FORT STEWART SCHOOLS, PETITIONER V. FEDERAL LABOR RELATIONS AUTHORITY AND FORT STEWART ASSOCIATION OF EDUCATORS No. 89-65 In the Supreme Court of the United States October Term, 1989 The Acting Solicitor General, on behalf of the Fort Stewart Schools, petitions for a writ of certiorari to review the decision of the United States Court of Appeals for the Eleventh Circuit in this case. Petition for a Writ of Certiorari to the United States Court of Appeals for the Eleventh Circuit TABLE OF CONTENTS Questions Presented Opinions below Jurisdiction Statutory and regulatory provisions involved Statement Reasons for granting the petition Conclusion OPINIONS BELOW The opinion of the court of appeals (App., infra, 1a-30a) is reported at 860 F.2d 396. The decision of the Federal Labor Relations Authority (App., infra, 31a-54a) is reported at 28 F.L.R.A. 547. JURISDICTION The judgment of the court of appeals was entered on November 21, 1988. A timely petition for rehearing was denied on February 17, 1989 (App., infra, 55a-56a). On May 11, 1989, Justice Kennedy extended the time for filing a petition for a writ of certiorari to and including July 17, 1989. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). STATUTORY AND REGULATORY PROVISIONS INVOLVED A. The Federal Service Labor-Management Relations Statute Section 7102 (5 U.S.C.) provides in relevant part: Each employee shall have the right * * * * * * * * (2) to engage in collective bargaining with respect to conditions of employment through representatives chosen by employees under this chapter. Section 7103 (5 U.S.C.) provides in relevant part: (a) For the purpose of this chapter -- * * * * * (14) "conditions of employment" means personnel policies, practices, and matters, whether established by rule, regulation, or otherwise, affecting working conditions, except that such term does not include policies, practices, and matters * * * * * (C) to the extent such matters are specifically provided for by Federal statute(.) Section 7106(a)(1) (5 U.S.C.) provides: (a) Subject to subsection (b) of this section, nothing in this chapter shall affect the authority of any management official of any agency -- (1) to determine the mission, budget, organization, number of employees, and internal security practices of the agency. Section 7117 (5 U.S.C.) provides in relevant part: (a)(1) Subject to paragraph (2) of this subsection, the duty to bargain in good faith shall, to the extent not inconsistent with any Federal law or any Government-wide rule or regulation, extend to matters which are the subject of any rule or regulation only if the rule or regulation is not a Government-wide rule or regulation. (2) The duty to bargain in good faith shall, to the extent not inconsistent with Federal law or any Government-wide rule or regulation, extend to matters which are the subject of any agency rule or regulation referred to in paragraph (3) of this subsection only if the Authority has determined under subsection (b) of this section that no compelling need (as determined under regulations prescribed by the Authority) exists for the rule or regulation. B. The dependents schools statute and regulation Section 241 (20 U.S.C.) provides in relevant part: (a) In the case of children who reside on Federal property -- * * * * * the Secretary shall make such arrangements (other than arrangements with respect to the acquisition of land, the erection of facilities, interest, or debt service) as may be necessary to provide free public education for such children. * * * To the maximum extent practicable, the local educational agency, or the head of the Federal department or agency, with which any arrangement is made under this section, shall take such action as may be necessary to ensure that the education provided pursuant to such arrangement is comparable to free public education provided for children in comparable communities in the State, or, in the case of education provided under this section outside the continental United States, Alaska, and Hawaii, comparable to free public education provided for children in the District of Columbia. For the purpose of providing such comparable education, personnel may be employed and the compensation, tenure, leave, hours of work, and other incidents of the employment relationship may be fixed without regard to the Civil Service Act and rules * * *. * * * * * (e) To the maximum extent practicable, the Secretary shall limit the total payments made pursuant to any such arrangement for educating children within the continental United States, Alaska, or Hawaii, to an amount per pupil which will not exceed the per pupil cost of free public education provided for children in comparable communities in the State. The Secretary shall limit the total payments made pursuant to any such arrangement for educating children outside the continental United States, Alaska, or Hawaii, to an amount per pupil which will not exceed the amount he determines to be necessary