   IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

CITY OF WILMINGTON,                   )
                                      )
                Appellant,            )
                                      )
     v.                               ) C.A. No. 10329-VCG
                                      )
FRATERNAL ORDER OF POLICE             )
LODGE 1,                              )
                                      )
                Appellee.             )

                      MEMORANDUM OPINION

                     Date Submitted: March 24, 2015
                      Date Decided: June 30, 2015

David H. Williams, of MORRIS JAMES LLP, Wilmington, Delaware; Attorney for
Appellant.

Jeffrey M. Weiner, of the LAW OFFICE OF JEFFREY M. WEINER, P.A.,
Wilmington, Delaware; Attorney for Appellee.

GLASSCOCK, Vice Chancellor
      Employers and employees typically agree on terms before work commences.

This common-sense custom did not prevail in the current dispute, which involves a

small bargaining unit of police captains and inspectors (the ―Bargaining Unit‖)

employed by the City of Wilmington (the ―City‖). Those individuals have been

working since mid-2010 without a contract. Negotiations between the City and the

Bargaining Unit‘s exclusive bargaining representative, the Fraternal Order of

Police, Lodge 1 (the ―FOP‖), did not even begin until November of 2010 and were

not fruitful. The employees have been paid under the terms of the former contract,

which expired on June 30, 2010, as called for in the law governing collective

bargaining between police and Delaware governmental entities—the Police

Officers‘ and Firefighters‘ Employment Relations Act (the ―POFERA‖), 19 Del. C.

§ 1601 et seq. Eventually, pursuant to the terms of the POFERA, the parties came

before an arbitrator, who, under POFERA rules, was required to choose, based on

statutory criteria, between the last, best, final offer (―LBFO‖) of each party, which

had to be accepted in toto. In making this choice, the arbitrator had discretion,

except with respect to one factor: If the City could not pay the salary and benefits

proposed in the FOP‘s LBFO from ―existing revenues,‖ the arbitrator was required

to reject that proposal and impose the City‘s LBFO.

      The arbitrator ruled on September 8, 2014, accepting the FOP‘s LBFO after

finding that the City could ―afford‖ it, apparently finding it could be paid for with


                                         1
existing revenues. The FOP‘s offer was for a period ending on June 30, 2014.

Thus, as of the time of the arbitration order, the term of employment called for had

been completed in its entirety. Exercising its rights under the POFERA, the City

appealed the arbitrator‘s decision to the Public Employment Relations Board (the

―PERB‖), which affirmed, and then appealed the decision of the PERB to this

Court.

         The parties agree that the POFERA was adopted by the General Assembly

under the apparent (and entirely reasonable) assumption that it would apply

prospectively, here meaning the parties would use the POFERA to resolve

collective bargaining disputes over contracts governing future relationships. The

differences between the parties arise in large part because of the difficulties of

applying the POFERA where the parties have acted in reverse order—work first,

then agree to terms. The issues raised are legal, and subject to de novo review. I

find, for the reasons below, that the arbitrator and the PERB got some issues of law

right and some wrong. Because those issues they got wrong might have affected

the exercise of discretion by the arbitrator, I ask the parties to comment on whether

a remand is necessary. The facts, and my reasoning, are set out below.




                                         2
                               I. BACKGROUND FACTS1

       This case arises under the POFERA, which, generally, grants Delaware‘s

police officers and firefighters certain rights to collectively bargain, sets forth the

laws governing that process—including a process for resolving collective

bargaining disputes—and charges the PERB with administering those laws.2

Pursuant to the POFERA, collective bargaining disputes proceed first to mediation

and, if mediation is unsuccessful, then to binding interest arbitration.3                     An

arbitrator‘s decision may be appealed to the PERB, whose decision may then be

appealed to this Court.4 Before me is such an appeal by the City from a decision of

the PERB, itself affirming on appeal an arbitrator‘s decision resolving a collective

bargaining dispute between the FOP and the City in favor of the FOP.

       A. The Parties

       The City is a public employer within the meaning of Section 1602(l) of the

POFERA.5



1
  Unless otherwise indicated, the factual background is drawn from the record created in the
PERB proceedings. Citations to that record appear as ―R. [page number],‖ without the use of
short forms.
2
  See 19 Del. C. § 1601.
3
  See id. §§ 1614–1615. Interest arbitration is a process in which the terms and conditions of the
parties‘ contract are established by an arbitral tribunal; it differs from so-called ―grievance
arbitration,‖ in which an arbitral panel applies the terms and conditions of a contract already in
existence between the parties to a dispute between those parties in order to determine whether
the contract has been breached. Arvid Anderson & Loren A. Krause, Interest Arbitration: The
Alternative to the Strike, 56 Fordham L. Rev. 153, 153 (1987).
4
   See 19 Del. C. §§ 1609, 1615.
5
  See id. § 1602(l).

                                                3
       The FOP is an employee organization within the meaning of Section 1602(g)

of the POFERA,6 and is certified by the PERB as the exclusive bargaining

representative of the Bargaining Unit, a small group of high-ranking police officers

employed by the City.7 At the time of the arbitration hearing, the Bargaining Unit

included seven captains and one inspector, and had one additional vacancy for an

inspector.8

       B. The Parties’ Collective Bargaining Dispute

       The City and the FOP were parties to a collective bargaining agreement

(―CBA‖) for the Bargaining Unit that had a term of July 1, 2007 through June 30,

2010, which comprises the City‘s fiscal year (―FY‖) 2008 through FY 2010.9

Following the expiration of that CBA, the City and the FOP entered into prolonged

and unsuccessful negotiations on a successor CBA from November 2010 to

February 2012.10        Unable to reach an accord, the parties attempted, again

unsuccessfully, to mediate their dispute from June 2012 to January 2014 with a

PERB-appointed mediator.11 On January 20, 2014, the mediator recommended, at



6
  See id. § 1602(g).
7
  R. 1354; see also 19 Del. C. § 1602(h) (defining ―exclusive bargaining representative‖).
8
   R. 600, 1224–25. In total, at the time of the hearing the City employed 306 police officers,
including captains and inspectors, of its authorized strength of 320 officers. R. 1363. The FOP
also represented the 298 rank-and-file officers employed by the City at the time. R. 1363.
9
  R. 1354. The City‘s fiscal year runs from July 1st of the previous calendar year (i.e., FY X – 1)
to June 30th of the following calendar year (i.e., FY X).
10
   R. 1354, 1427.
11
   R. 1355.

                                                4
the behest of the FOP, that the parties‘ dispute be submitted to arbitration.12 The

PERB determined that arbitration was appropriate and commenced arbitral

proceedings with Deborah L. Murray-Sheppard, the Executive Director of the

PERB, serving as arbitrator for the dispute (the ―Arbitrator‖).13

       Following the expiration of the parties‘ previous CBA and during the

pendency of the parties‘ dispute over a successor CBA, the members of the

Bargaining Unit remained employed with the City and, as is required by law,

continued to receive the pay and benefits to which they were entitled in the last

year that the previous CBA was in effect (i.e., FY 2010).14

       C. The Parties’ Last, Best, Final Offers

       Pursuant to the POFERA, arbitration on collective bargaining disputes

between a public employer and its police and firefighter unions is done ―baseball

style.‖ Each side presents to the arbitrator its LFBO, and the arbitrator is then

required, based on an evaluation of seven factors set out in 19 Del. C. § 1615(d),15


12
   R. 1355.
13
   R. 1355.
14
   Oral Arg. 36:15 – 23. By the time the dispute reached arbitration, though, the City had
reduced the number of captains from its previous number of eight to seven through attrition,
resulting in the work of the outgoing captain being redistributed among the remaining seven
Captains. R. 1363.
15
   Those factors are:
        (1) The interests and welfare of the public.
        (2) Comparison of the wages, salaries, benefits, hours and conditions of
            employment of the employees involved in the binding interest arbitration
            proceedings with the wages, salaries, benefits hours and conditions of
            employment of other employees performing the same or similar services or
            requiring similar skills under similar working conditions in the same

                                             5
to chose the LBFO of either the public employer or the union; the arbitrator may

not pick and choose between provisions of the two LBFOs, or create terms of her

own.16

       In February 2014, the FOP and the City each submitted its LBFO for

consideration by the Arbitrator.17 In the FOP‘s LBFO, the FOP proposed a CBA

with a term of July 1, 2010 through June 30, 2014—i.e., covering the fiscal years

that had passed since the parties‘ previous CBA had expired.18 Among other

things, the FOP‘s LBFO included retroactive cost-of-living adjustments to the

salary schedules for FY 2012 and FY 2013, effectuating retroactive increases in



            community and in comparable communities and with other employees
            generally in the same community and in comparable communities.
        (3) The overall compensation presently received by the employees inclusive of
            direct wages, salary, vacations, holidays, excused leaves, insurance and
            pensions, medical and hospitalization benefits, the continuity and stability of
            employment, and all other benefits received.
        (4) Stipulations of the parties.
        (5) The lawful authority of the public employer.
        (6) The financial ability of the public employer, based on existing revenues, to
            meet the costs of any proposed settlements; provided that any enhancement to
            such financial ability derived from savings experienced by such public
            employer as a result of a strike shall not be considered by the binding interest
            arbitrator.
        (7) Such other factors not confined to the foregoing which are normally or
            traditionally taken into consideration in the determination of wages, hours and
            conditions of employment through voluntary collective bargaining, mediation,
            binding interest arbitration or otherwise between parties, in the public service
            or in private employment.
19 Del. C. § 1615(d).
16
   See id. (―The binding interest arbitrator shall make written findings of facts and a decision for
the resolution of the dispute; provided however, that the decision shall be limited to a
determination of which of the parties‘ last, best, final offers shall be accepted in its entirety.‖).
17
   R. 1355.
18
   R. 38.

                                                 6
annual salary of $1,000 to $3,000 (depending on the specific Bargaining Unit

employee) for each of those years.19 The cost of these salary increases, as well as

of other costs generated by the FOP‘s LBFO, would be partially offset by crediting

the City for a one-time payment it made to all City employees in lieu of a cost-of-

living adjustment in November 2012 and by increasing the Bargaining Unit

employees‘ contributions to healthcare costs, effective retroactively on January 1,

2013.20 The FOP estimated that the total projected cost of its LBFO through FY

2014 would be $45,653.56.21 The City, on the other hand, estimated the projected

cost through FY 2015, arguing that the costs of the increased salaries would carry

over automatically when the CBA expired in FY 2014; it placed this projected cost

at $184,685.22

       As to the City‘s LBFO, the City proposed a CBA with a term from July 1,

2014 through June 30, 2016—i.e., covering, at the time, future fiscal years.

Among other things, the City‘s LBFO increased the Bargaining Unit employees‘

contributions to healthcare costs.23 However, the City‘s LBFO did not include any

cost-of-living adjustments, to either the fiscal years covered by the proposed CBA

or the fiscal years prior.24 As a result, the City‘s LBFO would not cause the City to


19
   See R. 38–42.
20
   R. 38–39, 43–44; see also R. 1368–69.
21
   R. 1369; see also R. 1304.
22
   R. 1316.
23
   R. 46, 49.
24
   R. 46–47, 1374–75.

