Big Labor’s Benefits

Are unions giving Democrats a free pass on card check? At first look, it appears that way. Congressional Democrats are focusing on the health care debate and it is unlikely that EFCA will be voted on until late this year — if at all. And union leaders have been unusually complacent with the bad news.

Earlier this summer, a group of Democratic Senators considered taking the card check provision –which would effectively eliminate secret ballot elections in union organizing — out of the so-called Employee Free Choice Act (EFCA.) Recently, Senate Majority leader Harry Reid (D-Nev.) said that he and his colleagues have "too many other things on our plate" to work on EFCA. And presumed incoming AFL-CIO chief Richard Trumka has stated that card check "may or may not be" the key to labor reform. His current focus is solidly on healthcare telling his members that, "the President/and Emanuel have both said they don't intend to bring Employee Free Choice Act up until Health Insurance Reform is done…which gives us an additional reason to do Health Insurance Reform now!"

EFCA has been called labor's top priority, so after contributing over $130 million to Democratic candidates in the 2008 Senate, House, and Presidential races, why are unions so easily rolling over?

The answer is that they are not. With EFCA facing a difficult political environment, union leaders are going after other items on their policy wish lists — and getting many of them. Vice President Joe Biden told the AFL-CIO Executive Committee in March that, "rebuilding our broken economy gives us the opportunity to get it right and reward workers." More specifically, he was telling the AFL-CIO that the administration would reward unions. One vehicle for doing this is the gargantuan $787 billion federal stimulus bill.

To ensure that many of the jobs funded by the stimulus bill go to unionized workers, the Obama administration is pursuing two courses of action.

First, the Department of Transportation has issued guidelines (pdf) directing all construction work on infrastructure projects to be subject to Davis-Bacon prevailing wage determination, which requires federal contractors to pay the "prevailing" wage in a given locality as determined by the Secretary of Labor. Because this has typically been equivalent to the prevailing union wage, the law makes it harder for non-union contractors to compete.

Second, the administration is requiring (pdf) contractors who want to bid on large federal construction projects to be subject to project labor agreements (PLAs), which impose burdensome requirements on non-union contractors. PLAs typically require non-union employers — even those who provide their own benefits — to pay into union benefit plans. This can entail paying into underfunded union pension funds, which can impose huge liabilities on companies. PLAs may also require contractors to employ workers from union hiring halls, acquire apprentices from union apprentice programs, and require employees to pay union dues.

The administration and some congressional Democrats are also trying to bail out union pension funds. For taxpayers, this should be especially galling, as many of those funds are grossly underfunded because they have been poorly managed. For years, unions have leveraged their pension funds to pursue political agendas by introducing shareholder resolutions at public companies' shareholder meetings and investing for political rather than economic goals. Often, such resolutions and investments do nothing to increase shareholder value. As a result, many union-sponsored multi-employer plan are today in critical condition (pdf).

But no need to worry-relief is on the way in the form of health care "reform." The United Auto Workers (UAW) has asked its members to support the Democrats' health legislation efforts, specifically citing a provision in the House health care bill that establishes a reinsurance program for pensions. Section 164 of the Affordable Health Choice Act of 2009 (H.R. 3200) sets aside $10 billion for the government to pay 80 percent of the benefits to corporate and union insurance plans for claims between $15,0000 and $90,000 for retired workers aged 55 to 64. This would be a major boon to the UAW's so-called voluntary employee benefit associations (VEBAs), which now own a 55 percent stake in Chrysler and a 17.5 percent stake in GM in exchange for taking on billions which the auto giants owed in health care benefits.

And there is yet another benefit bailout for Big Labor on the horizon. In late August, Rep. Earl Pomeroy (D-N.D.) announced draft legislation to change how pension fund valuations are determined. For multi-employer (i.e. union) plans, Pomeroy's proposal would extend the rehabilitation and funding improvement periods for plans in endangered or critical status. It would also authorize the Pension Benefit Guaranty Corporation (PBGC) to financially assist in the merger of multi-employer pension funds when it determines that financial assistance "is reasonably expected to reduce the PBGC's likely long-term loss," according to the bill summary. Like rearranging deck chairs on the Titanic, this essentially would allow underfunded union pension plans to "re-value" assets to make pensions that are in trouble look healthier than they really are.

That is quite the bill of goodies the unions are getting, but that doesn't mean that EFCA is going away. In fact, this looks like a holding pattern, as they prepare to come back to push for it in the near future. Making pension funds look healthier can only ever be a short-term fix. To push their troubled pension funds out of the red, union bosses' preferred solution is to corral more employers into paying into those funds. And that's where EFCA's binding arbitration provision comes in.

Under this provision, a newly unionized company and the newly certified union have 90 days to negotiate a contract. If they have not reached a contract after that time, they must negotiate for another 30 days, at the end of which a federally appointed arbitrator may step in and impose a contract. This creates perverse incentives for union negotiators to stall, and may give the union a lot of what they want through arbitration — including requiring the company to pay into a multi-employer union pension fund. For union leadership, this is too enticing a prospect to walk away from.

So, while union chiefs privately fret in frustration over EFCA having stalled, they still have plenty to celebrate. But don't bother congratulating them; you're already paying for their fun.