Despite having its best friend forever in the White House, the American labor movement is in mortal crisis
Apr 25, 2011, Vol. 16, No. 31 • By MARK HEMINGWAY
Most observers on the right who have commented on Lerner’s remarks have played up the sinister machinations. Perhaps what’s most noteworthy, however, is how pathetic and desperate all this is. As Hot Air blogger Ed Morrissey quipped, this isn’t a practical plan for unions reestablishing political dominance—this is the fantasy of someone a little too enamored with the end of the movie Fight Club.
So why has so dedicated and smart a union organizer as Lerner lapsed into abject despair? Few people are better positioned to evaluate the state of organized labor’s finances and organizing capacity, and Lerner’s assessment at Pace was brutal: “Unions are almost dead. We cannot survive doing what we do.”
Unions are indeed facing existential threats. The first resides in broad economic and demographic trends that are transferring power from private sector unions to public sector unions. Public sector unions, unlike private sector unions, are actually growing. In 1954, 39 percent of the American workforce was unionized—and public sector unions did not exist in any meaningful way. Last year, 11.9 percent of the American workforce was unionized. More distressingly for Lerner, private sector union membership shrank by about 10 percent in 2009, so that for the first time public sector union workers outnumbered private sector union workers.
It may seem counterintuitive, but the continued growth of public sector unions may have negative consequences for organized labor overall. Some select public sector professions still carry political influence—such as police, firefighters, and teachers—but on the whole, government bureaucrats are far less sympathetic figures than, say, manufacturing workers. Public sector unions are also much newer, and their very existence has always been controversial. As recently as 1955, no less a figure than George Meany, then head of the AFL-CIO, believed it was “impossible to bargain collectively with the government.”
For that matter, the perception is widespread that government workers have never really been able to justify collective bargaining protections. “Government workers were not exploited,” Henry Farber, a labor economist at Princeton University, told the Washington Post. “They were never squeezed the same way as workers in the private sector were, because they had civil service protections.”
So in an era when state and local budgets are swamped by employee costs, politicians are having to choose between responding to the taxpayers and responding to public employee unions. For Republicans, few of whom get campaign cash from unions, the choice is easy.
Aside from the high-profile union battle in Wisconsin, nearly half the states have recently passed or are currently considering legislation to rein in public sector unions. According to the National Conference of State Legislatures, a total of 729 bills have been introduced in 48 states since 2009. Conservative groups, such as Karl Rove’s influential PAC American Crossroads, which played a major role in the GOP’s 2010 landslide, are already running ads touting the links between Democrats and public sector unions, which could well become a major issue in the 2012 election.
But while the news has focused on headlines coming out of Wisconsin and the GOP’s targeting of unions, less attention has been paid to the other side of the equation. There’s little neutral ground in the battle between taxpayers and public employee unions, and the unions are running roughshod all over taxpayers despite America’s dire fiscal situation.
Illinois provides a bracing example. Last July, in the run-up to a tough election, the state’s Democratic governor Pat Quinn gave 40,000 state workers a two-year 14 percent raise, at a total cost of $1 billion in a state that is facing a $15 billion deficit and lagging $6.8 billion behind in paying its creditors. Quinn also agreed not to lay off any of the state’s 50,000 unionized employees for two years. The deal was unveiled just days after Quinn received the endorsement of the American Federation of State, County and Municipal Employees (AFSCME).
Quinn, who had assumed the governorship after the impeachment of Governor Rod Blagojevich, narrowly won election with full-throated union support. One of his first acts upon taking office was to push through a 67 percent increase in the personal income tax and a 46 percent hike in the business tax. Wisconsin and Indiana, whose Republican governors and legislatures are making the economic climate more and more employer- and taxpayer-friendly, are both within commuting distance of Chicago. Governor Scott Walker, scourge of Wisconsin unions, is publicly inviting newly burdened Illinois businesses to relocate to his state.
In large part, the battle against public sector unions is already won. They’ve been effectively isolated in the public’s mind from the broader labor movement, and in a time of hardship, the battle has been advantageously—and correctly—framed as unions vs. taxpayers. If public sector unions still enjoy some public support, that’s likely to diminish fast once the reality of major tax increases and even state bankruptcy becomes evident in heavily unionized states like Illinois.
So far the polling data are mixed, and taking on powerful public unions carries big political risks. Walker and other GOP politicians targeting public sector unions are gambling that if getting their state’s fiscal house in order means unions march on the capitol today, that’s better than having angry taxpayers march on the state house after things get really bad.