to provide education comparable to the free public education provided for children in the District of Columbia. Army Reg. 352-3, 1-7 provides: Comparison factors. Education provided pursuant to the provisions of Section 6 for children residing on Federal property will be considered comparable to free public education offered by selected communities of the State when the following factors are, to the maximum extent practicable, equal: a. Qualifications of professional and nonprofessional personnel. b. Pupil-teacher ratios. c. Curriculum for grades offered, including kindergarten and summer school, if applicable.. d. Accreditation by State or other accrediting association. e. Transportation services (student and support). f. Length of regular and/or summer term(s). g. Types and numbers of professional and nonprofessional positions. h. Salary schedules. i. Conditions of employment. j. Instructional equipment and supplies. QUESTIONS PRESENTED 1. Whether the wages and money-related fringe benefits of federal employees whose rate of compensation is not entirely fixed by statute are negotiable "conditions of employment" under 5 U.S.C. 7103(a). 2. Whether compensation-related proposals -- such as the Union's proposal in this case to raise the salaries of employees at two schools for dependents of Army personnel by 13.5% -- are non-negotiable because they interfere with an agency's management right under 5 U.S.C. 7106(a)(1) to set the agency's budget. 3. Whether the Union's proposals in this case are non-negotiable under 5 U.S.C. 7117 because they are "the subject of (an) agency rule or regulation" for which there is a "compelling need." STATEMENT Fort Stewart, an Army base in Georgia, operates two elementary schools for dependents of military and civilian personnel. The Fort Stewart Association of Educators (the Union) is the bargaining representative for approximately 100 professional and nonprofessional employees of the Fort Stewart Schools. Unlike most federal employees, teachers and other personnel at dependents schools are not classified and paid under the "General Schedule" set forth at 5 U.S.C. 5332. Rather, the dependents schools statute, 20 U.S.C. 241(a), directs the Army to provide an education comparable to that provided at public schools in the State and states that "(f)or the purposes of providing such comparable education, * * * compensation * * * may be fixed without regard to the Civil Service Act and rules." At issue here are three Union proposals relating to employee compensation, including a proposal (Proposal 2) that "the salary increase for all bargaining unit members will be 13.5%." App., infra, 2a n.2. /1/ The Fort Stewart Schools declined to bargain over the proposals, contending that they are not negotiable under Title VII of the Civil Service Reform Act of 1978, 5 U.S.C. 7101 et seq., known as the Federal Service Labor-Management Relations Statute (the Statute). The Federal Labor Relations Authority rejected this contention, and its conclusion that the proposals are negotiable was upheld by the Eleventh Circuit. 1. The Statute provides a "comprehensive * * * scheme governing labor relations between federal agencies and their employees." Bureau of Alcohol, Tobacco and Firearms v. FLRA, 464 U.S. 89, 91, (1983). Amongg other things, the Statute expressly recognizes the right of federal employees to form and join unions (see, e.g., 5 U.S.C. 7102), and imposes upon management officials of federal agencies a general duty to bargain with their employees' unions over "conditions of employment." See FLRA v. Aberdeen Proving Ground, Department of the Army, 108 S. Ct. 1261 (1988); Bureau of Alcohol, Tobacco and Firearms v. FLRA, 464 U.S. at 92; 5 U.S.C. 7103(a)(12), 7114, 7116(a)(5), 7117. The Statute provides that if, during bargaining, management officials decline to negotiate over a particular proposal submitted by a union, believing "that the duty to bargain in good faith does not extend to (such) matter" (5 U.S.C. 7117(c)(1)), the union may file a negotiability appeal with the Federal Labor Relations Authority. See 5 U.S.C. 7105(a)(2)(E), 7117(c). The FLRA's rulings on negotiability are reviewable in the courts of appeals. See 5 U.S.C. 7123. In contrast to the National Labor Relations Act, a decision that a particular proposal is negotiable under the Statute does more than simply require the parties to bargain in good faith. If negotiations reach an impasse, "either party may request the Federal Service Impasses Panel to consider the matter" (5 U.S.C. 7119(b)(1)), and the Panel may resolve the dispute by ordering the incorporation of the contested proposal into the collective bargaining agreement. 5 U.S.C. 7119(c)(5)(B)(iii); see National Federation of Federal Employees v. FLRA, 789 F.2d 944, 945 (D.C. Cir. 1986). 