TRANSPARENCY POLICIES

11. Disclosing Union Finances toMinimize Corruption

In the 1950s, about one-third of the U.S. workforce in the private sector was unionized (as compared to 8 percent in 2005), and unions represented the majority of workers in steel and auto manufacturing, trucking, construction, food processing, and other industries central to the economy. Union leaders like John L. Lewis, Walter Reuther, George Meany, and Jimmy Hoffa were well-known national figures. The considerable economic and political influence exercised by labor unions provoked concern in the business community and in Congress.138

In 1957, congressional hearings chaired by Senator John L. McClellan (D-Ark.) focused on one source of concern: bribery, fraud, and other forms of racketeering in parts of the labor movement. The two-year, high-profile, and often sensational Senate investigations revealed corruption in a number of major labor organizations and resulted in calls for government intervention in union governance.139 In this crisis atmosphere, Congress debated different methods to improve standards of democracy, fiscal responsibility, and transparency in private-sector labor organizations.

Political compromise produced the LaborManagement Reporting and Disclosure Act (LMRDA), which created standards for democratic governance and required unions to periodically reveal detailed information regarding financial practices and governance procedures.140 Disclosure requirements were relatively narrow in scope, focusing on union balance sheets, loan activities, officer salaries, and line-item disbursements (e.g., for employee salary and benefits, administrative expenses, and rent and operating expenses) rather than on programmatic expenditures at the national and local union level.141 A division of the U.S. Department of Labor, the Office of Labor Management Services (OLMS), was created to enforce the law, including its disclosure provisions.142 The penalties associated with failing to provide timely and accurate reports were significant.

From the start, disclosure imposed substantial costs on union officers but offered few benefits to them, creating incentives for officers to provide minimal information.143 For most of the disclosure requirement’s history, it was difficult and costly for union members to gain access to the information that was ostensibly made public.144 They had to go to a reading room at the Labor Department in Washington, D.C., or to a regional office, or make a request by mail, paying a per-page charge.145 Even then, information remained fragmented. Regional offices carried only records relating to union affiliates in their geographical area.146 Most union members were unaware that the information existed, and even for those who learned about it, reporting forms proved technical and difficult to interpret.147

These high costs to individual information users created a potential role for intermediaries. But, as of 2006, it remained uncommon to find formal groups within unions that could act independently of incumbent officers and were capable of playing an intermediary role. Employers, too, rarely used the information from the disclosure system to discredit unions—they had more effective tools at hand. The decline of union strength beginning in the early 1980s also made many in the labor movement reluctant to “air dirty laundry” in public for fear of providing ammunition to antiunion employers and damaging public support for the labor movement.148

With high costs to information disclosers and users, and few intermediaries available to lower user costs, it is not surprising that the scope, accuracy, and use of this disclosure system did not improve much in forty years. The only significant expansion in scope occurred with the passage of legislation that created similar access to union financial information for federal government workers and the addition of reporting requirements for financial institutions that made loans to unions.149

Accuracy or timeliness of the disclosed information improved little. The financial categories and definitions remained the same, as did the level of required financial detail.150 And despite strong enforcement provisions, the annual delinquency rate in filing reports was 25 percent, the GAO found in 2000. The likelihood of a recordkeeping inspection was small, andmost penalties were directed toward unions that intentionally failed to file or that falsified reports.151

Overall use of information by rank-and-file unionmembers remained minimal. Contrary to Congress’s expectation that information would be used by union members, most users over the past three decades have been business groups, antiunion consultants, or academics.152 In 1999, a typical year prior to the creation of Internet-based access, the Labor Department responded to only eight thousand disclosure requests from all sources (out of 13 million union members whowere covered by the transparency policy).