If there were any doubt, however, whether Walker had made a smart judgment that public sentiment was turning against public sector unions, that fear was largely laid to rest by the reelection of conservative Wisconsin state supreme court justice David Prosser on April 5. Union outrage may have been enough to make the vote close, but after a nail-biting election involving a recount, Prosser appears to have eked out a victory by a margin of about 7,000 votes. With a national union campaign against Prosser and millions pouring in from out of state, unions were unable to win an election where at least one poll had shown their candidate cruising to a 6-point victory in a purple state where public sector unions first gained the right to collectively bargain in 1959. If unions can’t win in Wisconsin, there’s little hope for them in the other states where they are being challenged. (By contrast, in 2008* conservatives were able to defeat a liberal incumbent justice on the Wisconsin Supreme Court.)
What’s more, if union reforms are accompanied by the long-term economic benefits their proponents foresee, their popularity will grow. Diana Furchtgott-Roth, director of the Center for Employment Policy at the Hudson Institute, has observed that patterns of labor migration reflect an increasingly negative correlation between unions and job creation. According to the 2010 Census, she writes, “nine congressional seats will move to right-to-work states from forced unionization states. Some winners are Texas, Florida, Arizona, Georgia, and South Carolina, while losers include New York, Ohio, Michigan, Illinois, and New Jersey.”
The second existential threat to unions is the imminent pension crisis. When union pensions are discussed, invariably public sector unions get the most attention, simply because the numbers are impressively large. (California has $535 billion in unfunded state pension liabilities, or more than the annual GDP of Saudi Arabia.) There’s much uncertainty as to how the shortfalls will be addressed. The options run the gamut from the aforementioned tax increases and legislative restraints to the creation of a path for state bankruptcy, and these have been hotly debated.
What is rarely discussed is that the pension problem is actually more acute and immediate among private sector unions. This has to do with the unique nature of private sector union pension plans. There are about 1,500 “multi-employer” pension plans in the United States covering 10.1 million workers. In these plans, several unionized businesses join together to provide a single, collective retirement plan for all their employees. Unlike 401(k) s and other defined-contribution plans, which belong to the individual and so encourage labor mobility, defined-benefit plans are typically tied to the job. Multi-employer plans were created to allow for some degree of labor mobility within unionized sectors.
>The catch is that multi-employer plans are governed by what’s known as “last man standing” accounting rules. Here’s how they work: If there are five companies in a multi-employer plan and four of them go bankrupt, the fifth has to assume the pension obligations for all of the employees from the four bankrupt companies, known as “orphans.”
Getting a handle on multi-employer pension liabilities has always been notoriously difficult, and concern about their viability has grown as American union membership has dwindled in the face of globalization and technologically driven gains in productivity. A recent Government Accountability Office report found that as of 1998 the number of union members paying into the plans was equal to the number of retirees receiving benefits. The Financial Accounting Standards Board recently noted in a press release that a “study of over 100 multi-employer plans, including the largest plans in the country (as measured by assets), indicated that in 2008 those plans were collectively underfunded by over $160 billion (approximately 44 percent of their collective plan liabilities).”
The Teamsters union plan alone has four times as many retirees drawing benefits as employees paying in. Which is why, in 2007, UPS coughed up a staggering $6.1 billion to buy its way out of the Teamsters multi-employer pension plan, figuring this was cheaper than assuming the unions’ collective pension liabilities later on. (Trucking company YRC, one of the largest remaining Teamster employers, publicly asked the federal government for $1 billion in TARP funds to cover pension obligations in 2009. The company eventually withdrew the request.)
UPS’s withdrawal from its multi-employer plan also highlighted the issue of transparency. Previously, it was assumed that UPS’s pension liabilities were around $4 billion, and Wall Street analysts were stunned when it turned out they far exceeded that figure. Then in 2009, the Street was shocked again when the grocery chain Kroger disclosed in a footnote to its SEC filing that it had $1.2 billion in pension liabilities.
Until now, companies have been required to disclose only their contributions to multi-employer plans. But ratings agencies and financial markets have started insisting on transparency—and the Financial Accounting Standards Board, which has de facto statutory authority from the SEC, is set to enact a rule in the second quarter of this year that requires disclosure of multi-employer liabilities.