                                           7
incur any additional costs, and in fact would decrease total compensation to the

Bargaining Unit employees by increasing their healthcare costs.25

       D. The City’s Finances

       Among the seven Section 1615(d) factors which the arbitrator must consider

in making her determination as to which LBFO to adopt is subsection (d)(6), ―the

financial ability of the public employer, based on existing revenues, to meet the

costs of any proposed settlement.‖26 While the arbitrator is statutorily bound to

consider all factors listed in Section 1615(d), the factor in subsection (d)(6), and

only this factor, may be dispositive on the arbitrator‘s analysis.27 In other words,

subsection (d)(6) serves as a disqualifier: The arbitrator must accept the public

employer‘s LBFO if it determines that the public employer does not have the

financial ability, based on existing revenues, to meet the costs of the union‘s

LBFO, provided, of course, that the public employer has the financial ability to

meet the costs of its own LBFO.28




25
   R. 1368.
26
   19 Del. C. § 1615(d)(6).
27
   See id. § 1615(d) (―In making determinations, the binding interest arbitrator shall give due
weight to each relevant factor. . . . With the exception of paragraph (d)(6) of this section, no
single factor in this subsection shall be dispositive.‖); Fraternal Order of Police, Lodge 5 v.
New Castle Cnty., 2014 WL 351009, at *5 (Del. Ch. Jan. 29, 2014).
28
    I note that this disqualifier technically works both ways—the arbitrator must accept the
union‘s LBFO if she determines that the public employer has the ability, based on existing
revenues, to meet the costs of the union‘s LBFO but not to meet the costs of its own LBFO—
although this scenario, obviously, is unlikely.

                                               8
       In the arbitration, on appeal to the PERB, and now on appeal to this Court,

the City has argued that it does not have the financial ability, based on existing

revenues, to meet the costs of the FOP‘s LBFO. Thus, in all three proceedings, the

City‘s finances have been a central focus.

               1. The City‘s Budget

                       a. The Budget Process

       The City‘s charter (the ―Charter‖) requires the City each fiscal year to pass

and maintain a balanced budget, which, according to the Charter, means a budget

where projected revenues equal operating expenditures plus any existing deficits.29

Each budget cycle, the Office of the Mayor of the City (the ―Mayor‖), working in

conjunction with the Office of Management and Budget (the ―OMB‖) and the

Department of Finance, and in consultation with the heads of the City‘s various

other departments and the public, must determine the City‘s existing deficit and

surplus, create revenue projections for the City for the upcoming year, develop an

initial budget proposal, and submit all of this information to the City‘s legislative



29
   See Wilm. C. (Charter) § 2-300(1) (―It shall be the duty of the council, at least thirty (30) days
before the end of the fiscal year, to adopt the annual operating budget ordinance for the next
fiscal year.‖); id. § 2-300(2) (―The annual operating budget ordinance shall provide for
discharging any deficit and shall make appropriations to the council, the mayor, and all officers,
departments, boards and commissions which form a part of the executive or administrative
branch of the government, and for all other items which are to be met out of the revenue of the
city.‖); id. § 2-302 (―Not later than the passage of the annual operating budget ordinance, the
council shall ordain such revenue measures as will, in the opinion of the mayor, yield sufficient
revenue to balance the budget.‖).

                                                 9
body, the City Council (the ―Council‖).30 The Charter reserves the authority to

alter and adopt the budget on behalf of the City to the Council.31 However, in

finalizing the budget provided to it by the Mayor, the Council must utilize the

Mayor‘s estimates for the City‘s surplus, deficit, and projected revenues.32

       Once the Council has adopted the budget, it may not make any additional

operating appropriations in that fiscal year except in certain situations enumerated

in the Charter, such as to meet the costs of unanticipated emergencies.33 In cases

where the Council does modify the budget to appropriate additional money, the

Council ―must determine and approve the revenue by which [the] addition to the

budget will be funded‖ in order to maintain a balanced budget;34 any portion of the

additional costs that cannot be paid out of the revenues for that fiscal year carry

over to the following fiscal year as deficit.35




30
   Id. § 4-401(b); R. 640–41.
31
   Wilm. C. (Charter) § 2-300(1); see also R. 641. The Council‘s approved budget, however, is
subject to the Mayor‘s traditional and line-item veto, both of which may be overridden by a two-
thirds vote of the Council. See Wilm C. § 2-202.
32
   Wilm. C. (Charter) § 2-300(3); see also R. 641.
33
   See Wilm. C. (Charter) § 2-301; R. 641. For example, in FY 2014 the Council had to approve
additional spending so the City could cover the unanticipated expenses of severe winter weather.
R. 929. The OMB ―has the authority to transfer budget allocations between accounts that are
within the same Fund, Department, and Account Group,‖ but the Council must approve ―[a]ny
other type of transfer, such as between Funds, Departments or different Account Groups‖ as well
as any deletions to the budget. R. 641.
34
   R. 641.
35
   Wilm. C. (Charter) § 2-301.

                                              10
       The City can only spend money that has first been appropriated through the

budget process, either as part of the budget‘s initial approval or as part of an ex

post modification.36

                      b. Deficit Spending

       Despite the balanced budget requirement in the Charter, it is still possible for

the City to engage in deficit spending, meaning in any given fiscal year the City‘s

expenditures exceed revenues generated by the City.                        This could occur

inadvertently in the budget process, such as if the Mayor overestimates the City‘s

revenues in its projections, allowing the Council to appropriate more money than

the City can actually match with revenues, but it could also occur advertently at

certain stages in the budget process. First, in the development phase, it is the

City‘s financial policy that the Mayor may, with limited exceptions, include prior

years‘ accumulated surplus in its revenue projections.37 This allows the City to

―limit[] tax increases because prior years‘ surplus [is] used prior to revenue

enhancements.‖38 Second, if the Council modifies the budget during the fiscal year

to make additional appropriations, the Council may ordain prior years‘



36
   See Wilm. C. (Charter) §§ 2-300, 2-301; R. 929.
37
   E.g., R. 646; cf. R. 641 (―For the budget to be legally balanced, revenues plus an amount of
existing prior years‘ surpluses, if any, must equal operating expenditures plus any existing
deficits.‖). The exceptions are those portions of prior years‘ accumulated surplus ―designated for
debt service, encumbrances or the Budget Reserve Account.‖ R. 646; see also infra note 46
(explaining the Budget Reserve Account).
38
   R. 646.

                                               11
accumulated surplus as the ―revenue‖ by which to fund those additional

expenditures.39

                      c. Fund Accounting

       In order to ―segregate the specific purposes and operations of the various

activities of the City,‖ the City organizes its budget, including both the accounting

and budgeting portions, into four major funds: The General Fund, the Special

Funds, the Water/Sewer Fund, and the Internal Service Fund.40 According to the

City, ―Funds can be thought of as being like the subsidiaries of a major

conglomerate corporation. Each subsidiary is responsible for its own operational

results and strategy, yet is still part of the larger conglomerate corporation when it

comes to overall management and financial results.‖41 Basic municipal operations

and services, including police and fire protection, fall under the General Fund, the

revenues for which are derived from taxes, fees, fines, and interest on

investments.42 The parties here agree that the revenue available to meet the costs

of their CBA must come from the General Fund.

       For each budget cycle, the City‘s budget includes balance sheets in its

financial statements that tally the General Fund‘s ―fund balance‖ as of the end of



39
   See, e.g., R. 929–30.
40
   R. 642. With the exception of certain smaller funds within the Special Funds, the expenditures
for all the four major funds are appropriated through the budget process. R. 651.
41
   R. 642.
42
   R. 649.

                                               12
the prior fiscal year.43 This value accounts for the difference between the General

Fund‘s assets and liabilities at that moment in time.44 In other words, the General

Fund‘s fund balance in the financial statements represents the net calculation for

the General Fund‘s annual operating surpluses and deficits in all previous years: If

the fund balance is positive, the City has accumulated a net surplus in the General

Fund; if it is negative, the City has accumulated a net deficit in the General Fund.

It is important to note that, if the City has accumulated a surplus in the General

Fund, the fund balance is not an actual repository where the assets constituting that

accumulated surplus can be found, but rather it is simply an accounting of those

assets across the General Fund, in whatever form or location they may actually

exist.45

       The budget‘s balance sheets further break down the General Fund‘s fund

balance into the following subcategories:

       Non-spendable – Amounts that cannot be spent either because they
       are in a non-spendable form or because they are legally or
       contractually required to be maintained intact.

43
   See, e.g., R. 675.
44
   E.g., R. 675. The City labels the difference between fund assets and liabilities as ―fund
balance‖ on its financial statements for all funds designated as ―government funds,‖ including
the General Fund and the Special Funds. R. 675; see also R. 649. For funds designated as
―proprietary funds‖ or ―fiduciary funds,‖ such as the Water/Sewer Fund, the City labels the
difference between fund assets and liabilities as ―net assets‖ on its financial statements. R. 676.
Information regarding fund balance or net assets pertains only to the specific fund in which it is
reported, not the City‘s finances as a whole.
45
   See, e.g., R. 928, 965–67. For example, the General Fund‘s fund balance may account both
for cash assets that the City has invested in a specific CD as well as certain of the City‘s
receivables that exist only as claims for payments.

                                                13
       Restricted – Amounts that can be spent only for specific purposes
       because of the City Charter, City Code, State or federal laws, or
       externally imposed conditions by grantors or creditors.

       Committed – Amounts that can be used only for specific purposed
       [sic] determined by a formal action by City Council ordinance or
       resolution. This includes the Budget Reserve Account.46

       Assigned – Amounts that are allocated for a future use by the Mayor,
       but are not spendable until a budget ordinance appropriating the
       amounts is passed by City Council.

       Unassigned – All amounts not included in other spendable
       classifications.47

Like the fund balance, each of these subcategories represents a mathematical

calculation—each tracks a specific portion of the net assets in the General Fund

based on the nature of the restrictions placed on the City‘s ability to utilize the

assets.48 Thus, also like the fund balance, none of the subcategories represent an

actual repository where the certain ―type‖ of asset in that subcategory can be


46
   The City is required to maintain a ―Budget Reserve Account‖ within the General Fund equal to
10% of the upcoming year‘s General Fund budget. Wilm C. §§ 2-376, 2-377; see also R. 955.
The money in the Budget Reserve Account may only be used for ―adverse economic conditions
or public emergency and when declared by council by ordinance enacted by a two-thirds vote
(nine) of the city council, following certification by the mayor of such economic conditions or
public emergency,‖ and the money must be replenished from year to year. Wilm. C. §§ 2-376, 2-
377; see also R. 955–56. However, in 2009, the City passed an ordinance allowing the City
treasurer to use the money in the Budget Reserve Account to pay the City‘s employee payroll,
debt service, and accounts payable in FY 2009, and requiring the treasurer to fully replenish the
money in the Budget Reserve Account by the following October; the City renewed that
ordinance for FY 2010, FY 2012, FY 2013, and FY 2014. See Wilm. C. § 2-379. On May 15,
2015, the City again renewed the ordinance for FY 2015. See Wilm. Ordinance 15-017, § 1
(May 15, 2015).
47
   R. 675.
48
   See R. 927–28.

                                               14
found, but instead each is an accounting of all the net assets of that ―type‖ that

exist in whatever form across the General Fund.

                     d. The Unassigned Fund Balance

       The General Fund‘s unassigned fund balance (the ―Unassigned Fund

Balance‖) accounts for those net assets within the General Fund that are not subject

to any of the limitations found in the other subcategories. Typically, the General

Fund‘s ―unassigned‖ net assets include—but are not all—cash and cash

equivalents, such as checking accounts, savings accounts, and CDs.49                 In the

arbitration proceedings, the Director of the OMB, Robert Greco, explained the

Unassigned Fund Balance in these general terms:

       [I]n other words, just like a business or even for yourself as a person
       you have what is called net worth. And what [the City does] at the
       end of the fiscal year[,] the City looks and says, Here [are] our assets,
       subtract out [our] liabilities, and then also subtract out any reserve
       accounts like the budget reserve or reserve for encumbrances.
           The value left, that dollar amount, is called unassigned fund
       balance. It‘s not all cash and it‘s not a fund sitting there called
       unassigned fund balance, it just has cash. It is, again, a mathematical
       calculation that changes month-to-month, year-to-year.50

       Greco testified that the Unassigned Fund Balance generally ebbs and flows

with the General Fund‘s net operating deficits and surpluses. If there is a net

operating surplus in the General Fund in any given fiscal year, the incoming assets


49
   R. 967–69. For the sake of simplicity, for the remainder of this Memorandum Opinion I will
refer to cash and cash equivalents together using the shorthand ―cash assets.‖
50
   R. 928–29; see also R. 966–69.

