A Review of Union Financial Disclosure Forms

The Mackinac Center has undertaken a systematic review of union spending based on LM-2 reports. Six unions were examined:

  • International Brotherhood of Teamsters

  • National Education Association /Michigan Education Association

  • United Auto Workers

  • Service Employees International Union

  • American Federation of State, County, and Municipal Employees

  • Carpenters (United Brotherhood of Carpenters and Joiners)

For each of these organizations, we reviewed both the international union and intermediate organization in Michigan. In most cases, we also reviewed up to three local unions located in Michigan, although in the case of the National Education Association, we were obligated to look at a local report from another state.

Our analysis began with each organization's total spending on the five basic functional categories of representation; political activities and lobbying; contributions, gifts, and grants; general overhead; and union administration. We also included fixed assets and purchases of investments (these figures are found on "Schedule B" of an LM-2 form). Benefits for employees and officers were allocated among the five functional categories on the same percentage as wages, and the payment of strike benefits was treated as a representation expense. "Per-capita taxes" - meaning funds that are collected and then passed on to other organizations in the union's structure - were disregarded to avoid double-counting. Other spending categories were also disregarded, since they tended to be minimal.

After developing a spending profile for international, intermediate and local levels of a union, we calculated a weighted average based on spending per member that should roughly indicate the percentage of workers' dues that are spent on representation and other union functions.

In addition, we examined itemized expenditures attributed to representation for the international headquarters of several of the unions listed above. From that, we developed a profile of union "representational" spending.

We should note that a great deal of union financial activity is not covered by LM-2 reports. LM-2 forms mainly cover the receipt and disbursement of union dues and per-capita taxes (i.e. union funds that are collected by one level of a union's hierarchy, but forwarded to another level.) The LM-2 does not cover contributions to candidates or ballot initiative campaigns by union-controlled PACs, nor does it cover union pension or health care benefit funds; the employee benefits listed on an LM-2 form belong to the union's own officers and/or staff.

The reader should bear in mind that our findings are subject to the limitations of our data; we do not claim that our estimates are particularly precise, and the results will be affected by the extent to which unions have misallocated spending, whether accidentally or intentionally. The purposes of many itemized disbursements remain unclear, and since we do not have access to original records, we cannot verify any individual items.

The approach taken by the DOL in creating the LM-2 forms presents two particular problems, both of which are probably unavoidable. Non-itemized expenditures cannot be verified in any manner, and neither can employee time. Employee wages and benefits make up a major part of a union's budget, as they do in most nonprofit organizations, but the LM-2 forms give us no documentation or explanations to back up the time allocations.[*]

In addition, payments among affiliates within a union create an unavoidable double-counting problem. A common practice of union national organizations, and to some extent among intermediate organizations as well, is to make payments to other union affiliates' local organizations. These payments are treated as part of that union's functional spending. For instance, a national organization may make a payment, denoted as "bargaining assistance" to a local. Those funds are prone to being counted twice when the union's overall spending is tallied up, first at the national level and then at the local level.[†]

The double-counting effect caused by intra-union transfers appears to be modest for most unions, but in some cases may involve as much as 10 percent of a union's overall revenues and spending.

With those caveats in mind, 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 representation, politics, charitable work, overhead and administration.

[*] As a general rule, we took the time allocations on LM-2 forms at face value. This was always the case with international and intermediate union organizations. For local unions, we generally started with Michigan locals with the largest listed membership. A few union locals had time allocations that we found implausible, and for these we substituted an LM-2 report from another large, Michigan local. It should be noted that of those reports that were rejected, nearly half claimed that their staff spent no significant time on representation, an admission that was helpful to our case but that we found no more plausible than a claim that every member of the staff spent 100 percent of his or her time on representation.

[†] We examined the possibility of correcting for this problem, but ultimately concluded that the LM-2 form does not currently provide enough information to do this.  Transfers under $5,000 are not noted, and these might have a significant effect on intermediate and local union figures. To the effect that we were able to track intra-union transfers, it would appear that they make up a disproportionate amount of representation spending among many unions.