**M A C K I N A C C E N T E R M E M O R A N D U M**

**TO: U.S.** Department of Labor

**FROM:** Paul Kersey, Director of Labor Policy

**DATE:** April 11, 2008

**SUBJECT:** Union Financial Disclosure and New T-1 Forms (RIN
1215-AB64)

There can be little doubt that a more transparent and accountable union
movement is in the best interest of workers throughout the country. The
improved LM-2 reports have already increased our understanding of union
finance and spending, but the ability of unions to create trust funds
which are beyond the reach of LM-2 reporting was a major flaw in the
reporting process. The new T-1 forms and rules will do much to correct
that flaw, allowing workers, whether already members or contemplating
union membership, a more complete understanding of union operations and
financial priorities.

The importance of full disclosure should not be underestimated. While
the Mackinac Center for Public Policy generally is skeptical about the
value of government intervention in the affairs of private
organizations, there are compelling reasons for making an exception
here. Federal regulation in this area is entirely appropriate given the
unique prerogatives that federal law gives to unions.

Among these is the authority to represent all employees in a given
bargaining unit, without regard to the interests or opinions of
individual bargaining unit members. Under the National Labor Relations
Act, a fully competent, law-abiding adult may find that a workplace
representative has been chosen for her in spite of her opposition to
representation or preference for another representative. That unwanted
representative will nonetheless be in a position to negotiate wages,
benefits, working conditions, hours, promotions, demotions, layoffs and
the rest of the range of employment issues on her behalf. Any grievance
or disagreement she might have with the employer will be handled by that
same representative. This writer is unaware of any other situation where
a competent adult can have a representative appointed for him without
his consent, and without the ability to opt-out individually and either
bring in another representative or negotiate for himself.

That the law in most states allows for the negotiation of an agency-fee
clause, under which that same employee must pay union dues or fees for
that undesired representation, only adds to the case for strong union
financial disclosure rules.

As much as union officials may protest against the burden represented by
financial disclosure rules, there is a strong case to be made that
financial disclosure is in the long-term best interests of the union
movement itself. One of the worst-kept secrets in labor policy is the
extent to which union members themselves harbor doubts about the
priorities of union officials: In our 2004 poll of union members, fewer
than half --- 42 percent --- of those surveyed agreed that the bulk of
union funds were spent "helping workers get better pay, benefits and
working conditions." The rest were of the opinion that their dues were
mainly spent on "big salaries and perks" for union officials and staff
(22 percent) or political parties and candidates (12 percent) or
"something else" (10 percent), while 10 percent didn't know how the
union spent their dues. While the slenderest of majorities believed
their union was doing what it needed "to make sure it is strong and
healthy," a large number of union members, 44 percent, believed their
union was "on the decline."[^1] These results show that among union
members there was much anxiety over the direction of the union movement
and the use or misuse of union funds.

Since then the Department of Labor has implemented its revised LM-2
forms, which have done much to make union finances, and particularly
union spending, transparent. But that LM-2 form left an important gap:
the activities of union trusts.

In the past these trusts have engaged in some rather questionable
activities that union members deserve to be made aware of. In our survey
of union financial disclosure in Michigan, we found accounts of union
joint trusts with employers that sponsored activities such as NASCAR
races, lavish receptions at political conventions and conferences in Las
Vegas.[^2] While none of these activities are illegal, and may even have
the support of many union members, they are well outside of the core
responsibility of unions, which is the representation of workers in the
workplace. If union members are to exercise effective control over their
unions, they deserve a full accounting of union spending, including the
activities of trusts in which unions are active. The proposed regulation
will do much to close this gap and give union members a complete picture
of their union's activities.

We do, however, have some reservations about specific provisions of the
T-1 regulations:

-   Union Control: In the Department of Labor's original proposal, a
    trust would be required to file a T-1 form if a single member of its
    governing board were appointed by a union, a position that the US
    Court of Appeals for the DC Circuit rejected in *AFL-CIO v.
    Chao*.[^3] While we understand the Secretary's desire to avoid
    further litigation on this point, the revised rule, in which a T-1
    form need not be filed unless union appointees make up a majority of
    the governing board, arguably goes too far in the other direction.

> An illustration of a possible problem with this rule is the makeup of
> the board of trustees for the Voluntary Employee Benefits Association
> (VEBA) that was created by the UAW's recent collective bargaining
> agreement with GM. The VEBA's 11-member board will have five members
> appointed directly by the union, and six "neutral" members appointed
> by a federal court.[^4] If the UAW appointees are inclined to vote as
> a block, while the neutral members are not -- an entirely plausible
> scenario -- the UAW would have effective control over the operation of
> the trust, but the VEBA would not be required to file a T-1 form or
> any other report with DOL under these rules.
>
> A trust governing board in which unions appoint less than a majority
> of the governing board may still be under effective union control,
> especially if the other trustees are appointed by a variety of
> different entities with different agendas. We would prefer that a
> reporting requirement be triggered when unions appoint one-third or
> more of the governing board.

-   Contributions: The reporting requirement may also be triggered in
    years when a union contributes more than 50 percent of the trust's
    revenues. (This amount includes contributions to the trust made on
    behalf of a union or its members, for instance, as part of a
    collective bargaining agreement.) But trust funds are generally not
    required to pay out in benefits within a year of receiving a
    contribution. Union members have legitimate interests in the
    governance of a trust that may very well extend beyond the year in
    which contributions are made. The reporting requirement should
    ideally last for several years in these situations, so that union
    members will be in a better position to track the use of these funds
    over time.

-   Reporting Thresholds: The threshold for itemizing individual
    disbursements on an LM-2 is set at \$5,000. For the T-1 the
    threshold for itemizing disbursements is set at \$10,000. We are
    aware of no reason why union-controlled trusts should not be subject
    to the same itemization thresholds as unions themselves.

These concerns aside, however, the new T-1 form, combined with the
improved LM-2 form, is an important improvement in union financial
reporting, and the Secretary deserves credit for addressing the
long-neglected issue of union accountability. The long-term interests of
union members and unions themselves would best be promoted by the prompt
adoption of the T-1 form and regulations.

[^1]: Lehman, Joseph G., *Union Members' Attitudes toward Their Unions'
    Performance*, Mackinac Center for Public Policy, Sept. 1, 2004

[^2]: Hunter, Robert P., and Kersey, Paul, *The Michigan Union
    Accountability Act: A Step Toward Accountability and Democracy in
    Labor Organizations*, Mackinac Center for Public Policy, Dec. 2001,
    p. 12

[^3]: 409 F. 3d 377 (2005)

[^4]: WWJ News, *GM, UAW Begin Change to VEBA*, available online at
    http://www.wwj.com/pages/1704639.php?