Published July 05, 2012
Check in to the luxury $187 million Westin Diplomat Hotel on the beach outside Fort Lauderdale, Fla., and you’ll be impressed by sumptuous, art deco features, hotel suites overlooking the ocean, flowing fountains, waterfalls in its infinity swimming pool, the plush green golf course and the top-notch restaurants.
It’s a place even Donald Trump might envy.
You might also be impressed that this opulent hotel is owned by a labor union, and is frequently used for union junkets, government documents show. As is the $15.4 million Hillcrest Golf Club in Saint Paul, Minn. As is the $33 million lakeside resort and golf club in Onaway, Mich., owned by the United Auto Workers Union, a resort now hemorrhaging millions of dollars at a time of auto bailouts and auto job losses.
Labor officials routinely blast U.S. companies for not paying their “fair share” in taxes, and criticize fat-cat pay for executives, especially bankers in a time of bailouts.
“Corporations already pay too low an effective tax rate,“ AFL-CIO president Richard Trumka has said, decrying “astronomical CEO pay.”
James Hoffa, Teamsters president, also has chimed in: “We`re the ones that are fighting the big corporations“ so as “to make sure [they] give their fair share back to the American worker.”
But while labor bosses are quick to pull out the tape measure on companies, they’re not so quick to reveal how they spend more than their “fair share,” tens of millions of dollars, in tax-free union funds on junkets to luxury resorts to even outright buying luxury resorts, country clubs, golf courses and Learjets, at a time when thousands of union members across the country have lost their jobs, when the labor movement is struggling, and when union pension funds are in crisis.
And the IRS tells FOX Business that, thanks to more extensive tax returns it launched in 2008, it has more information on nonprofits, including unions, and is now initiating a preliminary inquiry to see whether nonprofits are breaking tax laws by not paying what they owe.
That includes big unions that run big businesses.
Labor unions are nonprofits, and they rake in millions of dollars a year tax-free in member dues. Unions don’t have to pay federal or state income taxes on member dues or donations, nor property taxes on much of their real estate. Those items are exempt from the very same taxes unions lobby to raise on everyone else.
And government documents show union governance of union funds might not be so state of the art — a problem given added piquancy, since thousands of union workers are now out of work.
Specifically, the government documents show unions enjoy their junkets just like any worker at the General Services Administration.
Because there is little government oversight, federal documents don’t disclose whether union dues were spent, say, on champagne and caviar. But they do show a union predilection to party hard.
The question is, do teachers, firemen and cops really know how their big labor bosses are living it up at their expense?
For example, whooping it up is the country’s biggest government worker union, the American Federation of State, County and Municipal Employees (AFSCME).
It spent more than $2 million on 10 conferences at resorts in Las Vegas, Palm Harbor, Fla. or the Tropicana in Atlantic City in 2010 and 2011.
That includes at least $208,400 in tax-free member dues at the Planet Hollywood Resort in Las Vegas, Nev. for a 2011 conference, government documents show (rooms go for an average $189 a night).
Trumka’s AFL-CIO unions also spent at least $2.6 million in tax-free union funds from 2010 to 2011 on junkets to nine conferences at places like the Flamingo Hotel or Golden Nugget in Las Vegas, and to resorts in upstate New York and Oregon. That includes spending more than $1.7 million at the swanky union-owned Westin Diplomat resort in Florida, the Grand Central of union junkets, government documents show.
The plumbers and pipefitters union eventually used $800 million in union pension funds to buy and renovate the Diplomat hotel, a fifth of pension assets. But it was plagued with cost overruns and delays, and later faced a government lawsuit over imprudent use of union pension funds, leading to the ouster of union officials in 2004, government documents show.
“It’s Florida. Nobody is going to stay there if it looks bad. You’ve got to compete,” an AFL-CIO spokeswoman has reportedly said.
The AFL-CIO also spent hundreds of thousands of dollars in member dues on things like golf outings, golf carts or on trips to Detroit’s Greektown Casino.
Unions even own their own Learjets, like the one owned by the International Machinists and Aerospace Workers union.
Flight records show union officials used this Learjet to fly into Florida earlier this year, where its top boss gave a keynote address at a labor and management conference at the union-owned Westin Diplomat.
(For the full rundown of union excess, be sure to read tomorrow’s part two of this series.)
The unions declined repeated phone and email requests for comment.
FOX News analysts Michael Daniels, John Gallagher, Brian Murphy, Steve Carlson, Andy Ryan and Chris Yablonski dug out information about union-owned bling and junkets submarined in federal documents at the Department of Labor, as well as in IRS tax documents, property records and annual reports. And FOX Business reporter Kathryn Tuggle also added to the reporting of union luxury travel.
Stretching the Law
Union ownership of real estate is legit under the law; they pay taxes on this “non-union business activity,“ and, of course, unions are entitled to have their own conferences. Unions have argued they should keep their tax-free, nonprofit status because their luxury real estate is part of their “self-preservation“ or “expansion“ plans, and junkets are for “member education,“ and “executive council meetings,” government records show.
