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Mysterious Union Slush Fund Spends $100,000 Against Costa Mesa Charter

As explained by the League of California Cities, the California Constitution gives cities the authority to enact “charters” and thereby manage their purely municipal affairs without interference from the state. Cities have been increasingly eager to seek charters in recent years in order to free themselves from costly state mandates. Since 2007, voters have increased the number of charter cities from 107 to 121, and voters in three more cities will have the opportunity to consider approving charters on November 6, 2012.

Here are web links to the three proposed charters and the support and opposition web sites for the three proposed charters:

1. City of Escondido (San Diego County) – population 146,032

2. City of Costa Mesa (Orange County) – population 111,600

3. City of Grover Beach (San Luis Obispo County) – population 13,275

  • Charter Proposal as Presented on City Web Site: Measure I-12
  • Yes on I-12 Web Site: Vote Yes on Measure I-12
  • No on I-12 Web Site: http://www.protectgroverbeach.com

The most aggressive opponents of proposed charters are unions, particularly construction trade unions. (See Who Defeated the City of Auburn’s Proposed Charter, and How Was It Done? Answer: Three Union Entities, by Spending $56.40 Per NO Vote.) As confirmed by a California Supreme Court decision in July 2012 (State Building and Construction Trades Council of California, AFL-CIO v. City of Vista), charter cities have the right to establish their own policies concerning government-mandated construction wage rates (so-called “prevailing wages”).

In almost all cases, the state determines the wage rate by adding up all of the employer payments (including payments that are not employee compensation) indicated within the union collective bargaining agreement that applies to a specific trade within the specific geographical region that falls within the jurisdiction of the union agreement. The state does not survey contractors or workers to determine an average or median wage, nor does it consider regional wage statistics calculated by the California Economic Development Department. As a result, state-mandated construction wage rates in California are often much higher than the actual wage rates in a locality. But with a charter, a city can set its own rates for its own projects.

For a comprehensive 92-page guide about government-mandated construction wage rates in California and the status of prevailing wage policies in California’s 121 charter cities, see the recently-published 3rd edition of Are Charter Cities Taking Advantage of State Mandated Construction Wage Rate (“Prevailing Wage”) Exemptions?

As listed above, voters in the City of Costa Mesa have the opportunity on November 6, 2012 to consider Measure V, which would enact a charter. Mailboxes are stuffed daily with slick full-color productions telling the citizens of Costa Mesa how awful life will be if the city frees itself from the benevolent California State Legislature and adopts its own mini-constitution.  (See some of these mailers below.)

ONE entity has spent $100,000 against Measure V as of September 30. (At the rate those mailers are pouring in, it’s likely much more has been spent in October.)

The donor is the California Construction Industry Labor-Management Cooperative Trust. Have you ever heard of it?

The secretive California Construction Industry Labor-Management Cooperative Trust is the sole direct contributor (of at least $100,000) to the No on V campaign in Costa Mesa.

What is the California Construction Industry Labor-Management Cooperative Trust? Where does it spend its money? How does it get its money?

If you want a more detailed but still shadowy idea of how this group spends its ill-gotten money, you can read my May 31, 2012 article Where the California Construction Industry Labor-Management Cooperative Trust Spends Its Money: Now We See How Unions Spread It. But here is a list of the top recipients:

  1. $1,095,000 – Taxpayers to Preserve Community Jobs, No on Measure A, sponsored by labor and management organizations (June 5, 2012 election in City of San Diego)
  2. $770,000 – UCLA Labor Center (aka UCLA Center for Labor Research and Education), part of the University of California Miguel Contreras Labor Program
  3. $250,000 – No 98/Yes 99 – A Committee of City and County Associations, Taxpayers and Environmental Groups, League of California Cities, Californians for Neighborhood Protection, Coalition of Conservationists
  4. $164,550 – “Other” (?)
  5. $100,000 – Apollo Alliance
  6. $100,000 – Paxton-Patterson Construction Lab/Shop in San Joaquin County
  7. $50,000 – Taxpayers to Preserve Community Jobs, No On Measure G, sponsored by labor and management organizations (June 8, 2010 election in City of Chula Vista)

But what’s more interesting is the source of at least some of this money, if not all of it.