                                             15
from that surplus are likely to be spendable, unrestricted, uncommitted, and

unassigned, and thus their value will ―flow,‖ conceptually, to the Unassigned Fund

Balance, causing it to grow from the previous year.51 Conversely, if there is a net

operating deficit within the General Fund in any given fiscal year, and the City has

appropriated prior years‘ accumulated surplus to finance the deficit expenditures,

the outgoing surplus assets may be assets that were previously categorized as

―unassigned,‖ causing the Unassigned Fund Balance to shrink.52 Greco explained

that this scenario is especially likely to play out in situations where the Council is

modifying the budget during the fiscal year to add appropriations for expenditures

that require quick payment; Greco explained that in this scenario, if the City lacks

the actual revenues, the Council is likely to finance the expenditures using

unassigned net assets from the General Fund, specifically, cash assets:

           Where [the City] find[s] that money[,] in this case the money went
       out the door, so, it was actually working capital, cash that is on hand
       that the treasurer‘s office uses, he has money invested in CD‘s and
       other things, a checking account. So, at the end of the year all else
       being equal if [the City] overspend[s] . . . [it] ha[s] revenues and [it]
       ha[s] more expenses than revenues, that unassigned fund balance is
       going to go down; but, again, it‘s a calculation, it‘s not a true fund that
       sits there just with cash. The treasurer‘s office actually has to go to an
       asset account, cash account or CD, liquidate that to pay for these
       kind[s] of things.53
51
   See R. 929 (―Now, if you do have more revenues than expenditures, those will flow into that
calculation and, obviously, if it doesn‘t get put anywhere else or [the City‘s] liabilities don‘t
increase or expenses [increase], it will increase [the City‘s] unassigned fund balance.‖).
52
   See, e.g., R. 929–30; 965–66.
53
   R. 929–30; see also R. 968 (―And, again, I can‘t state this more clearly than this. The [M]ayor
is asking [the Council] to deficit spend, he is not allowed to do that on his own. He is asking [the

                                                16
According to Greco, if the City was forced to accept the FOP‘s LBFO, this is also

the most likely scenario as to how the City would meet the costs of that proposal.54

              2. The City‘s Financial Condition

       The parties have stipulated that the City‘s budgets over the four years

covered by the FOP‘s LBFO generated the following net operating surpluses and

deficits in the General Fund: a net operating surplus of $6,055,527 in FY 2011; a

net operating surplus of $7,444,088 in FY 2012; a net operating surplus of

$1,326,984 in FY 2013; and a net operating deficit of $1,170,833 in FY 2014.55

Additionally, the parties have stipulated that the City is projected to generate a net

operating surplus of $1,400,905 in the General Fund for FY 2015, and a net

operating deficit of $333,508 in the General Fund for FY 2016.56

       The Unassigned Fund Balance existing at the end of FY 2012 was

$21,964,373.57 In the City‘s budget for FY 2014, the City estimated that the

Unassigned Fund Balance had grown to $25,917,354 by the end of FY 2013, and

Council] to deficit spend and what [it is] doing is [it is] using assets on hand. Somewhere,
somehow some assets have to be liquidated, a CD, money has to be taken out of a checking
account. . . . [T]here is not this unassigned fund balance sitting alone and has cash in it. It
always comes from the assets. Again, this calculation gives you a value of your unassigned fund
balance. It is not in and of itself an actual savings account.‖).
54
    See R. 946 (―That money [for the FOP‘s proposal] would come out of either reserves,
unassigned fund balance, cash. We would then have to go back to [the Council]. [It] would
make an appropriation. So you would actually see an increase in the fiscal year whenever it was
paid. If it was paid this year, we would have to increase the budget in 14 and then [the City
treasurer] would have to cash out a CD and pay out those increases.‖).
55
   Stipulation (Mar. 16, 2015).
56
   Id.
57
   R. 675; see also R. 999–1000.

                                              17
projected that the Unassigned Fund Balance would grow to approximately

$28,520,703 by the end of FY 2014.58 As of April 2014, cash assets accounted for

$5,699,343 of the Unassigned Fund Balance.59

       E. The Arbitration Decision

       The Arbitrator held a two-day hearing on May 6–7, 2015, after which, on or

about September 8, 2014, she issued her decision60 that ―the last, best, final offer of

FOP Lodge 1 is . . . the more reasonable [proposal] based upon the statutory

criteria set forth in 19 Del C. § 1615.‖61 In reaching that decision, the Arbitrator

first determined that ―[t]he record does not support the conclusion that the City has

an inability to afford the limited costs of the FOP offer.‖62 The parties agree that,

by this language, the Arbitrator was attempting to address subsection (d)(6) and its

requirement that the LBFO selected must be payable from ―existing revenues;‖

they disagree, however, as to whether she properly analyzed that factor. Although

the Arbitrator‘s decision covers each of the Section 1615(d) factors, only its




58
   R. 675; see also R. 1000–01. Greco explained that the estimated growth in the unassigned
fund balance in FY 2013 and the projected growth in the unassigned fund balance in FY 2014
was partially due to certain ―non-spendable‖ net assets in the General Fund being reclassified as
―unassigned.‖ See R. 1000–01.
59
   R. 177; see also R. 1003–04.
60
   In conducting my review of the PERB‘s decision, I find it necessary to also review the
Arbitrator‘s decision. In doing so, I find I agree with the Arbitrator on some issues and depart on
others. Notwithstanding the latter, her decision overall is thoughtful, tightly reasoned, and well-
written, a truth to which the brief excerpts of that decision cited herein do scant justice.
61
   R. 1386.
62
   R. 1386 (emphasis added).

                                                18
analysis as to this latter issue under subsection (d)(6) is relevant to this

Memorandum Opinion.

       In the arbitration, the City argued that it ―does not have the financial ability,

based on existing revenues, to meet the costs of the FOP‘s LBFO.‖63 As support,

the City argued that, at the time of the hearing, it was projecting a structural deficit

through FY 2018 due to ―spiraling costs,‖ such as funding pension plans.64 In

addition, the City argued that the potential sources of funds identified by the FOP

to finance its LBFO, including the Unassigned Fund Balance, do not qualify as

―existing revenues‖ as required by subsection (d)(6).65              Specifically, the City

argued that the Unassigned Fund Balance is a reserve,66 which, according to the

PERB‘s and this Court‘s precedent, does not constitute revenue.67

       The Arbitrator rejected both of the City‘s positions. First, she determined

that ―[t]he evidence does not establish the ‗structural deficit‘ asserted by the

City.‖68 Rather, she found that the City‘s projected deficits due in large part to

funding pension plans are ―commonly understood to be cyclical, rather than

structural, deficits because they occur as a result of downturns in the economy,‖ as




63
   R. 1311.
64
   See R. 1311–12.
65
   See R. 1313–15.
66
   R. 1314–15.
67
   See, e.g., FOP Lodge 5 v. New Castle Cnty., 2014 WL 351009, at *5 (Del. Ch. Jan. 29, 2014).
68
   R. 1364.

                                              19
opposed to ―large and persistent imbalances in expenditures to revenues.‖ 69 In

actuality, the Arbitrator found, the City had ―been effective in addressing the

projected revenue declines and expense increases in a proactive manner, by

increasing property taxes, implementing budget cuts, and restructuring debt

service, as evidenced by the surpluses in FY 2011–2013, and a projected surplus

for FY 2015.‖70

       Next, the Arbitrator determined that the Unassigned Fund Balance does not

constitute a reserve.71 In reaching that conclusion, she relied on a 2002 POFERA

arbitration decision, City of Seaford v. Fraternal Order of Police, Lodge 9,72

wherein the arbitrator defined ―reserves‖ as those assets whose utilization is within

the exclusive authority of the Council and which are assigned to reserve status by

an affirmative act of the Council.73 After briefly examining the nature of the

Unassigned Fund Balance, the Arbitrator concluded that it ―does not constitute a

reserve because assets are not ‗allocated‘ to this fund by an affirmative act of the

Council, nor are there restrictions upon its use.‖74 Further, she noted that the

―Council has allocated moneys from [the] [U]nassigned [F]und [B]alance to


69
   R. 1365.
70
   R. 1365.
71
   R. 1368.
72
   IV PERB 2659 (July 15, 2002) (Decision of the Interest Arbitrator on Remand). The City of
Seaford was adopted by this Court in Fraternal Order of Police, Lodge 5 v. New Castle Cnty.,
2014 WL 351009 (Del. Ch. Jan. 29, 2014).
73
   See R. 1368 (quoting City of Seaford, IV PERB at 2675).
74
   R. 1368.

                                            20
adjusted projected budgets to conform to actual revenues and expenditures in the

same manner that all funds are allocated each fiscal year.‖75

       Finally, the Arbitrator evaluated the projections offered by both parties for

the total cost of the FOP‘s LBFO, finding that ―[t]he City‘s estimate of $127,648

for FY 2011 through FY 2014 (backing out the estimated cost for FY 2015 of

$57,010) . . . [is] closer to accurate.‖76 She rejected as ―purely speculative‖ the

City‘s argument that the Bargaining Unit members‘ increased salaries under the

FOP‘s proposal would irreversibly carry over into FY 2015 and perhaps beyond,

reasoning that the POFERA collective bargaining process could lead to retroactive

reductions in the Bargaining Unit members‘ salaries for the fiscal years following

the effective term of the FOP‘s proposal:

       Should the FOP prevail in this matter, the parties would be required to
       enter into negotiations for a successor agreement to be effective on
       July 1, 2014. If the City is able to establish that its fiscal situation has
       deteriorated, the next agreement could include cost savings and/or a
       change in either the structure or amounts of [salary] step increases for
       this bargaining unit.77

75
   R. 1368.
76
   R. 1369.
77
   R. 1370. The arbitrator also chastised the parties for allowing so much time to pass without a
CBA in place and encouraged them to immediately begin negotiations on a successor agreement
to begin in FY 2015. See R. 1386 (―The extended period of time which has elapsed since the
expiration of the last agreement is not reasonable and is contrary to the purposes of the POFERA
and the interests and welfare of the public in the efficient and effective operation of the
government. This decision will require the parties to initiate successor negotiations immediately.
They are encouraged to enter into those negotiations with full and complete awareness of the
City‘s financial projections as well as the recent and continuing fiscal concerns. The parties are
further encouraged to actively engage in these negotiations quickly and expeditiously rather than
allowing them to drag on to the detriment of their relationship and their capacity to move

                                               21
As proof that ―[t]he City‘s presumption that all [salary] step increases are

immutable into the future is overly simplistic and not persuasive,‖ the Arbitrator

alluded to a 2012 POFERA arbitration decision wherein the arbitrator reduced

salaries for certain New Castle County police officers.78 Lastly, the Arbitrator

noted that City had failed to dispute the FOP‘s argument that the City would

realize salary savings of approximately $107,606 in FY 2014 due to the City

appropriating money to cover the salaries for two vacant positions—the Chief of

Police and one Inspector.79

       After reaching these findings of law and fact, the Arbitrator ruled that ―[f]or

all these reasons, I conclude that the City has not established that it has either a

structural deficit or an inability to afford the costs of the FOP‘s last, best, final

offer.‖80

       F. The PERB Decision

       On September 15, 2014, the City filed its Request for Review of the

Arbitrator‘s Decision with the PERB, arguing that the Arbitrator committed three

legal errors in her decision: (1) the Arbitrator failed to apply the statutory standard

to evaluate the City‘s inability to meet the costs of the FOP‘s LBFO by assessing


forward to proactively and cooperatively address the public safety challenges facing the City and
its residents.‖).
78
   R. 1370–71.
79
   R. 1371.
80
   R. 1371.

