A Bit More Light on Union Finances

On Oct. 3 the U.S. Department of Labor released its final version of new union financial disclosure forms, referred to as "LM2" forms, and new rules that will govern union financial disclosures required under the Labor Management Reporting and Disclosure Act.

Unions have objected that the changes are politically motivated. But the disclosure forms had not been changed in over 40 years. But the union movement has changed — a lot. Today’s unions are far more sophisticated when it comes to money, and far more political. The new disclosure rules reflect those changes. They will allow union members and other interested parties a closer look at how union officials spend their membership dues money.

Up to now, union financial disclosure lacked sufficient detail to enable anyone to tell what unions actually were spending their money on. The new forms will, for the first time, require unions to reveal their expenditures according to categories such as representation and organizing, politics and lobbying, contributions to charities, overhead, administration, and benefits for the union’s own employees. This new information will enable union members to evaluate their union’s spending priorities.

The Department of Labor also created new forms to cover joint funds, or "trusts," which unions participate in, such as those that the United Auto Workers entered into with the Big Three automakers to assist laid-off workers during the 1980s. These funds have engaged in questionable expenditures such as NASCAR sponsorships and the hosting of lavish entertainment events. Until now, the vast majority of these funds were not subject to reporting.

Financial transparency is especially incumbent upon the labor movement for the simple reason that they impose mandatory dues upon their members. Private corporations must answer to shareholders, who may sell their shares if they are unhappy with the corporation’s performance or suspect that the company’s financial condition is not as strong as its management claims. Private charities must ultimately rely on the good will of their donors, who are free to stop giving if they no longer believe the cause is worthwhile.

But labor unions have the power in Michigan and every other state without a right-to-work law not only to require dues from their membership, but also to negotiate "agency fee" clauses as part of a collective bargaining agreement. These clauses allow the union to dismiss workers who refuse to join the union or, at a minimum, pay a fee that is the equivalent of dues. In this way, nearly 900,000 workers in Michigan are obligated to pay more than $270 million in union dues or look for another job. Having allowed for forced union membership, the least government can do is to allow workers to know how that dues money is spent.

The new forms are not without their shortcomings. For example, under the category "representation functions," they do not require unions to distinguish between activities such as contract negotiations or handling of grievances in a union shop with organizing drives in which unions try to recruit whole new sectors of workers. This mixes up two very different sorts of activities, which should be reported separately. Contract negotiation, done well, has a clear potential to improve working conditions and compensation for union members. The value of union organizing drives, especially when the workers targeted are outside of the union’s core constituency (such as when the UAW attempts to organize university graduate students) is far less clear.

Another flaw in the new federal rules is that they do not require that union financial disclosure reports be audited by outside accountants — a requirement the federal government imposes on corporations. Such audits would substantially reduce the risk of fraudulent reporting.

Nonetheless the revisions are a significant improvement and a long overdue restoration of the right of union members to a full accounting for the uses of union dues. It will diminish the risk of fraud or abuse by union officials, and allow for a vigorous and also long overdue debate on both the extent and purposes of union spending.

With the new federal reporting rules set to take effect next year, it is now time for the State of Michigan to step up and do its share. Currently 346,000 government employees in Michigan are union members, paying over $100 million in membership dues annually.

But because federal law applies only to private-sector workers, Michigan’s public-sector unions are not covered by federal disclosure laws. Most of these workers do not have a legal right to even the most cursory financial information on the unions that represent them.

My organization, the Mackinac Center for Public Policy, has drawn up a draft Union Accountability Act which, if adopted by Michigan lawmakers, would close this glaring gap in our union disclosure rules. It would require Michigan’s public-sector unions to provide thorough and verified financial reports each year, including a breakdown of union spending that is even more detailed than is required by the new federal standards.

As the great jurist Louis Brandeis said, "Sunshine is the best disinfectant." The U.S. Department of Labor has opened up a little more sunshine on union finances, which should only invigorate union democracy and strengthen the union movement in the long run.

Now is the time for Michigan to let in a little sunshine of its own.

Paul Kersey is labor policy research associate for the Mackinac Center for Public Policy, a research and educational institute based in Midland, Mich. He has recently written on the recent UAW contract with the Big Three and UAW health benefits.