Executive Summary

It has long been Michigan's policy to promote private- and public-sector unionization and to ensure that labor unions have a source of funding. One mechanism for achieving this has been the enforcement of "agency fee" clauses in collective bargaining agreements. The advantage of a guaranteed revenue stream, however, ought to be coupled with some basic responsibilities. Union officials have an obligation not to abuse the privilege of collecting mandatory dues, and a responsibility to run operations that are efficient, transparent and focused on providing effective representation.

The residents of Michigan, home to some of the nation's most powerful unions, are in a key position to determine for themselves if unions are using their dues and agency fees appropriately.  Are unions acting as responsible stewards ofthe mandatory dues they collect from the men and women they represent? We examined fiscal year 2006 federal LM-2 forms from six unions with a strong presence in Michigan and used the data to create rough estimates of their spending on representation, politics, charity, overhead and administration.

Our examination indicates that a relatively small amount of union dues money is actually used to represent workers. At best, the picture that emerges from many LM-2 forms is one of bloated, directionless union organizations with excessive overhead and administrative costs. These findings call into question the entire rationale behind the state's policy of allowing unions to negotiate for agency fee clauses in collective bargaining agreements. Even if one accepts the premise that individual workers should be forced to support a union — regardless of how they feel about it — in order to ensure that the union has adequate resources for effective representation, it is not evident that Michigan unions need all the money they receive in mandatory dues in order to accomplish this.

The LM-2 forms are not without shortcomings: loose definitions and the absence of independent  verification, combined with a strong motivation for union officials to obscure political activity and inflate representation, have led to a number of irregularities. For instance:

  • Three Teamsters locals in Michigan reported between $60,000 and $110,000 in "Steward Dues" paid to themselves and listed as a cost of representation. These steward dues payments made up close to 10 percent of representation spending for all three locals.
  • The National Education Association claimed that contributions to the Economic Policy Institute, The Campaign for America's Future, The National Coalition on Health Care and America's Agenda were representational in nature.
  • One Michigan UAW local listed $10,000 in softball field rentals and over $30,000 in athletic uniforms as representation expenses. (For this and similar reasons, the LM-2 form from this local was not used in our estimates.)
  • SEIU National Headuarters claimed payments to ACORN International, sponsorship of Air America and a donation to the Michigan Republican Party as representation expenses.
  • One AFSCME local in Michigan claimed that 100 percent of its officer and staff time was spent on representation, with no time dedicated to internal union administration. Two other Michigan locals claimed no money or significant staff and officer time was spent on representation. (LM-2 forms from these locals were not used in our estimates.)

Our findings are subject to the limitations of our data; we do not claim that our estimates are particularly precise. But our review of LM-2 reports does allow us to make rough estimates of what a typical union budget might look like, and of the percentage of membership dues that go to various categories.

Among the six unions that we reviewed, representation made up as much as 55.2 percent and as little as 29.5 percent of total spending. On average, the unions we examined spent less than half of their funds on representation. General overhead took up more than a quarter; overhead and administrative costs combined made up nearly as large a portion of union expenditures as workplace representation.

Total Union Spending by Functional Category - click to enlarge

By comparison, an average non-profit's spending on administration and overhead should be roughly half of its spending on core programs. LM-2 forms suggest the union movement is a fairly bloated one, with overhead and administrative costs far out of line with what is needed to support the core union mission of worker representation.

While the Department of Labor deserves considerable credit for updating LM-2 forms and rules, our review revealed numerous weaknesses in the system. An even greater oversight, however, is the failure of the state of Michigan to establish any financial reporting requirements for unions representing state or local government employees.

For decades, the policy in Michigan and other states without right-to-work laws has been to allow  unions to negotiate for and collect mandatory union membership dues or agency fees from the workers they represent. This significant curtailment of workers' rights of free association has been tolerated out of a belief that unions require a reliable stream of funds to represent workers effectively, and that it is unfair to allow individual workers to be "free-riders" who avoid bearing the costs of representation. These assumptions are essential to understanding union objections to right-to-work laws; if unions do not need these funds, the moral case against free-riders loses whatever force it might otherwise have.

A review of LM-2 forms filed by various unions undermines that rationale. Based on the information in these reports, it appears that the typical Michigan union could effectively represent workers on just over half of its current revenue. This could be accomplished by reducing political activism and reining in excessive overhead and administrative costs.

Were Michigan to enact a right-to-work law, empowering workers to withhold financial support from a workplace union, the effect on union revenue would probably be substantial. But unions would be unlikely to see a cut in revenues that approaches 50 percent. A revenue reduction of 10 to 25 percent would be far more likely. This amount should still provide unions adequate resources for representing their workers.

For decades unions have enjoyed privileges rarely extended to other private organizations. This report indicates that Michigan unions have been negligent toward, and in some cases may have abused, these privileges. There does not appear to be a compelling reason for these practices to continue. Michigan unions do not really need all the money they have been given.