                                               22
the City‘s ―ability to afford‖ the FOP‘s LBFO rather than the City‘s financial

ability to meet the costs based on existing revenues; (2) the Arbitrator improperly

found that the Unassigned Fund Balance constitutes ―existing revenue;‖ and (3) the

Arbitrator erred by not considering the continuing nature of the salary increases in

the FOP‘s LBFO beyond FY 2014.81 The PERB convened a public hearing on

October 9, 2014, at which time the PERB met in public session to consider the

merits of the City‘s appeal and to hear oral arguments by the parties.82

       On October 23, 2014, the PERB issued a written decision unanimously

affirming the arbitration decision.83 First, the PERB found that the Arbitrator had

properly focused on whether there were existing revenues to meet the costs of the

FOP‘s proposal, as evidenced by her analysis as to whether the Unassigned Fund

Balance was a reserve under City of Seaford.84 Second, the PERB found that the

Arbitrator had correctly applied City of Seaford to find that the Unassigned Fund

Balance is not a reserve, and thus ―is not excluded as ‗existing revenues.‘‖ 85 The

PERB also rejected a new argument the City raised on appeal86 that, even if the

Unassigned Fund Balance is not a reserve, it still does not constitute ―existing

81
   See R. 1388–89.
82
   R. 1428.
83
   R. 1429.
84
   See R. 1429–30.
85
   See 1429–31.
86
    Compare R. 1319–20 (arguing, in post-hearing briefing in the arbitration, only that the
Unassigned Fund Balance is a reserve), and R. 1349 (same), with R. 1389 (arguing, in the appeal
to the PERB, that ―even if the Arbitrator is correct in concluding that the [U]nassiged [F]und
[B]alance does not constitute a reserve, the fact remains that it does not constitute revenue‖).

                                              23
revenues‖ because it is not a stream of revenue ―flowing into the City‘s coffers,‖

finding that ―[t]he City conflate[d] ‗current revenues‘ with ‗existing revenues‘‖:

         [The City] asserts the decision in Seaford requires a current stream of
         revenue to meet the additional costs of the last, best, final offer. The
         statute, however, focuses on the public employer‘s ‗existing
         revenues.‘ We construe that to mean that the analysis must focus on
         the City‘s financial landscape based on the sources of revenue it had
         at the time the analysis is undertaken without regard to its ability to
         raise additional revenue through taxation or other means. Nothing in
         the statute requires that the consideration of revenues be limited to the
         current fiscal year or to any other specific, limited period of time. The
         logical extension of the City‘s argument would result in the preclusion
         of any wage increase unless the City offered it.87

Finally, the PERB rejected the City‘s argument that the projected total cost of the

FOP‘s LBFO should include salary increases in FY 2015, reasoning, like the

Arbitrator, that the City ―is not prohibited (and is in fact encouraged) to engage in

negotiations which may modify wages and/or allow for savings in other areas

which are necessary to fund or to continue to fund negotiated wage rates.‖88

         G. Procedural History

         On November 7, 2014, the City appealed the PERB decision to this Court.

The grounds for appeal stated in the City‘s Notice of Appeal were that: (1) the

PERB erred as a matter of law; (2) the PERB erred as a matter of fact; (3) the

PERB acted in an arbitrary and capricious manner; and (4) the PERB‘s decisions



87
     R.1430.
88
     R. 1431.

                                            24
are not supported by substantial evidence. The issues that the City has presented to

me, however, are purely legal.

       On November 14, 2014, the City notified the PERB of its compliance with

the PERB decision, including that the City had distributed retroactive salary

payments to the Bargaining Unit members in accordance with the FOP‘s LBFO.89

       I heard oral argument on the City‘s appeal on March 11, 2015.90 Following

argument, I issued a brief letter to the parties informing them that I was still

unclear as to how the term ―existing revenues‖ in 19 Del. C. § 1615(d)(6) was

supposed to apply in the context of arbitrating retrospective CBAs, and offering

them the opportunity to submit supplemental briefing on this narrow issue of

statutory interpretation. Those additional memoranda were fully submitted by

March 25, 2015.

       H. The Parties’ Contentions

       The City challenges three aspects of the Arbitrator‘s, and thus also the

PERB‘s, decision:

          First, the decisions disregard the statutory standard (―The financial
       ability of the public employer, based on existing revenues, to meet the
       costs of any proposed settlement‖), and substitute the standard of
       ―inability to afford the costs of the FOP‘s last, best, final offer.‖
       Second, the decisions incorrectly determine [that] the cash assets in
89
  See R. 1433–34.
90
  At the conclusion of oral argument, I asked the parties to submit a stipulation as to the City‘s
General Fund net operating surpluses or deficits for FY 2011 to FY 2014 and projected net
operating surpluses or deficits for FY 2015 and FY 2016. The parties submitted that stipulation
on March 16, 2015.

                                               25
          the Unassigned Fund Balance are existing revenues. Third, the
          decisions refuse to acknowledge that the salary increases in the FOP‘s
          proposal are recurring, and will persist in [FY 2015], and in all
          likelihood beyond [FY 2015].91

          Should this Court rule in its favor, the City contends that the record is

sufficient to demonstrate that it is unable to meet the costs of the FOP‘s LBFO,

and, since this factor is dispositive under Section 1615(d), that the Court must

reverse the Arbitrator‘s and the PERB‘s decisions and implement the City‘s LBFO

in its entirety. The FOP responds that both the Arbitrator and the PERB correctly

applied the provisions of the POFERA, and that the Court should affirm their

respective decisions.

                 1. ―Ability to Afford‖ Standard versus the Statutory Standard

          The City argues that, in looking to whether the City could meet the costs of

the FOP‘s LBFO, both the Arbitrator and the PERB mischaracterized assets in the

Unassigned Fund Balance as existing revenues, causing them both to decide the

issue according to a standard of whether the City could ―afford‖ the costs based on

cash on hand, rather than the statutory standard required by Section 1615(d)(6).92

          The FOP counters that both the Arbitrator‘s and the PERB‘s analysis on the

City‘s financial ability to meet the costs of the FOP‘s LBFO was based on existing




91
     See City of Wilmington‘s Opening Br. in Supp. of Its Appeal at 10–11 (citations omitted).
92
     See, e.g., id. at 11–13.

                                                 26
revenues.93 Essentially, the FOP argues that any reference to the City‘s ability to

―afford‖ the proposal was merely shorthand for the statutory standard.

      As the parties‘ arguments indicate, the resolution of this issue is, at least

potentially, dependent upon resolution of whether the assets accounted for in the

Unassigned Fund Balance are statutory ―existing revenues.‖ In other words, if I

find that the Arbitrator and the PERB gauged the City‘s financial ability to meet

the costs of the FOP‘s proposal based on the Unassigned Fund Balance, the

question of whether that was an improper standard will depend on whether the

term ―existing revenues‖ applies to the Unassigned Fund Balance. If I find that the

Arbitrator and the PERB did not apply the proper statutory standard, I must still

consider whether those legal errors were material to the outcome of the decisions.

             2. The Unassigned Fund Balance as ―Existing Revenues‖

      The City renews both its arguments from the PERB proceedings regarding

the categorization of the Unassigned Fund Balance, arguing that the Unassigned

Fund Balance is a reserve—and thus categorically prohibited from being

considered as existing revenues—and that, even if it is not a reserve, the

Unassigned Fund Balance does not include existing revenues.94 As to its first

argument, the City contends that the Unassigned Fund Balance meets the City of


93
   Answering Br. of Appellee-Below Appellee Fraternal Order of Police Lodge 1 at 25–30. But
see notes 102–108 and accompanying text.
94
   See City of Wilmington‘s Opening Br. in Supp. of Its Appeal at 14–18.

                                            27
Seaford criteria for a reserve, in that annual operating surpluses are, ―by operation

of law, set aside‖ into the Unassigned Fund Balance and that use of those assets

requires the approval of Council.95 As to its second argument, the City contends

that the Unassigned Fund Balance does not meet the City of Seaford criteria for

existing revenues, in that prior years‘ accumulated surplus is not ―dynamic in

character,‖ does not ―constitute[] a flow of moneys‖ into the City‘s coffers, and is

not an ―existing, stable and continuing source[] of revenue.‖96 Rather, according to

the City, these qualifiers illustrate that ―existing revenues‖ must be interpreted to

mean projected or actual revenues sufficient to meet the costs of the proposal in the

year or years that those costs are to be incurred by the City if the proposal is

adopted.97 Here, because ―the City was ordered to pay salary increases in a fiscal

year ([FY 2014]) when there was a deficit, . . . [there are] no existing revenues to

pay the salary increases.‖98

       Additionally, in its supplemental briefing, the City raises for the first time

the argument that ―applying the ability to pay based upon existing revenues criteria

retroactively is unworkable.‖99 The City argues that the term ―existing revenues‖

inherently means projected revenues at the time of the arbitration and is

95
   Id. at 14–15.
96
   Id. at 15 (quoting Fraternal Order of Police, Lodge 5 v. New Castle Cnty., 2014 WL351009 at
*6 (Del. Ch. Jan. 29, 2014) (quoting City of Seaford v. Fraternal Order of Police, Lodge 9, IV
PERB 2659, 2675–76 (July 15, 2002) (Decision of the Interest Arbitrator on Remand))).
97
   See City of Wilmington‘s Supplemental Mem. of Law in Supp. of Its Appeal at 2–6.
98
   Id. at 5.
99
   Id. at 1.

                                             28
meaningless in the context of negotiating retroactive agreements, as evidenced by

both the fact that the POFERA‘s dispute resolution system is designed to forge a

successor agreement before the parties‘ current contract expires and by the

forward-looking language used in the City of Seaford criteria for existing

revenues.100 In support of both this argument and its previous argument that the

Unassigned Fund Balance does constitute existing revenues, the City further makes

a public policy plea that, were this Court to find that prior years‘ accumulated

surplus is existing revenues that may finance retroactive salary increases for the

Bargaining Unit employees, the City‘s surplus would be fair game for salary

increases for all the City‘s unions, effectively precluding the City from maintaining

an unrestricted and unassigned surplus.101

       In its initial briefing, the FOP argued that the Arbitrator and PERB correctly

determined based on City of Seaford that the cash assets included in the

Unassigned Fund Balance are existing revenues.102 First, the FOP contended that

the Unassigned Fund Balance cannot be a reserve because assets are not

―allocated‖ to the Unassigned Fund Balance by an affirmative act of the Council,

nor are there restrictions on the use of the assets included in the Unassigned Fund




100
    See id. at 6–9.
101
    See City of Wilmington‘s Opening Br. in Supp. of Its Appeal at 17–18; City of Wilmington‘s
Supplemental Mem. of Law in Supp. of Its Appeal at 9.
102
    See Answering Br. of Appellee-Below Appellee Fraternal Order of Police, Lodge 1 at 30–37.