2. The Army contended that the proposals at issue were non-negotiable for three reasons. First, it argued that proposals relating to employee compensation do not concern "conditions of employment" since the Statute limits the definition of that phrase to "personnel policies, practices, and matters * * * affecting working conditions." Second, the Army argued that the proposals were non-negotiable under the "management rights" provision of the Statute (5 U.S.C. 7106), a provision that further limits the scope of negotiations. As relevant to this case, that provision states that "nothing in this chapter shall affect the authority of any management official of any agency -- (1) to determine the * * * budget * * * of the agency." The Army claimed that the proposals at issue -- particularly the proposal to raise employees' salaries by 13.5% -- would interfere with its right to determine its budget. Third, the Army relied on a provision of the Statute (5 U.S.C. 7117) stating that the duty to bargain does not extend to proposals that are "inconsistent with any Federal law or any Government-wide rule or regulation" (5 U.S.C. 7117(a)(1)), and that the duty to bargain extends to proposals that are "the subject of any agency rule or regulation * * * only if the Authority has determined * * * that no compelling need (as determined under regulations prescribed by the Authority) exists for the rule or regulation" (5 U.S.C. 7117(a)(2)). Another law, the dependents schools statute (20 U.S.C. 241(e)) provides that "(t)o the maximum extent practicable," expenditures at dependents schools should be limited "to an amount per pupil which will not exceed the per pupil cost of free public education provided for children in comparable communities in the State." In implementing that law, the Army has provided by regulation that, "to the maximum extent practicable," salary schedules at dependents schools should be the same as salary schedules at comparable public schools in the State. Army Reg. 352-3, 1-7(h). The Army contended that the proposals at issue conflicted with Section 241 and its implementing regulation, and declined to negotiate for that reason as well. 3. With the exception of three minor subparts of the proposals, the FLRA rejected the Army's arguments. /2/ The FLRA first noted that it had previously rejected the argument that compensation is not a negotiable "condition() of employment." App., infra, 35a. It next held that the Army had not established that the Union's proposals would infringe on the Army's right to determine its budget because the Army had not shown that the inclusion of any or all of the proposals in the collective bargaining agreement would "result in significant and unavoidable increases in cost not affected by compensating benefits." Id. at 37a. Finally, relying on its prior cases involving teachers at dependents schools, the FLRA held that Section 241 does not require that employees' salaries be set by comparison with salaries at state public schools and that the Army's regulation to that effect is not justified by a "compelling need." App., infra, 40a-41a. The FLRA accordingly ordered the schools to negotiate with the Union over the three proposals. Chairman Calhoun dissented. Referring to his conclusion in a prior case, he stated: "(I)n the absence of a clear expression of congressional intent to make wages and money-related fringe benefits negotiable, I would find that these matters are not within the duty to bargain." App., infra, 46a. 4. The Eleventh Circuit affirmed. App., infra, 1a-30a. It first deferred to the FLRA's conclusion that compensation-related proposals are generally negotiable where employees are not subject to the General Schedule. Although the Statute defines negotiable "conditions of employment" as "personnel policies, practices and matters * * * affecting working conditions" (5 U.S.C. 7103(a)(14)), the court concluded that "(t)his definition alone does not exclude compensation and fringe benefits." App., infra, 7a. Turning to the numerous statements in the legislative history that compensation would not be negotiable under the Statute, the court dismissed them on the ground that the statements were made "with the understanding that Congress generally regulates such matters." Id. at 10a. The court acknowledged (id. at 9a) the decision of the Third Circuit holding that compensation is not a negotiable "condition() of employment" (Department of the Navy, Military Sealift Command v. FLRA, 836 F.2d 1409 (1988)), but stated that it agreed with the Second Circuit's contrary conclusion in West Point Elementary School Teachers Association v. FLRA, 855 F.2d 936 (1988). The court gave three reasons for agreeing with the Second Circuit that such proposals do not interfere with the Army's right to determine its budget. First, the court said that "(t)he proposals would not necessarily increase the Army's costs" (App., infra, 20a), although it did not explain how a 13.5% increase in salaries could fail to increase costs. Second, the court stated that "any increase in the employees' salaries would not significantly increase the Army's budget," which "includes