, you come up with
11 just about 708 dollars. That's.those are numbers
12 that were previously provided to you. In line
13 number three, we do a separate calculation. We
14 convert that number into an equivalent GWI for
15 purposes of comparison. That calculation starts
16 with the total wage number for the UTU population,
17 2010 numbers. This is straight time, overtime,
18 time off with pay, remember, that's what was
19 captured in that $2 billion dollar figure, $2
20 billion plus. We subtract from that the CSXT
21 exclusion that I just described to you, the wage
22 component of that, do the math and you come up
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Page 14 1 with the divisor, which is the.the $2 billion
2 number. You're dividing that into the $21 million
3 figure that we derived in item number one and you
4 come up with approximately .97 GWI equivalent.
5 Now, as you know, in our proposal, for this
6 element of compensation we have proposed a one-
7 half percent special wage adjustment. Why? First
8 off, as previously explained, the cert pay
9 component that is applicable to the UTU comes out
10 of very unique circumstances. Other than the
11 engineers, there is no other organization subject
12 to FRA certification, so we would be perfectly
13 justified in saying those are unique circumstances
14 that should not drive any compensation to any
15 other organization not similarly situated. But
16 that is not what we have done. What we have done
17 instead is proposed a one-half percent special
18 wage adjustment. Now, what are the reasons behind
19 that? Why do we believe that that is a fair
20 approximation of value under all of the
21 circumstances? First off, we would make that
22 special adjustment effective June 30, 2011, a full
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Page 15 1 year, at least prior to the effective date of cert
2 pay allowance. Unlike the flat $5 cert pay
3 allowance, that increase would be subject to
4 enlargement through GWIs forever, so it will
5 continue to grow in value, compared to the flat $5
6 provided to the UTU trainmen. Third, we mentioned
7 to you our expectation, that quite frankly, we
8 would be unlikely, unlike the case with the UTU,
9 unlikely to be able to realize healthcare savings
10 within the same timeframe. That is, we have the
11 expectation that the UTU plan design changes will
12 be put into effect January 1 of next year. We
13 don't think, as a practical matter that is likely
14 to happen here. If you do the math, just looking
15 at a calendar, following the normal processes of
16 PEB reporting, subsequent negotiation and assuming
17 voluntary agreement time necessary for pre-
18 ratification, ratification votes and the like, we
19 are likely moving well into the first quarter of
20 2012. So, we are losing value that cannot be
21 recouped, unlike a GWI being paid on a retroactive
22 basis, there is no counterpart to realizing or
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Page 16 1 recapturing those lost savings from plan design
2 change that is implemented later than otherwise
3 would be the case. Finally, as we explained to
4 you, there is an equivalent and it is right on the
5 mark with respect to our special wage adjustment
6 proposal, and that is the disposition of the same
7 demands by the yard master component of the UTU.
8 They, like the organizations here, said, "We ought
9 to get something and we ought to get the same
10 thing as the trainmen, with respect to cert pay."
11 We ultimately agreed that they would be given a
12 12.5 cent per hour increase as a special wage
13 adjustment. If you do the math on a weighted,
14 average basis, that 12.5 cents is the equivalent
15 of the one-half percent special wage adjustment.
16 The dates are identical insofar as effective date.
17 So, in our minds and for those reasons, we think
18 this is a more than fair disposition or allocation
19 of fair value from cert pay translated to these
20 organizations. Next area, let me pause before I
21 move to this next area. Any questions on cert pay?
22 CHAIRMAN JAFFE: I think we're fine, thank you.
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Page 17 1 JEFFERY ROGERS: Thank you, Mr. Chairman. The
2 second item of special compensation is the entry
3 rate lump sum. Here is the methodology and
4 calculation that we went through to come up with
5 first evaluation, and then secondly, I'll move
6 back into our thinking, as far as translation of
7 this, of this element into our proposal for these
8 organizations. As noted, it's a lump sum payment.
9 We are using to value head count, project the
10 value of the entry rate lump sums that UTU will
11 derive. We're using headcount projected as of
12 September 2011 by each of the effective carriers.
13 As we described for you there are two basic models
14 of entry rate arrangements that are existent in
15 the railroads that we represent. First is what
16 we'll call national or five-year entry rate, moves
17 in 5 percentage point steps, there were five years
18 to full rates. That is one group of employees that
19 will get a lump sum. That group we number at 7726.
20 They, under the UTU agreement, will be.will
21 receive a $3,000 lump sum. Portions of UP and of
22 the BNSF have locally derived arrangements that
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Page 18 1 are variations on the five-year national entry
2 rate. They are lesser in term and duration, and
3 therefore more favorable to the employees, less
4 favorable from the standpoint of the railroads
5 insofar as value. Those employees, numbering 1951
6 will get a lesser, a smaller lump sum of $1,200.
7 In item number 5, we estimate total headcount for
8 2011 UTU, at the 35,000 number. And as a
9 placeholder, we note that the value current entry
10 rate savings on an annual basis, about $96 million
11 from retention of.under the status quo, rather, of
12 the entry rate system. So, here's the calculation
13 below the red bar. The 1951, we multiply that out
14 and you see the result there. That's the $2.341
15 million. The larger group, cohort 7726 times the
16 $3,000, now that number, actually, the $23.3
17 million is really closer to $23.2. There is some
18 rounding in large numbers so the math doesn't work
19 exactly, but you get the idea. It is roughly $25.5
20 million. If we monetize that on a per capita
21 basis, that is, take that $25 million one-time
22 payment and divide it by the total population of
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Page 19 1 the 35,000 plus, you get a number of $711.87,
2 about $712 per individual. So, that's the value.
3 Now, before you we had proposed a different, a
4 different approach, your alternative approaches.
5 First approach is, identical to this disposition,
6 we had proposed that we would provide the exact
7 same terms to these organizations. That is if you
8 have individuals on the five-year entry rates,
9 they would get this bonus arrangement as specified
10 here. Individuals under the lesser, more favorable
11 entry rate arrangements, then we got the smaller
12 bonus, whatever the math produced, that's what
13 they would get, so identical disposition. Now, the
14 unions say, "Well, that's not fair because we have
15 a lot fewer employees under entry rates." Now,
16 obviously, that's a two-way street. Fewer
17 employees on entry rates means lesser savings to
18 the railroads. And after all, what this
19 arrangement at bottom was all about was returning
20 to employees some portion of the value that the
21 railroads derived from entry rates being in place
22 with respect to this population. So, fewer
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Page 20 1 employees on entry rate should mean lesser return
2 on that value provided to the railroads. But we
3 have an alternative and the alternative is simply
4 this. We would provide a $300 lump sum to everyone
5 in the craft, basically. That $300, now we can
6 compare that to the $700 plus figure there. Why
7 should they get something less than that? As I
8 said, certainly the valuation proposition, insofar
9 as these organizations and the value of lump, of
10 entry rates versus the UTU is a factor that ought
11 to be reflected, and quite frankly, since they
12 generate something less, by our calculation, than
13 half of the value of their entry rate arrangement
14 to us, they should get some thing less than half
15 the value of the value derived by the UTU. Mr.
16 Chairman that is our explanation of derivation and
17 calculation of this piece of the special
18 compensation elements in the UTU package and in
19 our proposal. If there are any questions I'd be
20 glad to address them.
21 CHAIRMAN JAFFE: I think we're in fine shape here
22 as well. Thank you.
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Page 21 1 MR. GRADIA: Okay. Thank you Mr. Chairman. I will
2 now turn over to my colleague, Mr. Rodgers, the
3 second part of our presentation.
4 JEFFREY RODGERS: Thank you. Good morning.
5 CHAIRMAN JAFFE: Good morning.
6 MR. RODGERS: A pleasure to be here. What we want
7 to talk a little bit about is the proposals that
8 were provided to us by the union and the
9 methodology that we used to cost that out. Some of
10 these will be somewhat understated and that's
11 primarily because of a couple reasons but we used
12 typically the five major carriers in this group as
13 well as Soo Line (0:01:17) so KCS, NS, BNSF, UP,
14 and CSX and we used Soo Line as an approximate
15 value since they're roughly half KCS. When we did
16 our evaluation in any of these of things we added
17 them in as a half value. The other carriers that
18 are a part of this negotiation are not in any of
19 this evaluation. [0:01:40] So that said, moving on
20 looking at vacation methodology what we did was we
21 had looked at 2012 through 2014 only so nothing
22 looking back. As far as the headcount we did this
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Page 22 1 throughout all our methodology we used 2010 as the
2 primary base line for our headcount. And the big
3 thing with that is we don't have any volume
4 growth. So basically as this point this will be
5 severely understated because we don't have any
6 backfill associated with additional headcount
7 that's needed when you have people taking vacation
8 as well as the proration. We didn't even cost out
9 the proration that's part of the union's proposal.
10 [0:02:25] So what we did was we took a look at the
11 employees and grouped them by service years which
12 will then give you each one of those folks a
13 number of eligible vacation hours in each of those
14 areas. We took that and multiplied and came up
15 with a total vacation hours. We had to weight that
16 because the CRU and ROBC, obviously, based on
17 their population gave us a weighted average for
18 the average proposal hours. We then took a look
19 and we did the same calculation on what our
20 current population and current value of the
21 vacation hours are which gave us our status quo.
22 And so we subtracted that from the average
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Page 23 1 proposal hours and that gave us the delta that we
2 used to multiply that with our average hourly wage
3 rate for '12, '13, and '14 which is increased by
4 the GWI that the union proposed. [0:03:25] Now we
5 originally in our original slide gave an estimate
6 of about $250 million, and we revised that last
7 night to $190 million and that's based on the fact
8 that we originally had BLET included from the four
9 major carriers in the number. So we needed to back
10 them out about approximately 22,000 employees out
11 of that calculation which left approximately 1,000
12 employees in this calculation. So that's the
13 difference for the 60 million, however as I said,
14 this is somewhat understated because of the fact
15 that you have additional headcount. And I'm not
16 sure what that number would be but it'd be more
17 than the $60 million that we have pulled out of
18 here. [0:04:12] As I said, I also would note that
19 this is found in our carrier submission number
20 six, pages 38 through 43. Are there any questions
21 on vacation methodology sir?
22 CHAIRMAN JAFFE: Just two by clarification. Is
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Page 24 1 there a GWI equivalent for the $190 million?
2 MR. RODGERS: There is and I'll actually get to
3 that in a few slides ahead.
4 CHAIRMAN JAFFE: I'm sorry. I didn't mean to jump
5 ahead.
6 MR. RODGERS: Fair enough.
7 CHAIRMAN JAFFE: Okay. I'll leave it at that. Thank
8 you.
9 MR. RODGERS: So moving into the other area which
10 we did that we feel cuts across many of the
11 different crafts is supplemental sickness. Now we
12 realize that not everybody gets supplemental
13 sickness, but we were looking more for to try to
14 get a total calculation just to base it on a
15 ratio. So essentially what we did is we took a
16 look at the essential group as a whole, the 84,267
17 which again is the 2010 force level, and we
18 divided that by the total carriers - excuse me. We
19 divided the total carriers' contribution for
20 supplemental sickness by that headcount. That gave
21 us $181.00 and we kept that flat as we do with
22 today's current practice throughout the entire
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Page 25 1 agreement through 2014. And based on the union's
2 proposal we increased it in '12, '13, and '14
3 based on their compounded GWI's. So that gave us a
4 final number of $992.28 which we subtracted from
5 our number which is the $905.00 giving us a
6 difference of $87.28. And if you multiply it by
7 the total headcount, that gives you a difference
8 of $7.4 million. Are there any questions on
9 supplemental sickness? [0:06:01]
10 CHAIRMAN JAFFE: Nope. We're fine. Thank you.
11 MR. RODGERS: So moving into each of the craft
12 specific materials typically what we will do as an
13 organization is we will rely on the carriers'
14 financial committees to help us value a lot of
15 these dollars. Now as we have noted before we
16 spent very little time asking them to cost out any
17 of these specific issues because of the fact that
18 we did not spend much time on the bargaining. So
19 we did feel that there was an issue that was
20 something of value to the union so we basically
21 did not cost them out. So based on that once we
22 received the union's proposal we quickly asked the
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Page 26 1 carriers to give us costing so that we could then
2 approximate the value for their demands. We
3 understand that these are going to be very rough
4 estimates. But based on the time constraints that
5 we had it's the best that we have. And I think
6 you'll find these values on Page 25 of submission
7 seven, and the one I've already covered is
8 supplemental sickness. But in here what we have
9 done on this slide will cover for the BLET the
10 entry rates in the two tier pay, the meal
11 allowance, and the certification for BLET, for the
12 wage adjustment by BRS, and for the firemen and
13 oilers, and for the shop crafts it's going to
14 cover the wage adjustments, the differentials, and
15 the roadway mechanic's differential. We'll
16 separately cover the unified pay rates for BMWE
17 and for the shop crafts. [0:07:44] So I did say I
18 was going to get to the one percent of GWI. What
19 we have here is this only includes straight time,
20 over time, and time off with pay. So for the CRU
21 it's approximately $17.8 million and for RBOC it's
22 $21.1 million. Of course that excludes BLET for
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Page 27 1 the carriers that are not represented for wages
2 and work rules. And to just give you some kind of
3 frame of reference for UTU and the Yardmasters
4 that one percent is $26 million. [0:08:19] So as I
5 said, this is found on Page 25. What we did was we
6 received these proposals on October 4th from the
7 coalitions, and we put that out the NCCC finance
8 committee. As I spoke - that group that's covered
9 before and asked them to provide data as quickly
10 as possible. What we got back if there was any
11 type of - we provided them the actual written
12 proposal and we gave them some direction on
13 assumptions essentially saying things such as no
14 volume growth, flat headcount in 2010. So we just
15 kind of gave them the same ones that we used
16 throughout the entire costing that we've had done
17 through the bargaining round. And if the union's
18 proposal contained any type of retroactive pay,
19 then we also had them put that into their costing.
20 And also if there's any indexing such as GWI's for
21 the coalition. As I said before, Soo Line we're
22 going to use as an approximate value of half of
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Page 28 1 KCS. [0:09:26] What we have here is those are the
2 values that we have is just the sum of the values
3 that we have in the back of Page 25. So you're not
4 going to see any real detailed calculations other
5 than we have that information we can provide to
6 you that was provided to us by the carriers that
7 just shows you that we just kind of summation of
8 all those different dollars. Are there any
9 questions on those particular areas?
10 CHAIRMAN JAFFE: Nope. We're fine.
11 MR. RODGERS: Now when we did spend quite a bit of
12 time with the union is the away from home
13 expenses, and we started early on costing this one
14 out. But as we went and progressed through the
15 round we gained a greater understanding of what
16 the proposal was from the union as well as trying
17 to refine the different types of changes that were
18 given to us throughout the proposal and what we
19 thought was realistic to be able to cost out.
20 [0:10:25] So, again, we used a base of 2010
21 expenses for the NCCC. And then we used the
22 costing in the actual book here for 2012 through
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Page 29 1 2014. This, again, this cost is going to be
2 understated because we're only using a GSA rate of
3 $116.00 and it excludes the mileage that they're
4 requesting for reimbursement for driving from
5 worksite to worksite. The one area we could not
6 cost due to the complexity of the request is
7 trying to figure out how to see headquartered
8 employees that lived greater than 50 miles away
9 from their worksite how to actually value that. So
10 that is actually valued here as zero but we know
11 that there's quite a bit of cost associated with
12 that. [0:11:20] The other thing that we looked at
13 as an assumption is that there is no change in the
14 carriers' practice. So if you provide a hotel room
15 today we are going to assume that you continue to
16 do that through your corporate lodging. And if you
17 provide allowances then we're also going to do
18 that for - assume that you continue to provide
19 allowances. The carriers provided to us the number
20 of work days and the number of paid days, and that
21 was how we were able to value if the individual
22 got paid on those work days. We took that to put
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Page 30 1 the concept that the BMWE provided to us, and we
2 just assumed that if you received a room that
3 everybody received a single occupancy on those
4 work days. We also assumed that you would get a
5 room for the travel day coming into your work week
6 as well as getting one meal. So for the meal
7 allowance we added the travel day in on the front
8 end and also in the back end if you left home.
9 [0:12:19] One thing that's also not included in
10 this $120 million is the elimination of camp cars
11 was just going to be approximately $10 million so
12 that totaled out to $120 million based on all the
13 assumptions that are listed up on this chart. Are
14 there any questions on away from expenses? Yes
15 sir.
16 ARNOLD ZACK: When you say elimination of camp
17 cars, is that an asset or a liability? Is it going
18 to cost you 10 million to get rid of them so
19 you'll save 10 million by getting rid of them?
20 MR. RODGERS: Oh no. It's my understanding that it
21 would cost Norfolk Southern $10 million based on
22 the depreciation of the cars that they would have
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Page 31 1 to write off. [0:13:06] So the last two slides
2 that we're going to cover is for the unified rate
3 of pay with the BMWE and then the next one would
4 cover the shop craft but they build on top of each
5 other. We used - this is actually very difficult
6 to do, but we used Doctor Evans CPS average wage
7 rate of the $61,000.00. We know Norfolk Southern
8 may be varied from that, but we feel that that
9 across the carriers that's going to be the wage
10 rate that we use to kind of make this assumption
11 of just at NS. Now approximately 88 percent of the
12 employees are below that top rate so that makes
13 3,872 of the 4,400 employees that are in that
14 group that's below that top rate that the union's
15 asking them to move to. [0:14:03] That means on
16 average they earn approximately three to five
17 percent below the top rate so we used the middle
18 four percent. So we just multiplied that out and
19 it came out to $9.5 million on an annual basis.
20 But with compounding over the five years it gives
21 you approximately $60 million. Now again this is
22 going to be understated because there's no payroll
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Page 32 1 tax included or any benefits associated with it.
2 Any questions on this one?
3 CHAIRMAN JAFFE: Okay. I think we're fine. Thank
4 you.
5 MR. RODGERS: And then the final area that we
6 costed out was the shop craft wage equalization.
7 Now, again, we know that there's 24,500 shop
8 craft. The issue we have here is based on the time
9 constraints again that we had to build this model
10 out. There are probably hundreds of pay rates that
11 have to be considered. And so what we needed to do
12 was just essentially make a decision on how we
13 wanted to do this so we actually just built it off
14 of the BMWE Norfolk Southern model which is the
15 $60 million. [0:15:15] Now we know that's
16 extremely rough estimate, and we footnoted that in
17 our carriers' exhibit number seven on Page 22. And
18 essentially what we did on this is we made a
19 ratio. So we took the 24,500 divided it by the
20 4,400 which gives you a roughly six to one ratio.
21 And if you multiply that times the $60 million,
22 which we calculated on the previous slide, it
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Page 33 1 gives you about $360 million. Now in order to give
2 us a conservative estimate we divided that by two
3 and came up with the $167 million. And so
4 essentially what we have is a rough estimate but
5 we do believe that this is severely under valued
6 and it's the best that we can do in the short
7 notice that we had. I'm happy to take any
8 questions. That covers all of the different shop
9 crafts and their unions' proposals that we're
10 aware of. [0:16:18]
11 CHAIRMAN JAFFE: Thank you very much.
12 MR. RODGERS: Okay.
13 BRIAN EASLEY: Mr. Chairman, members of the board,
14 good morning.
15 CHAIRMAN JAFFE: Good morning.
16 MR. EASLEY: For the next few minutes we want to
17 review a few points in rebuttal as it relates to
18 the total compensation in wage case made by the
19 carriers. And I begin this discussion by reminding
20 the board that the coalitions have characterized
21 the difference between the parties in this case as
22 the difference between the theoretical and
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Page 34 1 reality. And to be sure the carriers have
2 presented a cohesive economic theory for their
3 case on total compensation; however, this theory
4 is not a mere abstraction. Instead the carriers'
5 theory is grounded in empirical fact and actual
6 experience. In other words, the carriers' theory
7 is premised upon the present economic realities
8 both in the freight industry and in the U.S. labor
9 market. [0:17:18] The carriers are presenting
10 three brief witnesses on rebuttal in support of
11 their case on total compensation and wages. Each
12 of these witnesses will explain how current
13 realities in the railroad industry and the broader
14 economy support the carriers' proposal for
15 measured and prudent increases in total
16 compensation. These three witnesses will be
17 presented in panel format and each will speak for
18 approximately ten minutes. Two of these witnesses
19 previously testified before the board last week.
20 The first, Doctor David Evans, the Chairman of the
21 Global Economics Group, will respond to criticisms
22 regarding the total compensation and wage
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Page 35 1 comparisons that demonstrate significant wage
2 premiums enjoyed by coalition employees. Secondly,
3 Doctor Evans will also address the effects of
4 inflation on total compensation and real wage
5 growth. [0:18:03] Following Doctor Evans will be
6 Doctor Robert Topel, the distinguished professor
7 of Economics from the University of Chicago.
8 Doctor Topel will address the impact of the
9 substance wage premiums paid to coalition
10 employees on employment levels in the freight
11 industry. Also he will address the social cost of
12 these wage premiums on the carriers, their
13 employees, their customers, and the broader
14 economy. Finally, the carriers will offer
15 testimony from a witness from whom you have not
16 heard before and that's Mr. John Gray, the Vice
17 President of Economics at the Association of
18 American Railroads. Mr. Gray's worked in the
19 railroad industry for approximately 29 years
20 previously holding positions with the Union
21 Pacific, Southern Pacific, Burlington Northern,
22 and Alaska Railroads, and he is the co-author of
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Page 36 1 carriers' exhibit number seven with Doctor Robert
2 Gallamore on financial condition of the railroad
3 industry. Mr. Gray's remarks will discuss
4 financial metrics in the railroad industry with a
5 focus on capital investment and revenue adequacy.
6 With that we're ready for our panel. [0:19:06]
7 DR. DAVID EVANS: Good morning. Mr. Roth claimed
8 that we're comparing the railroad jobs to Wal-
9 Mart jobs. That's simply not true and I'd like to
10 bring you back to the total compensation
11 comparisons we did. This is based on the EEC data
12 where we found that in comparing the railroad
13 workers to transportation and material moving
14 there was a 79.2 percent total compensation
15 premium. I thought it might be useful to show the
16 actual jobs that went into that basket of
17 occupations for transportation and material
18 moving. What we did with that comparison is we
19 compared basically the basket of railroad jobs to
20 the basket of jobs in transportation and material
21 moving. In both cases there was quite a diversity
22 of jobs. In fact, we made a number of different
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Page 37 1 comparisons in the analysis, many different data
2 sources. None of them really compared the railroad
3 jobs to what you would characterize as Wal-Mart
4 jobs. Every single one of the comparisons whether
5 it's the direct compensation comparisons or the
6 comparisons based on comparing the railroad
7 industry to other industries establishes quite a
8 significant premium. [0:20:24] Now one of the
9 things we did is we used the current population
10 survey data for comparisons. That's the basis for
11 the annual salary wages and also the hourly wages
12 in the top two rows up there. That's the current
13 population survey data. That analysis was based,
14 as I think I mentioned the other day, on that
15 being 60 ICC codes into about 600 SOC codes that's
16 just occupation codes. Now would it be possible to
17 find one of those many comparisons that isn't
18 perfect; absolutely. Is there any reason to think
19 that the overall comparison, building this up to
20 the overall average, is biased in any way against
21 the railroad employees? I don't think so and Mr.
22 Roth really hasn't presented any evidence on that.
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Page 38 1 I guess I'd also point out that Mr. Roth really
2 hasn't presented any wage comparisons at all. His
3 analysis has based been taking a look at the
4 growth of wages. So I'd like to turn to wage
5 growth just for a few minutes. And if you have a
6 convenient, I'd like to refer to Chart 61 in his
7 statistical supplement. It's on Page 108.
8 [0:21:41]
9 CHAIRMAN JAFFE: It's in the Supplement page 108,
10 right?
11 DR. EVANS: It's in the Supplement and it's on page
12 108, uh, Chart 61.
13 CHAIRMAN JAFFE: Give me a second [inaudible]
14 DR. EVANS: And if it's inconvenient for you to
15 find it I can probably just hold it up to get the
16 basic point across.
17 FEMALE SPEAKER: [Just roll it through] (ph).
18 CHAIRMAN JAFFE: Be there in just a moment.
19 DR. EVANS: Okay.
20 CHAIRMAN JAFFE: I've got it electronically but it
21 takes a few moments to get to the right spot.
22 DR. EVANS: That's true, hmm.
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Page 39 1 CHAIRMAN JAFFE: Okay, we are there.
2 DR. EVANS: Thank you very much. So Mr. Roth's wage
3 growth comparisons are always based on a, on a
4 base year. Uh, he uses sometimes 1977, sometimes
5 1979, uh, sometimes 1985, and those base years are
6 all, uh, in effect, designed to capture, um, a
7 period of time where there was a decrease in the,
8 uh, real, real wages of the, uh, of the Coalition
9 employees. So if you take a look at Chart 61, uh,
10 what you see is the decline was basically from
11 1983, where it's 106.6, um, to, uh, 87.2, which
12 was in 1994. So if you choose any base year that's
13 prior to 1994, that's going to tend to lead
14 towards a decrease in real, uh, wage growth. You
15 can see that from 1994 to, uh, the end of the
16 current, uh, contract, there was a growth from
17 87.2, uh, to 95.6, which is about a 20, 10 percent
18 increase in real wages. And just to, uh, be clear
19 on this, I'm looking at the red line down at the,
20 uh, down at the bottom. So with that, um, let me
21 talk a little bit about, about inflation, because
22 we had the discussion about that, um, on Monday.
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Page 40 1 So, um, inflation jumps around from month to month
2 and it has been doing so for, uh, for some time.
3 Uh, Mr. Roth's, um, uh, claims concerning the
4 inflation rate in 2011, uh, is based really on
5 what's happened in the first part of the year. Uh,
6 inflation was, was jumping around in 2010, but on
7 a month-to-month basis, and these are monthly
8 inflation rates, uh, was pretty low, sometimes
9 high, sometimes low but sometimes negative. Um, in
10 the first part of the year, basically from January
11 to May, the inflation rate was relatively high,
12 uh, and then it came down, um, uh, uh, quite a
13 bit. The CPO number of the, the Congressional
14 Budget Office number that I used, uh, was based on
15 their projection for 2011 but it came out, their
16 projection came out in August 2011. So basically
17 what they were doing is using the actual rates up
18 through about the middle part of 2011, and then
19 making a forecast that for the rest of 2011, uh,
20 inflation would be low. Uh, as Mr. Roth accurately
21 forecast, um, the, uh, BLS came out at 8:30 this
22 morning, um, with the inflation estimate for, uh,
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Page 41 1 September, and it, in fact, declined from August.
2 August was .4, September was point, uh, .3. And,
3 um, uh, uh, so basically, um, what we see is that
4 in the recent period of time, uh, inflation is,
5 has come down. So in the month of August it was
6 point, it was .3. Now that's consistent with what
7 the Federal Reserve and other commentators are
8 basically saying. Uh, the projection is that,
9 going forward in time, uh, the inflation rate is
10 projected to be, uh, relatively low. Here's a
11 selection of, of statements. The first two are
12 from the, uh, Federal Reserve Board's Open Market
13 Committee that was held just about four weeks ago,
14 uh, from today. Uh, their forecast, their sales
15 (ph) forecast is a moderate decline, uh, in
16 inflation. The, uh, headline on Bloomberg, um,
17 today the headline on Bloomberg today, which came
18 out right after the announcement, was "consumer
19 prices in the U.S. [rise, its slowest paced] (ph)
20 in, uh, three months", and the article basically
21 goes on to, uh, mention that that's consistent
22 with the consensus view, uh, that inflation is
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Page 42 1 going to decline. Now why is inflation going to
2 decline? Well I think we all know, um, the economy
3 isn't doing too well. I think the supposition that
4 many of us have is that Europe is tanking, uh,
5 China is slowing, the U.S. is slowing, uh,
6 unemployment is still, um, is still quite high.
7 So, um, whether you buy the Congressional Budget
8 Office projections of inflation, which is 2.9
9 percent for, um, 2011 in total, and then a
10 decline, uh, below 2 percent for, uh, the next
11 several years or not, I think the, the general
12 consensus is that inflation is going to be
13 relatively, uh, low. Now let me turn to, uh, oh,
14 I'm sorry, I need to, uh, go forward. Let me turn
15 to Mr. Roth's analysis, uh, concerning, um, the
16 impact of the Carrier and the Coalition proposal
17 on real wage growth from, um, uh, over the term of
18 the, of the new agreement. Uh, this is Chart, um,
19 I'm sorry this is Chart, um, 67. So if you flip
20 forward to page 120, uh, and this is a
21 reproduction of, of that chart, um, what you see,
22 if you look at the left-hand side and bend your
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Page 43 1 head, is that, um, Mr. Roth is using, again, an
2 index that is based on December of 1977. So when
3 he does his analysis of what, um, inflation would
4 have to be in order for the, uh, Carriers, for,
5 for the, for the Coalition proposal, uh, to lead,
6 to break even by the end of 2014, he's basing that
7 on a base year of 1977. If you look at the left-
8 hand side what you'll see is that the, um, red
9 line starts at 325, so that's the Union proposal;
10 and the blue line, which is, uh, inflation, uh,
11 starts at, it looks to me like about 100, about
12 340. So he's building in about a 15 point gap at
13 the, at the start of this, which is basically, um,
14 designed so that when he does the break-even
15 analysis, he's breaking even in the sense that he
16 is enabling the, um, Unions to recover the wage
17 losses that they had between, uh, 1983 and 1993,
18 and 1984, uh, and 1993. So when we talked about
19 break even, it's not break even over the existing
20 contract; it's breaking even in the sense of
21 recovering that previous loss back in the, uh,
22 back in the 1980s. Uh, what I've done in this
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Page 44 1 slide here is basically done the same analysis,
2 uh, but I've benchmarked everything to 100 as of
3 January 1, 2010. And what that shows is that if I
4 take his break-even inflation rate of 2.8 percent
5 that he used, if I assume that is actually the
6 rate of inflation going forward, under the Union
7 proposal there would be real wage growth of 5.2
8 percent, uh, over the course, uh, of the contract.