                                             29
Balance beyond the requirements applicable to appropriating any funds.103

Second, the FOP argued that the cash assets accounted for by the Unassigned Fund

Balance are ―existing revenues,‖ because, even though the Unassigned Fund

Balance itself is not a ―stream of revenue,‖ there is no question that the cash assets

included in its value derive from streams of revenue in previous years.104 Finally,

the FOP dismissed the City‘s public policy concern, arguing that it ignores the fact

that the City is not bound by the POFERA or the Public Employment Relations

Act (the ―PERA‖)105 to grant comity or parity among CBAs for different

bargaining units.106

       I note, however, that in its supplemental briefing as to the interpretation of

Section 1615(d)(6) in the context of arbitrating retroactive CBAs, the FOP‘s

position on this issue has somewhat shifted and no longer corresponds with the

decisions of the Arbitrator and the PERB. In that brief, the FOP avers that the

General Assembly intended the phrase ―based on existing revenues‖ to mean that

an arbitration decision ―cannot mandate an increase or imposition of new taxes,



103
    Answering Br. of Appellee-Below Appellee Fraternal Order of Police, Lodge 1 at 32.
104
    Id. at 33.
105
    See 19 Del. C. §§ 1301–1319. The PERA is nearly identical to the POFERA and is likewise
administered by the PERB, but the PERA applies to certain non-police and -firefighter public
employees. See 19 Del. C. §§ 1301, 1302(o), 1306.
106
    Answering Br. of Appellee-Below Appellee Fraternal Order of Police, Lodge 1 at 35. I note,
however, that individual CBAs may include bargained-for parity provisions. See generally
Wilmington Firefighters Ass’n, Local 1590 v. City of Wilmington, 2002 WL 418032 (Del. Ch.
Mar. 12, 2002).

                                             30
fees, charges or other sources of revenues.‖107 Based on this principle, the FOP

now contends that ―there is not any difference in the meaning of the phrase . . .

whether viewed prospectively or retrospectively; instead, the issue is whether,

based upon existing revenue in the years under consideration, operating surpluses

did (retrospectively) or will (prospectively)[,] without mandating an increase[,]

exist to fund the award.‖108

                 3. Recurring Costs of the FOP‘s LBFO

          The City argues that, in determining the ―costs of any proposed settlements‖

as required by Section 1615(d)(6), the Arbitrator and the PERB should have

included costs for fiscal years following the effective term of the FOP‘s LBFO, at

the very least for FY 2015. According to the City, although the FOP‘s proposed

CBA expires in FY 2014, the salary increase it contains will actually carry over

into FY 2015 because the parties already have such a late start on negotiating a

successor CBA, and therefore the Arbitrator and the PERB were obligated to

include FY 2015 costs in the total cost of the FOP‘s proposal.109                 The City

contends that the Arbitrator‘s characterization of the its projected FY 2015 costs as

―purely speculative,‖ ―overly simplistic,‖ and ―not persuasive‖ ignores the realities

that arbitration decision was issued two months after—and the PERB decision four

107
      Supplemental Mem. of Appellee-Below, Appellee Fraternal Order of Police Lodge #1 at 12–
13.
108
      Id. at 13 (emphasis added).
109
      See City of Wilmington‘s Opening Br. in Supp. of Its Appeal at 18–20.

                                                31
months after—the expiration of the term of the FOP‘s proposal; that the ―law

requires that any step increases be maintained pending the negotiation of a

successor agreement;‖ that the ―FOP almost certainly will not agree to roll back the

increases;‖ that ―[i]n the absence of agreement to roll back the increases, it

normally takes at least several months to negotiate an impasse;‖ that the ―parties

must then go through mediation;‖ and that it took in this case ―over 8 months from

the initiation of binding interest arbitration to get a decision.‖110

       The FOP does not directly address in briefing the issue of whether salary

costs for FY 2015 must be included in the total costs of the FOP‘s LBFO. Instead,

it argues that, in any event, ―the Arbitrator clearly considered the $57,010

estimated costs for FY 2015 in light of the more than $5 million cash in the

Unassigned Fund [Balance] and the projected operating surplus of $1,125,905 for

FY 2015.‖111

                            II. STANDARD OF REVIEW

       ―On appeal of an administrative agency‘s adjudication, this Court‘s sole

function is to determine whether the [agency]‘s decision is supported by substantial

evidence and is free from legal error.‖112 The issues on appeal here are purely



110
    Id. at 19–20.
111
    Answering Br. of Appellee-Below Appellee Fraternal Order of Police, Lodge 1 at 34. I note
that the FOP has since stipulated that the projected surplus in FY 2015 was $1,400,905.
112
    Fraternal Order of Police, Lodge 5 v. New Castle Cnty., 2014 WL 351009, at *4 (Del. Ch.
Jan. 29, 2014) (quoting Angstadt v. Red Clay Consol. Sch. Dist., 4 A.3d 382, 387 (Del. 2010)).

                                             32
legal and, as such, are subject to this Court‘s de novo review.113 In undertaking

such a review, the Court is mindful of the PERB‘s expertise and specialized

competence in labor law.114 However, the Court ultimately ―remains obligated to

conduct a plenary review of a PERB decision when the issue is the proper

construction of statutory law and its application to undisputed facts.‖115

        ―Delaware courts do not accord agency interpretation of the statutes which

they administer so-called Chevron deference, as do federal courts in reviewing

administrative decisions under the federal Administrative Procedures Act.‖116 In

interpreting a statute, Delaware courts must ―ascertain and give effect to the intent

of the legislature.‖117 If the statute is clear and unambiguous, ―then the plain

meaning of the statutory language controls.‖118 The parties‘ disagreement as to the

meaning of the statute alone does not create an ambiguity.119 ―Rather, a statute is

ambiguous only if it ‗is reasonably susceptible [to] different interpretations,‘ or ‗if

a literal reading of the statute would lead to an unreasonable or absurd result not

113
    E.g., id.; Fraternal Order of Police No. 15 v. City of Dover, 1999 WL 1204840, at *2 (Del.
Ch. Dec. 10, 1999).
114
    See, e.g., Fraternal Order of Police, Lodge 5, 2014 WL 351009, at 4 (―In undertaking such a
review the Court accords due weight to PERB‘s expertise and specialized competence in labor
law.‖ (internal quotation marks omitted)); Fraternal Order of Police No. 15, 1999 WL 1204840,
at *2 (―[T]he Court is not unmindful that the agency whose decision is being reviewed is an
expert one functioning in an area that requires or at least is greatly aided by such expertise.‖
(internal quotation marks omitted)).
115
    Fraternal Order of Police, Lodge 5, 2014 WL 351009 at *4.
116
    Id. (internal footnote and quotation marks omitted).
117
    Del. Bay Surgical Servs. v. Swier, 900 A.2d 646, 652 (Del. 2009) (citations omitted).
118
    Ins. Comm’r of State of Del. v. Sun Life Assurance Co. of Can. (U.S.), 21 A.3d 15, 20 (Del.
2011).
119
    E.g., Chase Alexa, LLC v. Kent Cnty. Levy Ct., 991 A.2d 1148, 1151 (Del. 2010).

                                              33
contemplated by the legislature.‘‖120 If a statute is ambiguous, the Court should

consider the statute as a whole, rather than in parts, reading each section in light of

all others to produce a harmonious whole.121 The Court should also ―ascribe a

purpose to the General Assembly‘s use of statutory language, and avoid construing

it as superfluous, if reasonably possible.‖122 I apply these precepts to the case at

hand as follows.

                                     III. ANALYSIS

       The scope of this appeal is narrowly focused. In it, the Court is asked to

interpret various provisions within 19 Del. C. § 1615(d)(6) and to determine, in

light of the statute‘s meaning, whether the Arbitrator, and thus the PERB, properly

administered the law in resolving the parties‘ dispute. As explained below, I

reverse the PERB‘s decision in part and affirm it in part.

       A. The Arbitrator and the PERB Erred as a Matter of Law in Ruling that the
       Cash Assets Accounted for by the Unassigned Fund Balance Are Existing
       Revenues

       I turn first to whether the Arbitrator and the PERB mischaracterized the

Unassigned Fund Balance as ―existing revenues,‖ as that term is used in Section

1615(d)(6). As a preliminary matter, I note that the scope of the Arbitrator‘s and


120
    Fraternal Order of Police, Lodge 5, 2014 WL 351009 at *4 (quoting Centaur Partners, IV v.
Nat'l Intergroup, Inc., 582 A.2d 923, 927 (Del. 1990); LeVan v. Independence Mall, Inc., 940
A.2d 929, 933 (Del. 2007)).
121
    E.g., Fraternal Order of Police, Lodge 5, 2014 WL 351009 at * 4 (citing Taylor v. Diamond
State Port Corp., 14 A.3d 536, 538 (Del. 2011)).
122
    Id. (citing Diamond State Port Corp., 14 A.3d at 538)).

                                             34
the PERB‘s holdings in this regard is unclear. In her decision, the Arbitrator ruled

that the ―[U]nassigned [F]und [B]alance does not constitute a reserve,‖ but she

never expressly spoke to whether the Unassigned Fund Balance constitutes existing

revenues, perhaps interpreting the holding in City of Seaford to create a dichotomy

between the two terms, under which all cash assets are either ―reserves‖ or

―existing revenues.‖123      Her ruling is also clearly directed towards the entire

Unassigned Fund Balance, though she does note at the beginning of her analysis

that the Unassigned Fund Balance is only partly composed of cash assets.124 In

affirming the Arbitrator‘s decision, however, the PERB appears to take the

Arbitrator‘s ruling further, portraying the Arbitrator as having implicitly held that

the cash assets accounted for by the Unassigned Fund Balance constitute existing

revenues, and itself endorsing this more specific position.125 In any event, I need

not consider how to resolve this discrepancy between the decisions, because the

parties have proceeded in this appeal as if both the Arbitrator and the PERB held




123
    See R. 1368.
124
    See R. 1366–67, 1368.
125
    See R. 1430 (―The Arbitrator explicitly determined that the Unassigned Fund Balance was not
a reserve; consequently, it is not excluded as ‗existing revenues‘ under Seaford. We Concur.
The Arbitrator determined, based on the City‘s evidence, [that] the Unassigned Fund Balance
constitutes the account or fund in which the City accumulates its excess revenues and from
which the City draws funds to meet unanticipated or unfunded expenses in its budget. . . . There
is no question that the Unassigned Fund Balance Balance‘s cash or cash equivalent is comprised
of funds from existing revenues. It is and has been a stable source of funding.‖).

                                              35
that cash assets accounted for in the Unassigned Fund Balance constitute existing

revenues.126 Thus, that is the specific issue I will consider here.

       In order for a binding interest arbitrator to force a public employer to enter

into any CBA with a police officers‘ or firefighters‘ union, Section 1615(d) of the

POFERA requires that the public employer have the financial ability to meet the

costs of the CBA. Section 1615(d)(6) provides that the financial ability of the

public employer is to be determined solely ―based on [the public employer‘s]

existing revenues.‖ The FOP argues that the Arbitrator and the PERB correctly

determined that, as a matter of law, all of the cash assets accounted for by the

Unassigned Fund Balance constitute existing revenues, principally because these

assets are made up of prior years‘ surplus revenues. The City contends that these

rulings constituted legal error because the Unassigned Fund Balance is a reserve

or, in the alternative, because only revenues from the year or years that the costs of

the proposed CBA are to actually be incurred by the City may constitute existing

revenues. I do not find either party‘s argument fully persuasive, but I ultimately

agree with the City that the Arbitrator and the PERB erred as a matter of law in



126
    See, e.g., City of Wilmington‘s Opening Br. in Supp. of its Appeal at 10 (―Second, the
decisions incorrectly determine [that] the cash assets in the Unassigned Fund Balance are
existing revenues.‖); cf. Answering Br. of Appellee-Below Appellee Fraternal Order of Police
Lodge 1 at 34 (―Accordingly, based upon the evidence presented, the authorities referenced and
the rationale applied thereto, FOP #1 submits that the Arbitrator and the [PERB] properly found
that cash in the Unassigned Fund Balance represents surplus revenue (not an explicitly-allocated
protected reserve).‖).

