afl cio

The AFL-CIO’s “Creative Accounting”

by Ivan Osorio on May 29, 2009 · 2 comments

in Economy, Labor

The AFL-CIO has obscured its poor financial condition through “creative accounting,” says Machinists union President Tom Buffenbarger, reports Associated Press.

Tom Buffenbarger, president of the International Association of Machinists and Aerospace Workers, said in a report that the labor federation obscured its financial difficulties heading into last year’s presidential election campaign, in which it backed Democrat Barack Obama. Net assets of the 11 million-member AFL-CIO declined to a negative $2.3 million as of June 30, 2008, from a $66 million surplus on July 1, 2000.

“A new leadership — leaders chosen by our members, leaders help accountable by our members — is needed,” wrote Buffenbarger, who is a member of the AFL-CIO’s finance committee and the president of one of the nation’s largest unions. Alison Omens, a spokeswoman for the AFL-CIO, declined to comment on the report.

Where all that money has gone would take considerable financial detective work to determine, but there are a few obvious places to start looking. First, as the report notes, the AFL-CIO lost more than $13.9 million in annual revenue as a result of the Service Employees International Union, the Teamsters, and some other unions leaving the AFL-CIO in 2005 to form the new labor federation Change to Win.

But that steep drop in revenues seems not to have cooled the AFL-CIO’s aggressive use of pension funds to advance political goals. This is part of a deliberate strategy, as I wrote in 2005, on a Federalist Society-sponsored panel discussion on institutional investors, where the issue of fiduciary duty proved contentious.

AFL-CIO Associate General Counsel Damon Silvers sought to define union pension fund managers’ fiduciary responsibility broadly. First he pointed out that, “There’s a big difference between union and pension funds,” because pension funds have one function, while unions have several functions, and that the AFL-CIO, its affiliates, and “ex-affiliates” — the unions who bolted the old federation and formed Change to Win — seek to maintain that distinction. By this definition, unions’ fiduciary responsibility for their investments does not just address the return on those investments, but how they can advance the unions’ greater goals. As Silvers said, union fund managers must ask the question, “Are these assets being managed in our interest?”

The problem with this view is that such interest can be defined very, very broadly.

Earlier this year [2005], the AFL-CIO successfully pressured some banks and brokerage firms to distance themselves from organizations supportive of the Bush Social Security plan to create private accounts. In a letter to AFL-CIO General Counsel Jonathan Hiatt dated May 3, 2005, Department of Labor Deputy Assistant Secretary for Program Operations Alan Lebowitz stated that, “The Department reiterates its view that plan fiduciaries may not increase expenses, sacrifice investment returns or reduce the security of plan benefits in order to promote collateral goals.” According to The New York Times, the unions’ anti-Social Security reform campaign also involved protest rallies in New York, Washington, San Francisco, and 70 other cities.

The Labor Department was right to call the AFL-CIO on this dubious use of pension funds they are entrusted to manage in the individual pensioners’ interest; any definition of fiduciary that seeks to go beyond increasing shareholder value is mere sophistry. Yet that is precisely what the AFL-CIO has pursued as a deliberate strategy. As Diana Furchtgott-Roth of the Hudson Institute notes in a study of union pension funds:

Over the years, unions have successfully changed the operative meaning of fiduciary duty. This process of change started in the early 1990s when the AFL-CIO published Proxy Voting Guidelines. These guidelines encouraged union pension funds to consider not only how investment decisions would affect a pension fund’s financial performance, but also the effect of these decisions on communities, the environment, and the economy. This overly broad interpretation of “fiduciary duty” has allowed unions to join forces with others in the left-leaning progressive community by making investment decisions whose goals are not always consistent with traditional investment strictures.

In her study, Furchtgott-Roth found that union pension funds are severely underfunded compared to private company pension plans. (The current AFL-CIO proxy voting guidelines can be perused here; see page 21 for the “Corporate Responsibility” section.) While Furchtgott-Roth’s study does not single out the AFL-CIO, and Buffenbarger does not specify pensions as a source of trouble, the AFL-CIO is doing a lot of pensioners no favors by promoting a definition of “fiduciary duty” that concerns itself with political activism.