The costs of disclosing and particularly of using information, however, fell substantially when Congress appropriated funds in fiscal years 1998 and 1999 to develop and implement electronic filing and dissemination of reports. Over the following three years, the Labor Department developed systems for both filing and accessing disclosure forms via the Internet.153 As of 2006, unions could file forms electronically, and users could view and print all union financial reports from the year 2000 to the present, search records by a variety of criteria, and request copies from earlier periods via the Department of Labor’s Internet Public Disclosure Room (http://www.union-reports.dol.gov). The most significant changes to union financial reporting requirements since 1959 came with the election of George W. Bush in 2000. From 2001 to 2006 the Bush administration dramatically increased funding to the Labor Department office that administers the disclosure system (while reducing budgets in much of the rest of the Labor Department), expanding the number of full-time equivalent staff from 290 in FY 2001 to 384 in its proposed FY 2006 budget, and raising overall funding from $30.5 million in FY2001 to $48.8 million in its proposed FY 2006 budget.154 The administration cited improving the accuracy and timeliness of union reporting as one of the strategic priorities for this division.

More important, the Bush administration used its authority to issue regulations to alter a variety of reporting requirements.155 These included expanding reporting for smaller labor unions; requiring electronic filing; and changing the way that financial information is provided by, for example, requiring thatunionsdisclose information onall servicespurchased for five thousanddollarsormore.156 Thenewregulations also required reporting of financial information on a programmatic—as well as a line-item—basis (e.g., providing information on the amount of money spent for representation, organizing, and other major union activities).157 Individual unions and the AFL-CIO opposed many of these changes, arguing that they would substantially increase the costs faced by labor organizations with little additional benefit to unionmembers. They ultimately lost these legal challenges in 2005.158