But the union spending calls into question whether unions are stretching already lax federal laws, as well as whom exactly is having fun at union members’ expense.
What the documents don’t show is whether union members like teachers, firemen and cops get invited to these junkets — or even approve of or know about the use of their dues to outright buy and run resorts, or spend on junkets, among other things. Not to mention whether owning luxury real estate should in turn lower their union dues.
The junket controversy runs up against a 1959 labor law that says union officers must hold or use union funds “solely for the benefit of the union and its members,” like collective bargaining for better working conditions or pay.
Any use of funds beyond the 1959 labor law “is a breach of the union officers’ fiduciary duties and subjects them to civil suits by the union’s board or members“ because “tax-free union funds must not be used for officials’ private benefit,” says Nathan Paul Mehrens, general counsel for Americans for Limited Government, a free-market think tank.
The controversy is also fueled by the fact that labor unions are nonprofits. Officials spend their unions’ tax-free funds on union junkets and bling, as well as campaign activities, government documents show.
“Taxpayers may wonder why union officials are allowed to blow tax-free union funds on these things when unions continually yell about corporations not paying taxes,” says Mehrens.
White House Officials Visit
The Westin Diplomat, owned by a plumbers and pipefitters union, is where President Barack Obama held a fundraiser last April touting his rescue of the auto industry.
It’s also where Labor Secretary Hilda Solis spoke at a union conference in November 2010 about the White House’s efforts to help organized labor win federal construction contracts (even if those same contracts overcharge taxpayers, and when an estimated 25% of non-union construction workers are out of work.)
There is little government oversight of the country’s estimated 20,000 unions, most of which are nonprofits. Nonprofit oversight historically has been subjective, often done on an ad hoc basis via, say, court cases.
“There’s little oversight as to whether unions are getting, say, the lowest cost facilities for their junkets,” delivering the biggest bang for their tax-free bucks, says Mehrens.
And like many other nonprofits, any union can call itself a nonprofit, and can merely “declare themselves tax-exempt,” the IRS says. Meaning, they can simply hang out a shingle and file their taxes on nonprofit tax returns without prior approval from the IRS.
The only way unions and other nonprofits lose their tax-exempt status is if the IRS audits them and discovers they have broken the law. (There is no indication the IRS plans to audit unions.) Because there is little government oversight, the spending data here is likely a fraction of the funds unions actually spent.
Government oversight of unions is primarily the responsibility of the Department of Labor, with roughly 17,800 workers and an annual budget of $12.8 billion. Unions file annual financial reports, among other documents, Labor said.
The IRS is given the daunting task of overseeing an estimated 1.6 million nonprofits in the U.S., including unions.
All nonprofits own an estimated $2.9 trillion in assets and pull in an estimated $1.7 trillion in annual revenues, about 11% of the U.S. economy.
Labor unions’ tax-free status dates back to 1909, when the U.S. Congress first exempted unions from the corporate tax levied by the Tariff Act of 1909. In 1913, the U.S. then enacted the federal income tax and excluded unions from income tax liability. The thinking then was, unions step in to benefit society where the government cannot, by, say, fighting for better pay or working conditions.
Back then, the government let unions own and run real estate like dispatch halls, where union workers could meet to get work assignments. Unions later literally called these halls “labor temples,” like the union-owned Redstone Labor Temple in San Francisco, the Austin Labor Temple in Texas or the Portland Labor Temple in Oregon.
But later, after decades of labor corruption (such as Teamster officials stealing from union pensions), the federal government enacted the “Labor-Management Reporting and Disclosure Act of 1959,“ which says union officers must hold or use union funds “solely for the benefit of the union and its members.”
And now those union “labor temples” somehow have morphed into luxury hotels and country clubs.
Plumbing Union Owns Resort & Spa
Government documents show the Plumbing & Pipe Fitters Union of the U.S. and Canada initially spent $44 million of union retirement money to buy the dilapidated Diplomat Hotel in Hollywood, Fla., in the late-’90s from a union-owned life insurer embroiled in an insider-trading scandal.
Over ensuing years the union spent $800 million in pension funds to demolish and replace the old hotel with a 39-story resort, complete with 60 luxury guest rooms, dining facilities, a spa, 10 clay tennis courts, an 18-hole golf course, and pro shops. The hotel was renamed the Westin Diplomat Resort and Spa.
Federal law does restrict unions from investing large slugs of pension assets in a single investment or in a property with ties to pension trustees. But the Clinton Administration reportedly gave this union an exemption in 1999. The union declined repeated requests for comment.
However, the $800 million in renovation costs were more than $200 million above the hotel’s appraised value of $587 million, a fifth of the pension fund’s assets at the time.
Plus, the union spent this union money without a feasibility study or market analysis, government documents show.
The Department of Labor later sued union officials in September 2002 for imprudent use of the $800 million in union pension funds without getting a feasibility study or market analysis, government documents show.
The government settled the suit in 2004, when union officials resigned and $10.9 million was paid in restitution.
Hotel costs continued to rise, hurting union finances, documents indicate.