A Mysterious Union Slush Fund, Authorized by an Obscure 1978 Federal Law to Encourage Better Relationships Between Unions and Manufacturers, Gave $100,000 to No on Measure V

The California Construction Industry Labor-Management Cooperative Trust contributed a total of $100,000 to the No on Measure V campaign. This is an extraordinarily high amount for a political contribution from one entity, especially concerning a local ballot measure! The head of the California Construction Industry Labor-Management Cooperative Trust is Bob Balgenorth, who is also head of the State Building and Construction Trades Council of California, based in Sacramento.

This is NOT a traditional Political Action Committee. It is an arcane type of union trust authorized by the obscure Labor-Management Cooperation Act of 1978, a law signed by President Jimmy Carter and implemented by the Federal Mediation and Conciliation Service. Inspired by the decline of unionized manufacturing in the Northeast, this federal law was meant to help industrial management and union officials build better personal relationships and cooperate against the threat of outside competition. There are no federal or state regulations specifically addressed toward these trusts, and these trusts do not have any reporting requirements to the U.S. Department of Labor’s Office of Labor-Management Standards. This is an ambiguous and forgotten law that’s ripe for abuse.

It’s Not Union Members that Give the Money to the California Construction Industry Labor-Management Cooperative Trust: It’s Utility Ratepayers and Contractors Working for Extorted Power Plant Owners

Since the 1990s, whenever an energy company or public utility submits an application to the California Energy Commission seeking approval of a new power plant, an organization called California Unions for Reliable Energy (CURE) often “intervenes” in the licensing process. Represented by the South San Francisco law firm Adams Broadwell Joseph & Cardozo, CURE submits massive data requests and environmental objections to the California Energy Commission. The applicant by law is required to answer CURE’s submissions, at significant cost and delay. The chairman of California Unions for Reliable Energy (CURE) is Bob Balgenorth (see above).

If the power plant owner agrees to require its construction contractors to sign a Project Labor Agreement with the State Building and Construction Trades Council of California or its regional affiliates, CURE’s objections fade away and the power plant proceeds unhindered through the licensing process. If the company or utility does not surrender to CURE’s demand, then CURE’s interference and lawsuits continue.

This racket – sometimes called “greenmail” because it’s the use of the California Environmental Quality Act (CEQA) and federal environmental laws to pressure developers to sign Project Labor Agreements – is well-known to the energy industry in California and has been extensively reported in the news media over the past dozen years. (For example, see Labor Coalition’s Tactics on Renewable Energy Projects Are Criticized – Los Angeles Times – February 5, 2011.)

For cases in which the power plant applicant succumbs to CURE’s harassment, the Project Labor Agreement that the power plant owner signs usually contains a provision requiring the owner or its contractors to make a lump-sum payment or series of payments to the California Construction Industry Labor-Management Cooperative Trust.

For example, the Project Labor Agreement signed by the Northern California Power Agency (a conglomerate of publicly-owned utilities) for the construction of the Lodi Energy Center required the agency to shell out $90,000 to the California Construction Industry Labor-Management Cooperative Trust. That amount was dutifully mailed to Bob Balgenorth on August 17, 2010. (For more on this payment, see High Energy: Lodi Center Designed to be a Powerhouse for Chunk of State – Stockton Record – October 4, 2011; also, the union rebuttal on the California Building Trades Council web site – ABC Falsehoods Refuted in Letter to Stockton Record – a denial that the California Construction Industry Labor-Management Cooperative Trust is used for political contributions.)

And Section 13.1 of the Project Labor Agreement signed by the Southern California Public Power Authority (another conglomerate of publicly-owned utilities) for the construction of the City of Anaheim’s Canyon Power Plant required the agency to shell out $65,000 to the California Construction Industry Labor-Management Cooperative Trust.