9 Now I thought it might be useful just to
10 summarize, uh, some of this and this final chart,
11 uh, does that. So let me go through this, um, just
12 a little bit slowly, but this will be the last
13 chart. So the, the first two rows there, under
14 proposed compensation increases, shows the nominal
15 increase over the course of the two proposals; um,
16 in the case of the Coalition proposal through the
17 end of 2014, and then I've shown the Carrier
18 proposal, both through the end of 2014 and through
19 the end of 2015. Then in the so you see that in
20 the case of the Coalition proposal, total
21 compensation increases by 21.9 percent; under the
22 Carrier proposal, 20.8 percent. The next segment,
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Page 45 1 um, repeats, more or less, the analysis that Mr.
2 Roth has suggested, which is he's asking the
3 question, um, um, what would inflation have to be,
4 over this period of time, in order for the
5 Coalition employees to break even? So those
6 entries, 4.1 percent, 4.5 percent, are the, uh,
7 analogs to his 2.8 percent. And basically what
8 they show is, if inflation is, uh, 4.1 percent or
9 lower, then there would be real wage growth over
10 the terms of, uh, the, the proposals. So in the
11 case of the Carrier proposal for total
12 compensation, uh, so long as inflation is below
13 4.5 percent, annually, over this period of time,
14 there'll be real wage growth; in the case of the
15 Carrier proposal, if it's below 3.2 percent,
16 there'll be real wage growth. Um, and finally,
17 what I've done is I've shown you the projected
18 inflation for CBO (ph), and one could argue that
19 it could be a little bit higher, uh, than that.
20 And then finally, in the last two rows, I've
21 reported the real compensation growth over the
22 terms of the two proposals under the CPO, um,
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Page 46 1 projections. So for the Coalition proposal, that's
2 projecting total compensation increase in real
3 terms, after adjusting for, uh, projected
4 inflation of 2.5 percent; and 9.4 percent in the
5 case of the Carrier proposal. But, uh, uh, under
6 any reasonable forecast of inflation over the next
7 few years, uh, the Carrier proposal will provide,
8 uh, for real, uh, wage growth. Um, and I think
9 with that I'll, I'll end the presentation. I'll be
10 happy to take any, uh, questions, if you have any.
11 CHAIRMAN JAFFE: I think we're in good shape. Thank
12 you Dr. Evans.
13 DR. EVANS: Thank you.
14 DR. ROBERT TOPEL: Good morning. It's nice to be
15 back.
16 CHAIRMAN JAFFE: [Well do you remember] (ph) you're
17 still under oath Dr. Topel?
18 DR. TOPEL: I do.
19 CHAIRMAN JAFFE: Thank you.
20 DR. TOPEL: Thank you. Um, it's nice to be back.
21 The, uh, the, the, topics I want to talk about,
22 um, we've got up here, are up here on the board.
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Page 47 1 Um, I'm aware that Mr. Roth has, has characterized
2 his, uh, as was mentioned in our introduction
3 that, um, much of our analysis was sort of theory;
4 whereas, the Coalition's proposals or analysis was
5 [based, and has given you] (ph) some sort of
6 reality. And, uh, as an economist, I want to just
7 point out that the things that I'm going to talk
8 to you about today really are not just idle theory
9 from sitting arou-, of university professors
10 sitting around on their blackboards, uh, rather
11 that there's, uh, uh, a, there are decades, even a
12 century, of empir-, empirical support for the
13 types of things that I want to talk about to, for
14 you today. Now to put things in context, uh, Dr.
15 Evans has just talked a bit about the compensation
16 premium that he estimates relative to other
17 transportation workers to be on the order of 79
18 percent, and the Rail Unions have estimated it, in
19 their promotional materials about their success in
20 bargaining, to be on the order of about 74
21 percent. So let's put it in that, that range, and
22 so the key question is then: given such a large
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Page 48 1 compensation premium, what are the implications of
2 making it larger? The difference, as I understand
3 it, between costing out the UTU proposal, um, as
4 advocated by the Carriers and the Coalition
5 proposal, is on, on the order of six or seven
6 percentage points in total compensation growth.
7 Now the share of labor and cost in the rail
8 industry is of, is on the order of about a third,
9 which is lower than most sectors of the economy
10 because this is just an industry that's very
11 capital intensive, but let's just, let's say it's
12 a third. Then about a third of that ga-, of that
13 increase in the difference in compensation amounts
14 to about a 2 percent difference in the higher
15 (ph), in the cost per rail mile. That translates
16 into a 2 percent increase in prices that people
17 will pay for transportation services, and that has
18 a lot to do with what I'm going to talk about here
19 today. So that's going to be paid mainly by
20 consumers, because under competition the pass-
21 through rate of cost is generally found to be
22 more. Now I want to talk a little bit about my
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Page 49 1 first topic up here, productivity and
2 profitability. Uh, Professor Murphy, this is a
3 slide from Professor Murphy's show, and the point
4 was to make a key point about productivity that
5 also applies to profitability. That is that in
6 industries that are, where productivity is growing
7 very rapidly, compensation doesn't have to grow
8 more rapidly because we're re-, you're recruiting
9 people, you're, you're finding ways to recruit and
10 retain workers in a labor market. So that the
11 relationship of productivity to come, productivity
12 growth to compensation growth is not what one
13 might intuitively, or at first blush, think, where
14 more productive pa-, places share that
15 productivity increase in some way. That's not what
16 happens in labor markets when people recruit and
17 retain by paying the market price. So an example
18 that Professor Murphy gave you was barbers. The
19 way that we cut hair hasn't changed much over the
20 last 50 years but we have to pay barbers more. So
21 if productivity hasn't increased, why do we pay
22 them more? Because they have other things they can
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Page 50 1 do in sectors where productivity has grown, and
2 compete for these people has driven up prices in
3 the aggregate. So it's aggregate productivity, not
4 industry or firm-specific productivity that
5 matters to compensation growth; and the same thing
6 applies to profitability. Now I want to talk, and
7 I'm, I'm, I'm going to borrow a few slides from,
8 from Mr. Fritz, and if you re-, if you recall, um,
9 one of his examples was of ballast distribution;
10 he showed three ways of doing this. And this
11 specific example is not, the details of it are not
12 important, what is the important is to see is the
13 thing that Mr. Fritz showed in every one of his
14 examples, which is you start off with a technology
15 that used that type of capital right there. And
16 when I say, by that type of capital right there, I
17 mean the human capital, of those are people doing
18 the stuff. And you end up later on with this kind
19 of capital over here, where there's no people in
20 the picture; and that happened in picture after
21 picture after picture with Mr. Fritz. And in order
22 to understand why that's going on, come back to
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Page 51 1 the compensation premium we were talking about.
2 We've heard a lot here, and I've read a lot over
3 the time that I've been working on this matter,
4 about the amount of capital labor substitution
5 that's gone over time and the attendant increase
6 in productivity per-person-hour worked in the
7 railroads, and that's the source of it up there
8 that you see. Now why is it occurring? Well part
9 of the reason is exactly the compensation premium
10 we're talking about here today; that 74 percent,
11 whether you take the Union's number, or the 79
12 percent, if you take Dr. Evans' number; that's the
13 premium that we're talking about. Now think about
14 how you, we got from the left-hand side to the
15 right-hand side. Somebody, probably sitting on
16 this side of the room, did the cost benefit
17 analysis, the comparison of the flow of costs, now
18 and in the future, from alternative technologies.
19 And if you're paying a 74 percent premium for the
20 people on the left-hand side, it's not hard to see
21 why the calculation gets pushed towards the right-
22 hand side; so the industry isn't, is becoming more
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Page 52 1 capital intensive. And a large part of the reason
2 it's becoming more capital intensive, both here
3 and in other examples provided by Mr. Fritz, is
4 that, is the compensation premium itself. And if
5 the premium is increased, that incentive, that
6 balance, to push towards ever more capital
7 intensive mes-, methods of doing things, which
8 means less employment, is pushed farther and
9 father in the direction of being a capital
10 intensive industry. Now let me talk about some
11 further implications of the compensation premium
12 because, as I understand it, the, the Coalition
13 has claimed that, well maybe that the premium
14 isn't 74 percent, maybe it's not even anything.
15 Well if it's not anything, then you wouldn't
16 expect the kinds of things that we observe in this
17 market, in people striving to get these jobs. So,
18 as I pointed out before, roughly 1.2, there are
19 muf-, ruf-, there were roughly 1.2 million
20 applications for jobs in the rail industry in
21 2010, for 7,455 openings; that's a ratio of about
22 170 to 1. So 170 people were, were trying to get
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Page 53 1 each opening that came up in the industry, and
2 that's been increasing over time, as la-, as labor
3 mark-, as I showed you before, as labor market
4 conditions have worsened in the U.S. So we're now
5 at an all-time high of people wanting to have
6 these jobs, measured by the number of people who
7 are applying for them. Also consistent with the
8 size of that compensation premium, is, are the
9 quit rates that we see over here on the right-
10 hand panel, where, let me remind you, the quit
11 rates of the Carrier employees, the unionized
12 Carrier employees, are down here in the bottom
13 panel, and they're all down there at about, all
14 over .002 per month, which is about one-tenth of
15 the turnover rate of people in comparable
16 industries. So not only are people striving to get
17 these, and they're cuing up to get the jobs, but
18 once they have the jobs they're very, very
19 unlikely to leave them, much less likely; they're
20 much more attached than people in the comparable
21 jobs elsewhere in the U.S. economy. Now the other
22 aspect of that attachment to jobs that I mentioned
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Page 54 1 was the furlough rates. That when people are laid
2 off from jobs in this industry, and this, uh,
3 happens mainly among the least, the least senior
4 workers, who are looking at the ability to have
5 that premium, now and in the future, so they're
6 looking at that present value of the asset that I
7 talked about in my last, in my last discussion;
8 that came out to be something over, uh,
9 $500,000.00 per, per career, if you will. Well
10 with that kind of premium, if you're laid off and
11 you have the prospects of recall, you're likely to
12 wait. You're not going to off and find a job in
13 some other part of the transportation industry or
14 in some completely different occupation; it's
15 worthwhile waiting to come back. And what you find
16 is that people do wait to come back. At six months
17 the recall rate, the probability of coming back,
18 the average frequency of coming back, when the
19 phone rings and you're asked to come back, is over
20 90 percent (clearing throat). And even af-, after
21 a year-and-a-half excuse me (clearing throat)
22 that the, uh, return rate is on, on the order of
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Page 55 1 80 percent; you won't find that in other
2 industries at all. Now let me come to the, the
3 last point, which is, which is pretty crucial in
4 un-, understanding the social costs of the, uh,
5 uh, of the, of the proposals before us. So there
6 is, as I said, about a 6 percent gap in the growth
7 of total compensation between the Carrier and
8 Coalition proposals. Now Professor Murphy told you
9 that the social costs are extremely high, or can
10 be extremely high, precisely because of the size
11 of that premium, that 74 percent. And where does
12 that come from? It isn't just idle theory; it's
13 actually the foundation for the way governments
14 think about the incidents of taxes, fiscal policy,
15 and so on. And the idea is this; when, when we
16 increase that premium, it's like increasing a tax.
17 There is a tax in this industry on employment of
18 individuals, relative to what they co-, could earn
19 elsewhere for what they could be hired, around the
20 order of 70 percent. Well that, when you, when we
21 talk about increasing that compensation by a
22 substantial amount, we're talking about increasing
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Page 56 1 the tax rate, in effect, and what, in the, the,
2 the defining (ph) of economics in the foundation
3 for fiscal policy is, that the cost of increasing
4 a tax rate, of extracting another dollar, is
5 higher when the tax rate itself is already high.
6 So if you start from a low tax rate and you, and
7 you extract another dollar in tax revenue, it
8 doesn't have that big of a social cost because
9 it's just a transfer from the people paying the
10 tax to the people receiving it. On the other hand,
11 when you have a very high tax rate, the distortion
12 to economic activity is very large already and so
13 you're wiping out trade that has a big difference
14 between value and cost; and that's where people,
15 when people talk about the tax wedge, that's what
16 they're talking about. Well when you hear about
17 the government today talking about tax reform,
18 they're always talking about expanding the base
19 and reducing the rate. Well why do they want to do
20 that? Well you want to do that because when you've
21 got a small tax base you have to collect the
22 government's tax revenue from a more limited
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Page 57 1 number of activities and you have to have a high
2 tax rate on each one, so that causes greater
3 distortions. So you'd rather collect the same
4 amount of money by taxing more activities and
5 having lower tax rates on each one. The cost, the
6 marginal cost, as they call it, of public funds is
7 higher when the tax rates you're applying, you're
8 using, you're starting from is already high. Now
9 how is that implying, what, what does that imply
10 here? Let's come back to that 74 cents, 74
11 percent. The, uh, the, the, the estimates of
12 people studying this industry have found that the
13 long-run responsiveness of employment to a change
14 in compensation, the elasticity of demand for
15 labor, if I can use the technical terms to my
16 business, is on the order of one. Well that
17 implies, we won't, don't need to go through the
18 formulas, that every dollar that's extracted,
19 that's transferred to labor in this industry has a
20 social cost of on the order of $1.74. When I teach
21 this to my students I tell them, how can, well
22 what does that mean? It means that if I want to
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Page 58 1 take, if I want to get a dollar from this part
2 over to this part of society, I have to get it
3 from somewhere. So I reach into this pocket, I
4 have to take out $1.74, and 74 cents of it
5 evaporates over on the way to this pocket; that's
6 and where does it go? It just vanishes because
7 it's trade, it's economactive-, economic activity
8 that doesn't take place because of the magnitude
9 of the premium we're talking about. Now let me put
10 exactly that point in another context. The 74
11 percent is like a payroll tax, if you will, on
12 hiring individuals in this industry; it's a
13 premium over and above what they would have to pay
14 if they were paying simple market rates. In the
15 current economic environment, the foundation for
16 President Obama's economic policy for job growth
17 is a reduction in the payroll tax. Well the
18 payroll tax, in most, in, in the industries, or
19 the, the, the national payroll tax is on the order
20 of 12.5 percent, and so they've been forgiving
21 half of that, because the effect it will have, and
22 has been found to have, is that when you reduce
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Page 59 1 that payroll tax, people pay more. Well they're
2 reducing the payroll tax from 12.5 to 6 percent,
3 or something on that order, we're talking about a
4 payroll tax that's on the order of 74 percent, and
5 they, the, the, the, that the request, or the
6 demand of the Coalition is to raise that premium
7 relative to the UTU premium, by about six
8 percentage points. So in the current labor market
9 you're, in effect, asking for an increase in the
10 payroll tax precisely when other economic policy
11 trying to promote job growth is, is, is, is
12 reducing payroll tax and trying to get people to
13 hire more. The implication is that when you raise
14 labor costs, they're going to hire fewer people;
15 that's been found over and over and over again. As
16 perhap-, as Professor Murphy put it, does that
17 mean that employment in the industry's going to be
18 lower than it is now? No; it means it's going to
19 be lower than it otherwise would be. And who pays
20 those costs? On whom does, do those costs fall?
21 Some of it falls on consumers, a lot of it falls
22 on consumers, who will pay higher costs for
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Page 60 1 transpor-, (clearing throat) for transportation
2 services and for the goods that they get through
3 those transportation services; so the cost of the
4 televisions will be higher, the cost of the
5 refrigerators, the cost of the fructose in your
6 drink will be a little bit higher; on the order of
7 2 percent increase in transportation costs, as I
8 mentioned earlier. Well who, who else bears those
9 costs? Well it's the people who would not be
10 hired; and if we go back here, it's these folks
11 over here on the left who are cuing up for these
12 jobs. A lot of these people are hoping to find
13 these jobs that pay a substantial premium. And
14 many of those people will not be hired, simply
15 because the, of the increase in compensation and
16 the response by the Carriers, or by any employer,
17 to an increase in their costs of employing the
18 individuals. Those people aren't at, aren't at the
19 table today. We have the Carriers on this side,
20 the Coalition on that side, but the people who is,
21 are, are going to be impacted are the people who
22 are not in the room. That's the loss of economic
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Page 61 1 activity, that's the loss of job growth, and
2 that's the consequence, what economists would call
3 the social costs, of raising the premium
4 substantially above what it is today. Thank you.
5 CHAIRMAN JAFFE: Oh, did you.? Go right ahead.
6 ARNOLD ZACK: In your grant fund the implications
7 on the furlough, I think the furlough, you talked
8 about the impact of the present economy. But I
9 can't tell from your Chart Number 7 what the
10 baseline is for those data. Are you then - you're
11 sixth month from when? Would that - it would seem
12 to me there would be a cut.
13 ROBERT TOPEL: Oh, six months.six months from the
14 date you were furloughed. So.
15 MR. ZACK: How did you gather that data? What.?
16 MR. TOPEL: I asked the carriers for every furlough
17 that had taken place, the date on which it
18 occurred and the date on which recall the person
19 was contacted and asked if they wanted to come
20 back to work.
21 MR. ZACK: For what period?
22 MR. TOPEL: From 2006 to 2010. So I didn't do it -
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Page 62 1 what you have before you doesn't have it by year.
2 But I can tell you that as time - as the labor
3 market weakened the recall rate went up, okay? So
4 that - it was always really high but it went up
5 slightly during this rec - just as in the previous
6 slide I mentioned. If you look at the quit rates
7 of the rail employees, they're extraordinarily
8 low. And if you put a magnifying glass on it,
9 you'll see that their quit rates went down in 2009
10 and '10 because outside labor market opportunities
11 were not as good as they were.
12 MR. ZACK: All right, if you did this to 2010, then
13 your data does not cover - I mean it's not - you
14 cannot have data for the 18-month period.
15 MR. TOPEL: No, no, you have to go back to - you
16 have to go back.
17 MR. ZACK: Well, that's why I asked.
18 MR. TOPEL: .to the furlough rates in 2009. You
19 have to have them - they could end by now.
20 MR. ZACK: You just said that the data you
21 collected was for the period up through 2010. MR.
22 TOPEL: Yes.
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Page 63 1 MR. ZACK: So my question is if you collected data
2 from 2010, how can you tell about the recall or
3 end of furlough for a period that the end, as [put
4 on] (ph) this Chart, hasn't yet happened?
5 MR. TOPEL: Because when you collect data from
6 2010, we had furloughs that occur in 2010. And
7 then you can see for the people who are offered
8 recall within 2010, say a January of 2010
9 furlough, and you see somebody recalled in March
10 you know the frequency with which those people
11 came back.
12 MR. ZACK: I understand that.
13 MR. TOPEL: Okay? What you can't have is a year and
14 a half, a December 2010 furlough where you observe
15 the end of the spell. So it is always the case
16 when you have these kinds of spell data, that you
17 have what's called right-sensor data.
18 MR. ZACK: I understand that. I understand that.
19 But my reading of this is that this does not, this
20 chart cannot reflect the impact of the recent
21 recession in terms of return from furlough for
22 those who had been laid off more recently. It may
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Page 64 1 be accurate for people.
2 MR. TOPEL: Most recently.
3 MR. ZACK: .who were laid off a year and a half
4 before the recession but not necessarily accurate
5 for those.
6 MR. TOPEL: Now, let's be careful.
7 MR. ZACK: .laid off after.
8 MR. TOPEL: Let's be careful. You can see people
9 who were - the recession started in October of
10 2008. Okay, so I can see people who were laid off
11 in 2008, 2009 and a good part of 2010 and see
12 their recall activities, okay? The point of the
13 chart, however, is just to show you how
14 extraordinarily high those recall rates are from
15 furlough. So I can't tell you what the recall rate
16 is in 2011 because I don't have those data.
17 MR. ZACK: Yes, thank you.
18 MR. TOPEL: Thank you again.
19 CHAIRMAN JAFFE: And if I could ask the court
20 reporter to swear in Mr. Gray. I believe it's the
21 first time you're testifying.
22 COURT REPORTER: Do you swear the testimony you're
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Page 65 1 about to state is the truth, the whole truth, and
2 nothing but the truth under penalty of law?
3 JOHN GRAY: Yes. I'd like to thank the Board for a
4 chance to address one of the cornerstone issues
5 that was brought up in the coalition presentation.
6 That being the issue of the perceived prosperity
7 of the carriers and their apparent ability to have
8 swarbled (ph) a increases in labor costs in
9 settlements whether those settlements are market
10 based or not. Reality is, as we have seen, that
11 quite frankly the record profits that we have been
12 discussed are best no better than average out
13 there. That they have gotten us up to returns on
14 capital for the carriers that are about the
15 average for all businesses. They have not produced
16 sterling results; they've produced average
17 results. Now when you've been in the cellar that
18 we have been in, average looks pretty good for a
19 while. But the fact is that in - we have to
20 compete for capital among not just other railroads
21 but all business entities that can have a return
22 on capital. And so if you're going to be
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Page 66 1 competitive long term, you have to try to improve
2 above average. Now why is it just average when we
3 are indeed getting record profits? Well the fact
4 is that this average comes from the fact that we
5 have to have a huge asset base compared to most
6 businesses to operate our business. Done a quick
7 comparison here between UPS and the railroads.
8 UPS, United Parcel Service, has about the same
9 revenue as the largest four railroads. Has much
10 smaller net income than the largest four railroads
11 do but has only about 20 to 25 percent of the
12 asset base that the railroads require to operate
13 their business. So they have a much lower profit
14 margin than the railroads do but a much, much
15 higher return on assets. And in fact, the
16 investment communities rewards UPS for this much
17 higher return on asset; they carry a double A
18 rating on their credit bills, whereas the railroad
19 industry carries Triple B, Triple B plus rating.
20 Quite frankly this does make a difference because
21 the cost of capital does really matter. What it
22 cost you in the market to get capital does really
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Page 67 1 matter. Not what we have heard earlier, that the
2 market is pretty indifferent to your cost of
3 capital. Reality is that the railroad industry has
4 not yet achieved a cost of capital that is
5 equivalent to what its earnings are. Its earnings
6 have not gotten up to the level cost of capital
7 that's needed. We've heard that - we've heard
8 things such as the structure of capital, which is
9 a part of the cost of capital process, has much
10 improved for the railroads. It has. We heard that
11 debt ratios have improved dramatically. What we
12 didn't hear, of course, was that a lot of this
13 debt was replaced by leasing, was replaced by
14 leasing over the years to the effect that it just
15 about - the amount of this debt and the cost of
16 these leases just about are equivalent to the
17 payment you would be making on debt if you had
18 doubled the debt that the carriers do today. So
19 the reality is that the cost hasn't changed; it's
20 just gone elsewhere in the balance sheet. It's
21 just moved around in balance sheet, it's moved
22 around in the income statement. Let's talk just a
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Page 68 1 little bit about what this says, the economics of
2 this leasing say about what has happened
3 financially in the railroad industry and what the
4 situation is. What you have to do if you're going
5 to lease - because you lease because things, yes
6 you get a little bit of extra flexibility but the
7 real thing you get is reduced cost - is you have
8 to pay another party's cost of capital, you have
9 to pay a risk premium for the lease, you have to
10 pay the lease administrative costs, and if this is
11 going to be successful for you, it all has to come
12 in cheaper than your own cost of capital. So what
13 I would submit is that if these economics are
14 working for the industry - but the reality is that
15 a firm, that the earnings of a cost of capital
16 that is competitive with the other businesses that
17 are out in the industrial world, it is still a
18 work in progress quite frankly. We heard that the
19 expected earnings growth are going to be
20 spectacular for the railroad industry. Reality is
21 that the earnings growth are not really sufficient
22 to earn the cost of capital. These are the numbers
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Page 69 1 that you were shown a couple of days ago and what
2 the earnings projections are by analysts'
3 consensus for the railroad industry. They look
4 spectacular; they look great; they look wonderful.
5 Reality is that they will not cover the cost of -
6 that earnings growth at this rate does not cover
7 the cost of capital as we go forward. My
8 organization is required to compute the cost of
9 capital for submittal to the STB on an annual
10 basis. We use two methods to compute cost of
11 equity at the instruction of the STB. On is based
12 upon a somewhat backward looking method and the
13 other is based upon these same analysts'
14 projections that you see here. The one that comes
15 out that says we need a much higher cost of
16 capital, in fact a full point higher, is the one
17 that is based upon these analysts' projections. It
18 says that, you know, if these projections are the
19 case, then indeed our cost of capital is actually
20 higher than what the regulatory cost of capital is
21 submitted to be. So we are either - if these are
22 the projections, if these are played out, we
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Page 70 1 actually fall behind on earning our cost of
2 capital; we don't catch up. So, if you're an
3 industry in this situation, what are your
4 strategies to get to a lower cost of capital?
5 First of all, you've got to continue to hold your
6 dividends up. There's been submittals that our
7 dividends have increased. This is true. But
8 they've increased in lock step with the cost of
9 the shares of the industry, the cost that is paid
10 in the market. We're about 1.1 percent a few years
11 ago; they're about 1.6 percent now. They've
12 increased strikely (ph) in terms of returns but
13 not dramatically. Secondly and most importantly,
14 you buy back shares. Because that, first of all,
15 improves the earnings per share for your
16 shareholders; it reduces the amount of cash you
17 need for dividends; and most importantly it
18 substitutes for that growth that you 're not going
19 to be able to get through the regular market
20 process. You try to grow the top line, and you try
21 to control costs and improve productivity. You do
22 all four, but all four are a necessary part of the
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Page 71 1 strategy if you're in the situation the railroad
2 industry is and you're trying to get the cost of
3 capital under control. We've heard that the
4 operating costs are pretty much where they need to
5 be, but the reality is that the operating costs
6 are continuing to climb. We were shown this cost
7 of yield graph in which the, after the 2003 year
8 it was re-based towards a lower number in 2004.
9 The reality is that the cost yield graph, if you
10 plot it out correctly, hasn't really changed a lot
11 since 2004. We haven't fallen backwards any, but
12 we haven't made a lot of progress. I would concede
13 that we've made a couple of points of progress.
14 That's great; that only leaves 300 more to
15 achieve. It's better than nothing, but the reality
16 is that the only thing in the cost yield graph
17 that's there is that it hasn't gotten any worse
18 than it was. Cost of things such as fuel continue
19 to be both high and volatile. Used to be that fuel
20 was about 9 percent of the carrier cost; today
21 it's about 15 to 20 percent. That's after a spike
22 of 25 percent during the 2008 period. Reality is
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Page 72 1 because of the volatility it becomes very
2 difficult to manage these costs. We heard that
3 there's been record capital spending and that's
4 true. But when you put that capital spending in
5 terms of what the inflation adjustment is, it
6 doesn't look quite so impressive. We heard that if
7 you adjusted it for the number of miles it had to
8 be invested in, it was - it looked great. Well
9 this has been adjusted both for the inflation and
10 the number of miles. And yes, it has improved
11 some. But the spectacular results that were
12 indicated in the coalition presentation simply
13 aren't there. And why aren't they there? It's
14 because the factor costs underlying this capital
15 have dramatically increased over this 1980 to 2010
16 time period. Labor, which for capital expenditures
17 is a very high proportion of the expenditures, has
18 gone up almost three times during this period.
19 Materials and supplies, 2-1/2 times and all other
20 mostly purchase services has gone up almost - is
21 over 2-1/2 times. In addition to that, we've been
22 required by statute to install a very expensive
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Page 73 1 Positive Train Control System. The reality is that
2 given the statutory deadlines it's unlikely that
3 there's going to be much benefit to the carriers
4 from this system because we're going to have to
5 install basically a bare-bones system. The cost
6 for installing the system which would provide
7 benefits is even higher than what we have here
8 now. The 5 to $8 billion that we think it's going
9 to cost to install and 6 to $800 million annually
10 that it's going to cost to operate. Bottom line is
11 that it's going to be very expensive going
12 forward. It's going to be an additional item that
13 has not been part of the industry's cost structure
14 in the past. And finally we heard that it's time
15 to share the wealth. I would submit that sharing
16 the wealth works both ways. You were shown two
17 days ago the bottom line on this chart, the
18 improvement in net income per employee. And it has
19 improved, particularly in the last 4 to 6 years.
20 The fact is, though, that over time, it compares
21 to the wage and the wage and benefit improvement
22 employees, it suffers somewhat in comparison. The
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Page 74 1 reality is that it is time to share the wealth a
2 little bit and it is time that some of the long-
3 suffering stockholders and owners, particularly
4 the funds that are meant - most of which are funds
5 managing IRAs, pensions, 401k plans, things like
6 this - had a chance to share as part of the rail
7 renaissance. With that, if there are any questions
8 I'd be glad to address them.
9 CHAIRMAN JAFFE: Thank you, Mr. Gray. One question,
10 if I may. Can we turn to Slide 18? You've got a
11 percent of cost as a cost component, for capital
12 costs. And it allocates 54 percent to labor 16
13 percent to materials and supplies, 30 percent to
14 others. MR. GRAY: Yes.
