To view this issue of the CEI Planet, please click here to download the PDF file. Below are selected articles from the May-June 2010 issue:

Collective Failure

Does Andy Stern’s Exit Mark the Beginning of the SEIU’s End?

By F. Vincent Vernuccio

Purple may be the official color of the Service Employees International Union (SEIU), but Andy Stern is leaving the union deep in the red. He recently surprised the labor community by announcing his resignation as president of SEIU. Mr. Stern has claimed victories in helping pass health care legislation and getting President Obama elected, but his impact within his own organization shows gaping budget deficits and massive underfunding of pensions.

SEIU has seen its liabilities skyrocket during the past decade. The union’s liabilities totaled $7,625,832 in 2000. By 2009, they had increased almost by a factor of 16, to $120,893,259. Meanwhile, SEIU’s assets barely tripled, growing from $66,632,631 in 2000 to $187,664,763 in 2009. A significant portion of SEIU’s current assets are from IOUs from hard-up locals.

SEIU is $85 million in debt, down from its 2008 high of $102 million, and has been forced to lay off employees. Mr. Stern has led protests against Bank of America, calling for the firing of Chief Executive Ken Lewis. Yet the union owes $80 million to Bank of America and $5 million to Amalgamated Bank, which is owned by the rival union UNITE HERE.

SEIU’s pensions are in even worse shape. Both of SEIU’s two national pension plans, the SEIU National Industry Pension Fund and the Pension Plan for Employees of the SEIU, issued critical-status letters last year. The Pension Protection Act requires any pension fund that is funded below 65 percent of what it needs to pay its obligations to inform its beneficiaries of the deficit.

Many SEIU local pension plans are in as bad a shape as the national plans—if not worse. In 2007, well before the financial meltdown, the SEIU Local 32BJ Building Maintenance Contractors Association Pension Plan was funded at an anemic 41 percent, the SEIU 1199 Greater New York Pension Fund at 58 percent, the 32BJ District Building Operators Pension Trust Fund at 56 percent, and the Service Employees 32BJ North Pension Fund at 68 percent.

An underfunded pension plan does not have enough assets to meet its obligations to retirees in the future. Recovery is difficult if plans are significantly underfunded, as is the case with the SEIU plans.

The Pension Benefit Guarantee Corp. (PBGC) insures only a portion of promised benefits to retirees in union multiemployer pension plans. If one of those plans goes bankrupt, the PBGC will guarantee only up to $12,870 in benefits.

Do not worry about Mr. Stern and other high-ranking SEIU officials, though. At age 59, he has 37 years of service in the SEIU and is entitled to a full pension and lifetime health benefits. Unlike SEIU’s pension plans for rank-and-file members and union employees, SEIU’s officer pension plan, the SEIU Affiliates Officers and Employees Pension Plan, was funded at 102 percent in 2007.

While SEIU’s pension plans were failing and its liabilities growing, Stern seemed more concerned with electoral politics than with the internal workings of the union. Indeed, politics can account for much of SEIU’s lavish spending in recent years. “We spent a fortune to elect Barack Obama— $60.7 million to be exact—and we’re proud of it,” he boasted to The Las Vegas Sun last year. In all, under Stern, SEIU spent more than $85 million to elect President Obama and give Democrats control of Congress. What has been Stern’s reward?

It is often said that in politics, personnel is policy. By that measure, SEIU carries considerable weight within the Obama administration. Patrick Gaspard, formerly the executive vice president of politics and legislation for the powerful Local 1199 SEIU United Healthcare Workers East, is now the political director at the White House.

Craig Becker, formerly SEIU’s associate general counsel and adviser to the ACORN affiliate SEIU 800 in Chicago, is now on the National Labor Relations Board (NLRB). Mr. Obama made a recess appointment of Becker after he failed to be confirmed by the Senate. This was a significant win for organized labor. Becker has hinted at having the NLRB enact card check without a vote in Congress.

SEIU Secretary-Treasurer Anna Burger sits on the Obama administration’s Economic Recovery Advisory Board. Mr. Stern himself was appointed by Mr. Obama to its deficit commission. (Stern has said he will stay in that post after he steps down from SEIU.)