The California Construction Industry Labor-Management Cooperative Trust reports these payments as “membership dues” to the Internal Revenue Service. Which brings up a question: are the local elected officials who serve as commissioners for the Northern California Power Agency and the Southern California Public Power Authority exercising their responsibilities as “members” to approve $100,000 in political contributions to the No on Measure V campaign in Costa Mesa?

But Wait a Minute…Is It Legal to Have Utility Ratepayers Fund a Mysterious Union Trust Fund that Contributes to Political Campaigns, Such as No on Measure V in Costa Mesa?

In 2009, an internal committee of the Northern California Power Agency discussed whether or not a payment to the California Construction Industry Labor-Management Cooperative Trust was an illegal gift of public funds. (Note the original amount to the California Construction Industry Labor-Management Cooperative Trust was supposed to be $150,000, but aggressive opposition to the Project Labor Agreement forced the unions to cut it down to $90,000 in order to win approval from the board of commissioners.)

To solve this uncertainty, in May 2011 State Senator Mark Leno (D-San Francisco) added a cryptic amendment at the request of union lobbyists and lawyers to the end of a large unrelated public utilities bill (Senate Bill 790) regarding “community choice aggregation.” It added Section 3260 to the Public Utilities Code: “Nothing in this division prohibits payments pursuant to an agreement authorized by the National Labor Relations Act (29 U.S.C. Sec. 151 et seq.), or payments permitted by the federal Labor Management Cooperation Act of 1978 (29 U.S.C. Secs. 173, 175a, and 186). Nothing in this division restricts any use permitted by federal law of money paid pursuant to these acts.”

No one in the California State Legislature – apparently not even Senator Leno – initially knew what this strange new provision meant. In the end, a few legislators such as Assemblywoman Shannon Grove (R-Bakersfield) came to understand and reveal in floor debate that it authorized public utilities to pass on the costs of payments to labor-management cooperation committees to ratepayers. Governor Brown signed the bill into law with the language tacked on the end.

It’s a tangled conspiracy. Especially intriguing is that one union official is the head of the State Building and Construction Trades Council of California, the California Construction Industry Labor-Management Cooperative Trust, and California Unions for Reliable Energy. For more information, see the investigative report of the Coalition for Fair Employment in Construction at this September 23, 2011 post at www.TheTruthaboutPLAs.comA Genuine California Union Conspiracy: Senate Bill 790 and the California Building Trades Council’s Ratepayer Funded Political Slush Fund

Confused about the Conspiracy? Here’s a Chart.

A public utility or private energy company applies to the California Energy Commission for approval to build a power plant.

California Unions for Reliable Energy (CURE) uses its “intervenor” status at the California Energy Commission to submit massive data requests and environmental complaints about the proposed power plant, as a result gumming up the licensing process and causing costly and lengthy delays for the applicant.

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Applicant for prospective power plant surrenders and agrees to sign a Project Labor Agreement with the State Building and Construction Trades Council of California or its regional affiliates. California Unions for Reliable Energy releases its grip of legal paperwork and the project moves forward unimpeded and acclaimed as environmentally sound.

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The Project Labor Agreement contains a required payment or payments to the California Construction Industry Labor-Management Cooperative TrustCalifornia Public Utilities Code Section 3260 – enacted by Senate Bill 790 in 2011 – allows public utilities to pass costs through to ratepayers.

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The California Construction Industry Labor-Management Cooperative Trust reports those payments to the IRS as “Membership Dues,” creating questions about the rights inherent for dues-paying members.

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The California Construction Industry Labor-Management Cooperative Trust makes contributions to political campaigns, such as $100,000 to fund 100% of the No on Measure V anti-charter campaign (Committee for Costa Mesa’s Future, No on V, sponsored by labor and management organizations) in the City of Costa Mesa in 2012.

Solutions

Is there any way this racket can be stopped? Yes. The U.S. Department of Labor’s Office of Labor Management Standards could promulgate regulations that establish restrictions and reporting guidelines for committees authorized by the Labor-Management Cooperation Act of 1978. Even better, Congress could pass legislation amending or repealing the law, and the President could sign it.