15 CHAIRMAN JAFFE: Is that a static number that.? MR.
16 GRAY: No.
17 CHAIRMAN JAFFE: .or is it - does it change over
18 time?
19 MR. GRAY: It - that number certainly changes over
20 time. If you - now keep in mind it is only
21 applicable to capital expenditures, not the
22 operating expenditures of the company. The
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Page 75 1 operating expenditures is where you will see labor
2 costs down in the 25 to 30 percent range. Capital
3 expenditures, even though it sounds like you're
4 buying heavy goods, you're in fact buying mostly
5 labor to install those goods, particularly for the
6 network.
7 CHAIRMAN JAFFE: And what time frame does that
8 represent? The fact that you've got comparisons in
9 1980 and 2010?
10 MR. GRAY: That's the - well it is 1980 to 2010. We
11 did the allocation on it for the 2010 costs.
12 CHAIRMAN JAFFE: That's what I was trying to figure
13 out. Okay, does anybody have anything else? I
14 think we're in good shape. Thank you, sir.
15 MR. GRAY: Okay, thank you.
16 DONALD MUNRO: Mr. Chairman, I think we're ready to
17 move to the health and welfare case rebuttal.
18 CHAIRMAN JAFFE: Why don't we take five, just for -
19 show off the record - just for comfort reasons for
20 the room?
21 CHAIRMAN JAFFE: At your convenience.
22 MR. BOLEY: Mr. Chairman, Members of the Board, I
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Page 76 1 am happy, happy to be back here, not ecstatic but
2 happy.
3 MALE SPEAKER: That's fine. I need to remind you
4 that you are still under oath and that's fine.
5 Thank you.
6 MR. BOLEY: Okay um, I have with me as you see uh,
7 Dave Scofield to prop me up when need be. Um,
8 before we start I wanted to note for the record
9 that uh, the Carriers have submitted to the Board
10 and to the Labor organizations copies of the
11 current summary plan descriptions for both the uh,
12 Railroad Employees National Health and Welfare
13 Plan and the uh, NRCUTU Plan as well as uh, the
14 collective bargaining reached in the last two
15 rounds between the Carriers on the one hand and
16 the Brotherhood Railway Carmine of TCU on the
17 other and between the Carriers of the BMWED. Also,
18 we submitted to and have given copies of the uh,
19 to the other side of the current collective
20 bargaining agreement between Amtrak and the Labor
21 organizations. Without further ado um, I'd like to
22 uh, ask Dave Scofield to uh, go through uh, with
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Page 77 1 you uh, the answers that we have prepared to the
2 questions that the Chairman asked during the last
3 round, the last time we were here.
4 MR. SCOFIELD: Thank you. The slide you see on the
5 screen shows two different plan designs uh, both
6 projected to 2016. Each plan design shows the
7 annual employer cost in green and the annual
8 employee cost in yellow. The current plan is shown
9 in the darker green on the left. The proposed plan
10 is shown in the lighter green on the right. Only
11 one bar is shown for 2011 which is the current
12 design. The two different designs are shown for
13 2012 and later. The light green bar represents the
14 Carriers proposal. At the bottom of the table is
15 shown the employee contribution cost sharing
16 percentages that arise in each of the years
17 throughout over time. The immediate observations
18 to be noted are as follows: For both plans current
19 and proposed, the employee contribution in yellow
20 remains $2,400 for all years. The employer cost
21 generally increases year over year in either
22 design. The total plan cost which is the sum of
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Page 78 1 the height of the bars of the yellow and the green
2 is reduced by about 6 percent, a little less than
3 $1,000 a year per employee in 2012 when the plan
4 design change is soon to take place. After the
5 initial reduction due to the changes that occur in
6 2012 the proposed design uh, total cost escalation
7 is similar to that of the current design. It just
8 starts out at a lower position. The employee cost
9 sharing percentages at the bottom of the page
10 decline over time in either the current or the
11 proposed design because the $2,400 contribution
12 annually is fixed in the total cost increases; so
13 $2,400 as a percentage of the total cost declines.
14 Since this page is a little numbery and uh, maybe
15 complicated, I guess I would ask if anyone has any
16 questions now. We can always come back to it. Um,
17 not sure if this answers the question you had.
18 CHAIRMAN JAFFE: (indecipherable at 0:04:37
19 MR. SCOFIELD: Okay. Should, should I go forward?
20 CHAIRMAN JAFFE: That's fine.
21 MR. SCOFIELD: Thank you. Okay, so um, now we're
22 looking at a slide much like the slide that we saw
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Page 79 1 on the previous page. Uh, last week you requested
2 of us and I believe you requested yesterday of the
3 Labor side the same question which is to compare
4 the Carriers proposed plan design to the current
5 plan uncapped. So again, this slide is identical
6 to the slide we just saw except under the current
7 design we've moved the $200 per month or $2,400
8 per year cap. The immediate observations here are
9 that employee contribution under the current
10 design grows with trend because it is now
11 uncapped. Similarly, the cost sharing percentage
12 for the current plan design shown at the bottom of
13 the page doesn't decline again because the
14 contribution is uncapped. The cost sharing
15 percentage for the current plan uncapped is not
16 exactly 15 percent of medical cost, it's slightly
17 higher, 15.8 or 15.7. Uh, that is because the
18 contribution formula that currently exists
19 combines medical, dental, vision and life
20 insurance costs. It takes 15 percent of that and
21 that is the medical plan contribution. So when
22 expressed as a percentage of just the medical plan
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Page 80 1 cost that, that number is slightly higher than 15
2 percent. Are there any questions with respect to
3 uh, this uh, this projection? The numbers are
4 slightly different from the prior page and again
5 if you'd like to come back, of course, we can.
6 CHAIRMAN JAFFE: You say the numbers are different
7 but the totals are the same, it's the breakdown
8 that differs, right?
9 MR. SCOFIELD: Yes, sir. The total bar is the same.
10 Right the allocation between the employer and the
11 employee on the current design is, is different
12 because of uncapping, yes.
13 CHAIRMAN JAFFE: That's what I thought. Thank you.
14 MR. SCOFIELD: Uh, the, the last question you had
15 for us was that we couldn't answer last week
16 because we didn't have everything in hand was,
17 "What was the adequacy of benefits for the
18 pharmacy portion of uh, of the coverage?"
19 Currently, as of today, as it is proposed under
20 the Carriers proposal and then for various
21 benchmarks that we have and this uh, this slide
22 uh, shows that uh, both currently and proposed the
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Page 81 1 adequacy of benefits and again that, that is the
2 portion of the total covered costs that the plan
3 pays. The compliment or the difference between 100
4 percent is what the employee pays through, through
5 co-pays. The benefit currently and as proposed is
6 86 percent. That means the employee out-of-pocket
7 for co-pays is about 14 percent of the total cost.
8 Uh, when compared, comparing those 86 percents to
9 benchmarks, these were the benchmarks that uh, we
10 have available to us. First we spoke with Medco
11 which is the, the vendor that the Plan uses to
12 administer the pharmacy program. Medco gave us two
13 figures, one for their general uh, book of
14 business and one for their collectively bargain
15 plans. For the general book of business, the
16 pharmacy adequacy benefit is 82 percent; for
17 collectively bargain plans they reported to us it
18 was 86 percent. Um, and we also have information
19 from the Segal Company that they provided to us in
20 a study uh, and among their collectively bargained
21 uh, plans that they have information on which is
22 considerable uh, the adequacy benefits for their
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Page 82 1 uh, database is 83 percent. And then lastly since
2 we have been showing the Federal um, Plan, Blue
3 Cross Blue Shield Standard Option as a benchmark,
4 that plan has adequacy benefits for pharmacy of 77
5 percent.
6 CHAIRMAN JAFFE: So is the AOB remain static
7 between the colored plan design and the proposed.
8 That means that in terms of gross dollars the
9 increase in co-payment on Tier 2 and 3 will be
10 balanced roughly by the reduction on Tier 1?
11 MR. SCOFIELD: Yes, that is correct. So we have uh,
12 the majority of drugs currently delivered at
13 generic uh, with the changes in co-pays we expect
14 to improve on that statistic. So more drugs will
15 be delivered at generic. The, the reduction in the
16 co-pays for generic and in particular, it's the
17 mail order reduction, currently it's 20; it's
18 going down to 5. That balances out the, the co-
19 pay increases at the brand formulary and the brand
20 non-formulary, sir.
21 CHAIRMAN JAFFE: Okay.
22 MR. SCOFIELD: Sure.
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Page 83 1 MR. BOLEY: Let me address several of the points
2 that were made by the Unions in their
3 presentation. Uh, first uh, the changes in
4 employee co-payments for prescription drugs and
5 additions to the drug programs, clinical
6 management rules all as we have proposed them and
7 has been agreed to by the UTU through collective
8 bargaining. Those proposed changes are better left
9 in so far as the Coalition Unions are concerned to
10 the plans, Join Plan Committee. Uh, this Committee
11 the Unions say can more appropriately than
12 collective bargainers investigate and if warranted
13 implement the changes that the Carriers seek.
14 Further, it can quickly make changes to alleviate
15 anticipated consequences. This uh, contention is
16 at best ingenuous and at worst a very, very red
17 herring. To amend the Plan with the changes
18 proposed by the Carriers both for Labor and
19 Railroad Joint Planning Committee members would
20 have to agree the jurisdiction of the mutual to
21 break deadlocks between the Parties does not
22 extend to plan amendments. And the Labor Committee
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Page 84 1 members are exactly the same folks that the
2 bargaining table flatly rejected the Carriers
3 proposals. The RABC Coalition following the lead
4 of the TCU Coalition refused even to consider any
5 change at all in the Plan's benefit structure. Had
6 the ghost of Confederate General Bernard Bee of
7 Manassas fame been on the Labor side of the room,
8 that ghost might well have said, "There sits
9 Carter Scardelletti like a stone wall. Let's go
10 rally behind him." In short, it is beyond belief
11 that the organization's implacable rigidity would
12 somehow melt when the Union chief switch from
13 representing this as they should in collective
14 bargaining to representing members as they should
15 while acting as part of the Labor half of the
16 Joint Plan Committee. To leave any aspect of the
17 Plan design changes proposed by the Carriers to
18 the Joint Plan Committee is exactly the same as
19 saying, "Forget about them." So the Union
20 argument, that the JPC is the best body suited to
21 deal with the pharmacy benefit changes proposed by
22 the carriers is no surprise. If the Board chose to
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Page 85 1 punt the proposed changes to the JPC the cake
2 would achieve an unsurpassable record for time in
3 the air because the ball would never come down and
4 Dan Snyder would be on the phone to you quickly
5 thereafter. In any event, the Carriers proposals
6 are a package. They can't be broken into pieces
7 with some being addressed by this Board and some
8 in another forum. If the idea were to have a
9 neutral other than this Board address and render a
10 binding decision on the merits of the entire
11 package, please bear in mind Carriers accepted the
12 NMB's office of our offer of arbitration, the
13 Unions did not. Of course, if the managed pharmacy
14 services benefit changes proposed by the Carriers
15 are ultimately agreed to by the Coalitions Unions,
16 the Joint Plan Committee certainly, if warranted,
17 investigate the changed plan terms and then if
18 warranted, change them back to where they were or
19 modify them in some other fashion.
20 CHAIRMAN JAFFE: If we could try and keep it up a
21 little by way of the volume, we're competing with
22 next door. Thank you.
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Page 86 1 MR. BOLEY: I'll try and speak as loudly as I can.
2 CHAIRMAN JAFFE: That or the mike closer might help
3 as well.
4 MR. BOLEY: (chuckle) No, I'm fine.
5 CHAIRMAN JAFFE: Thank you.
6 MR. BOLEY: The next topic uh, I want to turn to is
7 the argument that you make that the excessive cost
8 to maintain the Plan don't reflect the overly
9 generous design of its benefits but rather are
10 attributable to the high rate of sickness caused
11 by the arduous and dangerous work the employees
12 perform when compared to the work that employees
13 do in other industries. Arduous, yes; railroad
14 employees work hard and diligently. They are a
15 significant partner in the success of the
16 railroads and I in no way mean to suggest that
17 their work is anything but difficult; some more
18 difficult than others. Arduous work uh, is
19 something simply in the eyes of the beholder. What
20 you people are doing now, you the members of the
21 Board, is extraordinarily arduous work. Dangerous?
22 No, we'll get to that in a minute. First, let's
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Page 87 1 look at the relationship between the alleged
2 excessive sickness of the employees and Plan
3 costs. Sixty-eight percent of the claims made
4 under the Plan 2010, 61 percent of the dollars
5 paid in benefits during that year were made and
6 paid for care provided to the husbands, wives and
7 children of the employees. We can't fathom how the
8 work that Coalitions members do can contaminate
9 their family members causing them to be sicker
10 than the families of workers in other industries.
11 This, of course, assumes at least for purposes of
12 argument that there's something about work that
13 rail employees do that makes them, let alone their
14 families sicker than others. The slide that we put
15 on the board show a comparison for claims per
16 1,000 members for three categories: Chronic
17 obstructed pulmonary disease; musculoskeletal
18 problems and the easy one for me, sprains and
19 strains. As you can see, the middle bar, the
20 purple bar are spouses and the blue bar are
21 children, the red bar are employees. The claims
22 for those three particular categories for spouses
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Page 88 1 under this Plan for 1,000 members are higher than
2 the claims of the employees. The Unions have also
3 asserted that on-the-job injuries to railroad
4 employees add to the Plan's excessive costs as
5 compared to other plans covering employees with
6 lower on-the-job injury rates. On-the-job injuries
7 obviously have no bearing at all with respect to
8 claims made by family members. Moreover, as the
9 Carriers, I believe, have well established,
10 railroads have excellent safety records. Their
11 employees have lower injury rates than most other
12 major industries. Most importantly, all of the
13 cost analyses regarding the Plan's costs, the
14 Carriers costs and the employees costs that we
15 have presented to you deal only with Plan coverage
16 other than on-duty injury. They don't concern on-
17 duty injury at all. What the Plan pays in benefits
18 for on-duty injuries are not included in any of
19 the figures that we have given you and none of the
20 employee contributions are applied to Fund
21 coverage for on-duty injuries. Indeed, the changes
22 proposed by the Carriers will have little or no
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Page 89 1 impact upon employees in cases of on-duty injury.
2 In those cases, the Carriers almost always end up
3 paying 100 percent regardless of the Plan's terms.
4 One hundred percent of the medical expenses of the
5 injured employee. That is because of the
6 obligations that the Carriers have under the FELA.
7 Indeed, in many situations, the Plan's benefits
8 are paid to reimburse the Carriers for what the
9 Carriers paid to the employees as a result of a
10 FELA claim. TRACK 6
11 MR. BENJAMIN BOLEY: The unions haven't explained
12 why the work of clerks, electricians, machinists,
13 and other crafts people employed by the carriers
14 would make those employees sicker than clerks,
15 electricians, machinists and others who work
16 outside the rail industry. Also to the extent that
17 employees covered by the plan are in fact sicker
18 than other American working men or women and their
19 families, nothing, nothing supports the view that
20 it's because of the nature of railroad work rather
21 than, among other causes, choice of a lifestyle
22 leading to obesity, smoking-related conditions and
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Page 90 1 other consequences that severely imperil health
2 and well-being. COPD clearly is something that is
3 related to smoking. Finally, why next to finally,
4 and here we get to the perilous nature or the
5 alleged perilous nature of working on the
6 railroad. The draftsmen (photosynthesis) of
7 President Obama's health reform legislation, the
8 Affordable Care Act of 2010, didn't consider
9 railroad work to fall into the category of high-
10 risk occupations, sufficiently dangerous to
11 employee health to warrant an increase in the
12 otherwise applicable cost threshold that a plan
13 must reach before the Cadillac tax will be imposed
14 on overly generous plans beginning in 2018. Those
15 occupations that have that higher threshold
16 because they are considered dangerous: law
17 enforcement, fire protection, out-of-hospital
18 emergency health care, long shore work,
19 construction, mining, agriculture not including
20 food processing, forestry and fishing. Railroad
21 work is not among them. We put on the board a list
22 that came (laughing) something I didn't realize
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Page 91 1 was there called "The Daily Beast". I don't know
2 if you've heard of the "The Daily Beast". I hadn't
3 but apparently it's an Internet facility that
4 collects news from all over. And they listed in
5 2010 the 20 most dangerous jobs in America.
6 Railroad work is not among them. Finally, Mr.
7 Hildenbrand in his presentation, which I thought
8 by the way was articulate and engaging, suggested
9 that you read the Tannen report which was
10 submitted by the labor organizations in support of
11 their proposition. We asked Dr. Green from
12 Cambridgeshe's a Senior Scientist and President of
13 Cambridge Environmental, Inc., and a lecturer in
14 the Department of Biological Engineering at MIT we
15 asked her to look at Dr. Tannen's report. It turns
16 out that this question of whether or not diesel
17 exhaust creates hazardous working conditions and
18 causes people who breathe in that exhaust to get
19 sick, especially with respect to railroad
20 employees, and her conclusion and I believe we
21 have provided you with her complete reportif we
22 haven't we will, her conclusion is up on the board
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Page 92 1 there now. The bottom line is it's a murky area.
2 There are disputes all over the place. Dr. Tannen
3 is on one side of those disputes. Many other
4 people are on the other side. It is not clear, it
5 has not been established that diesel exhaust is a
6 condition (inaudible) [0:04:35] to the health of
7 railroad workers. The labor organizations through
8 Cheiron, at page one of Exhibit 37 made the point
9 that the cost of the National Plan is slightly
10 less than the average United States employer-
11 sponsored plan. Now to do this, they made a bunch
12 of adjustments. Indeed, if you look in the Cheiron
13 report carefully and put a circle around every
14 time you see the word "adjustment", you'll find a
15 lot of them. And to paraphrase a lesson that we
16 may have learned from the Trojan War, beware of
17 actuaries making adjustments. And it's even more
18 appropriate here because Cheiron, as you know, is
19 half a horse and you know what part of the horse
20 was involved. In any event, you will see those
21 adjustments. I want to turn to the one that
22 puzzles me the most and then Dave Scofield will
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Page 93 1 deal with a couple of other problems with that
2 particular comparisonand that is in trying to
3 determine the relationship between our costs, our
4 plan costs and those of a body of other plans
5 which they will get to. Cheiron applied what's
6 called a morbidity factor and as I see it, as I
7 understand and perhaps I don't understand it very
8 well and you look at it yourself. But it would
9 seem to say to me is that when you compare costs
10 and one plan, ours, has to provide benefits to
11 members who are sicker than the members covered by
12 the other plan. When you compare the costs you
13 forget about the cost of providing benefits to
14 those sick people. So naturally, the costs become
15 (inaudible) [0:07:00]. The reason that you have
16 costs that are greater than the comparison costs,
17 in part at least, is because a plan that covers a
18 greater number of sick people, of people who are
19 sicker than others has a greater cost. I don't
20 understand how you can make the adjustment, the
21 so-called morbidity adjustment that Cheiron has
22 suggested. There are other problems with it and
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Page 94 1 because they deal with actuarial situations, Dave
2 is going to cover them now.
3 MR. DAVID SCOFIELD: So first to say, to reiterate
4 what Ben said, we don't think it's appropriate to
5 adjust for the morbidity. That's one of the
6 factors that is different about two different
7 groups; the morbidity, the plan design, other
8 factors, that's what drives cost differences. So
9 that is, in part, why our plan has a higher cost
10 than other plans. It certainly is legitimate to
11 make adjustments and compare those adjusted costs
12 and to try to derive some conclusions from them.
13 But on the topic of making a morbidity adjustment,
14 we have some comments about the way it was done.
15 The best way to derive the morbidity factor, which
16 is again the statement of the illness burden that
17 the population has is to incorporate medical plan
18 data and pharmacy data. He announced that it was
19 done and the Cheiron report uses only pharmacy
20 data. It's no fault of theirs that they don't have
21 the medical data I don't suppose, but they derive
22 a factor that comes up to be 1.32, I think meaning
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Page 95 1 that their analysis shows that the costs of the
2 illness burden of the railroad population is 1.32
3 x some benchmark level of 1.0. If you do
4 incorporate the medical data which we have had one
5 of the vendors that the plan works with do just
6 that, they have incorporated the medical data with
7 the pharmacy data, they get a morbidity factor of
8 1.20, 12 percent less than the 1.32. Not to say
9 that either one is appropriate for the adjustment
10 that they made but just to point out that the
11 factor can be much different if you incorporate
12 the medical data. And the last point on this is
13 that if you are to compare the costs of a plan,
14 and in this case they compared our plan to other
15 costs, in order to do a morbidity analysis
16 correctly, you need to adjust the morbidity in the
17 population you're looking at which is our plan in
18 the other groups. The other groups, if you will
19 recall, they compared to Kaiser Family Foundation
20 costs, Towers Perrin survey costs, Mercer costs,
21 maybe some others, various benchmark costs. So
22 inherently (ph) what they did was to assume that
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Page 96 1 all of those other surveys have a morbidity factor
2 of 1.0 which although it's possible, it's
3 extremely unlikely that every one of those surveys
4 would be exactly identical to the morbidity level
5 of the database that Cheiron used to draw the data
6 from. They're all different databases so I am
7 virtually certain they would all have different
8 morbidity factors.
9 MR. BOLEY: Another contention that the labor
10 organizations make is that our plan actually has
11 the lowest med value of health benefits in the
12 rail industry. They base this contention upon the
13 plan provisions of a set of five commuter rail,
14 four commuter railroads and Amtrak. You can
15 consider whether or not a comparison with that
16 small number of entities has any (inaudible)
17 [0:11:29] weight of the comparisons that we put
18 before you dealing with extremely large databases
19 of both collectively bargained and non-
20 collectively bargained plans. But to call this set
21 of five passenger railroads the rail industry is
22 beyond the pail. There are 20 commuter railroads,
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Page 97 1 at least 20 other than the ones that make up the
2 rail industry as the labor organizations would
3 characterize it, and over 500 regional and short-
4 line railroads that carry freight in this country.
5 So to call this selection of such a limited number
6 of commuter rails and Amtrak the rail industry
7 just doesn't hold any water. I wanted to clarify
8 something that may have led to some
9 misunderstanding when we were here the other day.
10 The(laughing)on the left side is a quote from
11 labor's submission and it may have been confusing
12 to you. It seems to say something that the payment
13 rate formula does not provide for it seems to say
14 that you look to the greater of perhaps three
15 different things, 15 percent of the monthly
16 payment rate, $200 for the January 1, 2009
17 contribution amount. If that confused you at all,
18 it would certainly be understandable. The
19 appropriate formula is on the right-hand side.
20 It's the lesser of 15 percent of the payment rate
21 or the greater of $200 or the payment rate of the
22 year before. So if that somehow or the other led
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Page 98 1 you into a different view of exactly what the
2 payment rate, how the payment rate is calculated,
3 I hope that what you're looking at there is
4 helpful to you. I wanted to say just something
5 about the repetition of the word concessionary
6 from the organization's witnesses with respect to
7 the health care plan design changes proposed by
8 the carriers. We do not think that there's any
9 concession involved here. What these design
10 changes would do would be to lessen the increase
11 in what the employees are getting under the health
12 care plan. For every dollar that the plan's cost
13 increases and if you equate that dollar in cost to
14 value, for every dollar the employee gets a dollar
15 just as if he got the dollar in wages except with
16 respect to the health care plan it's tax
17 deductible. So there's not a concession here.
18 They're not giving anything back. They're taking
19 less on a going forward basis. That is not a
20 concessionary proposal. Moreover if you look at
21 the way their total compensation will grow over
22 the period of time covered by this contract,
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Page 99 1 they're not giving up anything there. They're just
2 getting, by reason of the proposals on health care
3 plan design, a little less than they would
4 otherwise have gotten if their proposal were to be
5 adopted. And of course, anytime you look at costs
6 regarding health care, bear in mind that what we
7 do here stays in place without change until the
8 next round. And then so far as the employee
9 contributions are concerned, it stays in place
10 until July 1, 2016. That makes a big difference
11 because as our costs under the proposal by the
12 unions increase, the costs outside of the industry
13 will increase by more because they will have plan
14 designs that will be far more generous, far less
15 generous than ours. We wanted to put a few slides
16 on the board to show you what is happening in
17 other plans with respect to the increasing use of
18 point-of-service cost sharing, as well as other
19 efforts to increase cost sharing by plan
20 participants, giving them essentially more skin in
21 the game. This one shows, over time, starting in
22 2000 and moving up to 2011, the way in which
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Page 100 1 changes have occurred under the federal plan BCBS
2 Standard Option. As you can see, the deductible
3 started at 200; they are now at 350. Of course,
4 our deductible back in 2000 was not even a gleam
5 in its daddy's eye gone up on the federal plan,
6 as you see, ours has remained at zero. They are
7 saying that the co-insurance rate the medical co-
8 insurance rate you can see it went from five
9 percent to 15 percent. Ours way back then was
10 zero. And we are only now proposing the
11 implementation of a five-percent co-insurance
12 rate. Interestingly, the federal plan that we are
13 showing on the board here shows, for retail
14 prescriptions, a percentage cost and, for mail-
15 order, a fixed-dollar co-pay. The co-pays, you
16 see, are there; they are self-explanatory. The
17 annual out-of-pocket maximum has grown from 2,000
18 in 2000 to 5,000 now. Now, this slide Dave is
19 going to get into and explain what we are trying
20 to show here - again, for the purpose of
21 demonstrating how costs are increasing over time -
22 so that you can weigh that when you are
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Page 101 1 considering that our costs our plan benefits will
2 be frozen, and no increase in employee
3 contributions would be available to us for at
4 least four or five years.
5 MR. DAVE SCOFIELD: So I think as we talk through
6 this, I guess, keep asking whether the design
7 changes that the carriers propose are radical
8 given what is out there in the marketplace, or are
9 they something, as we would suggest, far less than
10 radical. So the yellow bars here show some
11 information that we have drawn from a Hewitt
12 survey. We drew from the Hewitt survey from much
13 of the for some of the material we presented to
14 you last week. The reason we are using this Hewitt
15 survey is it is the only survey that I am aware of
16 that does this one interesting thing, which is
17 that it places a dollar amount on the employee
18 contributions and a dollar amount on the employee
19 out-of-pocket costs averaged across their large
20 employee clients. So you can see a couple of
21 observations. The employee cost share as a
22 percentage, and that the dollar amount goes up
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Page 102 1 every year. And that is not a surprise, but it is
2 an observation I that we want you to have and
3 keep in mind. The employee share of the costs, in
4 total, on average, across these bars goes up a
5 little over $300 a year, and the employee out-of-
6 pocket plus contribution combined goes up nearly
7 11 percent per year. We have put off to the right
8 a couple of little notes about where our plan is
9 or where it will be for 2012, with or without the
10 changes. So relative to the survey benchmark,
11 employee cost sharing of 36 percent for employee
12 contributions and employee out-of-pocket costs for
13 large employers currently, the Railroad Plan
14 would be at 22 percent. And we get that, roughly
15 speaking, by roughly 15 percent employee
16 contribution cost sharing plus roughly seven
17 percent out-of-pocket cost sharing through
18 deductibles and co-pays. If the carrier proposals
19 are accepted, that 22 percent would go up to 26
20 percent. But keep in mind what will happen as we
21 project out to 2012 and into the future the
22 marketplace, as is demonstrated from this page,
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Page 103 1 increases the cost-share dollar amount and the
2 cost-share percentage for employees every single
3 year. So you can look at it and say it is about a
4 one-percent cost sharing increase in the
5 marketplace and about a $300-a-year dollar amount
6 increase. What will happen to the National Plan
7 under either the current or the proposed
8 arrangements is that the employee contribution
9 will stay fixed at $2,400. And the employee out-
10 of-pocket costs - although some small piece, some
11 small portion of those costs may increase to the
12 extent that the carrier proposal is accepted, and
13 a five-percent very small co-insurance is applied
14 besides that, the plan has co-pays and
15 deductibles. Those dollar amounts are fixed dollar
16 amounts. They do increase, so the employee share
17 and dollar amount do not increase under either the
18 current plan or under the proposed plan. So as the
19 marketplace moves from 36 percent, 37 percent, 38
20 percent, and so forth, our plan, under the current
21 design, will be 22 percent in 2012. And as we
22 spoke about on the first slide, if the current
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Page 104 1 plan design stays in place, and the contributions
2 stay fixed, the cost share for the Railroad Plan
3 declines over time, so the 22 will go down to 21,
4 20, 19, going in absolutely the opposite
5 direction. Now the same dynamic happens if you if
6 the carrier-proposed design changes are accepted,
7 except they start out from a slightly higher 26-
8 percent point.
