| In the wake of the nearly $15 billion auto industry bailout, there has been much scrutiny of both the companies and unions receiving taxpayer money. First, it was corporate executives from GM and Chrysler privately jetting to DC during the very act of asking for our money. Then, last week, some national scrutiny of the United Auto Workers (UAW) golf course extravagence up in Cheboygan county, where the union actually owns a resort known as the Black Lake Club & Retreat. The local township assessor - in conjunction with the new County drain commissioner Dennis Lennox - have complained about the union's request for a taxable value assessment reduction request by the UAW that was "settled" last year (presumably because the City of Waverly and county "didn't have the resources" to fight the UAW, although accusations are that a county commissioner with UAW ties might have something to do with things as well). But the best research so far comes from J. Justin Wilson at "LaborPains.org", a blog run by the Center for Union Facts (CUF) and Employee Freedom Action Committee (EFAC). And our analysis uses the documents Wilson has uncovered, but provides some additional questions and numerical meaning by making a different comparison. Zarko Research concludes that 'pension dumping' of some kind is occurring as the amounts of both pension and health care insurance in one of the two UAW for-profit subsidiaries is unexplainably "out-of-whack." If someone wanted to give extra benefits or move large amounts of cash to someone, pensions would be an ideal way of doing it tax free and in a very difficult way to trace. There's enough information here to think people at the IRS or Attorney General's office should be taking a look (or some insider blowing the whistle!). Unfortunately, it will be harder for outsiders to look much deeper than what's available given current lax reporting and transparency requirements (which at least required most of what we're analyzing). (Photo at left of clubhouse, hotlinked from Panoramio, credit A & M Photography, Gaylor, MI). Evading local taxes - what's already known. Wilson does a great job at the answering the first question I asked when he publishes and links to the "LM-2" for the UAW. The golf course and education center on it are claimed at $33.6 value (images from laborpains.org). 
But the township of Waverly only collected a state equalized value equivalent of $13.7 million, a number arrived only after the union had gone through several appeals before the Michigan Tax Tribunal which the township apparently settled claiming it didn't have the legal resources to fight the union. That's interesting. The question is which valuation is correct. Since the IRS is only interested in corporate income and not property value, its not clear that the union is evading any federal tax. Its not clear why they'd want to retain an artificially high book value on their federal listings for the property, unless they have thoughts of selling it. But that means they believe it has a market value somewhat higher than the one fought for in the Tax Tribunal, lest they wouldn't bother The question becomes - what is the real value of the property? We don't begrudge anyone the right to challenge taxes when the government overvalues a property - but here the union itself has asserted the higher value. As County drain commissioner Lennox pointed out - these taxes fund local roads and education - and as LaborPains calculated, the taxes on the $19 million difference translate to $770,000. That's a big chunk of money. Discrepancy in Pension/medical insurance ratios between golf subsidiary and education center. Here's where our eyebrows really go up. The International United Auto Workers is a 501c3 501c5 [ed. note:OL apologizes for the typo], non-profit. Such entities are allowed to organize separate c2 (chapter 2) "title holding companies". UAW has had a title holding company since 1949, called Union Building Corporation (UBC). In addition to the $33 million in Black Lake property, it has another $90 million in property (see here for the UBC 990 form utilizing Guidestar.com). It is UBC that filed the petition against the township in the Michigan Tax Tribunal. Neither UAW or UBC have filed "unrelated business income tax" (UBIT) forms (990-Ts), but UBC has formed two for-profit subsidiaries (a valid alternative to the 990-T). One is UBG (think G for golf course) and one is UBE (education center). Naturally, if you're running for-profit business and don't make a profit, you won't pay taxes. Both organizations have "carryover" losses now exceeding $25 million, not including the losses on this year's LM-2s. Laborpains.org notices that the "biggie" in terms of UBE's losses is pensions (again, photo from laborpains.org). The two key documents, already published by laborpains.org here and here, contain a clip. 