bases, troops, weapons, vehicles, other equipment, salaries for all other officers, and expenses for its eight other schools." Ibid. Third, the court said that the Army had failed to establish "that no compensating benefits would offset such costs even if its costs increased." Ibid. The court also agreed with the Second Circuit that the proposals were not precluded by Section 241 of the dependents schools statute or the Army's implementing regulation. The court recognized that "Section 241 requires that the Army 'to the maximum extent practicable' provide a comparable education to local public schools at a cost per pupil not exceeding the per pupil cost of free public education in local communities." App., infra, 13a. However, the court concluded, the Army could maintain cost parity and educational comparability despite wide variations in teachers' salaries. "For example, books, building maintenance, athletic programs, clubs, and lunch services also enter into this calculation." Id. at 19a. For that reason, the court found that there was no "compelling need" for the Army's regulation providing that employees' salaries must be set by comparison with those at comparable public schools. REASONS FOR GRANTING THE PETITION Review is warranted because the court below incorrectly decided an issue of considerable importance to the federal government, and the issue is one on which the courts of appeals are in conflict. 1. There are "forty-odd federal pay systems which are not entirely fixed by statute." Department of Defense Dependents Schools v. FLRA, 863 F.2d 988, 989 (D.C. Cir. 1988), reh'g en banc granted (Feb. 6, 1989). Disputes involving employees of the Army's domestic dependents schools have spawned decisions by the Second Circuit (West Point), the Fourth Circuit (United States Department of Defense Dependent Schools, Fort Bragg v. FLRA, 838 F.2d 129, 130 (4th Cir. 1988) (vacated)), and the Sixth Circuit (Fort Knox Dependent Schools v. FLRA, No. 87-3395 (May 11, 1989), petition for reh'g en banc pending (filed June 23, 1989). In addition, the courts of appeals have considered cases involving teachers at overseas dependents schools (Department of Defense Dependents Schools), which are governed by a different statute (20 U.S.C. 902) from that governing domestic schools; civilian mariners employed by the Navy (Military Sealift Command), whose pay, under 5 U.S.C. 5348, is set by comparison with mariners employed by private vessels; electricians employed by the Bureau of Engraving and Printing (Department of the Treasury, Bureau of Engraving and Printing v. FLRA, 838 F.2d 1341 (D.C. Cir. 1988)), who are "prevailing rate employees" governed by 5 U.S.C. 5349(a); and employees of the Nuclear Regulatory Commission (Nuclear Regulatory Commission v. FLRA, 859 F.2d 302 (4th Cir. 1988), reh'g en banc granted (Jan. 6, 1989)), who are excepted from the General Schedule by 42 U.S.C. 2201(d). As these cases illustrate, the forty-odd categories of federal employees affected by the questions presented here involve a large and diverse group. Whether they may negotiate over the amount of compensation (wages and money-related fringe benefits) they receive is a question of great importance to the employees and their agencies. The courts of appeals are split as to the first question presented -- whether compensation is a negotiable "condition() of employment." The Third Circuit (Military Sealift Command), the Sixth Circuit (Fort Knox), and the District of Columbia Circuit (Department of Defense Dependents Schools) have held that compensation is not negotiable. The Second Circuit (West Point) and the Fourth Circuit (Nuclear Regulatory Commission), /3/ as well as the court below, have held that compensation is negotiable. The conflict is express: the court below acknowledged its disagreement with the Third Circuit (App., infra, 9a); the District of Columbia Circuit noted that it was "fully aware of contrary decisions" by the court below, the Third Circuit, and the Fourth Circuit (863 F.2d at 994 n.12); and the Sixth Circuit cited the decisions of the three circuits that have upheld the FLRA (including the decision here) while it followed the other two (slip op. 6-7). Although rehearing en banc has been granted by the District of Columbia and Fourth Circuits, and a petition for rehearing is pending in the Sixth Circuit, the conflict can only be resolved by this Court, since the Third Circuit disagrees with both the Second Circuit and the court below and the decisions of all three circuits are final. There is no express conflict on the question whether compensation-related proposals conflict with management's right to control its budget. The Second Circuit and the court below have upheld the FLRA's position that pay is almost always negotiable despite the management rights provision, while the three courts holding that pay is not a negotiable "condition() of employment" did not reach the issue. This question should be considered by this Court because