With union pension funds facing severe shortfalls, the obvious first step for unions seeking to address that problem would be to stop digging — that is, focus on shareholder value without other considerations to cloud investment decisions. But rather than opt for a more conservative investment strategy that they have followed to date, union leaders seem more intent on getting access to more dues by corralling in new members, though changes in the law such as the so-called Employee Free Choice Act’s (EFCA).

EFCA’s card-check provision, which would have allowed unions to circumvent secret ballot elections in organizing campaigns, turned out to be a public relations disaster for organized labor — for good reason. Now, however, union activists and their allies on Capitol Hill are looking for ways to get enough support for a “compromise” that would include EFCA’s binding arbitration provision. Under this provision, if a newly unionized company would have 120 days to reach an agreement with the union that had just begun representing its employees. After that period, a federall appointed arbitrator can come in and impose a contract — including retirement benefits.

Thus, literally overnight, a business could find itself on the hook for millions in pension obligations which it did not itself assume. For the union, this allows it to keep its pension fund going for some time longer. For the company, it could spell disaster.

As far as the government is concerned, it should maintain union financial reporting requirement at least at their current level. Rolling them back would allow greater obfuscation of the kind Buffenbarger is denouncing. Moreover, when workers decide on whether to join a union or not, they need to know what they would be getting into.

The Dishonesty of Poltical Adjectives

by Fred Smith on January 19, 2009

in Culture, Politics as Usual, Sanctimony, Zeitgeist

Rhetoric is a noble field — the ability to use language skillfully to clarify and justify a policy. But the political use of language is often used In a far less honest fashion. Consider the language of some policy positions advanced today:

Fair Trade: No one likes to be seen as a protectionist.  Protectionism—the idea that a nation should help its own industries by taxing their foreign competitors—is now widely viewed as a discredited policy.  This is largely due to the failures of protectionism’s past, like the Smoot-Hawley Tariff policy which exacerbated the suffering of the Depression and was one of many causes of WWII.

Thus, modern protectionists favor trade that is “fair.”   This term signifies that voluntary exchanges between individuals is only justified if it meets the criteria of a wide array of other interests such as labor, human rights advocates, internationalists, environmentalists, religious advocates, or feminists. These other goals may be legitimate but if this criteria is used only trade approved by Greenpeace, Amnesty International, the AFL-CIO, the Christian Coalition, and NOW would be allowed. Few trading arrangements could meet the utopian demands of these disparate groups.   Thus, “fair” trade is another way of arguing for protectionism.

Safe Nuclear and Clean Coal: Americans believe that energy should be accessible and that the poor should not be shouldered with unnecessary costs.  Thus, those opposed to energy development allege that they favor expanded use of nuclear power — as long as it is “safe”, greater use of coal power as long as it is “clean.”

But there are no “safe” energy sources (only “safer” ones) and no “clean” sources of power.   Even the cleanest and safest processes for creating anything have some risks and some waste associated with them.  So, if we’re being honest, there are only really “safer” and “cleaner” methods than those now in use.  Environmentalists and others seeking restrictions on American energy (and thus higher prices) use the absolutes—”safe” and “clean”—  which are very deceptive qualifiers.

Green Jobs: A capitalist economy seeks to employ people to meet human needs and job creation is very politically popular. However, some environmentalists and others would focus job creation efforts on employment in those areas which would advance their anti-development aims — thus, “green” jobs.

Social Justice: We all favor “justice” but, as Friedrich Hayek noted long ago, “social” is a weasel word designed to weaken this core value of any moral civilization into a tool of redistributive policy. According to “social justice,” creating wealth and knowledge is irrelevant unless such achievements also increase income equality.

One professor was told by one of his Canadian students that he could never migrate to America. “How,” he asked, “could anyone live in a world with such a poor GINI (a measure of income dispersion) value?”

That those income differences (like the prizes granted athletes and others) might increase general welfare is viewed as secondary.

Political discourse would be more transparent and honest if such deceptive adjectives were banned.

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