Burger responded to my criticisms of Stern and the financial health of the union, admitting, “While our pension funds—like all pension and retirement funds—took a hit last year when the market collapsed, our outside investment managers have developed a plan to address those challenges within the parameters of the Pension Protection Act.” However, her implication, that SEIU’s pension funds took a hit like that of all other pension and retirement funds, obscures the bigger picture.

SEIU’s pensions were in trouble long before the financial crisis hit. Former Department of Labor chief economist Diana Furchtgott-Roth, now with the Hudson Institute, showed in a 2009 study, which compared union-sponsored and private pension funds, that the SEIU National Industry Pension Plan was only 75 percent funded in 2006. Since then, the financial crisis has only made things worse.

SEIU’s National Industry Pension Fund and Pension Plan for Employees of the SEIU both issued critical status letters last year. The Pension Protection Act requires a pension fund to send a critical status notice to its participants if its funding drops below 65 percent of that required to pay obligations. Unlike the vast majority of pensions in the United States, these two plans joined only 90 others, mostly union pension plans, in having been required to send out critical status letters. Four of the 90 were SEIU plans.

Notably absent from the critical list was the SEIU officer’s plan, which is currently funded at 98.3 percent, according to the fund’s Department of Labor Form 5500 filing, available at SEIUmonitor.com. Burger, like Stern, can rest easy knowing her pension is safe. Rank-and-file SEIU members do not have that luxury.

Puzzlingly, Burger claims that, “all SEIU beneficiaries are whole by law—no one has lost a dime.” The only logical explanation for such a statement is that she is probably referring to the pension protections of the Pension Benefit Guarantee Corporation (PBGC). Unfortunately for union members, PBGC guarantees only $12,870 in benefits for members of multiemployer plans such as those in the SEIU plans (in contrast to a maximum of $54,000 for private plans).

Burger proclaims that, “In 2009, SEIU grew by 7 percent, doubled its net assets, decreased its debt as a proportion of overall assets by 22 percent and reduced non-realestate debt by more than 60 percent” (and that what she calls my “misuse of LM-2 figures misleads readers and misses the facts”). Her narrow analysis conveniently omits a decade of liability increases, which skyrocketed by a factor of 16. The union’s liabilities were $7,625,832 in 2000 and $120,893,259 at the end of 2009. She also did not account for IOUs from SEIU locals being counted as assets. Much of SEIU’s $85-million debt stems from its lavish Washington, D.C., headquarters, purchased in 2003, which required an $80 million dollar loan, as well as from heavy political spending in 2008.

Burger was forced to defend Andy Stern’s record. Stern’s resignation has resulted in a battle for the leadership of SEIU. In late April, several SEIU locals swung their support to California nurses leader Mary Kay Henry. Burger was forced to drop out of the race and Henry is now SEIU’s new president. Though it’s hard to know for sure why some locals defected, one of the main reasons for Burger’s downfall may be her ties to Andy Stern. Stern is seen as divisive and some local leaders have bristled at his efforts to centralize power in SEIU’s Washington headquarters.

Stern’s abrupt resignation has led many to question his motives and ponder his next steps. Whatever the answer, one thing is certain: He leaves SEIU—especially its pension funds—swimming in red ink. No matter who leads SEIU, the union will have a difficult time bringing its pensions to full funding. Sadly, it will be the union’s rank-and-file members who will be paying for Mr. Stern’s profligacy well into the future.

F. Vincent Vernuccio ([email protected]) is an Adjunct Analyst at CEI. This article is compiled from two articles that originally appeared in The Washington Times and The American Spectator.

Message from the Vice President for Strategy

The Bootleggers are the Baptists’ Last Hope

By Iain Murray

Three events late last year combined to put the kibosh on global warming legislation in the United States for the foreseeable future. Now the only ones keeping such legislation alive are a handful of powerful special interests. Contrary to what you normally hear, big business is pushing, not opposing, climate legislation.

The first event was “Climategate.” A public release of emails between climate scientists, at the University of East Anglia’s Climate Research Unit, showed clear evidence of collusion to subvert the scientific process for political ends. The emails also showed those scientists engaging in a cover-up in possible violation of Britain’s Freedom of Information laws. Polls following Climategate showed that it shattered public trust in climate science.