                                              36
ruling that the cash assets accounted for in the Unassigned Fund Balance

categorically constitute existing revenues.

                 1. Revenues, Reserves, and Existing Revenues

          In conducting my analysis under this issue, I am guided by this Court‘s

decision in Fraternal Order of Police, Lodge 5. There, the court reviewed a PERB

decision affirming an arbitrator‘s ruling that New Castle County could not meet the

costs of a union‘s LBFO. En route to her conclusion, the arbitrator below ruled

that certain assets held in reserves by the County did not constitute existing

revenues under Section 1615(d)(6) and, ultimately, that the County did not have

sufficient existing revenues to meet the costs of the union‘s proposal because

budget forecasts indicated that County would run a deficit in the two fiscal years

covered by the proposal, FY 2012 and FY 2013.127 In analyzing whether the

arbitrator properly applied the statutory standard under Section 1615(d)(6), the

court noted that the arbitrator below had relied on the following discussion of

revenues, reserves, and the statutory term ―existing revenues‖ previously set forth

in the City of Seaford arbitration decision:

              Revenue is dynamic in character. It constitutes a flow of moneys,
          in this case, into the City[ of Seaford]‘s coffers. Revenues from the
          electricity, water and sewer enterprise funds consist of net income
          (operating and non-operating revenues less operating expenses), or
          ―profits‖ in the vernacular. Included in the non-operating revenues is


127
      See Fraternal Order of Police, Lodge 5, 2014 WL 351009, at *8–10.

                                               37
       ―interest earned‖ which may include interest earned on the investment
       of reserved funds.

          Reserves, on the other hand, are moneys which have been set
       aside, saved, or ―reserved.‖ While they may originate from excess
       revenues and be allocated to reserves in a given year, they do not
       constitute an active revenue stream. Funds are reserved or allocated
       to reserves through an affirmative act of the governing body.
       Likewise, how those reserves are expended, invested, or allocated is
       also within the exclusive authority of the City‘s governing body.

           The term ―existing revenues‖ limits the Interest Arbitrator to
       considering revenues, based on existing fee and taxation rates. It is
       beyond the scope of the Arbitrator‘s authority to consider whether
       such rates should or could be increased, whether other expenses
       should or could be decreased or reallocated, and/or whether existing
       reserves should or could be allocated to fund the proposals. While it
       is certainly within the authority of the governing body of a public
       employer to make any of these choices subject to the political will of
       its citizenry, it is not within the province of the Interest Arbitrator
       under the [POFERA].128

       After conducting its own review of the POFERA, the Fraternal Order of

Police, Lodge 5 court concluded that the City of Seaford arbitrator‘s ―discussion of

what constitutes ‗existing revenues‘ within the meaning of 19 Del. C. § 1615(d)(6)

is well-reasoned and persuasive,‖ and specifically that the ―arbitrator‘s approach

was guided by, and consistent with, this Court‘s precedent regarding statutory

interpretation.‖129 Based on the City of Seaford arbitrator‘s definitions, as well as


128
     Fraternal Order of Police, Lodge 5, 2014 WL 351009 at *6 (quoting City of Seaford v.
Fraternal Order of Police, Lodge 9, IV PERB 2659, 2675–76 (July 15, 2002) (Decision of the
Interest Arbitrator on Remand)).
129
    Id. at *6. Specifically, the court praised the City of Seaford arbitrator‘s decision to give words
of common usage in a statute their ―usual, ordinary and natural meaning‖ where the statute‘s
language is clear. See id. at *6 n.31 (pointing to the arbitrator‘s citation of and reliance on

                                                 38
its independent analysis of the POFERA, the court adopted the City of Seaford

arbitrator‘s conclusion that, ―based on the plain meaning of the word ‗revenues,‘

the POFERA excludes unambiguously a public employer‘s financial reserves from

consideration in an analysis under Section 1615(d)(6).‖130               Further, the court

affirmed the arbitrator‘s and the PERB‘s decisions that the County could not meet

the costs of the union‘s LBFO based on existing revenues, concluding that it was

appropriate for the arbitrator in its analysis under Section 1615(d)(6) to focus on

the County‘s revenues in the fiscal years covered by the LBFO, and specifying that

the proper inquiry is whether those years‘ revenues are sufficient in the aggregate

to meet the costs of that LBFO, i.e., whether there are sufficient revenues over the

entire term of the LBFO to meet the total costs of the LBFO, as opposed to

sufficient revenues in each individual year of the LBFO to meet the respective

costs in each individual year of the LBFO:

          Even assuming that the FOP 5 is correct that no reasonable
       arbitrator could have concluded that the County was unable to afford
       FOP 5‘s proposal for the 2012 fiscal year, there is no evidence that the
       County could have paid for the proposal in fiscal year 2013. Each

Haddock v. Bd. of Pub. Educ. in Wilm., 84 A.2d 157, 161 (Del. Ch. 1951) and Seaford Bd. of
Educ. v. Seaford Sch. Dist., 1988 WL 8773, at *2 (Del. Ch. Feb. 5, 1988)); see also City of
Seaford, IV PERB at 2673. As noted by the court, the arbitrator relied on the dictionary
definitions of ―revenues‖ as meaning ―the yield of income that a political unit collects and
receives into the treasury for public use,‖ and of ―income‖ as meaning ―a gain or recurrent
benefit, usually measured in money that derives from capital or labor; also, the amount of such
gain received in a period of time.‖ Fraternal Order of Police, Lodge 5, 2014 WL 351009 at *5
n.28; see also City of Seaford, IV PERB at 2674 (quoting Merriam Webster’s Collegiate
Dictionary 558, 1002 (10th Ed. 1996)).
130
    Fraternal Order of Police, Lodge 5, 2014 WL 351009 at *6.

                                              39
          party submitted a two-year proposal to the Arbitrator. Therefore, the
          relevant inquiry was whether the County could afford FOP 5‘s
          proposal throughout its entire two-year duration. The County
          submitted unchallenged evidence that it was projecting a $5.1 million
          deficit in the 2013 fiscal year if FOP 5 accepted the 2.5% concession
          and a $5.7 million deficit if it did not. An actual deficit of even half
          that amount would have exceeded the County‘s projected 2012 budget
          surplus. Because a reasonable arbitrator could have found the
          County‘s budget forecasts credible, it follows that the record before
          the Arbitrator and the PERB contained evidence sufficient to support
          a reasonable determination that the County could not afford to pay for
          the FOP 5‘s proposal over the entirety of its two-year duration.131

                    2. The Unassigned Fund Balance Is Not a Reserve

          Based on the bright-line rule set forth in Fraternal Order of Police, Lodge 5,

the City argues that the assets accounted for by the Unassigned Fund Balance meet

the City of Seaford‘s criteria for reserves and thus categorically cannot be

considered existing revenues. That argument, however, is without merit.

          As made clear by the Director of the OMB, Robert Greco, in the arbitration

proceedings, the Unassigned Fund Balance is not a specific account or set of

accounts wherein assets are held, but rather it is an accounting function that tallies

net assets of a certain classification across the General Fund. The City Council

does not and cannot set aside, save, or reserve assets in the Unassigned Fund

Balance through an affirmative act, because the Unassigned Fund Balance is just a

numerical value that exists only on the City‘s financial statements. It is not even a

value that accounts for assets in the General Fund that the City Council has set

131
      Id. at *10.

                                             40
aside, saved, or reserved through an affirmative act; rather, the specific parameters

of the Unassigned Fund Balance exclude such assets from being included in its

value. Put simply, the Unassigned Fund Balance is no more than a tally of net

assets in the General Fund not allocated to be spent or placed in a reserve.

Therefore, I do not find that the Unassigned Fund Balance is itself a reserve, nor

can any of the assets for which it accounts be considered reserves.

             3. The Cash Assets Included in the Unassigned Fund Balance Are Not
             ―Existing Revenues‖

      Just because the cash assets included in the Unassigned Fund Balance are

not reserves, however, does not necessarily mean that they are ―existing revenues.‖

Neither Fraternal Order of Police, Lodge 5 nor City of Seaford imposes a rule that

a specific asset must either be a reserve or existing revenue, only that any reserved

asset cannot be considered existing revenue.           Thus, it is appropriate to

independently consider whether the cash assets included in the Unassigned Fund

Balance are ―existing revenues.‖

      The FOP initially argued, consistent with the rulings of the Arbitrator and

the PERB, that the cash assets included in the Unassigned Fund Balance are

―existing revenues‖ because the source of the Unassigned Fund Balance is

revenues; it points out that the Unassigned Fund Balance is merely the

accumulation of prior years‘ surplus revenues. This surely is true, but it also

highlights the problem with the Arbitrator‘s and the PERB‘s‘ reasoning.


                                         41
―Revenue‖ inherently involves a temporal aspect: It is the amount of money an

entity receives over a specific period of time.132 This is what is meant by the

arbitrator‘s observation in City of Seaford that ―[r]evenue is dynamic in character‖

and that ―[i]t constitutes a flow of moneys, in this case, into the City[of Seaford‘s]

coffers.‖133 The magnitude of that movement cannot be calculated in a vacuum;

there must be a definitive beginning and ending point for the calculation. Hence,

the Arbitrator and the PERB are correct that the cash assets in the Unassigned

Fund Balance originated as revenues during certain periods of time in the past, but

they are incorrect to say that those assets are categorically revenues in the

present.134

       The modifier ―existing‖ does not change this ordinary, temporal meaning of

revenues such that ―existing revenues‖ becomes a static concept. As the arbitrator

in City of Seaford illuminated, and as the FOP acknowledges in its supplemental

briefing, the modifier ―existing‖ merely limits the scope of potential revenues that


132
    See id. at *5 & n.28 (noting that the arbitrator in City of Seaford relied on the dictionary
definitions of ―revenues‖ as ―the yield of income that a political unit collects and receives into
the treasury for public use,‖ and ―income‖ as ―a gain or recurrent benefit, usually measured in
money that derives from capital or labor; also, the amount of such gain received in a period of
time‖); see also City of Seaford, IV PERB at 2674 (quoting Merriam Webster’s Collegiate
Dictionary 558, 1002 (10th Ed. 1996)).
133
    Fraternal Order of Police, Lodge 5, 2014 WL 351009 at *6.
134
    This distinction is further highlighted by basic principles of accounting. An entity records its
revenues in an income statement, which tracks profitability of the entity over a specified period
of time, based on the entity‘s revenues and expenditures over that period. The entity‘s balance
sheet—wherein the Unassigned Fund Balance is found—does not record revenues; rather, it
provides a snapshot of the entity‘s financial position at a specific point in time, based on the
entity‘s assets and liabilities at that moment.