9 MR. BENJAMIN BOLEY: And there are just a couple of
10 more things I wanted to touch
11 touch on. First is the question of the Uniformity
12 of Benefits Principle. We showed in our case, in
13 chief, that prior PEBs have articulated the need
14 for uniform benefits for agreement employees of
15 the rail carriers. Joel Parker found that that
16 argument was intolerable. He really had a real
17 problem with it, and I did not really understand
18 why he had that problem. What the carriers did
19 here what Mr. Parker characterized what the
20 carriers did was to purposely foist, purposely
21 knowing that the coalition mediums were
22 steadfastly opposed to any change in the plan,
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Page 105 1 that the carriers then went and negotiated an
2 agreement that provided for such a change. He
3 rather colorfully analogized that situation to
4 somebody who sets first to his house and then
5 complains that it is too hot inside. What really
6 happened was that the carriers were running into a
7 roadblock. There was no give on the other side on
8 these issues, and so the carriers went to see if
9 they could cut a deal with another union. Well,
10 the other unions were the big unions. They did
11 reach a voluntary agreement with that union. So
12 what the carriers did was exactly what the
13 Railroad Labor Act says they should do seek a
14 voluntary agreement. They did seek it. They
15 achieved it. And now what they are saying is
16 exactly what has happened in the past, what PEBs
17 have noted if you have a voluntary agreement
18 providing a certain set of health benefits
19 healthcare benefits that it is important for
20 subsequent agreements not to create disparity
21 between what a voluntary agreement reached in the
22 healthcare area and what subsequent agreements
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Page 106 1 would contain. What the PEB said applies equally
2 here as it did in the Board proceedings that it
3 was considering. Indeed, we missed one particular
4 statement by a PEB, but the labor organizations
5 caught it. It comes from PEB 221, in 1992, in
6 which, as clear as a bell, the PEB said, "We
7 believe that political competition between and
8 among unions for supremacy of benefits, with its
9 ineluctably destabilizing consequences, is
10 damaging to the public interest." We do not know
11 why that is not completely true and applicable in
12 this case. We did not set fire to anything. MR.
13 SCOFIELD (ph): There is a question.
14 UNIDENTIFIED MALE: Which PEB (inaudible at 11:35)?
15 MR.BOLEY: What? UNIDENTIFIED MALE 2: Which PEB?
16 MR.BOLEY: PEB 221, 1992.
17 UNIDENTIFIED MALE: (Stand up) (ph).
18 MR. SCOFIELD: (Did you use that) (ph) (inaudible
19 at 11:44)? MR.BOLEY: Hmm?
20 MR. SCOFIELD: (Did you use that) (ph) (inaudible
21 at 11:47)?
22 MR.BOLEY: The other thing I want to touch on is
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Page 107 1 the question of whether or not what we are
2 proposing advances President Obama's policy goal
3 of containing medical costs, containing healthcare
4 costs so clearly articulated in the Health Reform
5 Legislation. The last last section, I believe, of
6 our submission Section Six, I think I do not
7 have it in front of me is a section in which we
8 explore what was said about the need to eliminate
9 wasteful healthcare expenses, to cut back on
10 overly generous healthcare plans, and I will let
11 that stand. But perhaps the most significant
12 evidence of that proposal, that what we are asking
13 for serves the public policy annunciated by that
14 statute is the so-called Cadillac Tax. It applies
15 to the generosity of benefits, not It does not
16 take anything away from the value that triggers
17 the tax because of employee contributions. It will
18 take away from that value to the extent that
19 point-of-service cost sharing is increased. That
20 is exactly what we are doing here. So when you
21 look at it from a public policy standpoint, the
22 public policy of sound labor relations articulated
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Page 108 1 by prior PEBs under the Uniformity of Benefits
2 Principle, and the public policy to cut back on
3 overly generous healthcare plans articulated by
4 the Health Reform Act those two aspects of public
5 policy should be foremost in your consideration.
6 Thank you.
7 CHAIRMAN JAFFE: Thank you, Mr. Boley. A couple of
8 questions, if I may, by way of clarification Mr.
9 Scofield, could we take a look at Slide 13,
10 please?
11 MR. SCOFIELD: Yes, sir.
12 CHAIRMAN JAFFE: I would like to clarify at least
13 the little box numbers on the right, if I may.
14 MR. SCOFIELD: Yes.
15 CHAIRMAN JAFFE: The red box that says "Railroad
16 Current".
17 MR. SCOFIELD: Yes.
18 CHAIRMAN JAFFE: .Is that 3,400 the sum of the
19 2,400 and $1,000 that would represent employee
20 payments for co-pays and other fees under the
21 existing plan?
22 MR. SCOFIELD: Yes, sir.
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Page 109 1 CHAIRMAN JAFFE: And then the 4,000 in the
2 "Proposed" box - -is that a projection of what
3 would be the sum of 2,400 and employee out-of-
4 pockets, in total?
5 MR. SCOFIELD: Yes, exactly.
6 CHAIRMAN JAFFE: The prescription drug, I think you
7 indicated, was designed to be cost-neutral, in the
8 earlier slide, based on the AOB equivalents? Or is
9 that not correct?
10 MR. SCOFIELD: No, that it is it is cost-neutral
11 on the AOB for the employees.
12 CHAIRMAN JAFFE: Right.
13 MR. SCOFIELD: It will bring down total costs
14 because of the shift to generics.
15 CHAIRMAN JAFFE: OK. So the difference between
16 those is roughly $600 a year? That is the per-
17 employee increase in dollar responsibility for the
18 same package of healthcare benefits? Or is that
19 assuming a change in utilization? It is really
20 what I am trying to nail down, if I can.
21 MR. SCOFIELD: Yes. It is the $600 increase
22 incorporated into that, as you were rightly
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Page 110 1 observing, on the pharmacy, we have assumed that
2 the adequacy of benefits stays level, and that
3 reflects a shift in utilization from more
4 expensive brands to generics. With respect to
5 medical coverage, we have not reflected into this
6 number any estimate for utilization change on the
7 medical side.
8 CHAIRMAN JAFFE: So at least this projection
9 assumes the same visits to the same doctors, the
10 same hospitalization, the same everything else, no
11 change?
12 MR. SCOFIELD: The same number of emergency visits
13 yes sir.
14 CHAIRMAN JAFFE: And the 600 is per employee, but
15 that would represent - if it were a person with
16 family coverage, for example, that is an average,
17 so that covers the per-employee cost of providing
18 benefits to the family unit, whether they are
19 single or family across the plan?
20 MR. SCOFIELD: Yes, that is correct. It is a it is
21 my estimate of what the average is per employee.
22 When you think of it, there will be some single
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Page 111 1 employees; some employees who have no claims
2 whatsoever, so they have no increase; some
3 employees who have large families, who have
4 considerable utilization that it may have out-of-
5 pocket costs more than 600. So, yes, it is an
6 average of all those factors.
7 CHAIRMAN JAFFE: And so this would be the
8 comparison number to the Cheiron estimate of 410
9 we heard yesterday or not? That is really where I
10 was going.
11 MR. SCOFIELD: I do believe that that is the case.
12 Cheiron, as I understand it, was reflecting based
13 on 2009 data, and I am a of course, uncertain
14 exactly what they had. I do believe that they said
15 it was reflective of the deductible and co-
16 insurance. Was not necessarily sure whether it
17 reflected the emergency room co-pays or not. So,
18 in that light, those estimates do not seem that
19 far apart to me.
20 CHAIRMAN JAFFE: Fair enough. And the last cost
21 question I had have you looked at what a change
22 to a zero-dollar co-pay for generics would do to
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Page 112 1 the cost numbers?
2 MR. SCOFIELD: Months ago, when that question came
3 up, we did inquire of Medco, who is the pharmacy
4 benefit manager for the plan, and made use of
5 their the information they provided to us in
6 order to judge any of the different plan designs
7 that were suggested. And we did look we did ask
8 Medco to price out the zero-dollar the just
9 change the generics to zero and do not change
10 anything else. And it was their estimate that they
11 provided to us that that would not reduce cost,
12 that it would increase cost to the plan. I do not
13 recall the dollar amount.
14 CHAIRMAN JAFFE: Fair enough. Any of panelists have
15 anything they wanted to clarify?
16 UNIDENTIFIED MALE: Yes (ph), I have a.
17 CHAIRMAN JAFFE: Sure, go ahead?
18 UNIDENTIFIED MALE: I have a question on Slide
19 Number Five. I am not sure I was underseeing (ph)
20 something, but the is there an issue here about
21 changes in family coverage? I mean, you know, they
22 claim showing that spouses have more
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Page 113 1 musculoskeletal injuries than males, or their
2 husbands when or their spouses when you have
3 acknowledged that on-the-job injuries would not
4 appear in this. I am not sure what the purpose of
5 this slide is.
6 MR.BOLEY: The purpose of this slide was to counter
7 the argument that the dangerous the alleged
8 dangerous jobs done by the workers caused them to
9 be sicker, and therefore to cause the plan costs
10 to go up.
11 UNIDENTIFIED MALE: How does this.?
12 MR.BOLEY: These these are not on-duty injury
13 claims. These are other-than-on-duty injury
14 claims. The injury (ph) claims has not appeared in
15 any of our analyses, so what this is designed to
16 show is, it is not the difficulties the sicker
17 the sicknesses and injuries suffered by the
18 employee that are any as important as those
19 incurred by the spouse.
20 UNIDENTIFIED MALE: Or given the fact the spouse
21 the working spouse a good chunk of their time is
22 spent on duty and, therefore, otherwise
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Page 114 1 compensated or reimbursed if there are injuries.
2 It does not I just it is not inconsistent with
3 this chart.
4 MR.BOLEY: The on-duty injury argument that we made
5 applies to employees.
6 UNIDENTIFIED MALE: Yeah.
7 MR.BOLEY: A spouse who gets injured on duty.
8 UNIDENTIFIED MALE: Currently (ph).
9 MR.BOLEY: .effective (ph).
10 UNIDENTIFIED MALE: .Loses more time OK, there is
11 more time this is not this covers the time
12 spouses, 24/7 non-working spouses 24/7; it covers
13 working employees 18/5.
14 MR.BOLEY: When they are not on the job, the
15 working employee's coverage is other-than-on-
16 duty.
17 UNIDENITIFED MALE: Yeah. OK, thank you. MR.BOLEY:
18 OK? UNIDENTIFIED MALE 2: Just a little follow-up
19 there is there a a gender aspect to this, that
20 is that it is railroad employees are
21 overwhelmingly male? I do not know the statistics.
22 Where would the spouses', for instance, birth or
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Page 115 1 pregnancy show up in the in this?
2 MR.BOLEY: Pregnancy would show up, not on on-duty
3 anywhere. Pregnancy would be covered other than
4 on-duty. Unless you know something I do not.
5 [Chuckle] UNIDENTIFIED MALE 2: Yeah, where would
6 where would yeah, in the chart, would it show
7 increased usage by spouses? UNIDENTIFIED MALE 3:
8 These were only three types of injuries.
9 UNIDENTIFIED MALE 2: This is not this has nothing
10 to do with that.
11 MR.BOLEY: May I hear the question again?
12 UNIDENTIFIED MALE 2: So it is not it is not
13 related to any of this COPD, musculoskeletal
14 sprains.? MR. SCOFIELD (ph): These are very
15 particular conditions. These have nothing to do
16 with with birth. UNIDENTIFIED MALE 2: OK.
17 UNIDENTIFIED MALE 4: Go ahead and just ask one
18 category that is not covered here. CHAIRMAN JAFFE
19 (ph): Oh. If we look at the slide, what category
20 I assume these were essentially cherry-picked for
21 purposes of argument and illustration out of the
22 entire category of illnesses that people make
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Page 116 1 claims for under the plan, right?
2 MR.BOLEY: No, these were picked because these were
3 the ones that were emphasized by the labor
4 organizations as the kinds of injuries and
5 diseases that are most likely to be incurred by
6 railroad employees, as a result of the dangers
7 that lurk in the work that they do. UNIDENTIFIED
8 MALE 2: (inaudible at 23:31) there. See, it shows
9 they are excluded from this chart. They are on-
10 the-job injuries, I assume.
11 MR.BOLEY: No, these are not on-the-job injuries.
12 These are (inaudible at 23:42) injuries that were
13 suffered by the employee not on the job.
14 UNIDENTIFIED MALE 2: And the question is, why did
15 how does this answer the Union's claim that there
16 are more injuries on the job (in place) (ph)?
17 MR.BOLEY: It does not. The answer to that claim is
18 that the injuries on the job are not considered in
19 anything we have done, and they will be paid at
20 100 percent by the railroad regardless of the
21 changes that are made in the claim. UNIDENTIFIED
22 MALE 2: And how does this chart show how does
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Page 117 1 this chart rebut the claim that there is an
2 increase in the work that is more strenuous for
3 spouses who are working? (In a never mind) (ph).
4 MR.BOLEY: Well, what Dave tells me is that there
5 are virtually no COPD on-duty claims none.
6 CHAIRMAN JAFFE: OK, I think we are in good shape.
7 Thank you very much.
8 MR.BOLEY: Thank you for your patience.
9 CHAIRMAN JAFFE: Does anybody want to break before
10 we tackle workloads? We will take about an hour
11 and a half. Give us two seconds. I know our files
12 (ph) have been running a little longer, but it
13 looks like we are headed to a section that you are
14 projecting to take about an hour and a half? And.
15 MR. SCOFIELD: Mr. Chairman, if I may, I.
16 CHAIRMAN JAFFE: Sure.
17 MR. MUNRO: .I think we are we are still willing
18 to attempt to make my 1 p.m. deadline. I realize I
19 am my reputation for timeliness is suffering, but
20 I think I can still do it if we could keep the
21 break very, very short.
22 CHAIRMAN JAFFE: I would love to keep it very, very
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Page 118 1 short. I just did not want people totally
2 fidgeting between now and one o'clock. We will
3 take five, literally off the record. I think we
4 are there, right? Is Mr. Wilder still here? OK,
5 here is in the room or he just left.
6 UNIDENTIFIED MALE: He is right behind you.
7 CHAIRMAN JAFFE: He is right oh, there he is.
8 UNIDENTIFIED FEMALE: (inaudible at 00:50).
9 CHAIRMAN JAFFE: No, you were fine. If I could ask
10 everyone to get seated, and we can then resume.
11 Thank you.
12 MR. MUNRO: Mr. Chairman and members of the Board,
13 as we discussed last week, the carriers urged the
14 Board to reject the recommendations of the
15 coalitions of the individual crafts work rule
16 proposals for the reasons for pattern (ph)
17 precedent, carrier restraint, and a lack of
18 intensive bargaining on at least a majority of
19 those proposals. Having said that, we also
20 promised you last week that we would address
21 directly at least a significant portion of the
22 work rules case presented by the coalitions and
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Page 119 1 some of their crafts, and we will do just that
2 very, very quickly. Scott Weaver, Assistant Vice
3 President for Labor Relations in Norfolk Southern,
4 and Greg Koontz, Director of Engineering at BNSF,
5 will present the carriers' views on the
6 advisability of BMWED's away-from-home and travel
7 expense proposals. They will be followed by John
8 Hennecke of the National Railway Labor Conference,
9 and Bill Rowe, Assistant Chief Engineer Workforce
10 Optimization at Union Pacific, who will address
11 the impact of the coalitions' vacation proposal.
12 Steve Crable, CSXT's Vice President of Labor
13 Relations, will then provide some context for the
14 BLET's vacation and meal allowance proposals in
15 the context of the local agreement struck with
16 CSX. Finally, Rob Karov, Assistant Vice President
17 of Labor Relations at BNSF, will address two of
18 the unions' less-emphasized proposals, the
19 coalitions' information request proposal, and
20 BLET's proposal on locomotive cab conditions.
21 Hopefully, these industry experts will be able to
22 guide the Board through the cost context and
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Page 120 1 complexity of the work rule proposals, which
2 further supports our view that they not be
3 recommended.
4 CHAIRMAN JAFFE: Thank you very much. If I could
5 ask the Reporter to swear in Mr. Weaver and Mr.
6 Koontz, since I think they are first up.
7 REPORTER: (Raise your arm) (ph). Do you swear the
8 testimony you are about to give today be the
9 truth, the whole truth, and nothing but the truth
10 (under penalty of law) (ph)?
11 MR. SCOTT WEAVER: I do.
12 MR. GREGORY KOONTZ: I do.
13 UNIDENTIFIED MALE: [Whispering] Go ahead and
14 (inaudible at 02:58) person there (ph).
15 UNIDENTIFIED MALE 2: [Whispering] (inaudible at
16 03:00).
17 MR. WEAVER: Good morning, still. My name is Scott
18 Weaver. I am Assistant Vice President of Labor
19 Relations for Norfolk Southern. I have been in the
20 transportation industry for 25 years. The first 22
21 the first three of those, excuse me, in the
22 trucking industry, and the last 22 years with
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Page 121 1 Norfolk Southern. My time at Norfolk Southern has
2 been almost entirely in Labor Relations, but I did
3 recently spend a year in Operations. I have been
4 in my current position for three years. I will do
5 my best to do my part to restore Don's reputation
6 for timeliness. To that extent, I ask for your
7 indulgence if I go very quickly through a few
8 slides. I want to talk a little about the BMWE's
9 away-from-home and travel expense proposals, which
10 add costs to meals, lodging, and travel.
11 Arbitration Board 298 you heard a lot about this
12 yesterday. I am not going to go into any further
13 detail about given the constraints of time, but I
14 will point out that this arbitration award was
15 the unions had the option of either accepting
16 particular provisions within the award or electing
17 to retain more desirable local provisions. So,
18 from the outset, 298 was intended not to be a
19 uniform approach. It had (variance property to
20 property) (ph) built into its very structure from
21 the very beginning. What do the meal allowances
22 and lodging allowances provide, according to 298?
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Page 122 1 Well, the original amount was three for meals. In
2 2011 dollars, that would be $18.98. So, as you can
3 see, it is growing significantly more quickly than
4 simply the rate of inflation since the original
5 amount. Likewise, with the combined lodging and
6 meals number, that was $7. In 2011 dollars, that
7 would now be $44.29. But the actual amount for the
8 meal and lodging is $57. What this equates to,
9 given that these are seven day-a-week allowances
10 for meals, is $175. That is $25 times seven days.
11 And down there at the bottom of the screen, you
12 see a $44 net amount. That is for situations where
13 the applicable to our employees in camp cars,
14 where the meals are provided for them, they get a
15 $56-per-week per diem, but the cost of food is
16 subtracted out from that so it nets out the $44.
17 What you have before you here is a typical four
18 10-hour day workweek for a traveling BMWE gang.
19 And all this does is extrapolate out from the $175
20 a week. And the long and the short of it is that,
21 for a typical month, a BMWE traveling employee is
22 going to work 16 10-hour days, and his meal
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Page 123 1 allowance for that period of time, under
2 Arbitration Board Number 298, is going to be $700.
3 I do want to point out that the this issue has
4 been addressed by both PEB Number 219 and PEB 229,
5 and both of those boards elected to keep the 298
6 structure in place. Now, the amounts were raised,
7 and that is why why this is now so much
8 significantly higher than what it would have been
9 with inflation. The unions the BMWE, specifically
10 has also referenced the fact that the so much
11 inconsistency has developed within the industry as
12 a reason that 298 should be scrapped, because it
13 has morphed from the national structure of the
14 various rules. Well, keep in mind a couple of
15 things. First, as I already mentioned, part of
16 that is because they had the opportunity. [Distant
17 applause] .at the time of 298 to keep more
18 desirable rules. The only other reason that would
19 have happened is if the parties, in consideration
20 of all the local operating and employee issues
21 involving travel on a particular property, chose
22 to change it. In a second, I will talk to you
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Page 124 1 about a couple of ways that it has changed on NS
2 through on property negotiation. I do not believe
3 and I that this is something to point to as some
4 sort of
5 failure of the system. This is the natural course
6 of collective bargaining. It is what you would
7 expect to happen, and it is simply the parties'
8 effort to confirm a national structure to
9 something that works, given their particular
10 situation on their property. And those do vary
11 from property to property. And, frankly, the same
12 variations would occur again rather quickly if, in
13 fact, this structure was scrapped and a new one
14 were put into effect. Mr. Powers recognized this
15 yesterday when he said that the same thing would
16 happen. But what would also happen is the quid pro
17 quos that were inherent when the structure was
18 adapted to local situations would also unfairly
19 and unnecessarily be thrown out. Let me now talk
20 about a couple of examples from Norfolk Southern.
21 These were on-property situations where, either
22 through a single agreement or a series of
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Page 125 1 agreements, we found a way to make the employees
2 (in the K) (ph) found a way to make 298 work
3 better for them. The first is with the BMWE. And
4 on a significant portion of our property, the
5 employees would gain the right during the workweek
6 to commute home, reimbursed by the carrier as
7 opposed to having to stay in a hotel for the
8 entire week. They had the right to commute home,
9 compensated or reimbursed, or they had the right
10 to stay in a hotel. The quid pro quo for that was
11 the meal allowance was not a seven day-a-week
12 allowance anymore; it became a workday allowance.
13 So, essentially, it was $25 or is $25 four days a
14 week. Now, I should point out that, if you recall
15 Mr. Pierce's slide from yesterday, where he was
16 talking about the train and engine meal allowances
17 and seeking to have those increased, even at a
18 workday level, BMWE travel allowance is superior
19 to the 24-hour reimbursement numbers that Mr.
20 Pierce put on the slide yesterday for train and
21 engine employees. And that is after the adjustment
22 to the UTU agreement. The second agreement that I
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Page 126 1 would like to talk to you about on Norfolk
2 Southern is with the BRS, who you may recall from
3 Mr. Powers' testimony, was also party to 298. BRS,
4 over a series of agreements, has ended with the
5 following arrangement on Norfolk Southern: "We
6 have gained significant additional flexibility in
7 using employees across seniority (ph) district
8 lines. They have gained single-occupancy lodging
9 for their members, and they have a $32.50 meal
10 allowance." That is a workday meal allowance, and
11 it is indexed to inflation. Now, that mean
12 allowance, taken on a weekly basis, is $130. That
13 compares to the 298 allowance of $175. So both
14 these examples are quid pro quos, at least at the
15 time they work for both the carrier and the
16 unions. And if we were to scrap the structure,
17 those are exactly the types of things that would
18 go out the window. Before I move on to lodging,
19 let me address one other thing that Mr. Powers
20 mentioned yesterday. This is very briefly because
21 the short story is it does not really apply on
22 Norfolk Southern. He essentially talked about
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Page 127 1 situations where headquarter gangs were treated
2 like traveling gangs except for the fact that they
3 did not get the per diems. So basically two
4 situations where that occurs are where employees
5 were forced a long distance away from their home
6 location to a headquarters job. On Norfolk
7 Southern, we do not have the ability to force
8 people to headquarter jobs, so it does not occur.
9 Another situation he described was mechanized (ph)
10 gangs that we would typically think of as
11 production gangs or traveling production gangs,
12 that are bulletined as headquarter gangs, but
13 every periodically, whatever period of time that
14 may be, they are abolished and re-bulletined at a
15 different location. Again, we do not do that. We
16 do not have any gangs that are do that type of
17 work, that we bulletin as headquarter gangs and
18 then abolish and move them down down the line or
19 road. OK, let us go to lodging for just a second.
20 That is one of those slides that we are going to
21 skip right over. This is the map of the R3 Rail
22 Gang 79 workers. The red dots you see that is
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Page 128 1 where it actually worked in 2010. I will talk more
2 specifically about it in a second but, first, just
3 let me say, as you have heard, various lodging
4 arrangements have developed in the industry. They
5 take run the gamut from paying on a per diem for
6 lodging to double-occupancy, to single-occupancy,
7 and to camp cars. The uniqueness of the work, the
8 geography involved, the size of involved
9 workforce, and, yes, management philosophies are
10 all factors that have contributed to the various
11 arrangements that have developed. And there are
12 also significant differences between the BMWE and
13 the other crafts that travel routinely as part of
14 their jobs. Let me give you just a few: BRS works
15 in five-to seven-men gangs. Train and engine
16 employees work in two-men crews and stay, at the
17 end of each tour of duty, at the same location, at
18 the same hotel. This has two impacts for the
19 carriers. First, it is obviously easier to find
20 hotels because the infrastructure can build up
21 because it people know that is where the railroad
22 is going to have business, that is where the
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Page 129 1 railroad is going to have to lodge people. But the
2 other thing is it also gives the carriers
3 significantly more bargaining power with those
4 hotels because we block the rooms, essentially,
5 for 365 days a year. We can guarantee that
6 establishment a certain level of occupancy every
7 night during the year. In contrast and, first of
8 all, the BMWE gangs average, probably, about 40
9 people many are much larger and they work in
10 remote locations that are far removed from the
11 terminals where train and engine crews go off
12 duty. The end result is - maybe once a year, maybe
13 less well, even a hotel in that location has the
14 opportunity to house our folks. Now, I am not
15 saying in all of these locations on the map that
16 there is there was not a hotel available. This
17 gang, if I did not mention it, by the way, stays
18 in camp cars. I am not saying that in none of
19 these locations were there hotels, double-
20 occupancy that would have would have
21 accommodated. What I am saying is there were a
22 number of locations where that is very unlikely.
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Page 130 1 And keep in mind that means a hotel that is
2 adequately prices, adequately maintained, and has
3 access to restaurant facilities, as well. One of
4 the big advantages of the camp cars, as we have
5 mentioned, is that we feed our employees, for
6 which, of course, they do get the $45 weekly
7 allowance. But anyway, there are places on this
8 map Oconee, Georgia; Grand Junction, Tennessee;
9 Dayton, Tennessee where it would have been very
10 unlikely to find adequate lodging double-
11 occupancy, let alone single-occupancy. This next
12 series of slides is the best-laid plans of mice
13 and men. This is our T&N Gang 31. This is a
14 schedule that was arranged for them at the start
15 of the end, I guess, of 2009, for 2010. It looks
16 pretty succinct and straightforward, but let me
17 just very quickly click through and show you what
18 happened. Now, there are lots of reasons that
19 these things happen - it can be weather; it can be
20 equipment malfunctions; it could be changing
21 priorities. But the long and the short of it is,
22 by the end of the year, this gang did very little
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Page 131 1 of the work they were planned to do, when they
2 planned to do it. The impact for that is
3 significant. We do not have significant lodging
4 options and, often, we have very little lead-time
5 to adjust those options when situations change.
6 Camp cars Only NS routinely uses camp cars, but
7 all of the railroads have the right to use them.
8 Mr. Powers obviously objected strongly to their
9 use, and one of the main reasons that he cited for
10 that was that the employees' safety was put at
11 risk by staying in camp cars. I think I can best
12 address that comment by going back to what Mr.
13 Manion said last week: "Employees in camp cars are
14 production gang employees, along with our double-
15 occupancy hotel folks." Those production gang
16 employees did not have a single injury in nearly
17 two million hours worked last year. That is an
18 incredible record, and they should all be very,
19 very proud of it, as we are. This year, there has
20 been one injury on a production gang. I cannot
21 even tell you whether that was a hotel employee or
22 a camp car employee. The bottom line is there is
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Page 132 1 absolutely no evidence that housing employees in
2 camp cars is either inherently unsafe or
3 jeopardizes their safety on the job. They have
4 proven the exact opposite. While I previously
5 mentioned that only 27 percent of our traveling
6 employees are in camp cars, we consider that a
7 crucial link. And that 27 percent is not a static
8 number. Recently, we took several of our larger
9 gangs, who had been previously in camp cars and,
10 because hotels and motels did become more viable
11 in the area where they predominantly work, we
12 moved them. Some of our smaller surfacing well,
13 let me back up all of our smaller surfacing gangs
14 except one the S3 has also been placed in
15 motels. The reason the S3 has not is because they
16 specifically requested to stay in camp cars. And
17 while we heard a lot about the shortcomings and
18 the supposed shortcomings of camp cars yesterday,
19 camp cars have significant advantages, too, and I
20 am talking about for the employees. First,
21 employees can leave their belongings in the camp
22 cars as opposed to having to lug them back and
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Page 133 1 forth from the worksite to their home each week on
2 their off days. I have already mentioned that we
3 provide the meals for the employees, and they
4 receive a $44 allowance for that. The camp cars
5 are essentially theirs for the production season.
6 They can personalize them with equipment, with
7 books, with TVs, with DVD to their liking and to
8 make them more hospitable for them. They also are
9 for a shorter commute, generally speaking, to the
10 worksite because they can be placed closer to the
11 line road where they are working. Now, without
12 question, this is this is an advantage to the
13 employees, but it is also an available advantage
14 to the company because, as you have heard, we have
15 this expensive equipment, track time is precious,
16 and making the most productive use of our
17 employees on duty time is very, very important.
18 For all these reasons, really, we have had very,
19 very few complaints about camp cars from our
20 employees, especially since we did the $10-
21 million renovation on them here in the last few
22 years. Let me show you a picture of what the old
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Page 134 1 camp cars looked like. That was the camp car
2 configuration when PEB 229 was was asked to ban
3 their use, and PEB 229 refused to do so. Let me
4 show you what they look like a short video clip
5 very short that shows what they are like today.
6 Okay, I'm still being told to pick it up a bit, so
7 I will try and - try and move you more quickly
8 through this. Before we leave lodging, let me just
9 say that not only have two PEBs previously
10 rejected the ban on camp car, but Congress was
11 recently lobbied by the BMWE for the same result,
12 and likewise, Congress declined to so. Instead,
13 the Federal Rail Safety Act tasked the FRA with
14 writing new regulations for a long time and
15 regulations on camp cars to address such things as
16 space, where the cars can be located, and the
17 safety requirements of the car. The final rule
18 isn't out yet, but we continue to work with the
19 FRA and we intend to fully comply with it when it
20 is. Last topic: Travel allowances. This is PEB
21 219. Mr. Powers said yesterday the world hasn't
22 changed since 1967, and I'm paraphrasing. This was
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Page 135 1 a big change. This was a big change and it was in
2 response to the things that were mentioned
3 yesterday regarding the greater distances
4 employees had to travel with the 219
5 recommendations, and what it provides is $25
6 essentially per 100 miles. Just a couple of things
7 to mention here that I think are important. That
8 $25 per 100 miles does not require the employee to
9 drive. Employees can and do drive together,
10 carpool, and each of the employees receives the
11 travel allowance, and this is probably one of the
12 rules that we would have asked to modify if we had
13 not focused down to the core issues in this round,
14 because we do believe it's overly lucrative and so
15 it's ripe for abuse. Let me give you a quick
16 example of how the - how this rule has changed
17 employee behavior and why, to me at least, this
18 indicates that the rule adequately compensates
19 employees. Before 296, before this travel
20 allowance rule, we routinely offered a - a bus
21 service from home locations to employees,
22 traveling employees' work sites. Employees
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Page 136 1 routinely used this service. Once the travel
2 allowance came into being, fewer and fewer
3 employees, in fact, virtually no employees,
4 accepted this offer anyway - this offer any more.