Climategate was followed by a series of embarrassing admissions that some conclusions in the reports from the United Nations Intergovernmental Panel on Climate Change were based on unsupported assertions by some scientists and on claims from nonpeer- reviewed (“grey”) literature. As a result, climate alarmists’ main argument—the appeal to scientific authority—no longer carries much weight. Attempts to whitewash Climategate have fallen flat and on deaf ears.

Finally, the U.N. climate talks in Copenhagen ended in failure. After years of touting the talks as the route to a bigger, better Kyoto Protocol, climate alarmists stood by helplessly as the developing world bypassed Europe and forced President Obama to agree to something similar to the Bush administration’s climate policy. Long before Climategate, major developing countries, including India and China, had rejected binding reductions in emissions as an unjust restriction on their poverty-fighting efforts. Any attempts to sign them up to this agenda were doomed to failure from the start.

The Copenhagen talks were a turning point, but not in the way environmental advocacy groups expected. Previously, negotiations for a new global climate treaty had been driven by Europe, with the U.S. (and Australia in the Howard years) acting as a brake. Kyoto was favorable to Europe, because it allowed it to bank emissions reductions that had already happened—as in, for example, Britain’s emissions reductions from its “dash for gas” in the early 1990s—well before Kyoto was signed.

Most developing countries backed the American position. So by the time of the Copenhagen summit, the gap between Europe’s position and that of the major developing countries had grown so large, that President Obama was forced to choose between them. Wisely, he chose the developing world, a decision that leaves Europe marginalized in climate negotiations. French President Nicolas Sarkozy seems to realize this, and figures the only climate policy options he has left is the threat of a carbon tariff—which could lead to a destructive trade war between North and South.

For America, the bottom line to all this is that the two strongest arguments for a global warming bill—scientific authority and international pressure—are gone. All that is left is an unseemly collection of environmental ideologues and their strange bedfellows in large companies hoping to profit from a global warming bill. These companies and environmental groups joined forces in something called the U.S. Climate Action Partnership a few years ago.

The Competitive Enterprise Institute predicted this back in 2001. Professor Ross McKitrick, in a paper he authored for CEI, demonstrated how a cap-and-trade scheme for greenhouse gas emissions would create a “carbon cartel” that would yield significant economic gains for its members at the expense of consumers, taxpayers, and the economy as a whole.

Today, the only major constituency lobbying for greenhouse gas legislation is this cartel, which includes companies like General Electric, Dow Chemical, General Motors and Duke Energy. In the classic formulation of Clemson University economist Bruce Yandle, they represent the self-interested “bootleggers” to the environmental groups’ self-righteous “Baptists”—two groups that lobbied for prohibition, but for very different reasons. Whether the motive is salvation or profit, the practical result is the same.

The bootleggers are now the Baptists’ only hope. Not for nothing did Sen. John Kerry (D-Mass.) boast that his American Power Act, was largely written by the U.S. Climate Action Partnership. That’s worth keeping in mind the next time left-wing environmentalists criticize global warming skeptics for allegedly being backed by big business. In truth, big business is backing global warming legislation and skeptics are doing their best to stop them from inflicting further harm on America’s struggling economy.

A version of this article originally appeared in The Washington Examiner.

Trading toward Recovery

By Geoffrey Michener and Brian McGraw

As the economy continues to stumble, Congress and President Obama have repeatedly refused a unique opportunity to bolster our workforce and our economy. Their inaction on three pending Free Trade Agreements (FTAs)—particularly one with Colombia (CFTA)—is costing U.S. consumers and businesses billions in lost opportunities.

The U.S. International Trade Commission estimates that the CFTA would increase U.S. GDP by $2.5 billion. Exports to Colombia would increase by $1.1 billion when tariffs—ranging from 10 to 35 percent per good—are lifted. On the import side, 90 percent of Colombian goods already enter the United States without any tariffs, but nevertheless, imports from Colombia are projected to increase by $487 million annually if the agreement is approved.