it is closely related to the first question presented: the budget control clause of the management rights provision reinforces the view that Congress did not intend compensation-related proposals to be negotiable. Moreover, if the Court concludes that compensation is a negotiable "condition() of employment," then a decision is needed with respect to the management rights issue in order to resolve the dispute in this case and all of the related cases. The third question presented also warrants consideration by this Court. There is a direct conflict on this question -- whether there is a "compelling need" for the Army regulation providing that compensation rates at dependents schools are to be set by comparison with rates at comparable public schools. Like the court below, the Second Circuit in West Point (855 F.2d at 942-943) has agreed with the FLRA, while the Sixth Circuit held to the contrary in Fort Knox, expressly disagreeing with the decision below and the decision in West Point (slip op. 6-7). /4/ In addition, most of the cases raising the question whether compensation is a negotiable "condition() of employment" involve statutes providing that pay rates are to be set by comparison with some other group of employees. See, e.g., Military Sealift Command (Navy civilian mariners' pay rates are set by comparison with rates paid private mariners under 5 U.S.C. 5348); Bureau of Engraving and Printing (electricians are "prevailing rate employees" under 5 U.S.C. 5349(a)); Department of Defense Dependents Schools (overseas teachers' salaries are set by comparison with salaries at large urban school districts under 20 U.S.C. 902). The FLRA's approach has been to hold that since each of these statutes grants the agency involved some discretion, virtually any proposal relating to compensation is subject to negotiation. In our view, however, Congress's direction that compensation be set on the basis of a comparison with other rates of pay is not consistent with such a broad view of negotiability. Thus, if this Court does not agree with us on the proper disposition of the first and second questions presented, it would need to reach the third question in order to resolve this dispute; moreover, disposition of that question would also resolve a direct conflict in the circuits and would provide guidance in many other cases. Accordingly, review is warranted with respect to all three questions presented. /5/ 2. The court of appeals decided each of the three questions in this case incorrectly. a. Congress extended collective bargaining in the federal sector only to "conditions of employment" (5 U.S.C. 7102(2)), which it defined as "personnel policies, practices, and matters, whether established by rule, regulation, or otherwise, affecting working conditions." 5 U.S.C. 7103(a)(14). Although the FLRA's interpretation of the Statute is entitled to deference if that interpretation is a reasonable reading of an ambiguous provision, a "straightforward, natural reading of the statutory language fails to yield the FLRA's interpretation, namely that 'working conditions' should be read to include 'wages.' Far from it. The term 'working conditions' ordinarily calls to mind the day-to-day circumstances under which an employee performs his or her job. Thus, for example, (the District of Columbia Circuit) has upheld the FLRA's conclusion that matters relating to job safety and office environment are 'central' to an employee's working conditions. However, it is entirely unclear how an employee's compensation can be seen as 'affecting' such working conditions." Department of Defense Dependents Schools, 863 F.2d at 990 (citation omitted). /6/ Compensation is properly viewed as a "term" of employment rather than a "condition" of employment, and the Statute does not make "terms of employment" negotiable. Moreover, because matters of compensation are typically at the core of collective bargaining in the private sector, one would expect that any congressional purpose to include that subject within the scope of collective bargaining in the federal sector would be clearly expressed. But no such expression can be found. Thus, the Statute stands in striking contrast with the two instances where Congress did make clear its intent to permit federal employees to bargain over compensation. First, the Postal Reorganization Act grants to postal workers the right to bargain over "wages, hours, and working conditions." 