5 The reason to me is pretty clear; is because if
6 they took the bus, they would not get the travel
7 allowance, and eventually the travel - or
8 eventually the bus service was discontinued. Now,
9 it was entirely the employees' right to take the
10 bus, don't get me wrong. My point is that if they
11 didn't feel adequately compensated by the travel
12 allowance, I don't believe they would have chosen
13 to drive their vehicles or carpool as opposed to
14 taking the bus as they have done in the past. I'd
15 also like to point out the average commute in the
16 United States is a little over 30 miles according
17 - one way, according to the DOT. If you do that
18 five days a week, that's 153 miles roundtrip.
19 Under national agreement, the travel allowance
20 kicks in at some 60 percent of that average
21 commute. One more item of compensation available
22 to traveling employees, and you heard about this
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Page 137 1 yesterday; that is the $1,000 stay bonus for
2 remaining on a system production gang for six
3 months. I'd like to draw your attention to the
4 bottom of the slide first. This is the difference
5 shown in percentage there of traveling employee
6 vers - headquarter employees' annual pay. Mr.
7 Powers yesterday, in response to UP's similar
8 data, indicated that it was, in all likelihood, a
9 reaction to the fact that there's more higher
10 classification jobs in traveling; we adjusted for
11 that in this. This is a sampling of 20 laborers
12 headquartered and 20 laborers traveling.
13 Difference over the course of the year is over
14 nine percent, almost ten percent. Top part of the
15 slide I think shows you the impact of that. You
16 know, 27 percent of our traveling employees have
17 ten or more years of service, 17 percent have 25
18 years of service on the job. These are employees
19 that can - could hold headquarter jobs if they
20 want to; they've chosen not to. To be sure,
21 traveling maintenance work is unique work, and
22 it's a unique lifestyle. I suspect that some
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Page 138 1 people gravitate to it because that's a lifestyle
2 that they're comfortable with. I suspect others
3 adapt to the lifestyle because it's a work
4 opportunity that they want. What is clear is you
5 can see from the seniority or the people on this
6 slide that there is - that it is work that people
7 enjoy, that people desire, that it's work that
8 people go to voluntarily, and it's work that
9 they're well compensated for. Thank you for your
10 time.
11 CHAIRMAN JAFFE: Thank you, Mr. Weaver. Three quick
12 clarifiers, if I can, focused. SCOTT WEAVER: Yes.
13 CHAIRMAN JAFFE: The last slide that indicated
14 average annual pay; does that include or exclude
15 the various allowances?
16 MR. WEAVER: That includes everything. It would
17 include travel allowance, per diem amounts on the
18 various territory; whatever they are. Likewise,
19 over time, which, you know, for both headquartered
20 and -
21 CHAIRMAN JAFFE: Second question is I think you'd
22 indicated that currently only Norfolk Southern is
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Page 139 1 using camp cars? MR. WEAVER: Yes.
2 CHAIRMAN JAFFE: Is there something unique about
3 the operation of the maintenance of way crews on
4 Norfolk Southern in terms of location of the rest
5 or that's not shared by the other class 1's, or is
6 this a question of, as you described, corporate
7 philosophy, in part?
8 MR. WEAVER: Before I answer that, let me back up
9 on one other thing.
10 CHAIRMAN JAFFE: Sure.
11 MR. WEAVER: Because we provide lodging for all our
12 employees, there's no lodging per diem in the
13 difference of numbers on those -
14 CHAIRMAN JAFFE: Fair enough, thank you.
15 MR. WEAVER: Okay. When it comes to camp cars, one
16 of the things that we would have had in this
17 presentation if we had more time was all the
18 roads, explanation as to how they handle - handle
19 lodging and why. Yes, I believe there are portions
20 of our territory that are less hotel accessible
21 than perhaps some other places. Some of the other
22 railroads and situations adapt to this by simply
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Page 140 1 paying the - paying the per diem. But you heard
2 from Mark Manion last week that we do believe that
3 keeping our people in cohesive units, either in
4 hotels or in camp cars, has a significant value to
5 it. We think our safety and our production record
6 bears this out in that it breeds the type of team
7 atmosphere and the cohesiveness that this highly
8 mechanized ballet, if you would, requires.
9 CHAIRMAN JAFFE: Thanks. I'll leave it at that. My
10 panel members okay? Thank you very much.
11 GREGORY KOONTZ: Good afternoon, Mr. Chairman,
12 members of the Board. I, too, will move much more
13 quickly. My name is Greg Koontz. I'm Director of
14 Engineering at BNSF. I have a degree in civil
15 engineering and have been with the railroad for 22
16 years. I began my career in the field, managing
17 production gangs and holding various positions at
18 the division level. I've held roles in both
19 transportation scheduling and maintenance
20 scheduling. And for the last 11 years I've held
21 responsibility over many administrative functions,
22 including corporate project estimating,
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Page 141 1 technology, and applications development, vehicle
2 services and DOT compliance. And regarding the
3 focus of this Board, I also manage the
4 administration of the CBAs for the engineering
5 department through a manpower planning office,
6 encompassing the track structures, signal, roadway
7 equipment, and telecom departments. I'd like to
8 walk you through a few slides quickly to
9 illustrate some of the scheduling complexities and
10 provide some insight on their impacts to lodging.
11 Our production gangs, of course, are dedicated to
12 the strategic replacement of rail ties, the
13 renewal of ballast and surfacing. Similar to other
14 roads, you'll know we also run typical gang sizes
15 of 30 to 50 employees, traveling long distances in
16 very remote locations through the desert, through
17 mountain ranges, across the open prairie. One
18 primary goal of our scheduling process is to
19 develop schedules which minimize interruption to
20 any given train as it moves cross-country. This,
21 of course, requires heavy coordination between
22 engineering and transportation. As such, daily
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Page 142 1 monitoring of gang production is required and plan
2 modifications are made where and when necessary.
3 Revised plans are communicated and published each
4 week. The following few slides will help exemplify
5 our annual planning cycle. You'll note the colored
6 months here indicate the core of our work season,
7 which runs between April and October. Although
8 this reflects our core maintenance period, some
9 production gangs typically start along the west
10 coast and in our southernmost states of our
11 network in January. Given the geographic diversity
12 of our system, weather is certainly one of the
13 most predominant planning considerations that we
14 face. Effectively, the frost must be out of the
15 ground for all engineering departments across the
16 country to be most productive with their
17 maintenance activities. Near the end of the year,
18 if weather permits and funding can be advanced, we
19 may be able to extend the work season well into
20 November. We maintain a strategic capital
21 maintenance plan with projects to fund generally
22 two to three years in advance. For an upcoming
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Page 143 1 work season, you will note the planning cycle is
2 well under way by June of the prior year. Based
3 upon funding targets and unit forecasts,
4 production gang schedules are developed around the
5 consolidated seniority districts through logical
6 grouping of common activity and proximity of the
7 work. To arrive at an effective executable
8 schedule, various constraints are evaluated, such
9 as avoiding grain harvest movements to the Pacific
10 Northwest, rationalizing expected work window
11 durations on double versus single track
12 territories - these can vary widely throughout the
13 year depending upon the seasonality of the
14 transportation network - and determining when and
15 where to double up on gangs which are designed to
16 minimize project durations on a particular
17 subdivision. Generally our job bulletins for
18 region system gangs are developed, reviewed, and
19 published by Thanksgiving of each year. The awards
20 are subsequently announced in mid-December,
21 allowing the first production gangs to start in
22 early January. Of course, newer vacated positions
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Page 144 1 are also published on schedules each month
2 throughout the year, consistent with the
3 agreement. We typically see between 30 and 50,000
4 individual bid choices entered by employees
5 throughout the year and we attempt to accommodate
6 those job references in the awarding process. So
7 you can see, given the lengthy planning process,
8 we're often forecasting projects anywhere from 6
9 to 18 months in advance of their activity, leading
10 to many changes throughout the work season as we
11 execute. All maintenance activities are competing
12 for limited capital funds, so we attempt to
13 optimize on our best opportunities to get the
14 biggest bang for the buck. Our annual work program
15 encompasses nearly eight to ten thousand projects
16 each year. Complexities of scheduling the work
17 windows do require a significant orchestration of
18 several key activities. We have to understand the
19 implications on the transportation logistics,
20 where we will be staging trains, where to store
21 the rail-bound maintenance equipment each night,
22 determining if and when to reroute or detour
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Page 145 1 trains, evaluating the slow order, the temporary
2 speed restrictions that are created behind the
3 production gangs. We must also coordinate material
4 distribution and unloading activities generally
5 requiring specialty trains. We also must
6 understand the availability of employees and
7 equipment and resolve any conflicts when there's
8 too much activity that may exist, affecting train
9 traffic. There are daily tactical decisions also
10 negotiated through our network operations center,
11 reacting to service interruptions and making
12 adjustments to the plan. So given the
13 interdependencies, it has now become an absolute
14 imperative to successfully execute and adjust the
15 plan each day. Catastrophic events, which we call
16 casualties, are simply a fact in the railroad
17 industry; on our railroad they can total well in
18 excess of $100 million annually. Oftentimes, these
19 significant and certainly unanticipated events
20 require periodic rescheduling of activities that
21 can profoundly impact the previously committed
22 plans. As I'm sure you've heard and read in the
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Page 146 1 press, we experienced extraordinary circumstances
2 this year with unprecedented flooding throughout
3 the Central and Upper Midwest, through the Dakotas
4 and Montana, as well as in Louisiana as the water
5 moved towards the Gulf. In addition to capital
6 track maintenance, we are also integrating bridge
7 reconstruction and tracking facility expansion
8 activities as well as coordinating the most
9 significant signal construction activities ever
10 undertaken with our PTC program. In order to drive
11 high efficiency and utilization, our goal is to
12 consolidate work into the fewest number of work
13 windows possible, having the least impact to
14 service that we provide our customer, so
15 frequently coordinating otherwise disparate
16 activities with production activity is now the
17 norm. In order to minimize the overall durations
18 on a subdivision, we often work gangs in tandem,
19 having a direct impact on our lodging
20 requirements. Lodging for our employees is
21 coordinated by a third-party corporate lodging
22 provider with negotiated rates and assurances that
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Page 147 1 they are meeting our standards. Hotels also limit
2 their exposure to our constantly changing schedule
3 that may move from day to day. Given the Unions'
4 demands for single occupancy as presented in their
5 submissions and testimony, it is simply not as
6 easy a problem to solve as one might believe. In
7 fact, on many parts of our network, one might say
8 would even be impossible, given the lack of
9 sufficient rooms to house our large production
10 crews. As the number of room requirements go up,
11 the number of hotels required also is rising, and
12 given the remote nature of most of our railroad,
13 the travel distances accordingly increase. Work
14 windows are typically five to seven hours in
15 duration for our production activities, and we can
16 ill afford to lose valuable time on the track in
17 exchange for longer commute times by mobilizing
18 crews from locations further from the jobsite. I
19 will offer a few real-world examples to
20 demonstrate that lodging costs can significantly
21 increase under the Unions' proposal. This is an
22 example extracted from our 2012 work program for
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Page 148 1 rail replacement. This happens to be on the
2 Kootenai River subdivision, where we intend to
3 work four gangs simultaneously on that subdivision
4 for a period of six consecutive weeks. And
5 analyzing the two options, you'll note here
6 through our lodging provider they have shown us
7 that the single occupancy scenario as offered by
8 the Union will spread the gangs over eight hotels
9 based upon the reasonable capabilities of each of
10 these lodging facilities, and this is in and
11 around the Libby, Montana area. When contrasted
12 with double occupancy, the cost is roughly 34
13 percent higher. As for a second example, this one
14 is in Thayer, Missouri. Single occupancy will
15 spread the crews over six hotels. And again,
16 contrasting with double occupancy, the average
17 rate per guest night is approximately 53 percent
18 higher. If the Board were to recommend single
19 occupancy, it will assuredly drive additional
20 expense at least up by one-third and is simply not
21 feasible in every circumstance across our diverse
22 geography. This illustration summarizes the
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Page 149 1 primary benefits afforded our employees on mobile
2 gangs with the exception of the final column which
3 represents the stay bonus or, in our terms, the
4 region system gang bonus for traveling production
5 gangs, all designed to defray any incurred
6 expenses. I would also like to take a moment to
7 address the headquartered employees' lack of
8 expense provision. You will recall the Unions'
9 assertion yesterday that headquartered employees
10 are required to accept jobs very far from home,
11 even as much as 1100 miles away without expense.
12 Employees have the flexibility to bid any job that
13 their seniority may afford. So rather than speak
14 anecdotally, we've developed the following data
15 from the current BNSF assignments, which clearly
16 showed a vast majority, well over three-fourths of
17 all headquartered BMWE employees are working
18 within a reasonable commuting distance from their
19 home station and able to return home each night.
20 So given the nature of the agreement, we also have
21 what we will call truly force-assigned employees:
22 Those that tend to be junior-most; that have very
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Page 150 1 little or no opportunity. Recognizing this
2 situation, BNSF acknowledged and created a remedy
3 for those employees that are truly forced more
4 than 75 miles from home by providing a meal per
5 diem and double occupancy lodging through a
6 provision we titled M3. This resolves the
7 situation when mobile opportunity paying expenses
8 exist and no other headquarter opportunities
9 available within 75 miles of the employee's home
10 or his home station. On any given day, only about
11 50 to 70 employees are claiming the M3 payment
12 over the past 90 days. From this date it is very
13 clear that employees have ample opportunity to
14 remain close to home and are doing just that. In
15 closing, the current practices that are in place
16 today are working and are working well. Each
17 railroad has negotiated its way to reasonable
18 resolutions to align their respective needs and
19 those of their respective employees. Through these
20 illustrations, I trust we've demonstrated that one
21 size simply does not fit all. Thank you. I'd be
22 happy to answer any questions you may have.
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Page 151 1 CHAIRMAN JAFFE: I think we're in good shape. Thank
2 you, Mr. Koontz.
3 MR. KOONTZ: Thank you.
4 MR. MUNRO: Mr. Chairman, I guess I'd like to offer
5 an alternative at this point to the Board and to
6 my colleagues on the other side. My partner, Mr.
7 DeLorme, assures me that we can wrap up by 1:15. I
8 am more dubious about that. The two options as I
9 see it are we could - we can press on and attempt
10 to conclude as rapidly as we can. I am concerned
11 about shortcutting my witnesses and their
12 testimony. The other possibility is that we could
13 break for lunch, come back, and take one hour
14 after the lunch break to wrap up the Carriers'
15 case, devote the remainder of the day to the
16 Unions' rebuttal presentation. If they can finish
17 today, that we're willing to stay late. If that's
18 not possible, then obviously we'd have to carry
19 over to tomorrow morning.
20 CHAIRMAN JAFFE: What's your preference first? We
21 may as well find out from -
22 MS. PARCELLI: Well, a couple of things. The only
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Page 152 1 problem - one of the problems I see potentially
2 with this is I haven't even had a chance to talk
3 to folks and know what areas need to be addressed.
4 I would hope that - and I'm just throwing this out
5 as me - like two hours we could do it. But I think
6 the more time I have to sit and talk with the many
7 different people I do need to talk with, the more
8 we can streamline the presentation. So if I only
9 have over an hour-long lunch break to do that, you
10 know, we'd rather have something that makes some
11 sense and is not disjointed.
12 CHAIRMAN JAFFE: I think our preference, all other
13 things being equal, would be to proceed. That way
14 we can wrap up with your rebuttal case. We can
15 then take an extended lunch if it's needed in
16 order to focus, streamline, or simply get
17 everybody's ducks in a row before we then proceed
18 with the Unions' rebuttal. And if there is anyone
19 who obviously has health or other needs, feel free
20 to accommodate those; they have our blessing in
21 advance.
22 MR. MUNRO: Thank you. We'll proceed accordingly.
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Page 153 1 CHAIRMAN JAFFE: Thanks. I don't believe Mr.
2 Hennecke has been sworn in, so if we could ask the
3 court reporter to do so, please.
4 COURT REPORTER: Do you swear the testimony you're
5 about to give in this case is the truth, the whole
6 truth, and nothing but the truth under penalty of
7 law?
8 JOHN HENNECKE: I do.
9 COURT REPORTER: Thank you.
10 MR. HENNECKE: First, let me introduce myself. John
11 Hennecke, Director of Labor Relations with the
12 NRLC. In a capsule, over 39 years in the industry;
13 20 working on the railroad, two as a railroad
14 arbitrator, and 17 years now with the NRLC. I'm
15 here to talk a little bit today about the vacation
16 benefits that are afforded to all the
17 organizations that are before us this week. The
18 1941 National Vacation Agreement that covered the
19 non-operating crafts, which includes all the
20 organizations here except for the BLET and the
21 ATDA, was a product of Presidential Emergency
22 Board number 11. And it's interesting to note that
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Page 154 1 the Unions before PEB 11 sought a prorated
2 vacation system that would have provided employees
3 with one day of vacation for each month in which
4 they earn compensation. However, PEB 11 rejected
5 the Carriers' - or the organizations' proposal and
6 concluded that vacation should be allowed to
7 employees who work substantially throughout the
8 year. And further, that any employee who works,
9 sickness and injury excepted, not less than 60
10 percent of the total work hours per year should be
11 entitled to a vacation. So we can see from that
12 that there was an intention that full-time
13 benefits would be afforded to full-time employees.
14 Under our current system, employees get a week of
15 vacation after one year of service, they get two
16 weeks from the second to the seventh year of
17 service, three weeks from the eighth through the
18 sixteenth, four from the seventeenth through the
19 twenty-fourth, and they get five weeks of vacation
20 following 25 years of service. And in addition to
21 that generous vacation package, most railroad
22 employees also receive 11 paid holidays. The ATDA
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Page 155 1 folks get additional compensation added into their
2 paycheck rather than to holidays themselves, and
3 this exceeds the average of eight holidays that's
4 enjoyed by most U.S. workers. On top of that, the
5 coalition union employees also are entitled to
6 paid personal leave days. Most of these employees
7 qualify for one or two days based upon their years
8 of service, and that clerical employees can get up
9 to three personal leave days. BLET represented
10 employees in road service can receive up to 11
11 paid personal leave days in lieu of holidays.
12 Based upon the above, there's simply nothing to
13 indicate that railroad employees receive
14 inadequate paid time off. In fact, when we compare
15 their vacation and personal leave days to those of
16 other unionized private sector workers, we can see
17 that on average our employees receive equal or
18 superior levels of paid time off at every state of
19 their current - stage of their careers. For
20 example, the 16 days of paid time off that our
21 employees receive after the first year of service
22 is equal to or better than 50 percent of unionized
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Page 156 1 employees. That goes up to 89 percent in years two
2 through four and 88 percent in years eight and
3 nine. It climbed as high as 91 percent in years 17
4 through 19 and stays well above 50 percent
5 throughout. When we look at paid time off as a
6 part of the total employee compensation package,
7 railroad employees far surpass employees in the
8 transportation industry of which they are a part,
9 and for that matter, all unionized employees in
10 private industry. Paid time off equals over $4 an
11 hour of additional compensation and it translates
12 into almost 15 percent of their wages. But the
13 cost of the Unions' proposal for enhanced vacation
14 benefits goes beyond the additional cost of
15 providing vacation to those employees. The
16 Carriers also pay a price for the employees'
17 absence. They pay for either diminished - in the
18 way of either diminished production or the added
19 cost to replace the vacationing employee. Where
20 the job must be filled, the Carrier must hire,
21 train, and maintain a force of qualified vacation
22 relief employees. And in some cases where
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Page 157 1 employees worked in tandem with one another, when
2 one employee is on vacation, the other employee
3 has to be reassigned to other activities. In some
4 cases we have to pull employees off of other
5 duties to fill in for vacationing employees, and
6 in the worst-case scenario we have to pay the
7 overtime or penalty rate to replace that
8 vacationing employee. (audio break) .cost
9 associated with having employees absent on
10 vacation for a longer period of time. The
11 coalition unions have proposed three material
12 changes in the vacation agreements. First they
13 want to add a 6 week of vacation for employees
14 with 20 or more years of service. That is up from
15 what - 20 year service employees now only receive
16 4 weeks, so we're talking about a 2-week jump for
17 some of these people. And they also wish to
18 accelerate the rate at which employees become
19 available for additional weeks of vacation, and
20 they wish to relax the current eligibility
21 requirements, requirements that are already more
22 than reasonable. The UTU national agreement made
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Page 158 1 no changes in paid time off, even though it was a
2 subject matter that was discussed thoroughly
3 during those negotiations. Instead the parties
4 agreed that compensated leave fell into the
5 category various (ph) that were suited for
6 constructive and creative attention at the
7 individual carrier level. And unlike other types
8 of things like wages, the value of paid time off
9 does not diminish or depreciate over time. In
10 fact, it actually increases in value as time
11 passes. As wages increase, so does the value of
12 vacations, holidays and personal leave days. There
13 is simply no rational basis that contend that
14 there is any need for any type of catch-up or that
15 more paid time off should be forthcoming simply
16 because of the passage of time. For example right
17 now a clerical employee with 25 years of service
18 gets 5 weeks of vacation, 11 holidays, 3 personal
19 leave days, and if they're a clerical employee
20 they will get 10 or more days of sick leave and
21 that totals up to 49 days of paid time off. That's
22 almost 10 weeks of paid time off during the year
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Page 159 1 or almost 1/5 of the year. Even more importantly
2 the coalition union's proposals regarding pro-
3 ration are either misguided or misleading in many
4 respects. Fulltime employees should receive
5 fulltime benefits. But our current eligibility
6 requirement to work 120 days to qualify for 1 week
7 of vacation translates into less than 50 percent
8 of available work days in the year in order to
9 qualify for a full vacation. Eligibility
10 requirements also provide a needed incentive for
11 employees to work on a regular basis. Moreover the
12 coalition union's pro-ration proposal is not a
13 true pro-ration, even as they requested before PEB
14 11. The examples they cited pointed to situations
15 where the employee who works half a year may
16 qualify for half the vacation allotment for that
17 first year of service. Currently employees get 100
18 percent of their vacation for only working 48
19 percent of the work opportunities in that year.
20 Unions want to pro-rate this already reduced
21 qualification requirement. Under their proposal
22 someone who works only 24 percent of the time
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Page 160 1 would actually earn 50 percent of their vacation
2 in a year. And in a worst case scenario, under
3 their proposal for 6 weeks after 20 years of
4 service, with their pro-ration proposal, an
5 employee can actually qualify for 2 weeks of
6 vacation by only working 4 days during the course
7 of the year if they happen to be off sick for 30
8 days during that year as well. The 30 days of sick
9 leave combined with 4 working days would give them
10 1/3 of the 100 qualifying days it would take to
11 qualify for a vacation. So 1/3 of 6 weeks would
12 equate to 2 weeks vacations for 4 weeks of work,
13 or 4 days of work, which would lead to a rather
14 absurd type of situation. And in fact many of the
15 hypothetical examples that were given by the
16 unions to justify the expansion of the vacation
17 simply are already addressed or they're not the
18 type that call for wholesale changes in the
19 system. Non-option train dispatchers off work, as
20 I indicated, due to sickness or personal injury
21 with 15 years of service can already count 30 days
22 of that time towards qualifying for their 100 days
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Page 161 1 needed to get a vacation qualifying (inaudible).
2 And while the coalition union's complain that the
3 employee doesn't receive a pro-rated vacation in
4 his first year of employment, they don't mention
5 the fact that a retiring employee who works only
6 100 days in the year in which he retires not only
7 qualifies for the 5 weeks of vacation that year
8 that he earned previously, but five weeks of
9 vacation for the following year, which falls in
10 year which he won't even have an employment
11 relationship with the carrier. So that retiring
12 employee walks out the door with 10 weeks of paid
13 vacation. Any perceived shortcomings in the
14 initial stage are certainly made up for in the
15 later part of our railroad employees' career. The
16 unions have acknowledged that paid time off is
17 simply an alternative form of compensation. And
18 increasing paid time off is equivalent to
19 increasing an employee's rate of pay. In 2009 the
20 carriers' total camp compensation costs attributed
21 to all paid leave amounted to 13 percent of the
22 total compensation paid out by the railroads. This
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Page 162 1 is a very substantial amount. Now this number
2 we've already indicated has been reduced because
3 the fact that we backed out of the BLET. But right
4 now this translates into $190 million that this
5 would add to the railroad costs just over the
6 course of the last three years of this agreement.
7 And finally, just two quick comments with regards
8 to the BLET's presentation. First there's only 3.9
9 percent of the BLET's membership that's included
10 under this proposal regarding vacations. And
11 that's only the KCS, the CP Soo Line and the small
12 carriers. And certainly that does not add up to a
13 large national group. And then finally there were
14 a couple of references made both in the BLET
15 submission and in their oral presentation with
16 regards to qualifying for vacations. And the 1996
17 revisions that were made required only that an
18 employee have 150 qualifying - equivalent of a 150
19 qualifying days in a calendar year in yard
20 service, and 180 qualifying days in a calendar
21 year in road service, as opposed to the 225 and
22 the 270 days that were alluded to by the BLET. So,
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Page 163 1 that's what I have. Does anyone have any
2 questions?
3 CHAIRMAN JAFFE: I think we're in good shape. Thank
4 you Mr. Hennecke.
5 MR. HENNECKE: Thank you.
6 WILLIAM ROE: Morning.
7 CHAIRMAN JAFFE: Morning. I don't believe - you're
8 Mr. Roe, right?
9 MR. ROE: I am.
10 CHAIRMAN JAFFE: I don't believe you've been sworn
11 in yet. If the court reporter could swear you in.
12 COURT REPORTER: You swear the testimony you're
13 about to commit is the truth, the whole truth and
14 nothing but the truth under penalty of the law?
15 MR. ROE: I do. Good morning. I would like to thank
16 the Chairman and Members of the Board for allowing
17 me this morning to speak about labor's proposal
18 for additional vacation. I am Bill Roe, Assistant
19 Chief Engineer at Union Pacific. I started working
20 as a track laborer while working summers for the
21 former Missouri Pacific Railroad. And for the last
22 30 years I've held a variety of positions both in
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Page 164 1 engineering and in our technical training group.
2 Currently I have primary responsibility for
3 engineering safety and training efforts, workforce
4 planning, administration, and project planning.
5 Labor's proposal for addition weeks would, if
6 adopted by this board, have a significant negative
7 impact on UP engineering department in terms of
8 lost productivity. The labor coalition's party to
9 this proceeding represent about 11,000 of the
10 engineering employees at UP. However, the two
11 largest unions, BMWED and BRS, make up nearly 90
12 percent of our engineering workforce. I will
13 therefore focus most of my comments towards these
14 two groups of employees. In terms of financial
15 impact, if labor's proposal is adopted by this
16 Board, UP will spend about $11 million in
17 additional lost productivity versus the status
18 quo. While everyone including me likes more time
19 off, UP believes that additional weeks of vacation
20 simply cannot be justified for the reasons I'll
21 set forth. As we step through our rationale, keep
22 in mind that labor's proposal will add on average
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Page 165 1 a little more than one week of vacation per
2 employee. The additional weeks of vacation you see
3 in the third column are calculated based on the
4 years of service for each of the 11,000 employees
5 represented here today. The cost is calculated
6 from the average wages from each of these crafts.
7 Health and welfare benefits associated with these
8 wages have not been included. Keep in mind that
9 this $11 million is just the engineering portion
10 of the lost productivity. Engineering's workforce
11 is comprised of many types of gangs doing many
12 different types of work. However, for our
13 discussion today, I want to highlight the
14 differences the impact that additional vacation
15 would have on both the large system gangs and the
16 smaller maintenance gangs. System production gangs
17 consist primarily of our tie gangs, rail gangs,
18 curve gangs, as well as their support gangs. These
19 primary gangs are gangs normally consisting of 30
20 or more employees and are similar to a mobile
21 assembly line. On the other end of the scale are
22 the smaller maintenance personnel who inspect and
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Page 166 1 perform the day-to-day maintenance required to
2 maintain our infrastructure between capital
3 project cycles. Labor's proposal will have a
4 significant and measurable impact on these large
5 production gangs that replace rail ties and
6 ballast. We measure productivity in terms of units
7 produced per man-hour paid. Examples are number of
8 ties per man-hour paid, linear feet of rail per
9 man-hour paid, linear feet of bridges constructed
10 per man-hour paid, et cetera. This kind of
11 analysis helps us to right size the gang based on
12 available track time and equipment. It also allows
13 us to identify those gangs that are meeting or
14 exceeding production standards, as well as those
15 who need help. This is just one example of the
16 scale of productivity we expect to lose if labor's
17 proposal is adopted by this Board. Tie Gang 9063
18 works on the northern and western part of UP
19 system. It has 51 core employees who utilize on-
20 track machines to remove worn out ties and replace
21 them with new ties. Under labor's proposal this
22 tie gang's production would fall by 107 ties for
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Page 167 1 each additional week of vacation per employee
2 based on our current ties per man-hour rates. Over
3 the course of this gang's annual work schedule,
4 this amounts to a loss of about 5,700 ties
5 equivalent to about 5 track miles. On a broader
6 scale, UP would suffer the loss of over 100 miles
7 of replacement rail, ties and ballast that are
8 important to maintaining our infrastructure. This
9 work is key to our efforts to prevent derailments
10 and slow orders and to improve the service we give
11 our customers. In the short term, we would have
12 two choices. Either spend additional money for
13 overtime or hiring additional employees to make up
14 for the lost productivity, or we would have to
15 defer these ties and rails until next year which
16 then has a compound negative impact on maintaining
17 our tie and rail replacement cycles. But more
18 difficult to measure, the impact of labor's
19 proposal may even be more pronounced on the
20 smaller maintenance type gangs. While we may be
21 able to add a few more employees to each large
22 production gang to cover additional vacations, we
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Page 168 1 don't have that luxury on most of our smaller
2 maintenance gangs. This slide will give you some
3 sense of the number of employees assigned to
4 different sized gangs. As you can see on the
5 chart, the majority of UP's engineering employees
6 work on gangs that have six or fewer employees.
