February 20, 2003

Public Interest Comment on the Labor Organization Annual Financial Disclosure Reports Proposed Rule

Key materials
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Rulemaking:

Labor Organization Annual Financial Disclosure Reports  

Stated Purpose:

The Department of Labor is seeking to reform the financial disclosure requirements applicable to organized labor in order to improve the transparency of such disclosures and the accountability of the organizations.

Summary of RSP Comment:

The Department of Labor's Employment Standards Administration is proposing to revise the financial disclosure requirements for labor unions (see Federal Register, December 27, 2002, pp. 79280-79414). Since the enactment of the Labor-Management Reporting and Disclosure Act of 1959, labor union financial reporting has remained virtually unchanged. (In late 1992, some changes to union financial disclosure reports were initiated by the first Bush Administration, but these changes were subsequently rescinded by the Clinton Administration in 1993.)

The Department suggests that more complete disclosure offered under the proposed rule will improve transparency of union financial activities, and thereby enhance accountability of union leadership to rank and file members by making it more difficult to hide financial mismanagement. In addition to existing filing requirements, under the new rule, unions will be required to file 7 other reports including detailed schedules of accounts receivable and accounts payable activity, book value of investments (other than US Treasuries), detailed disbursement schedules of payments to union employees and officers, as well as schedules listing lobbying and other political activities conducted by unions.

Our estimates suggest that over the lifetime of the rule, the cost of these new disclosure requirements will average about $11 per union member. This is somewhat higher than the Labor Department's estimate of roughly $6 per member, but still small if the rule achieves its desired goals. Our analysis suggests, however, that while the proposal may provide net benefits-by improving the transparency of union financial activities-it does not solve the underlying problem of the lack of accountability of union leadership. This is because the usual market checks and balances have been attenuated by government-granted privileges and immunities to organized labor. Since the problem is not with financial disclosure per se, but rather with the market distortions created by government interference in the labor market, it may not be realistic to expect this set of regulations for enhanced financial disclosure to achieve its intended aim.