Federal Labor Reforms Could Be Models for States

Published February 1, 2006

The past several years have seen the United States make great strides toward a freer labor market.

In the following interview, Sandra Fabry of Americans for Tax Reform discusses these federal labor reforms with Ryan Ellis, executive director of the Alliance for Worker Freedom, a pro-market labor group. Ellis describes how some of the federal labor reforms could be translated into good policy on the state level.

Fabry: The issue that’s most on the minds of state legislators is health care. Is there a labor angle here that state policymakers can build upon?

Ellis: In 2003 Congress passed the Medicare Modernization Act, creating a prescription drug benefit in Medicare. One of the other things the act did was to create health savings accounts (HSAs), which could be used in conjunction with consumer-driven, high-deductible health plans.

The two years since passage have seen the beginnings of a seismic shift in health care. More and more private-sector companies are moving toward HSAs. The latest numbers we have show more than two million households currently have an HSA, and millions more are HSA-eligible. Unions are beginning to feel pressure from their members and the employer community to let organized workers benefit from HSAs as well.

I would say states can benefit from this change in two ways. First, all states ought to take a look at what Florida, South Carolina, and Colorado have done or are considering doing: All state employees should have the option of a health plan that includes an HSA. This will save money for state taxpayers and will begin to disentangle government employees from their unions.

Second, states ought to take a look at implementing HSAs for Medicaid recipients. South Carolina, Florida, and now Virginia are just a few of the states looking at this. Besides the obvious cost savings over just writing a blank check to Medicaid, HSAs teach Medicaid recipients responsibility while never taking away the safety net.

Fabry: Another issue state policymakers have to grapple with is the costs of transportation and other state building projects. Has anything been done on this at the federal level that might be useful?

Ellis: One state in particular that is keenly aware of the costs of construction is Louisiana [because of the damage caused by Hurricane Katrina in August 2005]. That state was helped by the fact that it did not have a prevailing wage law in place, which, for complicated reasons, would have virtually ensured that all building contracts go to high-cost union shop construction firms.

For a time [after Hurricane Katrina], until the pressure from organized labor got to be too great, President George W. Bush used his emergency authority to suspend Davis-Bacon, the federal prevailing wage statute.

States ought to take a look at their prevailing wage laws. Many states have them. In the event of an emergency, the governor of any state with a prevailing wage law should have the authority to suspend the act.

Looking even further, any state that has a prevailing wage rule should seriously consider repealing it. These laws only serve to drive up the cost of construction, fleecing taxpayers in order to pay off unions.

Fabry: Early on in the Bush administration, there was a great hue and cry over its modernization of federal overtime regulations, which apply to almost all workers, not just government employees. Are there any lessons for state legislative leaders there?

Ellis: Yes. The first lesson is that Labor Secretary Elaine Chao and President Bush ultimately prevailed. The unions will fight against anything that threatens their power. But that’s okay.

Second, some states have a minimum wage set higher than the federal minimum wage. This is foolish for these states. All that serves to do is create unemployed teenagers and minorities. Because those two groups are the most likely to be working in low-wage jobs, employers often lay them off first when a high minimum wage drives up the cost of doing business.

Also, lawmakers have to realize that businesses, like people, vote with their feet. If a business employs many low-wage workers, it might strongly consider moving a few miles into the state next door, if that state conforms to the federal minimum wage.

Whichever way you slice it, a high minimum wage is a job-killer for states.

Fabry: During the past several years we have seen some very public corporate scandals followed by stricter corporate financial oversight. What has been less reported is that there is now much stricter financial oversight of unions.

Ellis: This series of reforms has the potential to be the most long-lasting and substantial of any that the Department of Labor has embarked upon. There is at present almost no state-level financial oversight of union activity. This “black hole” of knowledge is especially pronounced when it comes to teachers’ unions, because they are not subject to oversight by the Labor Department. Also, few, if any, states subject them to oversight.

For years, unions have gotten away with filing a limited-information, pro forma document known as an LM-2. The Labor Department recently upgraded this form and made it more detailed and required it to be filed electronically. For the first time, detailed union financial records are being made public and searchable to a degree of detail never before seen.

States ought to piggyback on the LM-2 by requiring union locals and state federations of labor to file similar forms in a similar format.

Another reform the Labor Department is in the midst of implementing is conflict of interest reporting. There are two forms here that states can mimic. The first is the LM-30, which requires unions to disclose any financial interactions of any reasonable size that may benefit union officials. A good example would be a union president’s wife being hired as the caterer at the annual union convention and then billing that union.

The other is the LM-10, which requires companies to report any gratuities given to union officials with whom they have dealings. A good example would be taking a union boss on a company trip on the eve of negotiating for a new contract.

There is nothing illegal or even necessarily improper about these potential conflicts of interest. However, union members and taxpayers have a right to know they are going on, so that they can be vigilant in making sure no actual illegal or improper activity occurs.

Sandra Fabry ([email protected]) is state government affairs manager for Americans for Tax Reform.

For more information …

More information about the Alliance for Worker Freedom is available on the group’s Web site at http://www.workerfreedom.org/.

Additional information about prevailing wage laws, minimum wage laws, and other labor-related issues is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to http://www.heartland.org, click on the PolicyBot™ button, and choose the Employment topic.