7 These are our track inspectors, our signal
8 maintainers, section gangs, division welders, work
9 equipment mechanics, surfacing gangs, bridge gangs
10 and signal gangs. These gangs suffer the loss of
11 productivity when even one worker goes on
12 vacation. As we become more efficient additional
13 vacation results in an even greater loss of
14 productivity. These gangs have been sized for the
15 amount and type of work they're expected to
16 perform. Many of these jobs require job-specific
17 training, licensing, or qualifications. To
18 compound the complexity, most of these gangs are
19 spread out over such a large geographic area that
20 similar gangs, like welders, surfacing gangs, or
21 mechanics may be hundreds of miles apart. Managers
22 and supervisors of these smaller gangs try to
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Page 169 1 manage vacations schedules to avoid having more
2 than one employee off at a time to minimize the
3 negative impact on productivity. A couple of
4 examples for you to consider. First, a two-man
5 division welding gang. If the welder goes on
6 vacation and the helper's not qualified to weld,
7 the manager may put the helper to work with the
8 section gang for that week. If the helper can
9 weld, an employee off the section gang may be put
10 with the helper so that the welding work for that
11 week can be performed. The next example is a
12 three-person surfacing gang that consists of an
13 automatic tamper and ballast regulator, two
14 machines that operate on track. When the tamper
15 operator goes on vacation, the manager will
16 utilize another qualified tamper operator that may
17 be working a different position to run the tamper.
18 That may be the foreman, or the regulator
19 operator, or another person from a different gang
20 but somehow the manger has to fill this vacation
21 vacancy with a qualified operator to be able to
22 continue to surface track. This situation cannot
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Page 170 1 be solved by an extra board of relief workers that
2 is currently utilized for engineers and
3 conductors. The jobs are too diverse, sometimes
4 requiring specialized training, and too spread out
5 for that concept to be utilized effectively. If
6 I'm a manager of track maintenance, I would have
7 to have relief employees that were qualified
8 foremen, welders, machine operators of various
9 types of machines and track inspectors, all
10 familiar with specific territories in which they
11 would be subject to call. The only exception on UP
12 is that we normally have one or two relief signal
13 maintainers on each manager's territory to cover
14 FRA required inspections and tests of signals. In
15 short, if a worker goes on vacation, the gang
16 operates short-handed and productivity suffers as
17 a result. Labor's proposal would make this problem
18 even worse. We'll either get less work done in the
19 same amount of time, or burn more resources, most
20 notably overtime and track time, to get the same
21 amount of work completed. Keep in mind that
22 engineering competes for trains - with trains for
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Page 171 1 time on the track. The additional time that it
2 takes to complete the necessary repairs may well
3 result in train delays that leads to a degradation
4 in our service to our customers. As we move more
5 and more to standardized work processes we realize
6 the value of continuity amongst employees. Working
7 short-handed a larger percentage of the time
8 disrupts this continuity. Despite some of the
9 rhetoric I heard yesterday, we do recognize that
10 our employees work hard and provide unquestioned
11 value to UP. They're integral to our past success
12 and to our future growth. However, to labor's
13 claim that employees are working harder than ever,
14 the facts just don't bear that out. If working
15 harder means the jobs are more physically
16 demanding I can say at least on UP the jobs of our
17 main sway (ph) signal employees are not nearly as
18 strenuous as they were in the years past.
19 Technological improvements in tools, automated
20 equipment and the prevalence of cranes and other
21 material handling equipment over the last 30 years
22 have had a huge impact on our employees' ability
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Page 172 1 to work safely. To a large degree, railroads have
2 either automated, mechanized, or engineered out
3 the most physically demanding work in engineering.
4 If working harder means working longer, our time
5 keeping statistics say otherwise. While many
6 engineering employees are called upon to work some
7 long days and nights, particularly during weather
8 emergencies or service interruptions, we continue
9 to see overtime being reduced over the last five
10 or six years, primarily due to better, more
11 reliable infrastructure. This chart shows the
12 amount of weekly overtime that BMWED and BRS
13 employees claimed in 2010. Nearly 2/3 of the BMWED
14 employees average less than 5 hours overtime per
15 week last year. Nearly half of the BRS employees
16 averaged less than five hours per week. Taken as a
17 whole, the average BMWED employee worked four
18 hours overtime per week in 2010; the average BRS
19 employee worked 6 hours overtime per week in 2010.
20 As we continue to take variability out our system
21 things like broken rails, signal delays and the
22 like, we will continue to see a reduction in
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Page 173 1 unplanned overtime. As far as the number of days
2 worked, UP engineering employees work a variety of
3 work schedules depending upon the type of work and
4 the business needs. While 43 percent of our
5 employees work a traditional 5 day a week, 8 hour
6 day schedule, the other 57 percent work either 4
7 tens or a compressed half schedule that provides
8 more days off. By way of explanation, the eight in
9 seven work schedule allows employees to work eight
10 straight days, followed by seven consecutive days
11 off. The eight and six schedule, worked by many
12 signalmen, allows employees to work eight straight
13 days followed by six consecutive days off. In
14 essence we are compressing the hours in a half or
15 in two-week period into eight straight days of
16 work to provide more consecutive days off for the
17 employees, and more efficient use of track time
18 for the bigger gangs. As you can see on the graph
19 to the right, those employees working 4 tens or
20 the 8 and 6 compressed half will work only 57
21 percent of the days in a calendar year. And that's
22 not counting vacation, personal leave days or
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Page 174 1 holidays. Those working an 8 and 7 schedule will
2 work only 53 percent of the days in a year, again
3 not counting vacation, personal leave days or
4 holidays. Those senior employees with 5 weeks
5 vacation, 2 personal leave days and 11 holidays
6 may work only 159 days in a year. Said another
7 way, these employees may work less than 44 percent
8 of the days in a year, equivalent to less than 14
9 days per month. We recognize that those employees
10 working on online gangs will have to travel to and
11 from the worksite, but using any measure those
12 working compressed half schedules have more days
13 off than most workers in private industry. Those
14 working a compressed half schedule, either the 8
15 and 6 or 8 and 7, effectively get 6 or 7 straight
16 days off twice a month. Some system gang employees
17 actually request payment in lieu of taking their
18 vacation. Others volunteer to donate their
19 vacation or simply ask to not take their allotted
20 vacation presumably to keep from losing their per
21 diem allowance and in recognition of the number of
22 days that they already receive. In summary,
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Page 175 1 labor's proposal just chips away even further at
2 labor productivity. If adopted by this Board,
3 railroads would have the three choices. Accept
4 this loss of productivity and allow our service to
5 deteriorate little by little, which isn't a good
6 choice; employ more resources, primarily people,
7 and track time to make up for this lost
8 productivity; or accelerate the development of new
9 ways to increase productivity, absent labor
10 efficiencies, to offset this loss of productivity.
11 We believe that labor's proposal for additional
12 weeks of vacation is not warranted and would have
13 a negative impact on our ability to build and
14 maintain our infrastructure at the levels that are
15 required to grow the business. One other comment
16 I'd like to make and this goes to the comparison
17 that labor made between our vacations as far as a
18 pro-rata vacation that non-agreement employees
19 have and the union's vacation. And that is I think
20 the Board has to take into account the whole
21 package of benefits and requirements. Things like
22 all services rendered for non-agreement employees,
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Page 176 1 they don't get overtime; the differences in health
2 and medical benefits that each has, some have high
3 deductible health and medical packages. So, I
4 think you have to take it in the whole context of
5 what the company provides and what they expect.
6 That concludes my remarks on the vacation issue
7 but I do want to address something that I've heard
8 several times over the past couple of days. And
9 that is the idea that increased skill is required
10 to work on or operate sophisticated technology. I
11 can only address this issue from the perspective
12 of the UP engineering department and not speaking
13 for all crafts. It's certainly true that equipment
14 of all kind have become more advanced and more
15 computerized. This is a natural progression in
16 technology that we've seen forever and will
17 continue to see in the future. The equipment of
18 the 80s was more advanced than the equipment in
19 existence when I first started in the 1970s. I
20 have no doubt that in another five years we'll
21 look back and say the equipment is more advanced
22 than it is now. This is the same for industry in
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Page 177 1 general and in a broader sense, society in
2 general. To address this UP provides high-quality
3 paid training for those operators, mechanics and
4 signalmen. We also have to recognize that many of
5 the people we hire now are more computer savvy
6 than some of the folks in this room, including
7 myself. Computer skills are not a specialized
8 skill for many of the folks we are hiring now.
9 Again, we believe this is just a natural
10 progression of technology. And thank you for your
11 time.
12 CHAIRMAN JAFFE: Thank you, Mr. Roe. I think we're
13 in good shape. Thank you, sir.
14 MR. ROE: Thank you.
15 CHAIRMAN JAFFE: If I can ask a reporter to swear
16 in Mr. Crable please.
17 COURT REPORTER: You swear the testimony you're
18 about to submit is the truth, the whole truth and
19 nothing but the truth under penalty of the law?
20 STEVEN CRABLE: I do, thank you. Hi, my name is
21 Steven Crable, I'm Vice President of Labor
22 Relations at CSXT. I've been at CSXT since 2006. I
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Page 178 1 started my career as a labor lawyer of Jacobs
2 Burns Sugarman & Orlov in Chicago in 1974, and
3 between then and now I think it's fair to say that
4 I've been an avid student of the collective
5 bargaining and labor relations process. I'd like
6 to begin by thanking you all for serving. The
7 parties are disappointed that we haven't been able
8 to reach a voluntary agreement but having not
9 reached an agreement, it becomes critical to have
10 the talent and experience of folks like you to
11 help the parties gently or not so gently find
12 their way to an agreement. By my estimation, we're
13 looking at, and without insulting anyone, I think
14 we're looking at something like 200 years of labor
15 relations experience sitting up on the dais and
16 that really is an impressive amount of skilled
17 experience and we're very lucky and look forward
18 to your guidance. So thanks. It's hard work; I
19 know it's not financially rewarding; it's required
20 you to rearrange your schedules; and we appreciate
21 the assistance. So I'd like to thank Special
22 Counsel in the wings. They have the privilege of
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Page 179 1 working 12 - 10- and 12-hour days for 30 days at
2 the same salary, but you're working with great
3 people and it'll be worth it. Let me turn quickly
4 to the reason I wanted to speak to you very
5 briefly. In various presentations by the, on the
6 craft-specific proposals, there've been some
7 references to CSX agreements and proposals that
8 say we want this level of benefits or compensation
9 because CSX has got this and so I thought it
10 important to put in context why it is we got some
11 of those provisions. With respect to the BLET's
12 craft-specific proposals, I think there was a
13 reference to CSX's meal-away-from-home allowance
14 to certification allowance, and also on the
15 Outcraft's specific proposal's reference to CSX's
16 6 week of vacation after 30 years. We stand guilty
17 as charged; there's no doubt that we provide those
18 benefits and that those are out ahead of the
19 industry. The important question for you is, why
20 did you do it? Did you just give it to people for
21 nothing? And the answer is no. Those were the
22 result of give-and-take, voluntary, quid pro quo
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Page 180 1 negotiations with BLET first and subsequently with
2 UTU, and they really came on the heels of several
3 rounds of negotiations with - at BNSF with the
4 engineers and with NS and the engineers. You know,
5 they really started, broke ground in terms of
6 putting in place a productivity improving
7 agreement that also put in place general wage
8 increases supplemented by bonus opportunities that
9 really are unheard of in the collective bargaining
10 context. CSX in 2005, 6, 7, simultaneous with
11 national bargaining, was negotiating with its
12 engineers to put together a signal system
13 agreement that brought several contracts together
14 under one contract, rewarded the unions in some
15 ways that they preferred to be rewarded, got CSX
16 involved in a bonus opportunity program, and
17 actually resulted in an agreement simultaneous to
18 the national agreement in 2007. Let me find my
19 glasses. Being prompted as to what we agreed to.
20 Just to look back quickly, the national agreement
21 - it was effective in 2005 but reached in 2007 -
22 was essentially a pay agreement. Seventeen percent
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Page 181 1 pay increase over the five years, some minor
2 adjustments in health and welfare, and no
3 significant changes in work rules. I contrast that
4 to the agreement reached simultaneously and
5 ratified, the CSXT local agreement, that provided
6 a one-time 3 percent GWI for the 5 years of the
7 agreement; a $2500 signing bonus; bonus
8 opportunities in the 3rd, 4th, 5th years of the
9 agreement; lump-sum bonus opportunities of 6, 8
10 and 10 percent; and also the kinds of benefits
11 that were referred to - 6 weeks of vacation,
12 increased meal allowance, and some additional
13 improvements. So that obviously compares very
14 starkly to the compensation package for the
15 national agreement. I should add that the 6, 8 and
16 10 bonus opportunities were triggered by exactly
17 the same criteria as the management bonus plan, so
18 there's no fooling around, no playing games. And
19 these bonus opportunities paid well even in
20 difficult times. In addition, there were some work
21 rule changes. On the CSX side, you know, we
22 received and negotiated for something called EBS,
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Page 182 1 Electronic Bidding System. This was a huge
2 improvement for us because it allowed us to
3 essentially have engineers bid their schedule once
4 every seven days. And when they were displaced
5 they could immediately move to the next preferred
6 job that they had bid upon. This replaced a system
7 in which employees that were engineers and were
8 displaced sometimes had up to 72 hours before they
9 had to displaced to another job. Yeah, that's a
10 huge impact on body count. In exchange for the
11 (inaudible) [0:00:07] failing to get the six-
12 weeks of vacation, they got more non-compensated
13 personal business days off, demand days off,
14 increased paid personal leave days, six weeks of
15 vacation. It's not my intent to bore you with all
16 the details. My only purpose is saying, you know,
17 these items that are cited stick out, they stick
18 out but they were negotiated in the context of
19 quid pro quo negotiations, and it would be
20 misleading for the Board to take those
21 improvements and simply pass them along to the
22 general population without that same kind of quid
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Page 183 1 pro quo negotiations. Last but not least there
2 were some references, and again this is some
3 misimpressions created about CSX' availability
4 policy. If I heard the testimony right there was a
5 suggestion that if an employee was absent once in
6 30 days he was going to be disciplined or she was
7 going to be disciplined. That's a misreading of
8 the policy. The policy, in effect, provides more
9 than two times an employee gets a letter, a non-
10 disciplinary letter, you know, reminding him of
11 the policy or her of the policy. Second time two
12 days, a 30-day period a second letter, non-
13 disciplinary letter. Only if the third occurrence
14 happens, you know, is the employee subject to some
15 paper discipline. So that's the way the system
16 works and they're also various safeguards that
17 soften the impact. For example, if an employee
18 talks with his supervisor on any of these steps
19 and has a legitimate explanation that the
20 supervisor forgives, then the letter is withdrawn
21 and all of the discipline withdrawn. Additionally
22 there's a clearing period so that every six months
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Page 184 1 if an employee has six months of a clean record
2 then they can wipe out one previous step of the
3 progression. Last and not least there's another
4 mitigating factor which escapes me but I'm going
5 to quit and sit down and turn it over to my boss.
6 CHAIRMAN JAFFE: Anything for Mr. Crable? I think
7 we're in good shape. Thank you.
8 UNIDENTIFIED MALE: I don't think he's been sworn
9 in yet.
10 CHAIRMAN JAFFE: If we can have the witness sworn
11 in please.
12 UNIDENTIFIED MALE: Please swear the testimony
13 you're about to give in this case is the truth,
14 the whole truth and (inaudible) [0:02:25].
15 MR. ROB KAROV: Yes I do.
16 UNIDENTIFIED MALE: Thank you.
17 MR. KAROV: Good afternoon. It's an honor to be
18 here to serve at the pleasure of the Board. I
19 stand last here, I guess that standing cleanup,
20 but they did not save the best for last so you
21 just have to put up with me here for just a few
22 minutes. Just a couple of remaining miscellaneous
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Page 185 1 items to hit and rebuttal. So I'd like to talk
2 about information requests first. And the union's
3 proposal on this frankly is ill-defined and it's
4 inevitably going to end up being burdensome and
5 destabilizing to the railroads so, and really to
6 the parties involved. I mean the parties here in
7 this room have been bargaining obviously for a
8 very long time. And I personally bargained with
9 quite a few folks in this room making labor
10 agreements and we're successful at it at a
11 national level, particularly the local level.
12 We're able to get the deals done and I cannot
13 think of an example where we weren't able to reach
14 a labor agreement because of lack of information.
15 The parties exchange a lot of information. It's
16 probably more than the Board could, we can have
17 you comprehend in a short period of time. But if
18 we just look at the PEB as evidence of this. The
19 items before you here don't hinge upon lack of
20 information sharing. Now you've heard from labor
21 that there's a number of items they haven't been
22 able to providing costing to you but it's not
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Page 186 1 because they haven't asked us for information.
2 They have. There's been one item Mr. Wilder
3 referred to that they did ask information on and
4 we provided that. And so if this is any evidence
5 of it, really for collective bargaining purposes
6 it would really be more of an impediment and we
7 make solid good-faith agreements on a regular
8 basis. So let me just turn to grievance handling.
9 Okay first let's look at discipline grievances.
10 Who has the burden of proof there? Of course it's
11 the railroads. And so we have to prove up the
12 case. We have to provide the information or we
13 lose. And so that's the construct that we have
14 today. It works. Now oftentimes we have five or
15 ten days to conduct a formal investigation so our
16 frontline supervisors are, in addition to trying
17 to run the railroad, you know has to make a bit of
18 a scramble to kick off a formal investigation, see
19 what facts need to be investigated. To be able to
20 share information in advance of that is frankly
21 very, very difficult to achieve. However there's a
22 remedy right? And that's the formal investigation
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Page 187 1 itself. Both parties get to examine the
2 information. If somebody needs to call a recess,
3 ask for more time to review the information, they
4 have somebody that can speak to the information in
5 a manner that may require technical or
6 professional expertise then that burden rests upon
7 the party to do that. And so with again,
8 discipline cases, it's our burden as a railroad to
9 prove that. Mr. Wilder also here referenced the
10 CSX Award where the railroads didn't provide the
11 tapes. The railroad lost. And so there's
12 reconciliation there in Section 3 process for
13 information disclosure and we think that's the
14 right place for that. So then let's turn to rules
15 cases. And so of course there the burden rests
16 with the moving party to file grievances. It's
17 often with labor. You know frankly I've seen some
18 ill constructed grievances where they are really,
19 maybe for lack of time for fishing expeditions and
20 the burden of proof isn't met. And so this would,
21 information sharing here could really serve to
22 shift in a harmful way, the burden of proof. And
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Page 188 1 so and what would that perpetuate? So if there was
2 additional information sharing under the auspices
3 to create a grievance format then we perpetuate
4 more grievances because there's information that's
5 being paying to get more information back and you
6 can see how that would continue. And so that too
7 doesn't really serve the parties well. I can think
8 of an example here we had recently also with, I
9 have a gnarly rules case with Article 15 of the
10 '96 National Agreement with Maintenance of Way and
11 we were willing to share some additional
12 information but required a confidentiality
13 agreement and the union was unwilling to protect
14 us with the confidentiality agreement that we
15 proposed. So you could see where that could cause
16 certain problems. Mr. Wilder referred to the
17 (inaudible) [0:06:37] industry where perhaps these
18 are more common but as the Board understands,
19 that's a party pay environment. They have many
20 less grievances there than we do. We're back
21 stopped by federal dollars and there really are
22 two different environments. So that's on
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Page 189 1 information sharing. We really don't think it's
2 required. We're able to make deals. We're able to
3 handle grievances without any new construct. Let
4 me turn then briefly to the last topic if we could
5 just fight off our hunger pangs just a short while
6 longer and I think we're off to lunch. But you
7 know with the cab conditions, you know you think
8 back to a car that you may have had 25 years ago
9 versus the one you drive today. It has superior
10 ergonomics, it's more reliable, it's more
11 comfortable, it vibrates less. And so you know
12 locomotives have been the same way. We have OEMs
13 that are competing to build better and better
14 locomotives and so the locomotive cabs have
15 benefited from that right? This is not the steam
16 era where folks are strapped to a boiler and it's
17 a messy environment and certainly the cities are
18 not first generation diesels and it's sort of the
19 grimy environment there. These are pretty shiny,
20 clean modern cabs for the locomotives. We recently
21 had the National Mediation Board on a train trip.
22 They spent a lot of time on the front end of the
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Page 190 1 locomotives. They had no complaints about the
2 conditions on our locomotive fleet. At BNSF, we
3 have a very new locomotive fleet. It's a massive
4 capital investment that we're made. I think the
5 other class ones are in the same boat. Let me just
6 remind the Board that really there are three back
7 stops to assuring good locomotive cab standards
8 and they all exist today. The first is the
9 (inaudible) [0:08:04] regulates the cab
10 environment and so there's penalties associated
11 with that and an enforcement mechanism there. The
12 second is Arbitration Award 458 with the BLE (ph)
13 it settled the early 80s round 1986 provided for
14 defined cab requirementsclean sanitary toilets,
15 drinking water, exhaust ventilation, cab noise
16 abatement, etcetera and those are all resolvable
17 through the Section 3 process. I know I personally
18 settled claims in that regard and those could have
19 gone to arbitration if we hadn't settled them. And
20 then the third back stop is per the '86 agreement
21 local and national cab committees were
22 established. And so at BNSF 25 years later we
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Page 191 1 still have a very active local cab committee as do
2 most of the railroads. So these three overlapping
3 areas really then, you know, the intervention
4 certainly don't speak to you any necessary
5 creation of cab standards that don't exist today.
6 So anyway that's the nexus of the conclusion. I
7 mean we have a long history, we've worked through
8 many of these items without, you know with the
9 existing constructs and practices that we have
10 today both on cab conditions and information
11 requirements. We don't think anything needs to be
12 added in that and we'll leave that for the Board
13 and be happy to take any questions.
14 CHAIRMAN JAFFE: Anything for Mr. Karov? I think
15 we're in good shape. Thank you Mr. Karov.
16 UNIDENTIFIED MALE SPEAKER: Mr. Chairman, rather
17 than take any more time, I'm going to put aside my
18 planned remarks and instead invite from you any
19 questions as to clarification or illumination as
20 to any aspect of our proposal or our position. I
21 do want to take one moment, however, to address an
22 issue or a matter raised during the presentations
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Page 192 1 you have heard on the furlough question. And this
2 is more a matter of tidying the record. If you'll
3 take a look at the screen, the question is what's
4 happened with respect to furloughs growing out of
5 the recession. Before you are the statistics for
6 each of the major railroads and if you read across
7 left to right you will see, first off, the bulk of
8 the furloughed employees have returned to work.
9 Let me call your particular attention to the BNSF
10 numbers while the number for return to work shows
11 92.2 percent. I would note that 100 percent of
12 those employees were invited back to work. These
13 are the numbers that actually accepted the return
14 to work. I would also note by way of completeness
15 that the vast majority of these furloughs fell
16 upon UTU, fell upon the trainmen. They are the
17 only union not before you. The unions here who
18 have used and cited to furloughs as a reason to
19 support their proposals simply have no stake with
20 respect to this matter; certainly not now with
21 these employees all returned to work, or largely
22 returned to work. With that I would stop and
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Page 193 1 invite any questions, Mr. Chairman, you or the
2 Board may have. Otherwise, I think that completes
3 our presentation.
4 CHAIRMAN JAFFE: (inaudible) [0:11:27]
5 MR. ZACK: I want to get a copy or that (inaudible)
6 [0:11:30].
7 CHAIRMAN JAFFE: Anything further? I think we're in
8 good shape. Thank you again Mr. Gradia.
9 MR. GRADIA: Thank you Mr. Chairman.
10 MR. MUNRO: Mr. Chairman, three quick housekeeping
11 points. The slide that you just saw was just
12 created in a hurry, I might add, and will be
13 provided to the Board and opposing counsel
14 briefly. Second I wanted to note that the BOAT
15 local agreements Mr. Crable mentioned have been
16 provided to the Board and opposing counsel this
17 morning; the CSX agreement as well as the other
18 two. And finally I just wanted to note that the
19 carriers would like to take the Board up on the
20 offer that was made off the record regarding the
21 provision of the carrier's dependencies (ph). The
22 materials noted in the footnotes will provide
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Page 194 1 those to the Board for its convenience should it
2 care to review them. I've provided an index to
3 opposing counsel and will provide them a copy of
4 the materials as well upon request. With that,
5 that concludes the carrier's rebuttal case. I
6 apologize for the additional time. Unless there
7 are any questions, we're done.
8 CHAIRMAN JAFFE: We're in good shape. Why don't we
9 go off the record and (audio break) Right. At
10 your convenience.
11 MS. PARCELLI: Thank you, Mr. Chairman, and board
12 members. Just to give you a roadmap of what we're
13 going to do on rebuttal and everybody is on strict
14 orders to obey time limits. We'll see how that
15 works out. We're going to turn first to Mr. Roth.
16 Then we will bring.well, then, actually, Roland
17 and I will speak briefly on an issue, then we're
18 going to bring Ms. Mallett from Cheiron back. Then
19 we will hear from the Brotherhood of Locomotive
20 Engineers and Trainmen and the Brotherhood of
21 Maintenance Way Employees at the end, and that
22 will wrap up. So, we've got to give you Mr. Roth
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Page 195 1 again.
2 THOMAS ROTH: Thank you.
3 CHAIRMAN JAFFE: And I'll just remind you you're
4 still under oath. We don't have to swear you back
5 in again.
6 MR. ROTH: Yes, sir, I understand.
7 CHAIRMAN JAFFE: Thank you.
8 MR. ROTH: Thank you. I have distributed, Mr.
9 Chairman and board members what I asked to be
10 marked Employees' Exhibit Number 89 for
11 identification purposes. It says on its face that
12 it's Exhibit 88, but I understand that I.there was
13 an additional employee's exhibit or union exhibit
14 that was introduced after the last volume, so
15 please make that correction. This is a document
16 that essentially contains the materials that
17 supports comments that I made earlier in my
18 affirmative presentation, so don't be alarmed, I
19 don't have any intention of walking you through it
20 or citing these materials. They're basically, as I
21 said, supportive of statements I had made earlier
22 and materials that I had promised to furnish the
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Page 196 1 board. You may or may not need to refer to them
2 later. I would just like to make a couple of
3 comments regarding this morning's rebuttal case by
4 the carriers. And this is certainly not going to
5 be a compressive response or a tit for tat on
6 points of disagreement, but just a basic outline
7 of the some of the areas where we still have some
8 concern with the carrier's position so that the
9 board at least has on record our.our opposition to
10 some of the points or arguments that their experts
11 have made. The first subject matter was the
12 pricing that Mr. Gradia had walked you through
13 this morning. I just want to note that the
14 presentation under costing numbers was at a high
15 level. What I mean by that, a general level, and
16 they have reported to some kind of basic
17 information that the numbers that they had been
18 supplied by their participating railroads and
19 walked us through some of the math involved in
20 arriving at the numbers that they did. But we have
21 not been given access to the data upon which the
22 carrier's costing has been performed. They, again,
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Page 197 1 you know, some of it, because specific requests
2 were not made. Others because they were very
3 stubborn in turning the information over. I need
4 not get into that matter with you, but I did want
5 to advise the Board that if, and to the extent
6 that this pricing material becomes important in
7 your own deliberations, I want to be.I want you to
8 understand that it's not.they're not costing, it's
9 not a pricing exercise that have participated in
10 and nor can I confirm those calculations. And one
11 (inaudible) work is to refer to something Mr.
12 Wilder said this morning, one of (inaudible) at
13 work, there is full disclosure on the information
14 necessary to go through the pricing exercise of
15 various proposals that are made at the bargaining
16 table. And I don't regard that as an adversarial
17 exercise. It's normally a matter of simple
18 accounting, once you know what the inputs are and
19 once you know what the basic information is, the
20 payroll data, the headcounts and such. We have not
21 had that opportunity to explore that kind of data
22 and so I'm in no position to verify that the
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Page 198 1 costing that the carriers had offered on the rules
2 or on any of the matter, of the pricing that they
3 had performed. There is one specific, however,
4 calculation, that I want to raise with you and
5 that is the certification pay calculation, because
6 as you recall, in my direct case, I had made an
7 estimate of what we thought that was, in terms of
8 the wage increase equivalent and obviously, it
9 differs from what the carriers had put in evidence
10 this morning. I had two or three concerns with the
11 information they furnished this morning. The first
12 is that it is my understanding that they, each
13 RCO, radio control operation, involves a two
14 payments of the certification pay and not a single
15 one. It is certainly not clear and others in the
16 room on our side that the RCO total number of
17 payments that are represented on their, page three
18 of their charts this morning, I don't know if that
19 was marked as an exhibit or not, but it was page 3
20 of, I think, Mr. Gradia's presentation. It's
21 certainly not clear to us that that number is half
22 of what it should be, or reflects the full number.