                                                42
the arbitrator may consider in gauging the City‘s financial ability to meet the costs

of any proposal.135         Specifically, the term ―existing revenues‖ confines the

arbitrator‘s analysis to revenues that are ―based on existing fee and taxation rates‖

as a means to prevent the arbitrator from overriding the Council‘s legislative

authority to raise, appropriate, and set aside funds.136 It ensures, in other words,

that the arbitrator does not usurp this core legislative function; it requires that the

arbitrator take into account the information available at the time of the arbitration

and, based on that information, consider only those revenues that have already

been ordained by the City. In looking at that snapshot of information, however, the

arbitrator cannot identify any particular revenues without first narrowing her

search to a specific period of time, the time to be covered by the LBFO. In other


135
    See id. (―The term ‗existing revenues‘ limits the Interest Arbitrator to considering revenues,
based on existing fee and taxation rates.‖ (emphasis added) (quoting City of Seaford, IV PERB
at 2675)); Supplemental Mem. of Appellee-Below, Appellee Fraternal Order of Police Lodge #1
at 11–13.
136
    See Fraternal Order of Police, Lodge 5, 2014 WL 351009 at *6 (―It is beyond the scope of
the Arbitrator‘s authority to consider whether such rates should or could be increased, whether
other expenses should or could be decreased or reallocated, and/or whether existing reserves
should or could be allocated to fund the proposals. While it is certainly within the authority of
the governing body of a public employer to make any of these choices subject to the political
will of its citizenry, it is not within the province of the Interest Arbitrator under the [POFERA].‖
(quoting City of Seaford, IV PERB at 2675–76)); Supplemental Mem. of Appellee-Below,
Appellee Fraternal Order of Police Lodge #1 at 12–13 (―[T]here is not any legislative history that
the adjective ―existing‖ in the phrase ‗existing revenue‘ was intended to have any meaning
different from it[s] dictionary meaning ‗in existence or operation at the time under consideration,
current.‘ . . . [T]he only reasonably conclusion is that Delaware substituted the phrase ‗based on
existing revenues‘ as a shorthand method of indicating that any award cannot mandate an
increase or imposition of new taxes, fees, charges or other sources of revenue, the imposition of
which remains in the discretion of the legislative body[,] but, instead, financial ability to pay
must be based upon existing or proposed revenue, i.e., taxes, fees, charges or other sources of
revenue.‖).

                                                43
words, ―existing revenues‖ are still ―revenues;‖ they are still ―dynamic in

character‖ and can only be ascertained in reference to a specific span of time.

       An analogy may help to clarify the point. Consider two retirees on a fixed

pension: In year X, Retiree A receives $60,000 per year and has no productive

assets; Retiree B receives $50,000 per year and has $500,000 invested with a fixed

return of 2%. What are the revenues of Retiree A and Retiree B in year X? Both

have a dynamic inflow of funds of $60,000; this is their revenue. Retiree B has

saved half a million dollars from past income—past revenue—and is undeniably

wealthier than Retiree B, but revenue in year X to each is the same. The fact that

many years ago Retiree B had revenue streams from which, unlike Retiree A, he

retained a surplus does not make that surplus part of his revenue in year X,

although the interest which flows to him each year from that surplus is revenue.

       The Arbitrator‘s and the PERB‘s decisions ignore the plain meaning of the

word ―revenues‖ by categorically applying the term ―existing revenues‖ to the cash

assets accounted for by the Unassigned Fund Balance as those assets presently

exist in static form in various accounts across the General Fund, without regard to

when those assets actually flowed to the City.137 In doing so, the Arbitrator and the

PERB conflate ―existing assets‖ with ―existing revenues.‖ It may be true that the

City itself can, and occasionally has, used its existing assets to finance

137
   See, e.g., R. 1430 (―Nothing in the statute requires that the consideration of revenues be
limited to the current fiscal year or to any other specific, limited period of time.‖).

                                             44
expenditures—both through the Mayor including prior years‘ accumulated surplus

in the City‘s revenue projections and the Council appropriating prior years‘

accumulated surplus to make modifications to the budget—but the potential for

these assets to be expended does not make them revenues. ―Revenue‖ refers to a

flow in over a given time, not a flow out. Rather, assets accounted for by the

Unassigned Fund Balance, like any City asset, can be considered part of the City‘s

projected revenues only after the City has opted to appropriate them for future

expenditures, which authority is left to the discretion of the Mayor and the Council,

and not the arbitrator, under the City‘s Charter.

          I note that, although neither the Arbitrator‘s decision nor the PERB‘s

decision expressly say so, their holdings could be interpreted to imply that an

arbitrator should graft onto the POFERA an understanding that, specifically with

respect to arbitration awards for periods in the past, all prior years‘ revenues,

including those now accounted for by the Unassigned Fund Balance, be available

as ―existing revenues,‖ since the arbitrator could find that the LBFO can be

satisfied using these assets without changes in taxing/spending policy on the part

of the City. I reject that implication. Nothing in the POFERA as interpreted by

our caselaw is ambiguous here so as to allow departure from the statute‘s express

language; as I describe in my analysis below,138 the revenues from years covered


138
      See infra Part III.A.4.

                                          45
by the FOP‘s LBFO are easily ascertainable and form the outer limit of the

permissible cost, and nothing about that result is absurd or unworkable.139

       Because the cash assets accounted for by the Unassigned Fund Balance are

not ―existing revenues‖ within the meaning of Section 1615(d)(6), I find that the

Arbitrator and the PERB committed legal error by holding otherwise.

               4. ―Existing Revenues‖ Are Those Revenues the City Received
               During the Term of the Proposed CBA

       Having found that calculation of ―existing revenues‖ inherently requires

consideration of a specific period of time, however, the question remains as to

what specific period of time the Arbitrator should have considered here in gauging

whether the City had the financial ability to meet the costs of the FOP‘s LBFO. As

noted above, in the Fraternal Order of Police, Lodge 5 decision, this Court—as

well as the arbitrator and the PERB below—held that the ―relevant inquiry‖ under

Section 1615(d)(6) in the context of arbitrating CBAs governing future years

139
    Even if I were to interpret the statute as ambiguous with respect to past application, the result
would be the same. Employing the principle of interpretation found in Seaford Bd. Of Educ. v.
Seaford Educ. Ass’n, 1988 WL 8773, at *2 (Del. Ch. Feb. 5, 1988), see infra note 142 and
accompanying text, I do not find that the term ―existing revenues‖ should be reinterpreted to
include the cash assets included in the Unassigned Fund Balance in the limited context of
arbitrating retroactive CBAs. Section 1615(d)(6) is designed as a control on the collective
bargaining process to ensure that the costs of any proposal the public employer is forced to
accept is commensurate with the public employer‘s financial condition during that period, as set
by the governing legislative body. If the arbitrator were to analyze a union‘s request for
retroactive salary increases based on the public employer‘s prior years‘ accumulated surplus, it
would allow the union to spread the costs of its proposal over years beyond those actually
covered by the proposal, granting the union an advantageous bargaining position to which it
would not be entitled when arbitrating a CBA for future years. Such an interpretation would
create an incentive for the unions to delay negotiations on CBAs and thus would be inconsistent
with the purpose of the POFERA.

                                                46
involves net existing revenues over the contract period; that is, ―whether the

[public employer] could afford [the union‘s] proposal throughout its entire . . .

duration.‖140 However, also as noted above, the situation here is complicated by

the fact that the parties are negotiating a retroactive CBA.

          The City makes the argument—for the first time in supplemental briefing—

that the POFERA reference to ―existing revenues‖ can have no logical application

to past, as opposed to prospective, periods of employment. According to the City,

the restriction on the arbitrator to choose an offer that can be satisfied from

existing projected revenues prevents the arbitrator from impinging on a core

legislative function, but applying the term to past revenues would actually cause

the arbitrator to impinge on that function.             Specifically, the City argues that

applying the ―existing revenues‖ standard retroactively ―leads to an unreasonable

result as it would require the public employer to set aside surplus revenues in prior

years in the event there is a subsequent [POFERA] proceeding, and the arbitrator

determines the surplus constitutes ‗existing revenues‘ available to pay for a

retroactive proposal.‖141 Better, according to the City, to judicially rewrite the

statute to impose the revenue restriction on the future year or years in which the

payment for work in the past will be paid. I reject this argument.



140
      Fraternal Order of Police, Lodge 5, 2014 WL 351009 at *10.
141
      City of Wilmington‘s Supplemental Mem. of Law in Supp. of Its Appeal at 9.

                                               47
          It is true that the POFERA is clearly designed in contemplation that public

employers and unions will collectively bargain over CBAs to govern their future

relationships. However, that does not mean that the revenue restriction cannot, or

should not, be applied retrospectively. In situations where it is ―reasonably plain

that the legislature had no specific intention with respect to the specific problem

that later arises,‖ this Court has found that ―the best technique to employ—the one

most consistent with the special, limited judicial role in our democracy—is for the

court to interpret the words used, in a manner consistent both with their ordinary

usage and with the discernible overall intent of the statute.‖142 Employing that

principle of statutory interpretation here, it is clear that the City‘s interpretation

would lead to an unreasonable result. If the arbitrator were to analyze a union‘s

request for retroactive salary increases based on the public employer‘s budget in

the year that it is to make those retroactive payments, it would constrict the union‘s

ability to obtain raises over multiple years to the revenues that the public employer

can generate in a single year, granting the public employer an advantageous

bargaining position to which it would not be entitled when arbitrating CBAs for

prospective terms of employment.                Such an interpretation would create an




142
      Seaford Bd. Of Educ. v. Seaford Educ. Ass’n, 1988 WL 8773, at *2 (Del. Ch. Feb. 5, 1988).

                                                48
incentive for public employers to delay negotiations on CBAs and thus would be

inconsistent with the purpose of the POFERA.143

       Instead, I see no reason to depart from this Court‘s position in Fraternal

Order of Police, Lodge 5 that ―existing revenues‖ refers to the revenues in the

fiscal years covered by the proposed CBA, taken as a whole.144 Not only is this

interpretation consistent with the plain meaning of the statute‘s language and with

prior precedent of this Court interpreting that language, it also maintains, more

than any other interpretation offered by the parties or the decisions below, the

public employer‘s and the union‘s respective bargaining positions in arbitrations

over retroactive CBAs as those positions already exist under the POFERA in

arbitrations over CBAs for prospective terms of employment. The key difference

between the two situations is that in arbitrations over retroactive CBAs the

arbitrator will be guided by actual revenue figures for the years covered by the

proposal, as opposed to revenue projections for those years. However, it does not

seem to me that this difference inherently favors either the public employer or the

union in the collective bargaining process.




143
    For a discussion of the analogous incentive problem arising from the FOP‘s (initial) argument
that all prior years‘ surpluses should be available for retroactive CBAs, see supra note 139.
144
    That is, for a LBFO to be paid out of the General Fund, the arbitrator must consider whether
or not the public employer could pay the net costs of the contract envisioned by the LBFO from
the net of actual and/or projected annual operating surpluses or deficits—―existing revenues‖—
in the General Fund during the years that contract would be in existence.

                                               49
          Furthermore, I do not find persuasive the City‘s argument that applying a

revenue restriction for retroactive CBAs based on prior years‘ revenues improperly

allows the arbitrator to intrude on the core legislative functions of the City‘s

elected officials by ―[e]ffectively requiring the City to set aside surpluses in prior

fiscal years.‖145 The City‘s concern is not unique to arbitrations over retroactive

CBAs.        It is unchallenged that an arbitrator‘s decision may require a public

employer to pay for the costs of CBAs covering future years out of surplus

revenues that the public employer is projected to receive in those years, and thus

may, under the City‘s reasoning, effectively require the public employer to ―set

aside‖ those future revenues for a specific use as they are obtained. If anything,

there is actually less of a concern that using net surplus revenues over the years

covered by the contract as a basis for Section 1615(d)(6) will cause an arbitrator to

impinge on a core legislative function in the context of retroactive CBAs,

considering that revenues and expenses in prior years are definitively known, as

opposed to forecasted, and thus the arbitrator cannot overestimate the public

employer‘s financial ability. Rather, what the City is actually arguing is that

applying the approach laid out in Fraternal Order of Police, Lodge 5 in

arbitrations over retroactive CBAs will effectively tie up a portion of the City‘s

surplus assets. I note that such a consequence is not necessarily unreasonable nor


145
      City of Wilmington‘s Supplemental Mem. of Law in Supp. of Its Appeal at 9.

                                               50
should it be unexpected, considering that, in situations where collective bargaining

on a successor CBA has lagged past the termination of the previous CBA, the City

is aware that its cost of labor for these employees is unsettled and, because that

cost is set at a time in the past, likely deflated. In any event, the City‘s concern

does not find support in the language or the underlying purpose of the POFERA.

