Good afternoon Mr. Chairman, Mr. Harkin, members of the subcommittee, ladies and gentlemen. Thank you for the opportunity to comment today on the Labor Department’s proposed rule regarding Labor Organization Annual Financial Reports.
I am Jay Cochran, a Research Fellow in Regulatory Studies at the Mercatus Center at George Mason University, and an adjunct professor of economics at GMU. Our mission at the Regulatory Studies Program is to advance knowledge of the impact of regulations on society by conducting careful and independent analyses using contemporary economic scholarship to assess rulemaking proposals from the perspective of the public interest. Thus, the work we do does not represent the views of any particular affected party or special interest group, but rather is designed to evaluate the effects of government policies on overall consumer welfare. I would like to emphasize that the views I express today are my own and do not represent an official position of George Mason University.
In February of this year, I authored a Public Interest Comment on the Labor Department’s proposed union financial reports rule. Mr. Chairman, I respectfully request that those formal comments on the rule be incorporated into the hearing record as part of my remarks here today.
My findings then, as well as my remarks here today, support the idea that the new rules should help union members:
1. Better understand their union’s financial position; 2. Make better decisions about the governance of their unions; and, 3. By making it more difficult to hide fraud or financial mismanagement. The estimates provided in my original analysis of the rule placed its long-run (or lifetime) costs at roughly $11 per union member, on average. My estimate of $11 falls between estimates prepared by the Department of roughly $6 per union member, and AFL-CIO cost estimates that ranged from $14 to $55 per union member based on newspaper accounts of AFL-CIO cost estimates available at the time. The Department’s proposed regulations are an attempt to remedy a variant of the principal–agent problem. That is, the new rules try to correct an information asymmetry between the principals (union members) and their agents (union officials). Under the 1959 disclosure standards established with the Landrum-Griffin Act, it can be difficult for union principals to know the precise applications to which their funds have been put by their agents, because of the summary nature of current union financial disclosure reports. The revised rules increase the volume and substance of disclosure, and, by implication, raise the cost of committing fraud or of hiding financial mismanagement. Basic economics tells us that if we raise the cost of an activity, we are likely to see less of it; and clearly, reducing fraud works to the benefit of union member principals. Of course, better financial disclosure is an important element of improving the financial transparency and accountability of unions to their members, but it is not all. I would suggest, for example, that regular audits by independent accounting professionals, periodic investigations by appropriate Labor Department personnel, as well as examinations of financial data by independent parties—such as union members themselves, journalists, members of Congress, and ordinary citizens—are additional, important tools that complement and complete any enhanced disclosure process. With respect to this last point, Mr. Chairman, I would like to commend you and the members of this subcommittee for your willingness to examine the issue of union financial disclosure more carefully.
Thank you.