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Page 199 1 Secondly, we understand that the hostlers were
2 also furnished this cert pay under the UTU
3 agreement and we don't see that there is any
4 accounting for the number of payments that they
5 might receive as well. So, those were two concerns
6 we have over the representations that have been
7 made, with respect to its value, and again, if
8 that is ultimately, we don't think it's relevant.
9 I don't think it's relevant, but to the extent
10 that the board ultimately believes that it is, we
11 may.it would be prudent to get more information on
12 the manner in which those calculations were made.
13 A third problem that I detected when I looked at
14 the pricing of the certification pay was the kind
15 of the general, the conversion, if you will, to
16 what was represented as a, approximately 1
17 percent, it's actually .97 percent, a general wage
18 increase. I guess it was represented as a general
19 wage increase equivalent of that magnitude. And
20 what happened her is that they calculated total
21 value of the.that is to say, the total expense of
22 the certification pay and then divided that by the
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Page 200 1 UTU's total payroll, and then that resulting would
2 be.is called the general wage increase equivalent.
3 But the fact of the matter is in an operating
4 craft there are a lot of collateral payments,
5 there are a lot of constructive allowances that
6 are not variable with general wage increases, so
7 that denominator, as I understood, the
8 presentation included total compensation, cash
9 compensation, including these payments that are
10 not variable with general wage increases, so I
11 think it's an understatement of the value of cert
12 pay as a percent, as a equivalent to a general
13 increase. But again, these are.these are, it's
14 less of a criticism on my part than it is a
15 question. Because, again, we had no opportunity to
16 sit down with the carriers off-line or otherwise
17 to determine how these numbers should be
18 calculated. Finally, on the question of the
19 pricing, and the.that the parties have engaged in,
20 I would like to direct your attention to.to the
21 volume 89 that I just distributed, and I
22 particular, the.this would be record page 2543 in
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Page 201 1 that deck. What I have here is a set of revised
2 tables, revisions from tables that I had prepared
3 and presented earlier in my chart book. I had
4 detected during the break that there was a glitch
5 in my calc.in my workup of the UTU agreement, as
6 compared with the workup of the.and cost of the
7 proposed wage increases for the 11 organizations.
8 It's a detail, but it has to do with the
9 difference between a 2009 payroll and more recent
10 information I obtained from the NLRC, reflecting
11 2010 payroll. So, I didn't sync those up. I
12 actually understated the kind of, the cost of the
13 coalition proposals by a bit, so I wanted to,
14 again, I don't know if any of this material is
15 controversial or will be relied upon by the board,
16 but to the extent that it does, I would request
17 that you substitute these pages, which involve
18 table 44 through I think it looks like 51 of the
19 original chart book, and just ignore the others. I
20 should note, however, that after the recalculation
21 and the check of the numbers, you'll note by the
22 point of the exercise, which was to demonstrate
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Page 202 1 that even if our proposals were adopted and were
2 to made applicable to all class one railroad
3 employees who are organized, with the exception of
4 UTU, but including UTU's deal for it, that that
5 would not have an.would not result in an expense
6 that would cause any interruption in the continued
7 financial progress of the carriers under any
8 reasonable assumption or projection for increases
9 in prices and increases in traffic. So, nothing
10 changes by way of conclusion or substance, but I
11 did want you to have those amendments. Secondly,
12 on the wage question, and related subject matter,
13 I just have a couple of comments, which I think
14 regards Dr. Evans' response of my materials
15 presented this morning. First of all, just by way
16 of clarity, during the, in my, or in Dr. Evans'
17 presentation, there was really two parts to the
18 development of the alleged premium that rail
19 workers are paid. One was exclusive to salaries
20 and wages and the other one was benefits, and of
21 course, the two are added together to arrive at
22 the conclusion on total compensation. During my
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Page 203 1 testimony, I made some quip about they're
2 comparing us to the service sector in
3 (inaudible)mark. That comment, just for
4 clarification, is applicable to their work up of
5 the benefits side of total compensation and not to
6 the salary rate side, which, as Dr. Evans pointed
7 out this morning, was.was involving a lot of
8 different diverse classifications of work. Well,
9 that diversity, by occupation and by industry is
10 not available for the EC.EC employment, the
11 employment cost, or employer's cost of employee
12 compensation series in the BLS. So the analyst is
13 stuck with these broad measures of the industry,
14 which include not only the.industries which are
15 not comparable to ours in terms of occupational
16 mix, but include the lowest paid of American
17 workers and those most likely not to have fringe
18 benefits. So, just to.again, to kind of avoid any
19 confusion on what I was saying and what Dr. Evans
20 was responding to. Secondly, in had a lot of
21 material inside Exhibit No. 89 that goes into some
22 question of whether or not these job matches are
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Page 204 1 appropriate. I, during my earlier comments, had
2 referenced in particular the train dispatcher, and
3 I observed that the jobs to which the train
4 dispatcher was being compared were not appropriate
5 and seemed to indicate that the analyst didn't
6 have any idea what a train dispatcher and freight
7 railroad did by way of performance because they
8 were comparing them to lesser paid and less
9 responsible jobs, such as taxi cab dispatchers,
10 which are large, and those calculations. Inside
11 Exhibit No. 89, and you'll see this in the table
12 of contents, there's a series of photographic
13 reproductions of BLS material that kind of give
14 you the next layer of materials upon which the
15 evidence comparative analysis is based, and that
16 will give the board some indication of what job
17 titles were actually compared and where the
18 dominant, where the dominant classifications lie
19 and such. I don't want to belabor this point. It's
20 obvious that we disagree that the job matches are
21 appropriate and you should not leave this room
22 under the impression that the carriers were
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Page 205 1 engaged in some rigorous, sophisticated job
2 evaluation when they made these job title ma.these
3 job matches, they were based upon strictly these
4 broad job.these occupational categories, based
5 upon a matching of job titles. It's not very
6 sophisticated at all. And I don't know that
7 there's any quarrel about that and I'm not being
8 overly critical. I mean, sometimes you are simply
9 limited to the data that you have, and you do your
10 best with it, but don't get the impression that
11 this is some kind of sophisticated analysis. It's
12 not. I pointed out. There are several examples in
13 here that we think the job matching is way off
14 base. But again, that's.that.a second problem,
15 however, within the job analysis that Dr. Evans
16 performed has to do with a.what I regard as a
17 mistake on the calculation of the proper
18 comparative rate of pay for the locomotive
19 engineer. There is, and again, you know, this is,
20 given our time, this doesn't make any sense to
21 drill down on this issue particularly, but let me
22 give you the basic outline. The rate that is
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Page 206 1 being.that was calculated and represented as an
2 average straight time hourly rate for the
3 locomotive engineer under class one railroads
4 appearing before you, would have included all of
5 the constructive allowances and other collateral
6 pay that a engineer receives. And of course, that
7 calculation and that of average straight time
8 rate, including those numbers, is appropriate for
9 some purposes. The problem is, is that's not how
10 the BLS does it. The BLS, when it looks at
11 locomotive engineers, it's calculating it by
12 comparing straight time.hours, straight time
13 earnings, straight time pay divided by straight
14 time earnings. When you do that for a locomotive
15 engineer under a freight railroad contract, class
16 one freight railroad contract, you get a much,
17 much smaller rate, one more comparable to that
18 which the BLS publishes. So, I mean, again,
19 without needing to understand exactly the
20 mechanics of how these calculations are made,
21 understand that we take issue, I take issue of.on
22 that particular comparison, and as you recall from
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Page 207 1 the bar graphs, that's one of the occupations
2 where the carrier, say, has the greatest premium
3 over the alleged appropriate labor market rate.
4 All of what I've said thus far is a matter of
5 detail, the principal point that I conveyed in the
6 course of my direct remarks remains. We believe
7 that the party's behavior at the bargaining table
8 and that presidential merging boards, really
9 invalidates the comparisons to begin with. And I
10 have material inside of Exhibit 89 which
11 calls.calls upon a lot of the PEB literature, in
12 terms of exhibits that were made by the carriers
13 in the past. I'm going back 47 years and in each
14 and every case, we can find the same material,
15 which demonstrates that the railroad worker was
16 paid 80 percent over all other industries, and all
17 of the same kind of analysis. I mean, I'm tempted
18 to point you to them and go through the numbers.
19 Invariably, railroad workers are paid more than 97
20 percent of American workers. Well, you know,
21 that's been true for 50 years. At least, that's
22 proven by my exhibits, the cites that I make in
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Page 208 1 Exhibit 89, but it's probably been true years
2 before that. But I think that, in the end, you'll
3 find that this fact is really a function of the
4 occupations which are in the mix of those
5 occupations and the skills involved in those
6 occupations that are required to run a freight
7 railroad and not some other enterprise. And so,
8 naturally, we would expect this group to have a
9 wages and benefits to exceed that which you might
10 find in other industry. I even include in this
11 look here, test some exhibits and some analysis
12 that were performed by Dr. Evans himself 15, 20
13 years ago, where he has proven the same means,
14 that the railroad worker was paid 70, 80 percent
15 above.above the BLS standard. I don't think that
16 meant anything. I think that the record
17 af.following those cases have proved that. Those
18 numbers have failed to motivate the parties to do
19 anything except for to expand that alleged premium
20 as.as PEBs have done. But that's the result of
21 collective bargaining and clearly, there's
22 something wrong with the statistic, it's not a
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Page 209 1 standard for wage determination in this industry,
2 and the history simply validates that point. And
3 on this subject I guess we can conclude by
4 referring back to PEB242 42 Page 24 where the
5 board said and concluded the jobs are unique to
6 the railroad industry and have not meaningful -
7 there are no meaningful comparisons with the -
8 with occupations outside the industry. One final
9 point that Dr. Evans made some comments about or
10 differences on the Consumer Price Index and on the
11 real wage change over time, I have (inaudible at
12 00:00:38) with his making it clear to you that
13 what I was talking about when we were doing our
14 historical wage - real wage change analysis that
15 we were - that I was including that period of time
16 where we had wage freezes under 219. And that I
17 was calculating in my projections over the course
18 of this agreement the amount necessary not only to
19 maintain real pay over this contract but to
20 recover that lack. That's - I - if I didn't make
21 that clear or - in my affirmative remarks or if
22 that's not clear from my summary statement, I want
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Page 210 1 to make that clear now because that was certainly
2 my intention. We don't apologize for asking for a
3 wage increase over the course of this agreement
4 that can correct for a period of time in which the
5 carriers were obviously in a wholly different
6 position and had least ability to meet the - meet
7 a demand for maintenance of real pay. Also you
8 know as I - I think both Dr. Evans and myself made
9 reference to the Consumer Price Index that just
10 came out this morning. He said it - he - you know
11 he said that it's been volatile and changes from
12 month to month. That's certainly the case. But I
13 would note that when the CPI came out today that
14 it - it came out at annualized rate of 4.4
15 percent. So again supporting the proposition that
16 I advanced that we are currently running at an
17 annual rate of inflation that exceeds - it
18 certainly exceeds 3 percent and exceeds the 1.5
19 CBO projections that the carriers had used in
20 their analysis of real pay. As to what's going to
21 happen from this point forward, that's a judgment
22 for the board to make based on all the voluble
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Page 211 1 evidence. And good luck with that because no one
2 really can - has very much success in predicting
3 the costs of living. I would simply caution that
4 there's no - there's little need to guess over the
5 first 21 months of the agreement. We know what the
6 CPI has done. And it has risen at a pace that
7 exceeds 3.3 percent per year. That brings me to
8 the next topic. There were - and again I'll make
9 this brief as well. Maybe not as brief as Carmen
10 would prefer so if I get - if I wince it's because
11 she's kicking me under the table. This - I'm going
12 - I'm just I guess confused about this whole
13 notion that there is a social cost to raising
14 wages for railroad workers. It's - the proposition
15 is that if you have an increase in labor costs for
16 the railroad worker that would be passed along to
17 the public in the form of higher prices. I think
18 the analogy was, you know, you put it in one
19 pocket; it's got to come out of the other pocket.
20 And the other pocket is the public interest in
21 this case. And there's some public costs to
22 increases of wages for railroad workers. I would
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Page 212 1 suggest that there might be a third pocket. And
2 that is that pocket of those who provide capitol
3 to the railroads. What's left out of that equation
4 is what happens to the interests of Wall Street
5 and the - and profits. We are not apologizing for
6 wanting to take what they have in terms of these
7 escalating cash pool that has been passed along to
8 shareholders at this point. So again, I mean we're
9 not going to solve in this form and you're not
10 going to engage in any kind of deliberation
11 regarding the difference between, you know, it's
12 supply side and demand side economics for the cure
13 of our current economic problems nationally. But
14 that kind of comes to mind when I hear this
15 testimony about the social costs of wage
16 increases. I don't know that it has any place at
17 the bargaining table or has any real application
18 when you look at railroad history. The face of the
19 matter is over the past 20 years, labor costs have
20 gone up. Prices for the consumer have actually
21 fallen and investments in the physical plan for
22 railroads have steadily risen. So what happened to
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Page 213 1 the social cost? Well productivity took care of
2 that. And so you know I don't know that it - that
3 the whole economic theory has any real application
4 here. One thing that's - one last thought on this
5 however, it has to do with employment. Again I
6 don't get - now maybe it's because I didn't go to
7 the University of Chicago. Maybe I've - there's
8 something diminished in my education but I don't
9 get the ap - I don't get the connection between
10 wage increases for railroad workers and effects on
11 employment. Every carrier that I know of and I've
12 talked to several of them. And carriers in the
13 airline industry as well run staffing models.
14 Manpower planners have staffing models. And what
15 drives employment in the railroad industry for
16 train and engine workers, for example, is volume.
17 It's traffic. You hire - you have more traffic,
18 you hire more T and E employees. What the staffing
19 models for the rolling stock or for the shop
20 employees is driven by the age of the fleet and
21 the size of the fleet. You have older cars and
22 older end - older locomotives and it takes more
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Page 214 1 people to repair them. If you have more of them,
2 it takes more people to repair them. In the
3 maintenance of way, what drives employment levels
4 is not the level of compensation. It's what - it's
5 the miles of track that you have to maintain. And
6 the track and the density that runs over those
7 trains which causes - which bears on the age and
8 the cycles that - the maintenance cycles that the
9 - that engineering departments have to contend
10 with in which drives their maintenance
11 requirements and their ultimate employment levels.
12 None of this has anything to do with the level of
13 pay. I mean an engineer can - you know the BLE can
14 decide to cut their wages by 20 percent. Now
15 that's not going to mean that the carriers are
16 going to hire more engineers and have one sit on
17 the lap of another in the cab. They're instead
18 going to take that 20 percent discount. They're
19 going to use it to cut operating expenses and it's
20 going to increase the - improve the operating
21 ratios and profitability. And that's going to go
22 to the executives and to the shareholders. It's
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Page 215 1 not going to go to employees by way of more
2 employment. But I'm - I must have been listening
3 to something when this argument was made but I -
4 it doesn't have anything to do with the reality
5 that I know of in this industry. You take one of
6 those high tech machine operators and maintenance
7 away with the pictures that we have seen. There's
8 - you know if you cut the maintenance of way
9 compensation in half, they're not going to hire a
10 bunch of trackmen and give them a pick and shovel
11 and park that piece of machinery. That's not the
12 way it works. So again, you know, this is for you
13 to muse over and maybe at best over a Martini some
14 time. But it doesn't seem particularly relevant
15 here. Let's see. One last - I keep saying one last
16 thing from Mr. - from the good doctor but another
17 thing I want you to understand that there's a
18 difference between us on what this roll of quits
19 as in your analysis of the proper level of
20 compensation. We are told on the screen here this
21 morning that there are 1.2 million applicants but
22 only 7,455 persons were hired. But what you don't
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Page 216 1 have in front of you and what you don't know and
2 what you need to know is how many of those 1.2
3 million applicants met the qualifications demanded
4 by the carriers for the high level and high
5 skilled jobs that they're recruiting for. Why is
6 it I would ask do we have vacancies in jobs? Why
7 are they unfilled when you have 1.2 million
8 persons standing at your door waiting for a job?
9 Why is it that if you go online to - on CSX or any
10 other big carriers and you - when you find - you
11 can - you find in their - on their general Web
12 sites applications to apply for jobs? Why are they
13 advertizing for workers when I've got this horde
14 outside my door waiting for employment because
15 we're paid so excessively? There's again no
16 connection between the theory and the reality
17 here. But there is - there are reasons why - by
18 railroad workers did not quit their jobs which
19 have nothing to do - they're total extraneous to
20 their perception of the level of compensation. The
21 first is that railroad retirement benefits are not
22 portable. (inaudible at 00:09:13) worked for the
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Page 217 1 railroad 20 years, I can think I'm making - I'm
2 not making enough money but I'm not going to quit
3 because I don't want to sacrifice benefits for -
4 that that railroad retirement benefits that I've
5 worked for all my life. And that the employer has
6 financed for all the - all of my work life as
7 well. Or how about the seniority system? A
8 seniority system is an investment that a worker
9 has in his job. It defines not compensation as
10 much as it - in our business as it does the
11 quality of your life. The quality to pick your
12 assignments, the quality of pick a day off for a
13 holiday when the less - when the more junior
14 person has to work. This is an investment that the
15 employee has in his work life. It - seniority is
16 not compensation but it drives the quality of
17 life. And if I have a big investment in my
18 seniority, I'm less likely to quit. Where do you
19 get seniority? Collect the bargaining agreement.
20 So too are grievance procedures; exit - the
21 studies indicate, the literature says that the -
22 you quit your job most frequently when - not
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Page 218 1 because to look for something that's more higher
2 paid but because you're disgruntled in your job.
3 It has no - you have no satisfaction. You don't -
4 you're mad at your supervisor. Your supervisor
5 mistreats you. What does a railroad worker collect
6 a bargaining agreement due before he quits under
7 those circumstances? He files a grievance. And he
8 gets satisfaction through a grievance procedure.
9 Now I suppose the economists would say well,
10 that's value. You know we - you should take less
11 compensation if you have a grievance procedure. We
12 say it has nothing to do with the quit rates. But
13 the biggest reason, of course, is that there is no
14 occupational ability in railroad jobs because
15 they're peculiar to this industry. Someone who has
16 invested his entire career into the training and
17 education to be a locomotive engineer or a high
18 tech machine operator is not - can not transfer
19 those skills because his employer is the only one
20 in town and the only one in the country in some
21 instances. So obviously railroad workers don't
22 have occupational mobility of the kind you see in
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Page 219 1 the service industry or elsewhere. So it doesn't
2 surprise me that you have low quit rates. But the
3 question for the board is what the devil does that
4 have to do with a - with excess contri -
5 compensation? Okay. Ability to pay; there's really
6 not much to say here. So I'm almost done. I'm
7 alright?
8 MS. PARCELLI: You're great.
9 MR. ROTH: Okay. Alright. I'm talking fast enough.
10 The ability to pay; on this subject, we heard from
11 a witness this - from the AAR this morning. And I
12 don't detect that there's a whole lot of
13 differences actually between the party regarding
14 where we are today and how far we have come. I
15 mean this is something this really can't be
16 challenged. All the numbers that we put in
17 evidence regarding the current strength of the
18 financial position of the carrier are just
19 irrefutable. What I heard this morning however was
20 that we still have strong Cap X programs that have
21 to be funded. And so we're - and we're not meeting
22 our cost of capital. On this point, I can only
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Page 220 1 refer you, Mr. Chairman and board members, to
2 Union Exhibit No. 86 and Appendix B I believe it
3 is. It's at Record - Page No. 2130 in the Union's
4 case. And we're not going to read this at you or
5 go through it but you understand that we have a
6 big difference with the carriers regarding the -
7 what the use of the STB's revenue adequacy
8 determinations in measuring the carriers' extent
9 of access, if you will, to the capital markets.
10 Know - there are all sorts of reasons for that and
11 they're recorded for you in that appendix. I would
12 also direct you specifically to STB X Party No.
13 664 which is their decision in 2008 which records
14 the role that the AAR on behalf of the carriers
15 played in the determination of how costs of
16 capital is measured. And in that decision the
17 board itself states that the carriers had an
18 interest and in fighting any effort that STB made
19 on behalf of petition by shippers to redefine the
20 methodology of measuring costs of capital in a
21 manner which would lower that threshold and
22 thereby making more railroads revenue adequate
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Page 221 1 because of the regulator concerns that the
2 carriers have had. But again, don't rely on my
3 reading of those decisions. They are there for
4 your review. One - there was - I don't know but
5 there's - again this is - this seems like a minor
6 point but time was spent this morning not only for
7 reasons that escape me. But there has been a
8 growth in leasing. Apparently and that's part of
9 the explanation for why there's been a diminution
10 in the amount of debt or the use of that out -
11 that - you know it would - debt in financing
12 equipment. That's certainly the case. But I would
13 remind the board that when a carrier increases the
14 costs of leasing that that shows up on the income
15 statement as an operating expense. That comes out
16 of profits. If they weren't leasing and they were
17 borrowing more, they'd have greater profits than
18 what otherwise would show up. But their balance
19 sheet wouldn't be as clean because they would have
20 more debt. So this is a business decision. We've
21 got so much cash we might as well lease is the
22 decision. We don't have to borrow. Clean up our
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Page 222 1 balance sheets, we look better to - we were - we
2 have more liquidity because we have more ability
3 to absorb long term debt. But in the meantime, we
4 have so much cash why not lease. That comes out of
5 the income statement. So not withstanding the fact
6 that the leasing arrangements have gone up in
7 number and in values as a means for financing
8 equipment; that does not bear in my mind or my
9 view on their financial condition. It's not a
10 problem. It's just a business decision to pay to -
11 out of one pocket or the other. And finally with
12 regard to future expectations, I'd made reference
13 in my affirmative remarks about the momentum that
14 the - that we have going forward and how the
15 analysts on the outside are expecting good things
16 and profitable things from the carriers. Just last
17 night for instance, before the close of business,
18 CSX reported its third quarter earnings. This is
19 not in evidence here so let me report on that. The
20 - at the close of business yesterday, CSX reported
21 their third quarter earnings. And the headline of
22 the piece that came from the railroad age was "CSX
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Page 223 1 posts record third quarter earnings". Net earnings
2 of $464 million or 43 cents per share, up 19
3 percent from the third quarter of 2010. And this
4 is another quote from the press release. "CSX
5 operating ratio was 70.4 percent and the company
6 said it remained on target for operating ratio no
7 later than 2015 of 65 percent". Again, got the
8 momentum on this - in the same - and the same with
9 this morning I read from the Railroad Age that a
10 third quarter rail shipper's survey which was a
11 survey of shippers - participating shippers that
12 with the hundred - with the $10 billion in
13 combined transportation purchasing power or
14 greater indicate and I quote " railroad shippers
15 anticipate an average base rate increase of 4.3
16 percent overly the next 6 to 12 months". Again,
17 unquote, that doesn't sound like an industry that
18 is going to struggle in producing record income
19 once again, record revenue and income in the next
20 12 months of this collective bargaining agreement.
21 I have no - nothing further Mr. Chairman. Thanks
22 for your patience and attention. And unless there
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Page 224 1 are questions of me, I'm - have concluded.
2 CHAIRMAN JAFFE: I think we're all in good shape.
3 Thank you again Mr. Roth.
4 MR. ROTH: You're welcome.
5 MS. PARCELLI: Just before we bring Ms. Mallett, I
6 wanted to briefly address some of the points made
7 by Mr. Boley in his rebuttal this morning
8 regarding the negotiations with regard to health
9 and welfare. Really as far as our coalition, the
10 CRU Coalition is concerned; we'd just refer you
11 back to the testimony of Mr. Parker yesterday. In
12 terms of his written testimony that's been
13 submitted, you can find this discussion on Pages 6
14 through 7. In a nutshell that this - that CRU
15 Unions attempted to bargain about what they viewed
16 as non-cost shifting aspects of the carriers'
17 proposal. But as you heard Mr. Boley himself say
18 after talking about the negotiations, it was a
19 package. So that's what they were told at the
20 table. It was a package. So they attempted to
21 bargain on what they could. And then I think Mr.
22 Wilder just wants to speak to the ROBC experience
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Page 225 1 in this regard.
2 MR. WILDER: Yes. The RRBC and the carriers engaged
3 (inaudible at 00:01:090 substantial period of
4 months on healthcare in an effort to find a key or
5 a common ground to resolve this problem. Much as
6 those two parities did in the 2005 to 2009 round
7 but at the end of the day, we could not do so
8 (inaudible at 00:01:32) on that last day as the
9 CIU Coalition was at the same time. That led to
10 the request for a proffer of arbitration. Thank
11 you.
12 CHAIRMAN JAFFE: Thank you.
13 UNIDENTIFIED MALE SPEAKER: Okay. You all set.
14 UNIDENTIFIED MALE SPEAKER: I'll go.
15 MS. PARCELLI: Karen, where do you want to be?
16 MS. MALLETT: I'm going to come over there then.
17 Should I (inaudible at 00:01:59)?
18 UNIDENTIFIED FEMALE SPEAKER: Would you - ?
19 MALE SPEAKER: Do you mind?
20 UNIDENTIFIED FEMALE SPEAKER: I can slide down.
21 UNIDENTIFIED MALE SPEAKER: Okay. (Background
22 conversations)
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Page 226 1 UNIDENTIFIED FEMALE SPEKAER: One moment for
2 technical issues.
3 UNIDENTIFIED MALE SPEAKER: We're fine. (Background
4 conversation)
5 UNIDENTIFIED FEMALE SPEAKER: Chairman, while we're
6 waiting for Ms. Mallett to get up, Mr. Roth had
7 informed me that there was one piece in his latest
8 submission that he forgot to mention to the board
9 and bring to your attention. So if he could do
10 that now that would be helpful.
11 CHAIRMAN JAFFE: May as well take advantage of the
12 (inaudible at 00:02:46) in the proceedings so
13 that's fine.
14 MR. ROTH: Thank you Mr. Chairman. I apologize but
15 I did promise the other day that I would furnish
16 you with a - there was that list of PEB citations
17 that the carriers have made adding to your -
18 adding to the record here a calculation of the
19 percent of workers covered by a pattern
20 application. That's (inaudible at 00:03:14). You
21 can't necessarily glean this from a PEB report. So
22 I wanted to just identify where that was so it
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Page 227 1 wouldn't get lost. Okay. That said, it's on Record
2 Page 2552 in the Union's case in Exhibit No. 89.
3 Okay. So just by way of construction, it
4 identifies the reports cited by the carriers in
5 this record. And I believe there are 19 as I first
6 testified. In the far right hand column, I
7 indicate whether the pattern was identified and
8 applied. And I think in all instances they - it
9 was by my readings so again the carriers correct
10 in its sightings of these cases. But in its second
11 to the last column, I calculate the percent of the
12 - of workers before the board - in other words,
13 involved in the case to which this pattern
14 applied. And as you can see, it's in, except for
15 one case, it's well below 70 percent that we have.
16 Thank you.
17 CHAIRMAN JAFFE: Thank you again.
18 MS. MALLETT: Just talk from up here?
19 CHAIRMAN JAFFE: (inaudible at 00:04:29) that's
20 fine.
21 UNIDENTIFIED FEMALE SPEAKER: Okay. Sure.
22 MS. MALLETT: Let me see if this works.
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Page 228 1 UNIDENTIFIED MALE SPEAKER: That's fine. The - MS.
2 MALLETT: Yep.
3 UNIDENTIFIED MALE SPEAKER: - organization's call -
4 we call Karen Mallett.
5 UNIDENTIFIED MALE SPEAKER: Ms. Mallett welcome
6 again and we need to remind you you're still under
7 oath.
8 MS. MALLETT: Thank you. Wait, does this microphone
9 - can you hear me? UNIDENTIFIED MALE SPEAKER: Yes.
10 UNIDENTIFIED FEMALE SPEAKER: Yeah.
11 MS. MALLETT: Okay. Well thank you and thanks for
12 your patience and thanks for the opportunity to
13 address the issues brought up. On the morbidity or
14 health status issue - oh, I had to put these
15 together in the little break so there could be
16 typos. But we'll - they'll help us get through it
17 I think. On the morbidity or health status issue,
18 there are two points that were addressed. One was
19 is an adjustment needed at all. And the second one
20 is the number right. And I'd like to go over both
21 of those issues. On the adjustment needed, the
22 importance of normalization, again if we were
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Page 229 1 using the studies that were being in question
2 here: the Kaiser Family Foundation, the Hewitt
3 Study, the Watts - the Towers Watson Studies and
4 we were trying to figure out what the difference
5 was in industry then we would want to make
6 adjustments for items like benefits and medical
7 management and vendors and stuff like that. But
8 those items, we're not trying to figure out what
9 the industry factor is. We're not trying to figure
10 out what the morbidity is. We're trying to figure
11 out the things that can be controlled by this
12 group of people. And those things are the plan
13 design and the medical management. And those are
14 the two issues that are sort of on the table. And
15 so that's what we're trying to normalize or get
16 rid of the noise for the morbidity or the health
17 status. And here's another example of that. And
18 we're saying is if you have a group that has only
19 11 people in it and one person in one of the
20 groups, Plan A. It has one person that's 35 and 10
21 people that are 55 so a total of 11 people. Then
22 their total costs would be $205,000. And this is a
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Page 230 1 very simple example. But if you had Plan B and you
2 had 10 people that were 35 and one that was 55,
3 again 11 people, their costs would be $70,000. And
4 you could easily misconstrue the fact that Plan
5 A's benefits were so much better, so much richer.
6 Their medical management was so much worse than
7 Plan B's. And we're saying that's not a fair
8 comparison. The comparison and the issues on the
9 table here is the benefits and medical management.