39 U.S.C. 120 note. By referring separately to "wages" and "working conditions," Congress showed that it does not consider the latter to include the former. /7/ Second, Section 704 of the Civil Service Reform Act of 1978, 5 U.S.C. 5343 note, provides in subsection (a) that "prevailing rate employees" who bargained over wages and other matters prior to August 19, 1972, may continue to bargain over "terms and conditions of employment," and in subsection (b) that the "pay and pay practices" subject to negotiation under the provision are to be negotiated in accordance with current prevailing practices. If, as the FLRA has held, the Federal Service Labor-Management Relations Statute confers on federal employees who are to be paid according to prevailing practices a general right to bargain about wages, Congress did not need to enact Section 704 in order to create a special rule allowing negotiation by workers in bargaining units that had negotiated over wages prior to August 19, 1972. The legislative history of the Statute "is replete * * * with indications that Congress did not intend to subject pay of federal employees to bargaining." Military Sealift Command, 836 F.2d at 1417. Representative Ford had proposed a bill which would have provided for "the negotiation of pay and other major money-related fringe benefits." See 124 Cong. Rec. 25,721 (1978) (discussing H.R. 9094). And Representative Heftel, during the House Committee markup of the federal labor statute, introduced a proposal that would have extended the obligation to negotiate to "pay practices" and "overtime practices" so far as "consonant with law and regulation." House Comm. on Post Office and Civil Service, Subcomm. on Postal Personnel and Modernization, 96th Cong., 1st Sess., Legislative History of the Federal Service Labor-Management Relations Statute 1087-1088 (1979) (proposing new Section 7115(b)). "Neither proposal was adopted, a fact of no little interpretive significance." Department of Defense Dependents Schools, 863 F.2d at 992 (citing INS v. Cardoza-Fonseca, 480 U.S. 421, 442-443 (1987)). In addition, both the Senate and House Committee reports state unequivocally that the federal labor statute does not provide for "bargaining on wages or fringe benefits." H.R. Rep. No. 1403, 95th Cong., 2d Sess. 12 (1978); see also S. Rep. No. 969, 95th Cong., 2d Sess. 13 (1978). Furthermore, every legislator who addressed the issue of compensation -- and there were several (see, e.g., 124 Cong. Rec. 25,716 (1978) (remarks of Rep. Udall); id. at 29,182 (remarks of Rep. Udall); id. at 24,286; id. at 25,720 (remarks of Rep. Clay); id. at 25,721 (remarks of Rep. Ford); id. at 29,188 (remarks of Rep. Derwinski); id. at 27,549 (remarks of Sen. Sasser)) -- stated that it was not negotiable. There is not a single statement in the entire legislative history to the effect that compensation fell within the general bargaining duty established by the federal labor statute. /8/ The court of appeals suggested that Congress ratified two decisions of the FLRA's predecessor, the Federal Labor Relations Council, which supported the proposition that federal employees may negotiate over wages not specifically set by statute. App., infra, 12a-13a. The District of Columbia Circuit explained why those decisions do not compel affirmance of the FLRA's conclusion: "Although we will normally presume that Congress intends to continue the interpretation accorded to a prior statute when it substantially re-enacts that law, such a presumption is plainly inapposite in a situation, such as the case at hand, where Congress has clearly expressed its intent to the contrary." Department of Defense Dependents Schools, 863 F.2d at 993 n.9. Indeed, "(m)ore than that, logic indicates that Congress would not leave to various federal agencies the authority to expand the budgets and fiscal limitations placed upon those agencies by requiring them to bargain about increases in pay and fringe benefits once budget boundaries were set by the Congress. It is obvious that salary and fringe benefits are the items most likely to involve substantial overspending if left to collective bargaining, particularly with respect to a school system for minor dependents of United States military and civilian personnel." Fort Knox, slip op. 5. b. The court of appeals also erred in holding that the proposals at issue do not infringe on the Army's right to control its budget. The FLRA's test of negotiability under the budget control clause of the management rights provision (Section 7106(a)(1)) requires an agency to "make a substantial showing that the proposal requires the inclusion of a particular program or amount in its budget or that the proposal will result in significant and unavoidable increases in cost not affected by compensating benefits." App., infra, 36a. The Army should be held to have satisfied that test simply by showing that the Union proposed a 13.5% pay raise for all employees. Yet the court of appeals found that showing insufficient on three grounds, none of which should be sustained. First, the court suggested that the Army had failed to show that the proposals would "necessarily increase (its) costs." App., infra, 20a. That observation overlooks the obvious fact that salaries are a major component of any school budget and that a 13.5% increase in salaries would have to increase costs. Second, the court suggested that any increase in costs would not be significant. It reached that conclusion only by comparing the increase in the cost