In the meantime, enjoy some of the No on V mailers below, brought to you by the California Construction Industry Labor-Management Cooperative Trust!

Is this a photo of a typical meeting of the board of directors of the California Construction Industry Labor Management Cooperative Trust?

If the union officials running the California Construction Industry Labor-Management Cooperative Trust had read Are Charter Cities Taking Advantage of State-Mandated Construction Wage Rate (“Prevailing Wage”) Exemptions?, they would have known that Mammoth Lakes is NOT a charter city.

They should have used a photo of Los Angeles and a photo of the state capitol to show who calls the shots when a California city doesn’t operate under a charter.

Is this the joint in Sacramento where the board of directors of the California Construction Industry Labor Management Cooperative Trust goes for drinks after deciding to spend more money against the proposed Costa Mesa charter?

OK, I get it. If you’re concerned about crushing debt, government mismanagement, and lack of public accountability, vote against the charter and leave your municipal affairs to the prudent and responsible leaders of the California State Legislature.

Kevin Dayton is the President & CEO of Labor Issues Solutions, LLC, and is the author of frequent postings about generally unreported California state and local policy issues at www.laborissuessolutions.com.

California Supreme Court Supports Rights of Charter Cities Over State Legislature

California Supreme Court Declares that the State’s 121 Charter Cities Have a Constitutional Right to Circumvent the Union-Controlled State Legislature and Establish Their Own Policies Concerning Government-Mandated Construction Wage Rates for Taxpayer-Funded Construction

Yesterday morning (July 2, 2012), the California Supreme Court ruled 5-2 in State Building and Construction Trades Council v. City of Vista that the state’s charter cities have the constitutional right to establish their own policies concerning what their contractors are required to pay their trade employees working on construction projects paid for in whole or in part by the charter city. See the decision here.

There has been a recent flurry of cities trying to enact charters to gain some freedom from costly state mandates, especially freedom from the state’s inaccurate and inflated prevailing wage rates that apply to construction contracts of $1000 or more. In the City of El Cajon (in San Diego County), 58% of voters approved that city’s proposed charter on June 5, 2012. That charter includes an exemption from state prevailing wage.

Meanwhile, voters in the City of Auburn defeated a proposed charter with a similar prevailing wage exemption on June 5, 2012 after three union entities spent almost $80,000 to defeat a small local grassroots movement for a charter. Unions spent $56.40 per vote against the proposed charter to keep state control over the city’s contracting rules.

Article XI, Section 3 of the California Constitution describes how a general law city can organize under a charter. The California Supreme Court ruled on July 2, 2012 that the constitutional rights for a charter city extend to governing authority over contracting rules for purely municipal construction projects. In the case of the City of Vista, it established its own policy on prevailing wage in 2007 with the intention of saving millions of dollars on the seismic retrofit of an existing fire station and the construction of two new fire stations, a new civic center, a new sports park, and a new stagehouse for the city’s Moonlight Amphitheatre.

Charter cities are trying to circumvent the state’s prevailing wage laws because pay rates determined under these laws are often obviously much higher than actual regional market rates. In addition, the definitions of public works under these laws apply to projects that no reasonable Californian would consider to be government work.

Instead of surveying contractors or workers or looking at statistics from the California Economic Development Department, the California Department of Industrial Relations uses a system of calculating rates in which all of the employer payments indicated in the applicable union collective bargaining agreement for a construction trade in the union’s geographic region are added up to produce the wage rate for that region.

The state rates even incorporate employer payments to union-affiliated trusts that are not related to employee compensation; in fact, these trusts are sometimes used for union political purposes. Classified by the California Department of Industrial Relations in the mysterious “Other” column of prevailing wage determinations, this component was added to law through a bill signed by Governor Gray Davis just before he was recalled in 2003.

See the state-mandated construction wage rates for taxpayer-funded projects here.