10 And that's why we feel it's so important to
11 normalize the data in order to get a comparison.
12 As for the next question, the factor, the 1.32 -
13 well before I go to that, the surveys. We agree
14 with Dave. They're not all 1.0 but they're
15 supposed to be representative of the U.S. employer
16 sponsored plans. So they should be really close to
17 1.0. There's going to be some variance absolutely.
18 One's - because some's going to 0.995, 1.01 but in
19 that ballpark, they should be or they shouldn't be
20 - we shouldn't be using them. And in our report,
21 you'll notice that even within the surveys, there
22 was a variance of like 20 percent. So there is
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Page 231 1 some variance that's going on there. As for the
2 point of whether it should be 1.2 or 1.32, several
3 points we'd like to point out. One, we broke down
4 the risk scores or the morbidity factors or health
5 status-there's all different ways you can term it
6 - by vendor. We found United Healthcare at 1.291,
7 Aetna at 1.52 and Highmark at 1.248. We're not
8 sure which vendor Dave was referring to that you
9 said 1.2. We're not sure what year he used. If he
10 used a latter year then maybe indeed it's a
11 slightly lower number because as we pointed out,
12 we're expecting the risk scores to go down as
13 people get younger. So we're expecting it to get
14 slightly better as time goes on. The other - the
15 second point we want to make in terms of the
16 number being valid. We hired Ingenix to
17 independently verify our figures to make sure we
18 didn't screw up our calculations to make sure that
19 the 1.32 number was representative of what the
20 pharmacy risk group rebuttal would produce. And
21 that's sort of what we did. The question is; is
22 our pharmacy risk group models good examples of
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Page 232 1 what should be used. Now my understanding in the
2 industry of talking to Kaiser and their
3 underwriters and United Healthcare is that it's
4 common for underwriters to use pharmacy risk
5 groupers more so than in combination of medical
6 and RX. Because RX data is readily available and
7 more similar between one plan verses another. So
8 that's the most common use. But it still doesn't
9 answer the question of how the - different they're
10 supposed to be. Going to the site of actuaries
11 report done in 2007 which was meant for actuaries
12 like Dave and myself to be able to know which
13 modeler to use. We use this one right here,
14 Ingenix PRG Model. And it's just RX. And, the
15 other one that he talked about which would be a
16 comparable one would be Medical Plus RX. What this
17 is showing is how accurate the models are to the -
18 what's actually going to happen. And you can see
19 that the difference when you look at - is - it's
20 really hard to read this - 83.4 verses 84.1. So
21 the actual number verses what was the - coming
22 out, the difference is very small. It's like 0.7
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Page 233 1 percent difference. That's why people are using
2 pharmacy risk groupers as opposed to using a more
3 complicated model with medical and RX. So we feel
4 like this is a valid use of a tool. The point on
5 this morbidity health status issue is, is that
6 what is the purpose here again. Are we - they're
7 claiming that the members are over utilizing
8 healthcare. And we give examples of muscular
9 skeleton and COPD. And we give those examples of
10 how they were higher than the average book of
11 business. And that average book of business was to
12 show that people had bad conditions in this plan.
13 They came up and they showed us the difference
14 between employee, spouse and child. And we didn't
15 really quite understand those charts because it
16 showed that spouses cost more than employees. And
17 that's typical in almost all groups. Spouses cost
18 more than employees. So, that's fine. We're okay
19 with that. That doesn't say that this group is
20 healthier than the - a regular group. It doesn't
21 say that we shouldn't take out the morbidity
22 differences and compare it in this plan's benefits
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Page 234 1 to another plan's benefits. So we could have
2 missed that point there. The other issue is, is
3 that in looking at whether or not they have a
4 higher utilization. They only gave us two
5 examples. They say the members are over utilizing
6 but they haven't actually given us real numbers
7 that show that the members are over utilizing
8 except for on two items: emergency room which we
9 showed has other factors going on. There's some
10 work attendance rules that - issues to deal with.
11 There is no urgent care access. So those were some
12 alternative issues for emergency room that we
13 talked about. And there's some ways to deal with
14 that. And there's also brand drugs they said were
15 over utilized. And there's some ways to deal with
16 that. But for the other items, the stuff that they
17 were talking about: deductibles and co-insurance,
18 they never showed us any quantified over
19 utilization or lack of management in this plan. So
20 that was our concern there. On the zero dollar
21 generic co-pays; again I like to remind the panel
22 that this is not something that's on the table by
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Page 235 1 the unions. We give this as an example of an
2 alternative way to deal with RX. I feel it's
3 important to explain our numbers though. It wasn't
4 in our report so therefore it's not something you
5 can read. And it goes to the credibility of our
6 figures. We saw what Dave said. Metco did say that
7 there would be a cost. But in their analysis, they
8 used only a 4 percent generic utilization shift.
9 We're using a 6 percent generic utilization shift.
10 So we're saying that there are - at 65 percent,
11 they're going to go to 71 percent. I'm just trying
12 to use simple numbers of what a 6 percent shift
13 means. And they're saying if they're at 65
14 percent, they're only going to go to 69 percent.
15 Why do we feel that we're comfortable with 6
16 percent verses 4 percent? And what difference does
17 it make? Five percent we figure is a breakeven.
18 And we can pretty much match Metco's numbers at
19 the 4 percent shift. So we'd feel comfortable with
20 the methodology. So it's all about the assumption
21 and what you believe. We asked Metco. We said and
22 we put it in writing over and over again tell us
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Page 236 1 what your book of business is compared to your
2 plans with zero dollar generic co-pay. They
3 couldn't tell us. We asked two other PBMs which
4 unfortunately I did not request permission to use
5 their names so I can't at this moment tell you who
6 they were, what their books of business were on
7 generic verses their books - zero dollar generic
8 drugs verses their book of business. Both of those
9 said five percentage point difference. And I went
10 to the example I just did. So I said if you're at
11 65, it goes to 70. They said yes. So we felt very
12 comfortable with a 5 percent. The reason why we
13 bumped it up the extra 1 percent because this
14 group is below the book of business and that's why
15 it's being questioned. So if you're below the book
16 of business, it's easier to go a larger percentage
17 shift. It's easier because you - people can make
18 up the difference. That's one point. The second
19 point is in our experience with targeted mailings
20 which we would recommend would go along with this
21 limitation; they've been very successful at
22 getting movement on the GDR. So it was that
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Page 237 1 experience and the other information we got from
2 other PBMs that led us to use a 6 percentage point
3 in difference in our assumption base. The other
4 last point I have on there is one of the things
5 that makes a difference is - and this is what
6 Metco bases it - their stuff on a little bit - is
7 that you - the difference between the brand co-
8 pay and the generic co-pay. And if you put it at
9 zero, for mail order, it would be a $30
10 difference. And we always at Kiron, we look for a
11 $20 difference. And at retail while it looks like
12 it's only a $20 difference, it's really a $28
13 difference because most plans do a 30 day supply
14 and they only do a 21 day supply. So effectively
15 for the members if they're getting a 30 day
16 supply, they have to pay $28 on average. So we
17 were, again, comfortable with our assumptions. But
18 that goes to the point of our numbers. In terms of
19 our numbers matching with their other numbers, I -
20 the only other number that I saw that was a little
21 bit off was on the adequacy of benefits. Our
22 prescription drug figure is slightly different
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Page 238 1 than their prescription drug figure. And I'm
2 guessing because I looked back at what would
3 happen; it's because of rebates. We threw rebates
4 in saying that the plan's going to get those
5 rebates therefore the total cost would be
6 different. And they may not have. I don't know. I
7 haven't talked to Dave. I'm not sure how they did
8 the calculation. But I just wanted to bring up
9 those points again for the ad - to point to the
10 validity of our figures. The next question
11 (inaudible at 00:16:13) question was whether the
12 survey of the five or six rails were
13 representative of the industry. And we believe
14 they are. We got the information from Mr. Roth.
15 And to - he told us this and we believe him. And
16 you could talk to him about it. But he says that
17 the freight class 1 makes up 90 percent of the
18 rail industry. That the Amtrak makes up 100
19 percent of the intercity rail passage or industry.
20 Makes sense to us. The five commuter rails that we
21 put in there, the employ - the number of employees
22 make up 86 percent of the employment. So we
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Page 239 1 thought that the combination of the groups that we
2 put in there was representative of the industry.
3 And we felt good about it. We just wanted to share
4 those statistics with you. As for the Cadillac
5 Tax, we do not believe it's been measured. Watson
6 Wyatt put out a paper that explain - on December
7 9, 2009 that said there's several issues with
8 Cadillac Tax. They talked about area, industry and
9 age which is - makes up morbidity. But essentially
10 they said if you have an older plan then people
11 are going to be discriminated against. And if
12 you're in a high cost area, the plan's going to be
13 discriminated against. So there's all kinds of
14 items out there complaining about the Cadillac
15 Tax. But it's far off in the future so no one's
16 really focusing in on whether the exact
17 adjustments are correct or not at this point in
18 time. But the biggest concern that we had with the
19 Cadillac Tax and with what's out there and with
20 many, many people is that it's not really a
21 Cadillac Tax. It's a Chevy Tax. And this is a
22 slide that was shown by the Lewin Group in their
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Page 240 1 presentation of healthcare reform. It shows that -
2 well it starts out that in 2018, 26.7 percent of
3 the employer sponsored plans would be in this
4 Cadillac Tax. That quickly it grows to over 80
5 percent so there's a lot of problems and issues
6 with the Cadillac Tax. And we don't think it's
7 representative to say that that amount that the
8 Obama Administration was in favor of cutting
9 benefits. We don't see that argument. Finally on
10 the point of the Joint Planning Committee, again
11 I'm not an attorney and I'm not a policy maker. I
12 just know what the results are that I saw. And
13 looking at what they've done over the time period
14 and what they've been able to accomplish. And
15 maybe they were just - they did it be - despite
16 all these problems that have been brought up. But
17 just in the last bargaining, during bargaining,
18 they were able to implement chronic care. And I
19 believe that the people in this room can work
20 together to make an efficient healthcare plan that
21 - plan that's already efficient even more
22 efficient and deal with the issues. And I think
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Page 241 1 that's all I have for now. Thank you for your
2 time.
3 CHAIRMAN JAFFE: Before you leave Ms. Mallett, just
4 one question if I may.
5 MS. MALLETT: Of course (inaudible at 00:19:17).
6 CHAIRMAN JAFFE: And my colleagues may or may not.
7 With respect to the zero dollar generic feature, a
8 two part question. One is do you know how common
9 it is? That's question -
10 MS. MALLETT: Zero dollar generic?
11 CHAIRMAN JAFFE: Yes ma'am.
12 MS. MALLETT: I don't. I know it's getting more and
13 more common but I don't have a statistic for you.
14 CHAIRMAN JAFFE: That's fine. And the second
15 question is a cost question. If one compares that
16 to a $5 generic, do you know what the cost impact
17 is either look through A, the lens of the plan or
18 B, the lens of the participants who would be
19 utilizing the benefits?
20 MS. MALLETT: I don't but I will tell you that the
21 assumptions that we're talking about of what you
22 really believe the shifted GDR is -
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Page 242 1 CHAIRMAN JAFFE: Right.
2 MS. MALLETT: - that's going to make or break
3 whether you believe that $5 co-pay is more cost
4 effective or less cost effective than zero
5 dollars. So if you believe the $5 co-pay is going
6 to get you a 5 percent shift or a 6 percent 7 shift - just as much a shift - than clearly a $5
8 co-pay would be - cost less. But if you don't
9 believe that as many people are going to shift
10 with $5 then it would cost - it could cost more to
11 the plan. So it's all in that assumption.
12 CHAIRMAN JAFFE: Fair enough. My colleagues okay?
13 Great. Thank you very much.
14 MS. MALLETT: Thank you. ROLAND WILDER, JR., ESQ.:
15 The Joint Coalitions call - recall Dennis Pierce.
16 CHAIRMAN JAFFE: Fine. And I need to remind you
17 you're still under oath, Mr. Pierce. Thank you.
18 DENNIS PIERCE: Thank you. Good afternoon. I just
19 want to make a couple of clarifications for the
20 record. I'll try to be very brief. The first is
21 that, again, we saw the Carriers portray BLET's
22 participation I think at 3.9 percent of our
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Page 243 1 membership. I just want to make it clear for the
2 record that we're here 100 percent on healthcare,
3 and that is obviously the issue that seems to be
4 getting the most attention here, and we are very,
5 very involved in it and we're very, very involved
6 in its outcome. I also want to speak briefly to
7 Mr. Hennecke's comments about the vacation
8 calculation. After his comments, we went and
9 reviewed the agreement and we got that one wrong;
10 I'll be the first to admit it. We are preparing
11 another document for the Board. At the same time,
12 Mr. Hennecke's comments weren't completely
13 accurate either. The way the process works, it
14 would be - the prerequisite time was added or
15 increased by 50 percent in 1996. The yard starts
16 went from 100 to 150; the road starts went from
17 120 to 180. With the multipliers that you use to
18 add the two together, the total that you have to
19 hit in a year's time is actually 240 all told,
20 when they're added together. Our error occurred
21 when we thought it was 225 and 270; it's actually
22 240 for both classes of service. If you take the
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Page 244 1 150 times the 1.6 multiplier, you've got your 240,
2 and the same is true of the 180 using the 1.3
3 multiplier; it's actually 185-ish is what the
4 number is that it's required. With the Board's
5 permission, we'd like to prepare a replacement
6 document for the slide that we use to try to make
7 sure that you understand the calculation. In the
8 end, we were actually low on what it takes in the
9 yard. We said 6.2; it's actually 6.8 months. We
10 were high on the road. We thought it was 9; it's
11 actually 8.4 would be the actual calculation. So
12 we weren't off by much, but we were slightly off
13 on that. The second issue I'd like to speak to is
14 certification pay. Now, the Carriers went to
15 considerable length to convert the UTU
16 certification pay to a percentage value. To
17 compare it to general wage increases, the - they
18 rated at one-half of one percentage point. If you
19 studied the way the calculation was put together
20 today, you noticed, like me, that it was based on
21 engineer starts. We submit to you that the value
22 of the UTU certification pay, insofar as
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Page 245 1 locomotive engineers is concerned, is $5; it is
2 not one-half of one percentage point. The basis of
3 the calculation to get to the general wage
4 increase started with locomotive engineer starts
5 and added to that with train starts, RCO, and from
6 what we could see, should have included hostlers.
7 So to say that that value is not transferrable to
8 anyone in this room as a $5 value to us we think
9 is very disingenuous. We're not advocating for the
10 UTU pattern, but we do think the Board needs to
11 understand that its value is $5 per start, not a
12 half of a percentage point in our book. The other
13 issue I want to speak to is cab conditions. I can
14 appreciate, as Mr. Karov said, that BNSF's
15 locomotives are shiny at least at one point in
16 their history and that's usually when they roll
17 off of the assembly line. We didn't go to trouble
18 to produce a video, but I think from the videos we
19 watched today you could tell from the Carriers'
20 video and the maintenance of way video that even
21 camp cars don't look the same when they're brand
22 new as they do when they've been used, and that is
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Page 246 1 our takeaway here. It's the same for locomotive
2 cabs. If the current contractual and regulatory
3 provisions were addressing our concerns we would
4 not have burdened this Board with our request for
5 more meaningful standards. Ironically, when we try
6 to seek resolution in the regulatory standards,
7 we're told to go do it in the contract. And when
8 we come to try to do it in the contract, we're
9 told to go do it in the regulatory environment,
10 where obviously the railroads try to avoid any new
11 regulation. Finally, while I appreciate that BNSF
12 pays claims when today's cab standards are
13 violated, I think the fact that they pay the
14 claims verifies and validates our argument that
15 standards need a better way to be enforced because
16 they're being violated. So we would renew our
17 request that you consider our proposal for
18 recommendation. And finally I need to comment on
19 Mr. Crable's comments on the CSX meal allowance. A
20 BLET has never argued that the CSXT-BLET agreement
21 was anything but a voluntary agreement that
22 included give and take from both sides. I was
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Page 247 1 actually assigned to the CSX property in 2009 when
2 that agreement was renewed and renegotiated, so I
3 don't disagree with them that that agreement has
4 give and take. Much like the BNSF and NS
5 agreements though, there is no comparable quid for
6 a pro, or a quid pro quo for that individual item,
7 that anybody could refer to, because there are
8 items of both tangible and untangible value in
9 both of those agreements, all of those agreements.
10 I think the important message that we wanted you
11 to see from that is that all of those agreements
12 are evidence that the $6 meal allowance that we
13 have been stuck with since 1994, which was last -
14 it required a PEB to adjust it last time, to go
15 from what it was to the $6 that it is now, in
16 1994. We think that these agreements show that the
17 $6 national standard last addressed in PEB 219 is
18 in need of an adjustment. And we would reinforce
19 the point that even the competitors' rule, the UTU
20 rule, was adjusted almost two years ago and we're
21 still sitting here without an adjustment. So
22 that's all I have and I thank you for your time,
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Page 248 1 unless you have any questions.
2 CHAIRMAN JAFFE: I think we're in good shape. Thank
3 you again, Mr. Pierce.
4 MR. PIERCE: Thank you.
5 MR. WILDER: The Joint Coalitions recall Steve
6 Powers.
7 CHAIRMAN JAFFE: And I need to remind you that
8 you're still under oath, Mr. Powers.
9 STEVEN POWERS: I understand. Eight points, less
10 than 15 minutes. I promise. We start off I want to
11 talk about the $120 million cost that the Carriers
12 have attributed to our expense-away-from-home
13 proposal. And after seeing their presentation this
14 morning, we still believe that we're lacking key
15 data sources. We still believe we lack
16 methodology. We still believe they don't report,
17 for instance, what kind of a cost they attribute
18 to obtaining hotel rooms. So we don't think the
19 figure is necessarily one that we trust or saying
20 "trust us" but we don't, but that isn't the key
21 point. The key point is this: Award 298 allowances
22 have been increased a total of twelve times in six
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Page 249 1 national agreements since 1967, and there is a
2 table at appendix K in the separately bound volume
3 of BMWE exhibits that shows those increases.
4 Never, not once in those six national agreements,
5 have the Award 298 increases been considered a
6 wage issue. Each and every single time, BMWED
7 received the same national wage increases as every
8 other union involved in those national rounds,
9 plus increases to Award 298 expenses. So the
10 reason, of course, is that Award 298 concerns
11 reimbursement for business expenses. They're
12 returning to employees money that came out of
13 their pocket. Whatever the cost is, whatever the
14 cost of our proposal, it's the difference between
15 a seven-year-old partial reimbursement and actual
16 cost. That's the cost that the Carrier should be
17 required to bear. You shouldn't continue to allow
18 the second lowest paid hourly wage group in the
19 railroad industry to reimburse the Carriers'
20 business expenses. That's not fair. Second, same
21 subject; expenses away from home, single occupancy
22 and the Carriers' complaints today that it was
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Page 250 1 difficult to obtain single occupancy rooms; they
2 just couldn't find them. Two key points: First,
3 CSX does it. It's done it for two years with its
4 very largest gangs. They have precisely the same
5 production planning issues described by Mr.
6 Koontz. All the railroads have exactly the same
7 problems. And two, they - CSX operates in
8 precisely the same geographic territories, Norfolk
9 Southern. They parallel each other all throughout
10 the eastern half of the United States. So CSX does
11 it; that is a matter of fact. And as Mr. Roth just
12 reported, that they've been able to do it and
13 still report record profits in the third quarter.
14 It certainly hasn't undermined their bottom line
15 to provide single occupancy rooms to BMWE members
16 like all other crafts receive. Second, we have on
17 Norfolk Southern a study that we did with the
18 commercial lodging corporation. You can find that
19 discussed at page 20 and 21 of our craft-specific
20 submission, and the entire report is reproduced at
21 Exhibit B. And that corporate lodging company
22 studied all of the camp sites and reported back in
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Page 251 1 the words of their Vice President that they had
2 every camp site covered like a wet blanket.
3 There's hard data in that report to show that
4 there's hotels available at a reasonable cost at a
5 reasonable distance from every single Norfolk
6 Southern camp site. The real problem is how wide
7 the Carriers cast their corporate lodging nets. If
8 they're just feeding on the bottom like a lot of
9 them are doing, at the cheapest, cheapest,
10 cheapest hotels they can find, then they have a
11 hard time finding enough rooms. But if they cast
12 their net just a little bit wider, I think they
13 can produce enough rooms, and that's shown by the
14 fact that today we have - where Carriers do
15 provide corporate lodging, albeit double
16 occupancy, our members drive by hotels to get to
17 cheaper hotels. And I'm not talking about driving
18 by the Ritz or the Four Seasons; you don't find
19 those out in these parts of the country. I'm
20 talking about the Holiday Inns and the Holiday Inn
21 Express. That's all we're looking for, and the
22 rooms are there if they just cast their net a bit
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Page 252 1 wider. It's not an unreasonable request. Number
2 three; the Carriers point out that PEB 219 and 229
3 didn't recommend the changes we were seeking
4 relative to expenses away from home. Two critical
5 differences: PEB 219 occurred in 1991, when the
6 industry was in terrible financial straits. In
7 fact, that's why 219 did all the things to the
8 unions that it did. PEB 229 was 1996; recovering,
9 but hardly the strength we see today, so they were
10 very different economic times. They were crawling
11 out of the pit they were in in 1967 when the 298
12 rendered their decision, but they weren't in the
13 condition they're in today. Number four; Mr.
14 Weaver said today that the Unions - me -
15 complained about the variations from property to
16 property; that somehow we thought local variations
17 were something horrible. They missed our case
18 entirely. We weren't complaining about the
19 variations, we were complaining that all of the
20 variants were less than full reimbursement. No
21 matter how they were cutting it, we weren't
22 getting fully reimbursed and we believe we should
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Page 253 1 as a matter of fairness. Number four,
2 headquartered away from home; you saw a slide, it
3 was slide number 12, presented by Mr. Koontz from
4 BNSF, and that slide we believed clearly made our
5 case on the headquartered-away-from-home problem.
6 That slide, slide 12, shows that 18 percent of
7 their employees were 50 miles or more from home;
8 11 percent, 75 miles; 8 percent, 100 miles. And
9 while it was a small percentage, 12 employees were
10 500 miles from home. Now, Mr. Koontz went on to
11 say that BNSF recognized that that wasn't quite
12 right, and so they do provide a partial allowance
13 to people more than 75 miles from home, and the
14 agreement where they did that is Exhibit number 5
15 to BMW craft-specific submission. It's a
16 recognition by BNSF that it's a problem; all the
17 others have the same problem. BNSF has given a
18 partial solution; we want a full solution. And by
19 the way, Norfolk Southern said they don't have the
20 problem. They do. They don't force assign, but on
21 their former Norfolk and Western territory they've
22 gone down to three massive seniority districts.
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Page 254 1 They used to be whole railroads. The old NW is a
2 whole rail. The Wabash is a whole railroad.
3 Conrail is a - whole railroads that were now -
4 they're now seniority districts, and people have
5 to work more than 50 miles, far more, to hold jobs
6 when they make cutbacks. Point number six; the $10
7 million cost to discontinue camp cars. We never
8 saw any good costing that; we have no idea on what
9 they're basing it. But we do know that in state
10 legislature after state legislation after state
11 legislature, Norfolk Southern's vice president
12 showed up in an effort to avoid regulation of camp
13 cars, which it did in some cases and not in
14 others. They testified over and over again that it
15 wasn't about money; that it was cheaper to put
16 people in hotels, but they used the camp cars. It
17 was a corporate philosophy issue. That's the
18 answer to your question; it's not cost, it's
19 corporate philosophy. And everything else you saw
20 from them on the camp cars was nothing but
21 theater. None of our employees have ever been in a
22 camp car like the ones they showed you on the
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Page 255 1 screen. They live in the ones like we showed you,
2 that - the video that was taken in September of
3 actual conditions. The BLE meal allowance, the
4 fact that BLE has a lower allowance than we do;
5 quite frankly, it's apples-to-oranges. BLE folks
6 qualify in a different way, travel in a different
7 way, and the only evidence is that the BLE should
8 probably be raised. But it's not a comparison
9 issue, it's apples and oranges. They're earned
10 differently and it's different kinds of travel.
11 Last point; I think I'm under my 15 minutes. And
12 this concerns not expenses away from home, but
13 travel allowance, and that's the issue that was
14 addressed by Mr. Griffin, not by myself. That's
15 the allowance that partially compensates people
16 from traveling from home to these different work
17 locations. And Mr. Weaver recounted that NS
18 employees stopped riding the bus, the bus they
19 used to provide when travel allowance was
20 negotiated in 1996. Now, the bus was certainly a
21 better option than absolutely unreimbursed travel
22 that occurred before that. PEB 219 swept us into
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Page 256 1 these massive traveling areas, did nothing about
2 expenses, so when it began, employees got nothing,
3 zero reimbursement. Now, it wasn't a good way to
4 travel because it's just a trunk line. It keeps
5 employees away from home hours longer than taking
6 their personal vehicle. So when a partial
7 reimbursement came along in the form of the
8 article 14 travel allowance, did employees take
9 it? Well, you bet they did, so they could be home
10 hours sooner in the short period of time they had
11 to be home. But not - it is certainly not some
12 kind of a windfall, as Mr. Weaver tried to portray
13 it. Think about it; the first 100 miles, you get
14 nothing. The second hundred miles - however, it's
15 - after that it's 25 per hundred. So depending
16 where you fall on the chart, that's 12 to $0.25 17 per mile, so it's not even paying what the IRS
18 would consider a true business expense to travel.
19 Twelve and a half to $0.25, depending on where you
20 are on the chart. So if you get two guys in the
21 car, if you can carpool with two people, if you
22 can arrange that, you're now just breaking even on
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Page 257 1 automobile costs. You're getting nothing for all
2 the time you spend. If you can get three guys in
3 the car you can begin to be compensated a little
4 bit for your time. That's it; that's not a
5 windfall. It wasn't a windfall when it was created
6 in 1996. It's not a windfall today. And to restore
7 its value to the 1996 value is not a windfall;
8 it's a simple matter of fairness. I think that's
9 under 15 minutes. Thank you again.
10 CHAIRMAN JAFFE: Okay. I think we are all in good
11 shape. Thank you again, Mr. Powers.
12 MR. POWERS: Thank you.
13 MR. WILDER: That concludes the Organizations'
14 surrebuttal, Mr. Chairman.
15 CHAIRMAN JAFFE: Thank you, Mr. Wilder.
16 UNIDENTIFIED MALE SPEAKER: Should we ask about
17 this, where this came from?
18 CHAIRMAN JAFFE: Sure.
19 UNIDENTIFIED MALE SPEAKER: Do you know?
20 CHAIRMAN JAFFE: I don't. There was a sheet of
21 paper that was passed up here that I don't think
22 was identified. It says "prepared by Towers
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Page 258 1 Watson"?
2 MR. MUNRO: Mr. Chairman, this is the document I
3 referenced earlier. It is the Excel spreadsheet
4 backup for the two slides that Mr. Scofield
5 presented earlier today.
6 CHAIRMAN JAFFE: Thank you, Mr. Mur - I didn't want
7 to assume much of anything, notwithstanding.
8 MR. MUNRO: Thank you.
9 CHAIRMAN JAFFE: Thank you. I guess we can go off
10 the record shortly to deal with a few minor
11 housekeeping items with counsel. But in terms of
12 tomorrow, it's my understanding that we have
13 closings planned; is that correct?
14 MR. MUNRO: Well, actually, Mr. Chairman, I was
15 going to suggest to my counterparts that it might
16 be a better use of everyone's time if we close the
17 record today and left closing arguments aside. I
18 must be a bad lawyer because I'm giving up an
19 opportunity to show off in front of my clients,
20 but I do think it might be more efficient if we
21 wrapped up today. I have not discussed this with
22 opposing counsel.
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Page 259 1 CHAIRMAN JAFFE: I tell you what? Why don't we deal
2 with it off the record? And then we'll place
3 whatever the arrangements are on before we stand
4 either in adjournment today or close today or
5 however it is. We'll go off. I simply wanted to
6 confirm on the record arrangements that had been
7 made with counsel off the record. It's my
8 understanding that closings will be made and that
9 we will retain the 9:00 a.m. start schedule for
10 tomorrow, and counsel has indicated that they
11 believe that the allotted one hour (inaudible)
12 [0:00:27] timeframe should probably be more than
13 sufficient in terms of what they need to cover the
14 ground that they're going to cover. Have I
15 misstated anything or failed to note anything
16 before we stand in adjournment for today?
17 MR. MUNRO: That's fine with the carriers Mr.
18 Chairman.
19 UNIDENTIFIED SPEAKER: Nothing further.
20 CHAIRMAN JAFFE: Okay. Thank you all very much. END
21 TRANSCRIPT
22
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