Money Well Spent?

Thanks to a practice known as "agency fee," state and local governments last year spent around $150 million to fund private organizations that generally advance bigger and more expensive government. This expenditure doesn’t appear on any government budget as a line item, but agency fee involves real money that has real impact on state and local government, as well as on workers’ freedom.

On paper, agency fee means that all workers covered by a collective bargaining agreement must either join the union or pay an amount equivalent to union dues. Typically the employer agrees to collect those dues and fees for the union. Agency fee is often described as "forced dues," because employees are compelled to pay union dues to keep their jobs. But when government employees are involved, there is a case to be made that agency fee is something that ends up costing taxpayers.

There’s no law that requires the state of Michigan to impose agency fee on state workers. First of all, government employee unions are creations of state law. Michiganians, accustomed to collective bargaining, may be surprised to hear this, but state governments are not obligated to engage in collective bargaining. Several states, including fast-growing Virginia and North Carolina, do not allow government employees to bargain collectively at all.

Or states can allow government employees to bargain collectively without forcing workers to pay union dues. Twenty-three states have right-to-work laws, which prohibit agency fee clauses. Indiana gives public school teachers the same protection.

But even in Michigan, which lacks right-to-work protections, state and local governments are free to negotiate contracts without imposing forced union dues. Unions, for obvious reasons, place a premium on the agency fee clause while governments, like most employers, tend to back down on the issue. But there’s nothing in state or federal law that requires any government entity to implement agency fee.

Under a string of U.S. Supreme Court cases, workers who are subjected to forced dues may ask for a partial refund. In theory, their payments to the union should be limited to their share of the costs of worker representation, leaving them free of the costs of union political and social activity. In practice, the process for determining the refund is burdensome, clumsy and largely controlled by the union itself. The practical upshot is that workers have little control over dues money.

Which leads to the question: When government collects money out of its employees’ wages — paid with tax dollars — and turns that money over to a union under the terms of a contract signed by government officials, with little employee control over the process, who is it really that’s paying union dues, government employees or taxpayers?

We estimate that agency fee clauses in state government employee contracts extracted $18.9 million dollars last year. This amount only covers the state civil service; local governments and public schools employ several times as many unionized employees. The full cost of agency fee for Michigan taxpayers is likely to exceed $150 million, all of which went to some of the most intractable opponents of government reform in the state.

Since their dues income coincides with the number of state employees, government employee unions can be counted on to fight layoffs or any other changes to government operations that might make fewer government jobs available, and to support tax increases over spending cuts. Union demands for work rules and pay hikes in collective bargaining will tend to make government services more costly as well. When government officials sign an agency fee contract, they are effectively agreeing to fund a permanent lobby for more expensive government.

State taxpayers should ask whether all that is money well spent. Passing a right-to-work law covering government employees will take the responsibility for funding government employee unions away from state officials and leave it completely in the hands of government employees — where it belongs. In the meantime, state and local government officials should call for the removal of agency fee from the next set of government employee contracts. In a time of unprecedented economic difficulties, it makes no sense for Michigan taxpayers to fund organizations whose main effect is to increase the size and cost of government.


Paul Kersey is senior labor policy analyst at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.


Employees who don’t want to join a union are often compelled to pay dues under a practice known as “agency fee,” a policy that drives up costs, stifles flexibility and denies workers’ rights. In Michigan, state and many local governments choose to impose agency fee on employees, but when they do it’s residents who pay.

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