Public Employee Unions’ Suffocating Grip on California

The current issue of the Manhattan Institute’s City Journal features a must-read account of how government employee unions have turned California into “The Beholden State,” by Steven Malanga. The piece covers a wide range of issues and trends relevant to public sector unionism, so I will focus here on one particularly interesting section, in which Malanga ties together organized labor’s support for greater government intervention in the (already heavily regulated) health care market with the growing crisis of underfunded union and public employee pension funds. As in so many stories of recent union power grabs, the Service Employees International Union (SEIU) is a major player.

The SEIU’s rise in California illustrates again how modern labor’s biggest victories take place in back rooms, not on picket lines. In the late 1980s, the SEIU began eyeing a big jackpot: tens of thousands of home health-care workers being paid by California’s county-run Medicaid programs. The SEIU initiated a long legal effort to have those workers, who were independent contractors, declared government employees. When the courts finally agreed, the union went about organizing them—an easy task because governments rarely contest organizing campaigns, not wanting to seem anti-worker. The SEIU’s biggest victory was winning representation for 74,000 home health-care workers in Los Angeles County, the largest single organizing drive since the United Auto Workers unionized General Motors in 1937. Taxpayers paid a steep price: home health-care costs became the fastest-growing part of the Los Angeles County budget after the SEIU bargained for higher wages and benefits for these new recruits. The SEIU also organized home health-care workers in several other counties, reaching a whopping statewide total of 130,000 new members.

The SEIU’s California numbers have given it extraordinary resources to pour into political campaigns. The union’s major locals contributed a hefty $20 million in 2005 to defeat a series of initiatives to cap government growth and rein in union power. The SEIU has also spent millions over the years on initiatives to increase taxes, sometimes failing but on other occasions succeeding, as with a 2004 measure to impose a millionaires’ tax to finance more mental-health spending. With an overflowing war chest and hundreds of thousands of foot soldiers, the SEIU has been instrumental in getting local governments to pass living-wage laws in several California cities, including Los Angeles and San Francisco. And the union has also used its muscle in campaigns largely out of the public eye, as in 2003, when it pressured the board of CalPERS, the giant California public-employee pension fund, to stop investing in companies that outsourced government jobs to private contractors.

In other words, SEIU pushed CalPERS to make an investment decision based not on what the returns from it would be, but on how it would advantage SEIU’s organizing — in this case, by maintaining a larger government workforce. This should constitute a clear violation of fiduciary duty under any sensible definition of the term. This kind of politicization of union pension investments has been going on for some time, so some pension funds have years of lost gains behind them today.

Further, to unionize “health-care workers paid by government medical programs like Medicaid,” unions are now trying to redefine the definition of “public” to any social service provider who receives state subsidies, even while not being directly employed by the state. By extending new subsidies to more people, the recently enacted health care “reform” bill has created even more opportunities for such a dubious expansion of the definition of “public.”

Now that Andy Stern has announced his retirement, is he is riding off into the sunset triumphantly after leading SEIU during its successful campaign to pass Obamacare, or is he jumping off a sinking ship as he leaves SEIU a financial mess? Maybe a bit of both.

For more on SEIU, see here, here, and here.

For more on public sector unions, see here and here.