But in 2006, the union tried to invest more union money into buying a second hotel across the street, dubbed then the Diplomat West, documents show, so as to shore up sagging finances and attract more customers.
By 2010, the union expanded the proposal, with plans to add more rooms and a golf course.
But the city council nixed the idea. The union does pay taxes on its Westin Diplomat Hotel because it is an “unrelated business activity,” government documents show.
Steamfitters Union Owns Hillcrest Golf Club
Last year, this union bought the Hillcrest Golf Club in St. Paul, Minn., paying $4.3 million in cash for the private club and vowing to keep it private for at least two years, government documents show.
The 112-acre site in St. Paul has an estimated market value of $15.4 million and includes an 18-hole course, a rebuilt clubhouse, banquet hall and a swimming pool.
The union’s members, including retirees, unanimously approved the purchase, using money from a special building fund established in the 1980s and financed by contributions from member paychecks.
The purchase of the course accounted for 64% of the local’s expenses in 2011 (the union pays taxes on the club).
The local may need to increase membership to cover operating costs, which could run as high as $1 million a year, plus build reserves for future maintenance and improvements.
The union has shifted its annual golf tournament to Hillcrest and hopes to work its connections to persuade other unions to do the same, in order to make money at the club, reports indicate.
An official at the Hillcrest Golf Club said the club would “decline the opportunity“ to comment, as “they choose not to highlight themselves in that way.” The official also told FOX Business the union “chooses not to participate in discussing the ownership or running of the club.”;
UAW Owns Black Lake Golf Club
Nestled on Michigan’s Black Lake is the UAW’s $33 million resort in Onaway, Mich. The resort was renovated in the 1990s, and along with hotel rooms, it has a gym with two full-size basketball courts, an Olympic-size indoor pool, exercise facilities, table tennis and pool tables, a sauna, beaches, hiking and biking trails, and a boat launch ramp.
Yet the resort has become the target of critics who argue that the UAW should not own this luxury property while thousands of members have lost their jobs or taken buyouts, when the UAW’s pension fund is in crisis, and when General Motors (GM) and Chrysler got $79.7 billion in bailout funds, helping the UAW. The UAW declined repeated requests for comment.
Despite a slight uptick in membership in 2010 and 2011, UAW membership is down 46% since 2001, government documents show.
In 2000, a $6.7 million golf course was added to the UAW resort. Golf Digest that year ranked it as North America’s second-best “New Upscale Public Course.“ It now ranks 34th on Golf Digest’s list of “America’s 100 Greatest Public Courses.”
From 2005 to 2010, the resort lost an estimated $23 million and the UAW has been forced to borrow to keep it afloat, government documents show.
In 2011, UAW wrote down the value of the property by $1.7 million-$5.8 million, government documents show (disclosures only show ranges). The UAW had considered selling the property, but in 2010, it was taken off the market, government documents note.
In 2011, government documents show $540,000 in unpaid bills.
The UAW pays federal and state income taxes as well as property taxes on its resort. But it doesn’t have to pay state or local property taxes on a big section of the resort, because it qualifies as a school.
This “school“ is the “Walter and May Reuther Education Center,” named after the now deceased auto labor leader and his wife.
The UAW says it sends workers there to “learn, experience unionism (and) commit to labor’s cause,” according to disclosures.
Tax documents show the UAW covers costs for the Reuther Center from the interest it earns on its strike fund.
As the mounting UAW losses here show, golf courses “have not been good investments for the unions and one could easily question whether union officers buy golf courses to further the organization, or whether it is merely a play thing for union officers,” says Mehrens.
Mehrens adds: “One should also consider whether a tax-exempt entity should be allowed to engage in activities outside the scope of their nonprofit purpose, especially when doing so puts it in competition with other” private-sector golf courses, hotels and resorts.
Learjet Owned by International Machinists and Aerospace Union
Union officials have been pretty active using their union’s Learjet-60, purchased for an unknown sum in 1998 (Learjets today cost $13 million new, or around $5 million for used planes).
Government flight records show from February through June 9, union officials flew on the plane 54 times, so on average they were on the plane for about 14 days out of every month.
Union officials used the Learjet to wing around the country to Orlando, Fla., Chicago, Niagara Falls, and to Toronto, Canada, flight records show.
And flight records for the plane also show it was used to wing into Hollywood, Fla., last February, where the Machinist’s union’s international president, R. Thomas Buffenbarger, gave the keynote address, “The State of Our Unions, ” at a union conference at the union-owned Westin Diplomat.
The union declined repeated requests for comment.
In 2011 alone, the union spent more than $1.25 million to operate the plane, government documents show, on items including:
Pilot Salaries: $368,992 (for three pilots)
Hangar Rental: $73,430
Hangar Maintenance: $7,736
“One has to ask whether, when spending millions of dollars on a private jet, union officers are acting ‘solely for the benefit of the organization and its members,’ as the law stipulates,“ notes Mehrens, “or whether this is just a very expensive perk they give themselves simply because they think they can.”