of operating the dependents schools to the Army's budget as a whole, including its budget for armaments. App., infra, 20a. That approach is plainly flawed. Whether a proposal will cause a significant increase in costs should be tested by comparison with the costs of the program employing the bargaining unit employees, not the entire agency budget. Otherwise, virtually no proposal could be found to be "significant." That is certainly the case with respect to the dependents schools operated by the Army. Given the size of the Army's share of the defense budget, any proposal involving dependents schools could only amount to a tiny percentage of the Army's total expenditures. Finally, the court stated that the Army had failed to establish that any increase in costs resulting from the proposals would not be offset by "compensating benefits." App., infra. 20a. As an initial matter, it is not clear what compensating economic benefits might flow from a flat across-the-board salary increase. Moreover, the requirement of such a showing is contrary to the Statute. The quintessential decision that any entity, be it a federal agency or a private party, makes when crafting a budget is whether the benefits that flow from a given action exceed its costs. See Exec. Order No. 12,291, 3 C.F.R. 127 (1982) (requiring cost-benefit analysis for agency actions). A budget is, in essence, a series of decisions designed to maximize the benefits obtained from spending a discrete amount of money. To say that agency management has the right to determine the agency's budget is to say that it is up to management, and management alone, to determine the best allocation of the agency's resources. c. The court of appeals also erred in concluding that there is no "compelling need" for the Army's regulation (Army Reg. 352-3, 1-7) requiring that salaries be set by comparison with salaries at public schools. The court correctly noted that because Section 241 is not part of the Federal Service Labor-Management Relations Statute, the FLRA's construction of that provision is not entitled to deference. App., infra, 13a. However, the court erred in failing to defer to the Army's reasonable construction of the dependents schools statute. See Fort Knox, slip op. 6-7. Under Section 241(a), the Army must "take such action as may be necessary to ensure that the education provided * * * is comparable to free public education provided for children in comparable communities in the State * * *, (and) (f)or the purpose of providing such comparable education, personnel may be employed and the compensation * * * fixed without regard to the Civil Service Act and rules." In addition, Section 241(e) provides that, "(t)o the maximum extent practicable," the Army "shall limit the total payments made pursuant to any such arrangement for educating children * * * to an amount per pupil which will not exceed the per pupil cost of free public education provided for children in comparable communities in the State." The Army in its regulation has reasonably interpreted Congress's mandate to require that the various components of an educational system listed in its regulation -- including both salary schedules and such items as pupil-teacher ratios, transportation services, and instructional equipment and supplies -- shall be modeled on those of comparable public schools. Indeed, it is difficult to conceive how the Army could implement Section 241 without modeling each major component of dependents schools on state public schools. The court of appeals' suggestion that the Army could comply with Section 241 while paying salaries significantly in excess of those paid at public schools (App., infra, 18a-19a) is fanciful. Suppose, for example, that a dependents school made major increases in pupil-teacher ratios in order to maintain the level of per-pupil costs despite a large salary increase (such as a 13.5% increase), and the parents of children at the schools charged that the Army had violated Section 241(a) by failing to provide an education "comparable to free public education provided for children in comparable communities in the State." The Army would surely not be able to defend, say, a 40-1 student teacher ratio, when comparable public schools had a 20-1 ratio, by showing that it was paying its teachers more than the going rate. The 13.5% increase and other money-related requests proposed here -- proposals not even purporting to be based on practices at public schools in comparable communities -- are contrary to both the regulation and the mandate of Section 241 and are therefore non-negotiable. /9/ Indeed, the direct violation of Section 241 that such proposals would entail is itself demonstrative of the "compelling need" for the regulation. CONCLUSION The petition for a writ of certiorari should be granted. Respectfully submitted. WILLIAM C. BRYSON Acting Solicitor General /10/ STUART E. SCHIFFER Acting Assistant Attorney General DAVID L. SHAPIRO Deputy Solicitor General