July 27, 2005

July 27, 2005 | Commentary on

Transparency: Bad News for Big Labor?

If AFL-CIO chief John Sweeney considers the defection of the Teamsters and Service Employees International Union a "grievous insult," he'd better hold on. Even bigger news may be coming, thanks to revised federal rules requiring unions to be far more specific about how they spend their members' dues.

Unions with annual receipts of $250,000 or more now must file an expanded "LM2" report within 90 days of the close of their fiscal year (which means new reports will come due starting this month from about 5,000 of the nation's 30,000 unions). These expanded LM2s are like Freedom of Information Act reports about unions that have, until now, largely escaped public examination.

Unions have been filing LM2s since 1959, but the old form allowed unions to hide millions of dollars of expenditures in vague categories such as "other disbursements" and to use only rounded figures. As a result, journalists who for years routinely pored over SEC filings by Fortune 500 corporations seeking conflicts of interest, stock swindles and other business scams rarely paid any notice to the LM2s filed by unions.

Thanks to a recent federal district court ruling upholding the Labor Department's expanded disclosure requirements, however, unions must provide much more detail about how dues are spent on representation, politics, organizing and contract negotiation, as well as how much union officers are paid and how much time the officers devote to those activities.

The expanded disclosure rules come as Big Labor is more divided than it has been in many decades, and as union membership continues to plummet. One nearly 35 percent of the workforce (during the Eisenhower years), union members now make up only 12.5 percent. The steel, auto and rail unions that once were Big Labor's muscles have been replaced by government-employee unions, which make up the largest portion of the splintering AFL-CIO.

Public corporations have long had to file extensive reports to the Security and Exchange Commission, while non-profit charities have for years filed annual Form 990 tax returns detailing much of the same information unions are now required for the first time to disclose on their LM2s.

Only 33 local and regional unions have had to file the revised LM2s so far, but throughout the next year Labor Department officials will receive and make public returns from virtually every major union organization in the country. For the first time, the transparency goose for corporations and charities will be good for the union bosses' gander.

Already, the Labor Department has secured 111 criminal convictions for deceptive record-keeping and financial reporting abuses involving union assets found during preparation for the expanded LM2s. Allowing journalists, congressional oversight committees, members of the public and, especially, union members to know more about how unions spend dues money almost certainly will lead to even more explosive revelations.

But even bigger fireworks are almost certainly in the offing, thanks to the far more detailed disclosure of how much unions spend on political activities and on the often-Byzantine financial maneuverings involved in secretive union trusts.

For years, unions have created trusts, which are little more than slush funds available only to selected officials who use the money to pay for campaign activities like fund raisers, candidate literature and get-out-the-vote efforts. The trust arrangement has put the detailed expenditures out of public reach. The revised LM2 ends that cozy arrangement.

In the long run, though, the new requirement that the number of "agency fee payers" among the membership be disclosed may prove the most explosive revelation. Agency fee payers are union members who either object to their dues being spent on political causes they reject or who simply don't like being required to join a union to keep their jobs.

Among the first filers of the expanded form is a California chapter of the Communications Workers of America, which reported that 47 percent of its members are agency fee payers. Only 50 percent of a union's membership, plus one, is required to elect new leaders, or to decertify the old union and give somebody new a chance to do a better job.

When agency fee payers learn more about how their dues money is being spent -- and that they can do something about it -- the ruckus they raise may prompt even more unions to bolt the AFL-CIO. More "insults" may be on the way, Mr. Sweeney.

Mark Tapscott the Marilyn and Fred Guardabassi fellow at The Heritage Foundation, is director of Heritage's Center for Media and Public Policy.

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