Teamsters Nearly Broke

The Washington Post

Spending Habits Put Teamsters in Bind

Union Dipped Into Principal to Pay Bills, Leaving It Nearly Broke

By Frank Swoboda
Washington Post Staff Writer

Tuesday, February 17, 1998

When he first was elected president of the Teamsters six years ago, Ron Carey immediately began eliminating the perks of the union's old-guard leadership. Within months, he had eliminated the jets, the limousines, the multiple salaries and double-dipping pensions.

But one thing Carey didn't change from his predecessors was the practice of living beyond the union's means.

Teamsters financial records, which have been leaking out of the union over the past three weeks, show the union is nearly broke, with a net worth after the first nine months of 1997 of $702,000. The total damage for the year won't be known until sometime next month, but if the losses continued at the same rate during the last three months of the year, the Teamsters would be in the hole by $4.5 million.

Until recently, the union's deteriorating financial condition has been overshadowed by the financial scandals surrounding Carey's narrow reelection victory over rival James P. Hoffa in 1996. The election has since been overturned and Carey has been disqualified from seeking office as a result of the financial schemes involving his reelection campaign.

The Justice Department, which has been overseeing the union for nearly a decade, and a House investigations subcommittee are now at work trying to figure out how the nation's second largest union with an annual dues income level of nearly $90 million a year could be nearly broke. The Teamsters had about $150 million in the treasury when Carey took office.

So how did the financial free fall occur?

The simple answer is that the union has been dipping into its principal to pay its bills rather than cut back its spending for nearly two decades. By the time Carey took office as Teamsters president on Feb. 1, 1992, it had already been eight years since the union took in enough dues money to cover expenses. The union was simply using its investment reserves to make up the difference. In the banking industry, it's known as asset conversion. At the household level, it's like selling your TV to pay for groceries.

The Carey administration, in a fact sheet put out by the union to explain its financial problems, said the international union was on a course to go bankrupt by 1994 when Carey took office in 1992. It said that in 1991 alone, the last year under the union's previous leadership, the Teamsters lost $39 million.

The amount of dues earmarked for the national union operations has not increased since 1983, the union said. Under the current dues structure, local unions collect two hours of wages per month from each Teamsters member. From that money, the local unions send $3.90 a month per member to the national headquarters to pay for everything from salaries and pensions for the 500 employees to the cost of contract administration, organizing campaigns and strike benefits.

The national union has been receiving an extra $1 a month per member since 1994 as part of a special dues assessment that automatically goes into effect when the value of the union's net assets drop below $20 million.

Although it was aware of the union's financial situation, the Carey administration said that when it took office in 1992, it was "committed to modernizing the international union to fight for working families in today's global economy. Despite declining resources, the international union needed to greatly expand activities that had been nonexistent or minimal in the past."

In the end, however, it was the union's decision at its 1991 convention to boost strike benefits from $55 to $200 a week without any plan to pay for the increase that accelerated the pace toward near bankruptcy. In March 1994, Carey proposed a union-wide dues increase to pay for the increased strike benefits and assure that national dues, like those at the local level, would rise with members' wages. The membership voted it down by a 3-to-1 margin.

The rest is a matter of history. Strike benefits were initially dropped and then restored to $55 a week with the money continuing to come out of the union's general treasury. Although the benefits were lowered, strike activity increased and the pace of the financial drain accelerated.

In the first nine months of 1997, Teamsters Secretary Treasurer Tom Sever said, the union had a net loss of $15.4 million, leaving it with a net worth of $702,000 at the end of September. Sever attributed most of the loss -- $12.2 million -- to last summer's 16-day strike against the United Postal Service of America Inc. and the continuing cost of supporting the 2 1/2-year Detroit newspaper strike.

Sever and other union officials insisted last week they will be able to reduce future expenses without cutting services to the union's 1.4 million members.