Economists from across the political spectrum have argued that reducing trade barriers is one of the most effective ways to spark economic growth. The Copenhagen Consensus, a Danish think tank, argues that completing the World Trade Organization’s Doha Round of trade talks could boost growth in the world’s poorest countries by 1.4 percent per year. The CFTA is a small but important piece of that puzzle. It is also lowhanging fruit. Negotiations were completed three years ago. All that’s left are votes by the House and Senate.

These agreements are not perfect. They contain a number of provisions unrelated to trade, mainly labor and environmental standards. But the benefits of increased trade are huge.

Trade works because it applies Adam Smith’s theory of division of labor—the idea that when people and countries focus on what they’re good at, and rely on others for the things they’re not good at, everyone benefits. Henry Ford applied this theory to the factory floor; on his assembly lines, each worker had a specialized task. He produced more cars more cheaply than his competitors, which had little to no such specialization.

All this is old hat to economists. But the general public is ambivalent on trade.

A common objection non-economists have to freer trade is that it ships jobs overseas. Such people are at a loss to explain why more than 20 million net jobs have been created in the U.S. since the North American Free Trade Agreement passed. Trade affects not only the number of jobs, but also the types of jobs. Trade allows each person to create more wealth than each could create on his own.

The AFL-CIO cites violence against union members as a reason for opposing the CFTA. While Colombia has a high (but decreasing) murder rate, union members are in no more danger than the general population. Around 2 percent of Colombians are union members; they comprised fewer than 0.5 percent of the 17,000 murder victims in 2007. They are actually about four times safer than the general population. Restricting access to trade will do absolutely nothing to decrease violence.

One cannot help but wonder if American labor leaders are exploiting the violence in Colombia as a means of hiding from competition.

Meanwhile, Colombia has been busy passing FTAs with other countries— Canada, Argentina, and parts of Europe. Imports to Colombia from those countries have soared at the expense of U.S. exports and workers. The longer we delay in passing this agreement, the more difficult it will be for U.S. businesses to regain the market share they’ve lost to competitive other countries.

U.S. Trade Representative Ron Kirk and President Obama need to press Congress to liberalize trade with Colombia. Similar agreements with South Korea and Panama also deserve to be passed. There are longterm consequences to holding America back from the benefits of freer trade. The world is moving forward in globalized trade relations; the United States cannot afford to be left behind.

Geoffrey Michener ([email protected]) and Brian McGraw ([email protected]) are Research Associates at CEI. A version of the article originally appeared in National Review Online.

The Good, the Bad, and the Ugly

THE GOOD: CEI Exposes GM’s Bailout Deception

In April, General Motors launched a series of TV ads— under a campaign entitled “GM Repaid Government Loan Ahead of Schedule”—in which GM CEO Ed Whitacre claims, “[W]e have repaid our government loan in full, with interest, five years ahead of the original schedule.” While this one fact is technically true, Whitacre fails to mention how his company paid back its $7-billion federal loan: with money from GM’s $13-billion escrow account, which was set up with money from the Troubled Assets Relief Program. (That money was originally intended to go to prop up failing financial firms, but it was unilaterally diverted by the Bush administration.) CEI called GM’s shell-game bluff, filing a formal complaint with the Federal Trade Commission (FTC) challenging GM’s deceptive advertising. Word spread fast, and major news outlets such as USA Today and ABC News ran stories about the complaint, in which CEI urges the FTC to promptly investigate, to “serve the American public on this issue” and “discourage other beneficiaries of government bailouts from falsely misrepresenting their status.”

THE BAD: Arizona Enacts Intrusive Immigration Law

On April 23, Arizona Governor Jan Brewer (R) signed into law SB 1070, the “Support Our Law Enforcement and Safe Neighborhoods Act,” a bill aimed at targeting illegal immigrants. “The law should be called the ‘Job Destruction and Crime Promotion Act of 2010,'” stated CEI Policy Analyst Alex Nowrasteh. “Placing more restrictions on Arizona employers, who are already required to use the federal government’s E-Verify tracking system, will only make an economic recovery less likely in the Grand Canyon State. Furthermore, it will overburden Arizona’s already fiscally strapped police departments with the impossible task of enforcing this law.” The new law makes it a state crime for a non-citizen to be in Arizona without federally mandated identification. It obligates local law enforcement to attempt to determine a person’s immigration status during traffic stops or other interactions where there is “reasonable” suspicion that the person may be in the country illegally. Employers also face stiff sanctions for hiring undocumented workers.