Yes, its clear that pensions are the largest reason for the losses, which laborpains.org suggests (paraphrasing) "isn't unusual for UAW pensions" which have been in "disarray" even for the larger union itself and with GM and Chrysler, which recently went through a pension buyout among the rank-and-file. But its not JUST that the pension fund above is the largest part of the UBE losses - that in itself isn't a surprise. Pensions are a big cost any large business - particularly when they are the old defined-benefit pensions which are not funded on a pay-as-you-go basis. It's that the pension fund expenses appear to be really out-of-line with overall wages. So far out of line that you have to wonder exactly who is doing the work to get pension fund contributions. There's a key piece of context here - the $5.91 million in pension fund contributions compares $3.25 million in wages (above the page not pictured by laborpains.org's graphic). Normally, you'd expect the wages to be much higher than the pension contribution - 10 times or perhaps as little as 5-6 times. But not the other direction. And of the 3.25 million, 2.6 million is "general labor" - there is no way the room custodians and general labor are getting that gold-plated of a pension deal. The other half million is "administrative" wages - but even the hotel administrators are unlikely to be able to get away with such a self-dealing (unless they are something more than that to the union leadership). The only explanation in my mind for this kind of pension fund investment is that the pension contributions are for SOMEONE ELSE other than the workers at the hotel. Just who might be receiving the long-term benefit of those contributions? It's not big enough to pay the pension debt of any serious number of rank-and-file union members - but it is big enough to sauce up a few individual's or union leadership. Or perhaps the UAW is using multiple vehicles like this one to cover larger pension fund problems. But this means alot of things - including that the IRS is getting an artificially boosted "loss" and that real tax evasion may be occurring (of course, the union might have another explanation, but this is tough to explain). But there's two other facts that verify this concern. Employee benefits (medical insurance) and comparing the ratios of pensions and benefits between the golf course operation and the education center operation. The education center operation is where the money is being dumped into pensions. First, if you compare the golf course wages ($274,095.34) to golf course health insurance ($57,689.04, or about 20%, similar to medical costs anywhere) and those same wages to the pension trust fund investment ($17,269, or about 6% of wages), you get numbers you'd expect to find in a normal workplace. But when you look at the education center's ratios, pensions are 182% of wages. The golf course verifies that something strange is going on at the education center. But second, when you look at the medical benefits in the resort (added up they are about $2.6 million, or 80% of the wages), compared to the more normal 20% in the golf course, the problem seems to go beyond just pension benefits. If this were just paying off some pension debt somewhere else with a shell-game, then you wouldn't expect it to have a large impact on other categories in the budget. It's almost as if the resort has "phantom employees" receiving benefits - but not receiving wages (probably getting a wage from somewhere else). This is more than just 'pension fund disarray'. Something mighty fishy is happening here. Indeed, I've looked at hundreds of audited accounts and never seen something like this. Auditors are not necessarily to blame - they merely aggregate what's in front of them, and because they are paid by the group they are auditing they have no incentive to dig deeper for explanation. Where from here? As we noted, proving anything to the level of criminal behavior from the available documents is likely impossible. But we encourage this analysis to be considered by the Michigan and US Attorney General or US Attorneys, or other relevant investigators. Perhaps it is all quickly explicable - at which point the union will explain itself to the appropriate people. But the questions we hope will not end here. UPDATE: One speculation, obtained by internet search of people discussing the UAW golf course prior to this analysis, is that the $5.9 million pension fund payment is a loan repayment and that the UAW borrowed from the pension fund to build the course back in 2000. Or at least that's what I glean from this forum discussion at Edmund-Talk, which touches on the issue of pension funds. That's plausible speculation - and might address some of the legal questions - but if I'm a UAW member I'd be mighty irritated to learn that the UAW was gambling my retirement on a golf course venture. Other sources indicate that the UAW claims that UAW International loaned the original money from "interest earned from the strike fund", which would rule that out or expose a UAW lie on the matter. Imagine waking up and your retirement is gone with nothing to back it other than some grass up north. I guess you could live on the golf course, but its might cold in Onway this time of year. UPDATE2: It strikes me that the pension loan explanation above isn't fully consistent with the facts since both the pensions and medical benefit line items are way out of proportion in the education center and neither are in the golf course line items. That distinction suggests that the best theory is some kind of "phantom benefits" or "phantom employees" outside of the operation being accounted for here for some reason. It's a question people should be asking. |