In addition, the state defines a public works project to mean a construction project that gets any sort of public financial benefit. That means the state identifies many privately-owned and privately-built projects as public works projects. Hotels and retail developments become public works projects equivalent to courthouses and city halls.

Few Californians understand the complicated, convoluted, and often ambiguous structure of the state’s laws and regulations concerning government-mandated construction wage rates. For a simple explanation of the state’s prevailing wage laws and the prevailing wage laws of the state’s charter cities, see this guidebook: Are Charter Cities Taking Advantage of Prevailing Wage Exemptions?

To see how state prevailing wage laws could be reformed to produce more accurate rates and more reasonable definitions of public works, see these two comprehensive reform bills introduced by Assemblywoman Shannon Grove (R-Bakersfield) but defeated in January 2012 on party-line votes in the Assembly Labor and Employment Committee: Assembly Bill 987 (reform definition of public works) and Assembly Bill 988 (reform calculation of prevailing wages).

OUTLOOK: In the November 2012 election, voters in the cities of Costa Mesa, Escondido, and Grover Beach will consider enacting charters that allow these cities to establish their own policies concerning government-mandated construction wage rates for purely municipal construction. I predict that dozens of cities will seek this authority from their citizens in 2014.

Here is a compilation of the substantial press coverage about this important court decision:

News Coverage So Far: City of Vista Wins California Supreme Court Ruling – Charter Cities Can Set Their Own Policies Concerning Prevailing Wage


APPENDIX: Union Perspectives on Charter Cities Establishing Their Own Policies Concerning Government-Mandated Construction Wage Rates

1.      Official Statement After Unions Lose in California Supreme Court

“The fight against prevailing wage is part of a larger effort by the super-rich ruling class to fatten their own wallets by forcing everyone else to sacrifice…We will continue to fight at every turn.” – July 2, 2012 statement of the State Building and Construction Trades Council of California in response to the California Supreme Court decision

Source: an article in the Newport Beach /Costa Mesa Daily Pilot, an article in the North County Times, and in an article in the San Francisco Chronicle.

2.      Dialogue at the California Appeals Court oral arguments on November 14, 2008 (one year after devastating fires in San Diego County):

Judge (to the Union Lawyer): “How do you balance (your) argument against a municipality that might say ‘prevailing wages, that concept is going to, in effect, prevent us from building the fire station that we need?’”

Union Lawyer: “The same argument could be made about a lot of laws that cost money.  The way I balance it is to say that when the people as a whole deal through the legislature with a problem that does have real extra-municipal dimension, the interests of an individual locality have to yield.”

Another Judge (to the Union Lawyer): “The response that troubles me a little bit: ‘Well, if they can’t afford to build the fire station, and they have fire problems, that’s their tough luck,’ even though they’re using municipal funds. They’re not using state funds; the state isn’t granting its largess to solve the problem. So the charter makes no difference; the city simply is stuck.”

Union Lawyer: “When you say stuck, they have to follow the exact same rules that every other government entity follows in California to construct things…It’s true the city could say ‘we might be able to get lower bids on our project if we don’t include prevailing wage specifications, and we’d like to do that,’ but where the legislature has dealt with an issue that has extra-municipal concerns, the judgment of the entire legislature has to trump, because there are substantial externalities involved.”

Source: Wildfires: Construction Unions Put Self-Interest above Public Interest in Court Case Against City of Vista’s Right as a Charter City to Set Its Own Prevailing Wage Policies

3.      From a Commentary by Bob Balgenorth (President of the State Building and Construction Trades Council of California) published on July 26, 2007:

The State Building Trades intends to establish with its lawsuit that ignoring the State’s prevailing wage law is not just bad policy – it is also illegal.

Source: “Charter Cities Must Comply with Prevailing-Wage Law,” Capitol Weekly, July 26, 2007. (It took five years for this lawsuit to reach the final and decisive outcome of failure.)

Kevin Dayton is the President and CEO of Labor Issues Solutions, LLC and is the author of frequent postings about generally unreported California state and local policy issues at www.laborissuessolutions.com.