THE UGLY: Misguided Internet Privacy Legislation Introduced in Congress

Politicians and bureaucrats have repeatedly attempted to justify expansive new Internet regulations in the name of protecting consumer privacy. In early May, Reps. Rick Boucher (D-Va.) and Cliff Stearns (R-Fla.) unveiled draft legislation that would limit online user data collection by private companies. The new restrictions, if enacted, would apply to all sorts of online transactions and behavior, including membership and activity with free social media networks such as Facebook. “If Rep. Boucher wants to strengthen consumer privacy in the online world, he should turn his focus to constraining government data collection, which poses a far greater privacy threat than private sector data collection,” stated Ryan Radia, CEI’s associate director of technology studies. “A good starting point would be reexamining the Electronic Communications Privacy Act, the outdated 1986 law that governs governmental access to private communications stored online.

End Notes

Coincidence? Injury Bill Directly Benefits Sponsor

New York State Sen. Antoine M. Thompson (D-Buffalo) responded to critics of his new legislative expansion of personal injury protection, claiming that it was nothing more than a “coincidence” that the bill would personally benefit him in a pending personal injury lawsuit. “That’s pretty farfetched,” Thompson said. “One has nothing to do with the other.” Or does it? Thompson’s bill seeks to define “partial or complete tear or impingement of a nerve, tendon, ligament, muscle or cartilage” as basis for litigation, and would be extended to cover any pending legal action. Thompson’s lawsuit alleges a truck driver ran him off the road near Rochester three years ago, resulting in a 25-percent tear to his rotator cuff. Critics also claimed that the legislation would make New York’s current fraud-plagued “no-fault” liability system even more susceptible to fraud.

Residents Billed for Tax Repealed 33 Years Earlier

In other Buffalo-related news, the city decided to bill nearly 3,000 residents for a tax that was repealed more than 30 years ago. The occupancy tax, imposed in 1976 and then repealed only a year later following public protests, was declared legal by a court, but the city opted not to collect for nearly three decades. However, the city recently purchased a new computer system, and claimed the easiest way to clear out the delinquencies was to send out notices. Eighty-year-old West Side homeowner David Lambe received a bill for $10 plus $40 in interest charges—1 percent per month for 400 months. Residents have until May 31, 2010, to pay their outstanding balances or be hit with additional collection charges.

Even Communists Have Tea Parties

Until recently, taxes and spending were not issues in China. The Communist-ruled country generated most of its revenue through direct ownership of industry and dissent was harshly punished. Besides, most residents were too poor to pay anything. But as Red China has gradually allowed private wealth creation, taxable income has become an issue for many citizens. In Wenling, a thriving city on the East China Sea, residents were given the opportunity to speak out about how officials were spending their money. While the forum was subdued compared to debates in the West over taxation and spending, this should certainly be seen as a positive step toward a freer China. “It’s at a crossroad,” said Li Fan, director of a private Beijing think tank that advocates political reforms. “They’re not willing to push this any further. But they can’t roll it back. The people won’t allow it.”

Unemployed Foodies Have Never Had it So Good

In May, the U.S. Department of Agriculture (USDA) announced that enrollment in the Supplemental Nutrition Assistance Program (SNAP), the newly named federal food stamps program, had reached an all-time high of 39.68 million in February, up 260,000 from January. The $59-billion program is set to grow even larger, say USDA analysts. They predict FY 2010 enrollment to average 40.5 million, and for the roll to grow to 43.3 million in FY 2011. Meanwhile, in March, Salon ran an article, “Hipsters on Food Stamps,” describing a new trend of young, urban, college-educated enrollees using their SNAP debit cards to make gourmet purchases from luxury retailers like Whole Foods. “Savory aromas wafted through the kitchen as a table was set with a heaping plate of Thai yellow curry with coconut milk and lemongrass, Chinese gourd sautéed in hot chile sauce and sweet clementine juice, all of it courtesy of government assistance.”