Adding these liabilities to the balance sheets of union employers could make it nearly impossible for them to get loans, lines of credit, bonding, and the kind of financial assistance that is the lifeblood of many unionized sectors such as construction.
How are unions reacting to the prospect of this new rule? “The blind panic is un-frickin’-believable,” says Brett McMahon, a longtime union critic and vice president of Miller & Long Concrete Construction. The rule could well accelerate bankruptcy in many union businesses or force companies to scramble out of the yoke of unionized employment.
Regardless, the problem of bankrupt union pension plans is not going away. It’s more than likely a number of big union pension plans will go bankrupt. All of a sudden, union employees who were expecting generous pension plans will be dumped onto the Pension Benefit Guaranty Corporation, the government-sponsored enterprise that backstops pension plans. The maximum payout is just under $13,000 a year, or “dog-food money,” notes McMahon.
That’s when things are likely to get really ugly. Multi-employer pension plans are by law governed by boards equally divided between employer and union representatives. There’s already no love lost between rank-and-file union members and the class of political consultants and executives that has come to dominate union leadership. Both of the SEIU’s national pension plans issued “critical status letters” to their members in 2009—the Pension Protection Act requires such letters to be issued when funds can cover less than 65 percent of their obligations. The SEIU, however, maintains a separate pension plan for its national officers that was funded at 98.3 percent, according to the latest data.
Expect waves of class action lawsuits over pension mismanagement aimed at recouping money from the employers and unions responsible. This could well bankrupt unions. And when union pension plans begin failing, unions will be deprived of perhaps their biggest selling point—job stability with unrivaled retirement benefits.
For some time now, big labor has been convinced that it needs a bold political solution to its existential woes—either something that radically alters labor laws to allow unfettered forced unionization or a bailout that could run into the hundreds of billions of dollars.
In the hope of achieving the former under Obama, organized labor rallied around the Employee Free Choice Act, popularly known as Card Check. Despite its Orwellian formal title, this bill proposed to end the right of an employer to demand a secret ballot election of employees before the employer must recognize a union. Under Card Check, organizers could form a union by getting workers to sign cards declaring their support for unionization. This would allow unions to identify publicly workers opposed to unionization and use coercive tactics against them.
While unions hoped that Card Check would rapidly reverse the decline in their membership, the scheme was also meant to help fix their pension plans. Once companies were unionized, the power of collective bargaining could force them to join foundering multi-employer plans, shoring these up. Accordingly, the AFL-CIO declared Card Check legislation “the number one priority of America’s union movement.”
With Democrats controlling Congress and a labor champion in the White House, unions seemed confident Card Check would pass. The legislation was introduced in both houses of Congress in March 2009, and Obama, Vice President Biden, and Secretary of Labor Hilda Solis all made public statements in support of it.
Then . . . nothing. Card Check stalled as business interests such as the Chamber of Commerce became increasingly vocal in their opposition.
Big labor pursued other political solutions. Senator Bob Casey of Pennsylvania introduced the Create Jobs and Save Benefits Act of 2010, which was criticized as a bailout of multi-employer pension plans. It was actually worse than that. The bill would have essentially created a new entitlement by requiring taxpayers to backstop union pension plans in perpetuity. Casey’s bill went nowhere—and, adding insult to injury, Representative Earl Pomeroy, the North Dakota Democrat who’d sponsored the bill in the House, was defeated last November.
As it became clear last year that a Republican takeover of the House was inevitable, some feared that Democrats would make a truly radical move in the lame duck session of Congress to save their biggest campaign donor. Just weeks before the election, Democrat Tom Harkin of Iowa and Independent Bernie Sanders of Vermont held a hearing of the Senate Committee on Health, Education, Labor, and Pensions (HELP) exploring Guaranteed Retirement Accounts, or GRAs. These are a union-backed plan to create a national retirement system that would in effect force Americans to stop putting their retirement savings into private 401(k) accounts and to send their money to the government instead.
But the lame duck session came and went without any bold Democratic move to save the unions. Democrats were thumped in November, and Republicans took control of the House of Representatives with a 48-seat majority. In a radio interview on March 22, Senator Sherrod Brown, a pro-union Democrat from Ohio, confirmed what many suspected. Card Check was “not going to happen now,” he said. If Card Check was dead, the American labor movement’s biggest reason for hope had been snuffed out.