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FOOTNOTES
138. One legislative reaction was passage of the Taft-Hartley Act of 1947, which set out sweeping amendments to the National Labor Relations Act. Among other features, the law described a new set of unfair labor practices for unions, including prohibitions against secondary boycotts and other forms of concerted activities by unions, as well as new employer rights to counter union organizing activities. Gross, 1981.
139. Newspapers and radio covered the hearings closely and a number of rising political figures of the day–including JohnF.Kennedy and Robert F. Kennedy–made early reputations during the proceedings. See Robert Kennedy’s 1960 account of the hearings, The Enemy Within.
140. Labor Management Reporting and Disclosure Act of 1959, Pub. L. 86–257, September 14, 1959, 73 Stat. 519 (codified at 29 U.S.C. §401 et seq. (2000)). Section 431(b) in Title 29 of the U.S. Code requires unions to file annual reports and sets forth information requirements. Section 438 of the same title provides for the secretary of labor to “have authority to issue, amend, and rescind rules and regulations prescribing the form and publication of reports required to be filed under this subchapter and such other reasonable rules and regulations (including rules prescribing reports concerning trusts in which a labor organization is interested) as he may find necessary to prevent the circumvention or evasion of such reporting requirements.” The legislation was passed by a vote of 95–2 in the Senate and 352–52 in the House.
141. Concern about the LMRDA violating union officers’ Fifth Amendment rights under the Constitution is discussed in Robb, 1961. A pessimistic view from the time concerning the prospects for improving internal union democracy through government intervention can be found in Petro, 1959.
142. The OLMS had a staff of 286 in fiscal year 1999, including an auditing staff of 5 and a total of 158 investigators. The GAO estimated that OLMS processed 2,435 reporting- and disclosure-related cases in that year, which required it to devote a little under 5 percent of its total time to these activities. See General Accounting Office, 2000, Appendix I, pp. 18–21.
143. If unions (or other parties required to file under LMRDA) willfully fail to file reports, knowingly make false statements or withholding information, or conceal or destroy materials, they face fines of up to a hundred thousand dollars and up to one year in prison. See Employment Standards Administration, Office of Labor-Management Standards, Reports Required Under the LMRDA and the CSRA (Washington, D.C.: U.S. Department of Labor, 2001).
144. The LMRDA requires each level of the union with governance responsibility to provide separate disclosure under the act, providing information regarding financial activity (revenues and expenses) only at that level of the union. This makes it a complicated matter for a user trying to examine reports of a local for information regarding related expenditures or revenues at regional and national levels.
145. See General Accounting Office, 2000, for a discussion of these costs.
146. For example, many union locals receive representation and administrative support from staff paid for by the international office of their union. These expenditures (the salaries of these individuals as well as associated expenses) show up in the accounts of the international, rather than local, union. Unions also deal with the flow of dues revenues to the various levels of the union in different ways. For example, in many unions, dues are paid to the local union, which then remits a portion of them to intermediate and national levels of the organization on the basis of per capita fees set out in union constitutions. Although the disclosure forms under the law allow one to analyze these flows, it requires significant understanding of union structures and accounting practices.
147. For critiques along these lines, see Masters, 1997.
148. For a classic discussion of the legal obstacles facing labor union representation under the National Labor Relations Act, seeWeiler, 1983.
149. Unions representing U.S. Postal Service workers are covered by the LMRDA. Other federal workers became covered by comparable standards in the Civil Service Reform Act of 1978 and the Foreign Service Act of 1980. Civil Service Reform Act of 1978, Pub. L. 95–454, October 13, 1978, 92 Stat. 1111 (codified at 5 U.S.C. §§1101 et seq. (2000)); Foreign Service Act of 1980, Pub. L. 96–465, October 17, 1980, 94 Stat. 2071 (codified at 22 U.S.C. §§3901 et seq. (2000)).
150. Reporting requirements were reduced for small unions, in part because of requirements of the Paperwork Reduction Act. Rather than filling out the detailed Form LM-2, union entities with total annual receipts of less than two hundred thousand dollars were allowed to use the simplified Form LM-3 to report financial activities.Unionswith annual receipts of less than ten thousand dollars of annual receipts were allowed to file the more abbreviated FormLM-4 (adopted in 1992 and put into effect on January 1994).
151. General Accounting Office, 2000. The report also cites other reasons why unions face minimal incentives for timely reporting (e.g., cases against union entities with receipts under five thousand dollars are not even initiated until they have been delinquent filers for three consecutive years). Further, in cases where unions provided deficient information, the agency used voluntary methods to handle 90% of the cases and took no action regarding the remaining cases.
152. Interviews with Hank Guzda, U.S. Department of Labor, Office of Labor/ Management Services, April 1, 2002; David Geiss, Industrial Relations Specialist, U.S. Department of Labor, Office of Labor/Management Services, April 1, 2002.
153. See General Accounting Office, 1999.
154. See Office of Management and Budget, Exec. Office of the President, Budget of the United States Government, Fiscal Year 2001 (2000), and Office of Management and Budget, Exec. Office of the President, Budget of the United States Government, Fiscal Year 2006 (2005). The Department of Labor’s budget for fiscal year 2006 can be found at http://www.dol.gov/sec/budget2006/overview.pdf (site accessed June 4, 2006). Information regarding the Department of Labor’s budget for fiscal year 2001 can be found at http://www.dol.gov/sec/budget/budget01.htm (site accessed June 4, 2006). The budget of the U.S. government in its entirety can be accessed through http://www.gpoaccess.gov/usbudget/fy06/index.html for fiscal year 2006 and through http://www.gpoaccess.gov/usbudget/fy01/index.html for fiscal year 2001.
155. Similar changes to the LMRDA were introduced by President George H. W. Bush in 1992 but then rescinded by President Bill Clinton upon taking office in 1993. See Exec. Order No. 12,800, 57 Fed. Reg. 12985 (April 13, 1992), as corrected 57 Fed. Reg. 13413 (April 16, 1992), revoked by Exec. Order. No. 12836, 58 Fed. Reg. 7045 (dated February 1, 1993, and published February 3, 1993).
156. See Labor OrganizationAnnual Financial Reports, 68 Fed.Reg. 58374 (October 9, 2003) (codified at 29 C.F.R. pts. 403, 408). This five-thousand-dollar figure includes receipts and disbursements that total five thousand dollars or more, as well as payments to a single entity that total five thousand dollars or more in the reporting year, within certain specified categories as set out within the regulations.
157. See Labor Organization Annual Financial Reports, 68 Fed. Reg. 58374. The new reporting requirement became effective in 2004.
158. The changes in reporting requirements were upheld in theU.S.Court ofAppeals decision, American Fed’n of Labor and Cong. of Indus. Org. v. Chao, 409 F.3d 377 (D.C. Cir. 2005).
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