Study: They Spend Millions, but Minimal Transparency Required for Government Union Finances

Michigan’s public sector unions collect tens of millions of dollars from government and school employees, but if members want to learn how their dues money is being spent, all they'll find is a one-page report disclosing just three aggregated spending figures.

Unlike private sector unions, which are subject to federal labor law and financial disclosure requirements, state and local unions are subject to oversight by individual states. (This is related to the fact that states can also choose not to recognize or bargain with public sector unions.)

Michigan's financial reporting requirements for public sector unions are "ineffective in providing important information for union members,” according to Nathan Paul Mehrens, author of “Bringing Financial Transparency to Michigan’s Public Sector Unions,” a new study published by the Mackinac Center for Public Policy. Mehrens is a labor expert who helped draft a reform of transparency requirements at the U.S. Department of Labor during the early 2000s, and now leads the Americans for Limited Government Foundation.

He makes the case that Michigan should require large public sector unions to provide the same detailed disclosures mandated by federal regulations for large private sector unions (ones with annual receipts above $250,000). Smaller unions would be allowed to file simplified forms.

The study chronicles the history of union financial transparency, starting in 1959. That was when Congress enacted a federal Labor-Management Reporting and Disclosure Act following a series of historic hearings on union corruption. Among other things, those hearings revealed the shortcomings of existing disclosure requirements. For example, reports lacked itemization of large expenses, making it difficult to determine if union dues were misappropriated.

In the decades that followed, enforcement of this law was spotty, however. That changed in 2006, when the U.S. Department of Labor under Secretary Elaine Chao revised and updated the regulations. Chao wrote the foreword to the new study.

In Michigan, public sector unions are subject to far less disclosure than private sector unions, which must comply with federal regulations. Current state law only requires a one-page form with just three numbers: the aggregate totals of collective bargaining expenses, administrative expenses and grievance-adjustment expenses. None of the union spending lumped together in these numbers is itemized, nor are there any details of union income, assets, loans, investments, gifts or grants.

In the study, Mehrens shows an actual union filing that appears to have been written in haste, complete with handwritten numbers, one of which is crossed out.

While these amounts must be verified by an independent examiner and so are probably correct, "The information disclosed certainly does not provide a 'full accounting of all transactions involving their property,'" Mehrens said in his report.

None of this surprises Angela Steffke, a teacher. When she started looking into the finances of her union, the Taylor Federation of Teachers, which is an affiliate of the American Federation of Teachers, she was able to get information for just one year, 2012.

“I really had trouble finding out what AFT Michigan does with over half of my dues money,” said Steffke.

Steffke is trying to determine, for example, how much financial support her union gives to other unions that may have interests that may compete with those of teachers. She also wanted to learn how much of her local dues go to the AFT and its state affiliate, which support political causes that may not align with those of individual members.

The study makes specific reference to extensive political spending disclosures contained in "Schedule 16" of the federal LM-2 reports. The parent union of Steffke’s local, the AFT, is one of the top 10 labor organizations in political spending nationally, with a tally of $21,457,153 in 2012. (The SEIU tops the list, spending nearly $113,820,009 that year on political activity and lobbying.)

Steffke would also like to know how much local member dues payments are redistributed to other unions and locals.

“How much gets lost in the shuffle?” she asked.

The AFT does file a federal LM-2 report, as does the National Education Association, the parent of Michigan's other large school employee union, the MEA. Both national unions also represent some private sector employees, which triggers the federal disclosure requirements.

But those requirements do not apply to state and local affiliates, even large ones. For example, there are no detailed financial disclosures for Michigan's UAW 6000, which according to its website represents 22,000 state employees. Moreover, the one-page form it is required to file with the state is not easy to find. The Michigan Employment Relations Commission is supposed to post the filings on its website, but locating them there involves a good deal of searching.

In his study, Mehrens says that detailed, consistent disclosure is the best way the public and union members can be assured that dues payments are being spent appropriately.

“The amount of information required of Michigan’s public sector unions is minuscule. The state has the ability to change this by enacting enhanced disclosure requirements,” he writes.

The study includes model legislation showing what this might look like.