Which brings us to a third existential threat for unions. Rather than adapt to the changing economic climate and expand their organizing efforts, unions in the past decade focused nearly all their resources on lobbying for a political solution to their woes. After all that money and effort, they have no solution to their long-term problems.
What they do have is debt. In 2009, the AFL-CIO’s $103 million in liabilities exceeded its assets by $21 million. The SEIU, which had very rapidly become the most politically influential union in the country, had financed its ascent with money it didn’t have. The union’s liabilities were $7.6 million in 2000. After the 2008 election, in which, again, the SEIU spent more than $80 million, the union was $102 million in debt.
It has since reduced that debt to $85 million—but union leaders are clearly worried about the state of their finances. Their solution? A very public campaign against Bank of America, organized by none other than Stephen Lerner. This may have backfired when SEIU gained a great deal of negative national publicity for sending a mob of protesters to the home of a Bank of America executive (who turned out to be a lifelong Democrat with ties to the Clintons), frightening his adolescent son who was home alone.
The SEIU claims it is protesting unfair lending practices. But it’s obvious the union is really trying to intimidate its biggest creditor: The SEIU owes Bank of America more than $80 million.
For unions, last year’s election may have been the death knell. For the first time, union support could be viewed as an electoral liability. Conservative grassroots groups targeted public sector unions, especially the SEIU, throughout the campaign, and Tea Party-fueled Republican candidates—including Scott Walker—explicitly campaigned on curbing union excesses. Karl Rove’s American Crossroads PAC, which spent about $65 million in 2010, is already running ads designed to make public sector unions a campaign issue in 2012.
Unions also created a big messaging headache for Democrats. During the election, Democrats tried their best to make corporate influence a major issue. The White House publicly asserted that the Chamber of Commerce was trying to influence the election with foreign money, though this had been widely debunked. And congressional Democrats maintained that the Citizens United Supreme Court decision that upended much of the campaign finance regulatory regime was allowing corporate groups to flood the election with money.
Then Speaker of the House Nancy Pelosi promised to tie the GOP to corporate campaign cash “like doggy-doo stuck on your shoe,” and at one point Democrats circulated a memo claiming that outside spending groups affiliated with Republicans had outspent Democratic groups $200 million to $7 million.
The problem was that this narrative was undercut at every turn by the unions’ outsized political influence. While the White House was trying to demonize the Chamber of Commerce, the Wall Street Journal reported that the biggest donor in the 2010 election was actually the American Federation of State, County, and Municipal Employees (AFSCME). A single public sector union had spent $87.5 million in recycled tax dollars—supporting Democrats. AFSCME’s political director even bragged to the Wall Street Journal, “We’re the big dog.”
Sure enough, thanks to unions’ spending more than $200 million on Democrats, the Democrats outspent Republicans in 2010 and still were handed the worst electoral defeat in more than 60 years. “Overall, Democratic candidates in the 63 races that flipped to the GOP had $206.4 million behind them, a tally that includes candidate fundraising and spending by parties and interests,” reported the Washington Post on November 3, the day after the midterms. “That compares to only $171.7 million for their GOP rivals.”
Claiming the country is jeopardized by corporate dominance of elections, when 11 of the top 20 political donors to elections since 1989 are labor unions, has proven to be a losing message. It’s also worth noting that most corporate political action committees—including those representing Wall Street—have given more money to Democrats than Republicans during the last few election cycles. Washington Examiner columnist Timothy Carney notes that Democrats had at least a $60 million edge in PAC contributions in last year’s election.
As unions’ membership continues to dwindle and their political spending increases, it’s hard to argue that unions are anything other than a special interest. By the time the Wisconsin protests broke out in February, the White House initially voiced support but was afraid of appearing too pro-union. When union officials asked the White House to send Joe Biden to make an appearance at the protests, the White House declined. Union leaders then asked for labor secretary Hilda Solis. Once again, the White House declined.
It seems the Obama administration is mysteriously lacking a pair of comfortable shoes. The head of the National Nurses United union publicly accused the Obama administration of “betrayal.”
Evidence of the rapid decline of the American labor movement is hard even for someone as indebted to unions as Barack Obama to ignore. The unions’ political fortunes are poised to fall faster and farther than anyone anticipated, and Democrats are starting to hedge their bets. Walking the picket line these days looks more and more like walking the plank.
Mark Hemingway is online editor at The Weekly Standard.
*Article has been corrected to reflect the correct date of Wisconsin's 2008 judicial election.