CHRISTOPHER J. WRIGHT Assistant to the Solicitor General WILLIAM KANTER RICK RICHMOND Attorneys JULY 1989 /1/ The other two proposals are quite lengthy and contain numerous subparts. Proposal 3 relates to the circumstances under which employees are provided paid and unpaid leave. Proposal 1 addresses a variety of subjects, including such matters as summer school salaries and reimbursement for use of personal vehicles for school business. App., infra, 21a-30a. /2/ The FLRA held that two of the 15 subparts of Proposal 1 were not negotiable because they were inconsistent with federal law. (Subparts L and M propose that the schools provide free health and life insurance, but federal law limits the amount the schools may contribute toward health insurance and specifically requires union members to contribute toward life insurance. The FLRA therefore held those subparts non-negotiable under Section 7117(a)(1). App., infra, 41a. The FLRA also held that Section F of Proposal 3, which proposed that leave without pay "may be approved at the discretion of the immediate supervisor," was not negotiable. It concluded that the subpart infringed on management's reserved right under Section 7106(a)(2)(B) to assign work. App., infra, 44a. /3/ Under the Fourth Circuit's rules, the panel decision in Nuclear Regulatory Commission was vacated when rehearing en banc was granted. /4/ As the Sixth Circuit noted (slip op. 7), the Fourth Circuit in Fort Bragg, in a decision that was subsequently vacated as moot, also held that, under Section 241, there is a "compelling need" for the Army's regulation. /5/ In Fort Knox, the dissenting judge noted (slip op. 13 n.3) that Congress in 1985 directed the Army to submit, by March 1, 1986, a plan to transfer the domestic dependents schools to the local school districts of the States in which the schools are located. Act of Dec. 3, 1985, Pub. L. No. 99-167, Section 824, 99 Stat. 992. However, the Army found that the States were not anxious to operate the schools, and, instead of submitting a plan to transfer the schools, the Army submitted a letter to Congress explaining its finding. Thus, there is no current plan to transfer the schools to the States. /6/ As the District of Columbia Circuit stated in that case, "(D)eference is, of course appropriate in a Chevron Step Two analysis, where the issue would be whether the FLRA's interpretation of its own statute is reasonable; but deference is not the correct analytic mode under Chevron Step One, where our task is to assess independently the evidence of Congressional intent." 863 F.2d at 994 n.12. (The court's reference was to Chevron U.S.A. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-843 & n.9 (1984).) /7/ Similarly, the National Labor Relations Act (NLRA), 29 U.S.C. 158(d), separates "wages" from "working conditions" in making "wages, hours, and other terms and conditions of employment" negotiable. The court below noted that the NLRA refers to other conditions of employment, and concluded that the language of Section 158(d) supports the FLRA's conclusion that compensation is a "condition() of employment." App., infra, 8a. However, the NLRA refers to "other terms and conditions of employment" (emphasis added). We agree with the District of Columbia Circuit that "other terms * * * of employment" refers back to "wages," while "other * * * conditions of employment" refers back to "hours." See Department of Defense Dependents Schools, 863 F.2d at 991 n.3. /8/ In reaching its conclusion, the court below relied heavily on a statement of Congressman Clay that when a statute merely vests discretionary authority over a matter with a particular official, the matter is subject to bargaining. App., infra, 11a (quoting 124 Cong. Rec. H9638 (daily ed. Sept. 13, 1978)). That statement did not address the question of compensation. When Representative Clay did address that question, he twice "assure(d) (his) colleagues that there is nothing in th(e federal labor statute) which allows Federal employees the right to * * * negotiate over pay and money-related fringe benefits." 124 Cong. Rec. 25,720 (1978); see also id. at 24,286 (remarks of Rep. Clay). To read Congressman Clay's general statement as supporting the court of appeals' position thus "puts Congressman Clay at war with himself over the issue." Military Sealift Command, 836 F.2d at 1418. /9/ Chairman Calhoun noted in his dissent from the FLRA's decision (App., infra, 46a) that Subproposals A and D of the first proposal (which appear to be contrary to the request for a 13.5% salary increase in the second proposal) seem to assume that management will set salaries by comparison with public school salaries. By those proposals, the Union appears only to ask for information concerning the data the Army collects and for consultation with management concerning salaries. As Chairman Calhoun concluded, those proposals are not objectionable. /10/ The Solicitor General is disqualified in this case. APPENDIX