      Therefore, I find that the term ―existing revenues‖ in Section 1615(d)(6)

required the Arbitrator in this situation to analyze the City‘s financial ability to

meet the costs of the FOP‘s LBFO using the City‘s revenues in the General Fund

over the duration of the four years covered by that proposal, FY 2011 to FY 2014.

      B. The Arbitrator and the PERB Erred as a Matter of Law in Ruling on the
      City’s Financial Ability to Meet the Costs of the FOP’s LBFO Based on
      Factors Other than Existing Revenues

      Having found that the term ―existing revenues‖ refers here to the period

covered by the FOP‘s LBFO, I turn next to whether the Arbitrator and the PERB

applied an improper standard to gauge the City‘s financial ability to meet the costs

of the FOP‘s LBFO. As a preliminary matter, I note that it is not clear exactly how

the Arbitrator reached her conclusion that the City did not have ―an inability to

afford the costs of the FOP‘s last, best, final offer.‖ The Arbitrator did not detail

the calculation that she used or the specific figures upon which she relied for her

conclusion, only that she had reached that conclusion ―[f]or all the[] reasons‖ set

out over the previous seven pages of the decision. For instance, at the beginning of



                                         51
her analysis, the Arbitrator noted that the FOP had only asked for salary increases

for Bargaining Unit members in ―FY 2012 and FY 2013, years in which the City

accrued surpluses and increased its unassigned fund balance,‖ and that ―[t]he

revenue, expenditure and fund balances are known for FY 2011 through FY 2014,

with the FY 2014 unassigned fund balance projected to be $28,520,703, which

includes $5,699,343 in cash,‖146 but the decision is silent as to whether—and if so,

how—any of these pieces of information factored into her final decision that the

City could afford the FOP‘s proposal; nor does the decision explain how the

projected savings of approximately $107,606 in FY 2014 from certain vacancies

within the City‘s police force factored into the Arbitrator‘s decision.147

       However, assuming, as the PERB appears to in its decision148 and as the

parties do in briefing,149 that the Arbitrator based her ruling that the City could

―afford‖ the FOP‘s LBFO solely on the $5,699,343 in cash assets that was

projected to be included in the Unassigned Fund Balance at the expiration of FY

2014, I find that the Arbitrator and the PERB did not apply the standard required


146
     R. 1367.
147
     See R. 1371.
148
     See R. 1430 (―The Arbitrator determined, based on the City‘s evidence, [that] the Unassigned
Fund Balance constitutes the account or fund in which the City accumulates its excess revenues
and from which the City draws funds to meet unanticipated or unfunded expenses in its budget.
 . . . There is no question that the Unassigned Fund Balance Balance‘s cash or cash equivalent is
comprised of funds from existing revenues. It is and has been a stable source of funding.‖
(emphasis added)).
149
     See, e.g., City of Wilmington‘s Opening Br. in Supp. of Its Appeal at 10, 15–16; Answering
Br. of Appellee-Below Appellee Fraternal Order of Police, Lodge 1 at 34.

                                               52
by Section 1615(d)(6). As I have found above, the Arbitrator and the PERB

should have evaluated the City‘s financial ability to meet the costs of the FOP‘s

LBFO based on whether the City generated sufficient revenues in the General

Fund from FY 2011 to FY 2014.

          C. The Arbitrator and the PERB Did Not Err as a Matter of Law in Holding
          that FY 2015 Costs Should Not Be Included in the Total Projected Costs of
          the FOP’s LBFO

          Finally, I turn to the issue of whether FY 2015 costs—and perhaps those

from succeeding years as well—should be included in the total projected costs of

the FOP‘s LBFO. Section 1615(d)(6) requires the Arbitrator and the PERB to

consider ―[t]he financial ability of the public employer, based on existing revenues,

to meet the costs of any proposed settlements.‖150 The City argues that, as a matter

of law, ―costs of any proposed settlements‖ must be interpreted to include costs of

a proposed CBA in non-contract years where, like here, the terms of the proposed

CBA will realistically continue into those non-contract years. As support for its

interpretation, the City cites a passage from City of Seaford wherein the arbitrator

was describing the rationale underlying using ―existing revenues‖ to qualify the

City‘s financial ability meet the costs of any proposal, which passage was cited




150
      19 Del. C. § 1615(d)(6) (emphasis added).

                                                  53
favorably by this Court in Fraternal Order of Police, Lodge 5 v. New Castle

County151:

       There is a very clear and logical reason the General Assembly limited
       the Interest Arbitrator to consider only ―existing revenues‖ in reaching
       a determination as to whether a public employer can afford a proposed
       settlement. Many costs, including those for wages and benefits, are
       recurring and generally tend to automatically increase annually, either
       as a result of negotiated provisions of a collective bargaining
       agreement or due to inflationary pressure on the costs of services or
       goods an employer has agreed to provide. Consequently, they
       constitute an on-going and frequently increasing financial
       obligation.152

According to the City, because the parties do not have a CBA in place to succeed

the FOP‘s proposed CBA and are unlikely to have one in place by the end of FY

2015, and because the City must, by law, honor the terms found in the last year of

the parties‘ previous CBA until a successor CBA can be executed, the salary

increases in the FOP‘s LBFO will actually be ―on-going,‖ ―recurring,‖ and

―automatically‖ continued through at least FY 2015, and thus are the type of costs

envisioned by Section 1615(d)(6). I do not find this argument persuasive.

       The POFERA does not define the phrase ―costs of any proposed settlement‖

as it appears in Section 1615(d)(6), nor does its twin, the PERA, define the phrase

as it appears in identical form in Section 1315(d)(6), 153 nor does this Court‘s


151
    2014 WL 351009 (Del. Ch. Jan. 29, 2014).
152
    Id. at *6 (quoting City of Seaford v. Fraternal Order of Police, Lodge 9, IV PERB 2659, 2676
(July 15, 2002) (Decision of the Interest Arbitrator on Remand)).
153
    See 19 Del. C. § 1615(d)(6).

                                              54
limited caselaw reviewing PERB decisions under either of these acts define the

phrase. The dictionary definition of ―cost‖ is ―the amount or equivalent paid or

charged for something.‖154 Based on the plain meaning of ―cost,‖ the phrase ―costs

of any proposed settlement‖ is unambiguous; it can only be reasonably interpreted

to mean the amount of money the City would necessarily expend in order to satisfy

its obligations under the proposed CBA. It unambiguously does not include costs

of the City‘s obligations following the expiration of the proposed CBA, i.e., the

amount of money the City will have to expend until the parties execute a different,

successor agreement. In other words, the fact that the City‘s costs to operate

within the law in the absence of a CBA may be initially determined by the terms of

the parties‘ previous CBA does not mean that those are ―costs of‖ the previous

CBA.

       My conclusion in this regard is supported by the fact that, even if the City is

forced to provide pay and benefits to the Bargaining Unit employees in FY 2015

based on the FY 2014 levels in the FOP‘s LBFO, the parties must still negotiate

and adopt a new CBA to retroactively govern FY 2015, which new CBA will

dictate the actual salaries and benefits the employees were entitled to in FY 2015,




154
   Webster’s II New College Dictionary 255 (1995); see also Black’s Law Dictionary (10th ed.
2014) (defining ―cost‖ as ―the amount paid or charged for something; price or expenditure‖).

                                            55
and thus the City‘s actual costs in FY 2015.155 The City‘s plea for pragmatism,

that the Court can be assured that collective bargaining will yield costs in FY 2015

at least on level with FY 2014 because the Bargaining Unit will never agree to

retroactively reduce salaries and benefits, is also unavailing, considering the

Bargaining Unit will not be entitled to retain FY 2014 salaries and benefits in any

successor CBA under Section 1615(d)(6) if the City does not have sufficient

revenues to meet those costs during the period of the successor CBA.156 Even if

the City can meet those costs in retrospect, the salaries and benefits will still be

subject to evaluation under the seven factors in Section 1615(d). Thus, while I

have no doubt that the City will face resistance in any effort to claw back salaries

and benefits in FY 2015, that resistance is of the same variety that the City would

face in attempting to avoid salary and benefit increases that it could afford in

CBAs with prospective contract terms; at the very least, this resistance is not so

materially different in the context of negotiating retroactive CBAs as to constitute

an ―unreasonable or absurd result‖ that would cause this Court to ignore the plain

meaning of the statute‘s language.157 Therefore, I find that the Arbitrator and the



155
    The same principle applies if the parties‘ negotiations over a successor agreement stretch past
FY 2015.
156
    See supra Part III.A.4.
157
    This specific collective bargaining dispute illustrates my point. Here, whereas the FOP‘s
LBFO included a modest cost-of-living adjustment in prior years, the City‘s LBFO included no
cost-of-living adjustment and called for an increase in employee contributions to healthcare costs
in then-future years, effecting a prospective reduction in the City‘s costs in those years. The

                                                56
PERB did not err as a matter of law in excluding FY 2015 costs from its

calculation of the total projected costs of the FOP‘s LBFO.

       D. Applying the Proper Standard, the FOP’s LBFO Is Not Disqualified
       Under Section 1615(d)(6)

       Having determined the applicable standard under Section 1615(d)(6), as well

as the appropriate estimation of the costs of the FOP‘s LBFO, I turn to considering

whether the City had the financial ability to meet the costs of the FOP‘s LBFO.

The record on appeal is sufficient to find that, though the Arbitrator and the PERB

applied the wrong standard in the decisions below, their ultimate determination

that the City could meet the costs of the FOP‘s proposal was correct. The parties

stipulated that, as to the City‘s General Fund, the City had a net operating surplus

of $6,055,527 in FY 2011; a net operating surplus of $7,444,088 in FY 2012; a net

operating surplus of $1,326,984 in FY 2013; and a net operating deficit of

$1,170,833 in FY 2014.         Netting these throughout the four-year duration of the

FOP‘s proposal—as I must under the rationale of Fraternal Order of Police, Lodge

5—the City had a net operating surplus in the General Fund of $13,655,766 from

FY 2011 to FY 2014, more than sufficient to cover the proposal‘s estimated costs

of $127,648.




City‘s own position in this collective bargaining dispute, then, illustrates that costs are not
necessarily ―locked in‖ in from contract to contract.



                                              57
                               IV. CONCLUSION

      For the foregoing reasons, the decision of the PERB is reversed in part and

affirmed in part. Although I have found that the Arbitrator‘s and the PERB‘s legal

errors were ultimately insignificant in their consideration of whether the FOP‘s

LBFO should be disqualified under Section 1615(d)(6), I am hesitant to enter a

final judgment in this matter based on that conclusion. A POFERA arbitrator, after

determining that the parties‘ LBFOs are not disqualified under subsection (d)(6), is

given discretion to choose between the proposals based on a balancing of the other

Section 1615(d) factors. Though the Arbitrator here has already exercised that

discretion and selected the FOP‘s proposal, it is unclear to me to what extent the

legal rulings in this Memorandum Opinion may affect the balancing of the other

Section 1615(d) factors, and thus to what extent an entry of final judgment in this

Court at this point in the proceedings would tread on the Arbitrator‘s statutory

discretion. Therefore, the parties should confer and inform the Court whether a

remand to the Arbitrator is appropriate in light of this Memorandum Opinion.

      IT IS SO ORDERED.




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