Union Members Have a Right to Know

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WASHINGTON--A House subcommittee of the House Committee on Education and the Workforce holds hearings Thursday on labor union transparency and accountability.

The central question that the Education and Workforce Subcommittee seeks to answer is: how much information do union officials have to disclose to their rank-and-file about union finances?

The Republican-controlled subcommittee is holding the hearing because the Obama Labor Department, under Secretary Hilda Solis, seeks to loosen the financial disclosure requirements put in place during the Bush administration.

As a witness at the hearing, I will testify that union members have a right to know what unions are doing with their dues and that Solis's proposed changes would deny them adequate disclosure.

San Francisco State University professor John Logan, a witness for the Democrats, will no doubt testify that the financial disclosure requirements are burdensome and need to be repealed, as some unions have told Solis.

As one union told the Labor Department in public comments, "detailed reporting requirements are unnecessary because union members are sophisticated enough to seek information about union financial matters from their unions, as well as seek publicly available information, such as that provided by the IRS."

That sounds like a bogus rationale for making it more difficult for the rank-and-file to learn how their dues money is being spent.

If unions are misusing workers' dues, the union is going to disguise this, and not tell members. Furthermore, the IRS data to which the union refers, the Form 990s, come out with a two-year delay, are not readily accessible, and disclose payroll and benefits information for only a few union officials.

Financial transparency has acquired importance in many sectors. Corporations are required by the 2002 Sarbanes-Oxley Investor Protections Act to publish extensive information about their finances. Candidates for political office must comply with Federal Election Commission disclosure regulations.

Labor unions, with assets of over $10 billion, were, until 2005, mostly exempt from any regulation that required detailed financial disclosure.

The first major piece of legislation designed to compel union financial disclosure was the 1959 Labor Management Reporting and Disclosure Act, known as the Landrum-Griffin Act. It passed after more than two years of Senate investigations into widespread corruption into organized labor, especially in the Teamsters' and Longshoremen's unions.

Organized labor's behavior in the 1950s was so egregious that the bill won overwhelming bipartisan support, passing the Senate 95-2 and the House of Representatives by a 352-52 margin. Few pieces of labor law reform since have received such approval.

The first substantive regulations on union financial reporting requirements were issued in 1960, the last year of the Republican Eisenhower administration. They required unions with $20,000 or more in annual receipts to submit to the Labor Department financial data on "Form LM-2." The filing threshold was gradually raised until it reached $200,000 in 1994.

The great hope at the time of the 1959 act was that new disclosures would empower rank-and-file union members and ensure that unions were more accountable to members-and less corrupt.

Unfortunately, reforms envisioned in 1959 were never fully realized.

First, some unions attempted to make sure that financial information contained in forms was never disclosed to members, much less disseminated. Some union locals ensured that members did not have notification about the data's existence.

Second, former reporting forms did not require detailed information. Large amounts of money-in the millions of dollars-were reported as "other," "expenses," or "miscellaneous." Such vagueness let unions escape scrutiny faced by corporations and some nonprofits.

To resolve this problem, the Bush Labor Department issued new rules in 2003 (when I was the Department's chief economist) to update Form LM-2.

Unions had to specify expenditures in narrow categories. New forms demanded itemized expenses for expenditures over $5,000, divided into representational activities, political activities and lobbying, contributions, gifts and grants, and union administration.

Forms, filed electronically, included union leaders' salaries and time spent on union-related activities, and were displayed on the Labor Department's Web site, allowing union members access to data.

After three years of data collection with the new LM-2 forms, the Labor Department decided to expand the form to make it easier for union members to identify corrupt behavior.

In January 2009, just before the Bush administration ended, the Labor Department asked unions to disclose more information in enhanced LM-2 forms.

One change required disclosure of officers' benefits, such as union contributions to health and retirement plans, which have increased in recent years, in addition to wages and salaries.

Another change included verification that sales and purchases of assets were performed without conflicts of interest, rather than to interested parties at distorted prices.

In addition, new T-1 forms required unions to disclose the finances of union-managed trusts, such as credit unions, strike funds, pension and welfare plans, and building funds. Some unions had created networks of trusts that allowed them to shield financial transactions from their members.

Union officers must complete Form LM-30, which requires disclosure of conflicts of interest.

But now, under the Democrats, the Labor Department is rolling back some disclosure rules on the grounds that "comments received indicate that the Department may have underestimated the increased burden that the rule would place on reporting organizations."

The Labor Department has given unions free software and free training on how to complete the LM-2 and T-1 forms. The only reason that completing the forms would be too burdensome is that the organizations do not want to disclose some expenses. But it is their duty to tell union members where their dues are going.

Union members should know how their dues money is spent. Repealing or loosening the regulations would weaken this protection for the rank-and-file.

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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