Vegas Laborers Union Gambles with Union Pension Fund to Build a Union-Only Project

3 July 27, 2009  State & Local Construction, Uncategorized

A Las Vegas Sun article demonstrates how the Laborers Union Local #872 is willing to gamble with their union’s pension fund in order to secure a union-only project labor agreement (PLA) on a new Las Vegas city hall (“Old Vegas-style financing offered for city hall,” 7/17).

A spokesman for Laborers Local 872 said the union hopes to fund at least 30 percent of the beleaguered construction project, which could ultimately cost more than $250 million. The union has been the most aggressive advocate for a project the city describes as a linchpin to downtown redevelopment, and hopes other locals will follow its example…

…In return for its investment, the union would require a labor agreement ensuring its workers would be employed on the project.

It’s not unusual for a union to finance a project with their pension plan funds in exchange for union-only agreements. However, evidence indicates it may not be a responsible investment of pension funds

Case in point is the union-only construction of the Hollywood, FL Westin Diplomat Hotel and Resort which, according to an industry publication, was funded in part by an $800 million investment from the National Federation of Plumbers, Pipefitters and Journeymen’s pension fund – an amount that was nearly 20 percent of the pension fund’s total assets at the time.

The hotel opened in February 2001, almost 18 months late and at a cost almost $400 million above projections after two years of construction. The pension fund fired the original developer and pension plan trustees were sued by the U.S. Department of Labor under auspices of the Employee Retirement Income Security Act (ERISA), a conflict of interest statute designed to prevent the trustees of a multiemployer national pension fund from engaging in self-serving actions and to ensure fund investments are prudent.

According to reporting by Engineering News Record, the suit eventually led to an Aug. 2, 2004, settlement with the Labor Dept. where trustees Maddaloni and Patchell paid an $11-million civil fine. The settlement allowed union leaders Maddaloni and Patchell to keep their union posts, but they had to resign as trustees of seven pension funds.

It is doubtful that the Laborers Local #872 have learned from the Diplomat Hotel debacle as it has been reported that the union’s members have packed City Council meetings, and its leadership spent $200,000 this year to sink the efforts of a rival union that sought to derail the project.

The Culinary Union, the state’s largest and most powerful labor organization, lambasted the new city hall as fiscally irresponsible, especially at a time when the city faces deficits and has announced cuts in public services.

Labor experts said it’s not unusual for a union to invest in municipal projects, but the size of the union’s potential investment raised eyebrows. According to the city’s latest estimates, the new city hall will cost $157 million, which means the union would put up $47 million to $79 million, or nearly a quarter of its pension fund.

“That’s unusual,” said Ron Seeber, a labor and industrial relations professor at Cornell University. “To have a significant amount of chits in one basket like that seems to stretch the boundaries.”

It’s unusual and fiscally irresponsible, especially when your union pension plan is in the endangered status.

Like hundreds of other union pension plans across the country, the laborers fund recently notified participants that its plan was “endangered,” meaning less than 80 percent of the union’s retirement obligations are funded. The laborers fund also took a hit in the Bernard Madoff scandal: the plan joined a class action suit in April, alleging it lost millions of dollars because of a financial management firm’s investment in Madoff-connected funds.

Still, Morley, the laborers official, said the union’s pension fund weathered the economic collapse well and that the plan “made out better than 90 percent of trust funds.” He called the new city hall a sound investment. “We consider it a secured project,” Morley said. “We don’t see the city leaving and not paying the rent.”

You can review the union pension plans in “endangered” and “critical” zones here.

So how economically safe is this investment?

Municipalities have traditionally been a safe investment. However, the city faces a $150 million deficit over the next five years. And for the first time, ratings agency Moody’s Investors issued a broad caution on investing in local governments, noting that cities relying heavily on tourism and gambling pose among the greatest risks.

Morley said that last month the union’s executive board voted unanimously to invest pension money in the new city hall.

Goodman on Thursday declined to comment on the talks surrounding the pension fund proposal, but raised the possibility during a City Council meeting July 1.

And then there is this disturbing parallel.

The plan recalls Las Vegas’ sordid history. Starting in the early 1960s, the Teamsters’ Central States pension fund, under the direction of James R. Hoffa, loaned tens of millions of dollars for investments in Las Vegas casinos, including the Desert Inn, Caesars Palace and the Stardust. The loans were made to people connected to organized crime.

The perception of engineering a union deal with Goodman, a former mob lawyer, wasn’t lost on Morley.

“People made comments,” he said. “I believe they mentioned the Hoffa days.”

Morley added: “That doesn’t bother us at all. Oscar Goodman is an honorable friend to Local 872. But more than anything, I want my members to continue to work and live decent lives.”

Those familiar with common provisions in PLAs that require non-union workers and their employers to pay into union pension plans as a condition of working on a PLA must be scratching your heads. Why? Because non-union workers forfeit and won’t benefit from these sizable contributions unless they join and become vested in a union. What’s worse, these forfeited funds will be used to finance a job that they will be locked out of unless their employer agrees to the inefficient and discriminatory terms of a PLA. It’s a negative feedback loop of deception and unfairness. will be monitoring this project closely for PLAs and any improprieties by pension fund trustees. Let’s hope the U.S. Department of Labor under the new administration will do the same.

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3 Responses to Vegas Laborers Union Gambles with Union Pension Fund to Build a Union-Only Project

Right to Work Blog » Blog Archive » Vegas Laborers Union Gambles with Union Pension Fund and Taxpayers Funds to Build a Union-Only Project July 31, 2009 at 4:03 am

[…] on Las Vegas Residents and businesses already suffering in the Obama economy.  Ben Brubeck’s blog post and the Las Vegas Sun provide additional […]

jimmy h December 27, 2009 at 1:09 am

the rules on what can happen during a strike will change soon. For your families sake do not cross picket lines! There will be no enforcement of law since the strikebreaker will, under the new law, already be inciting violence. DO NOT CROSS PICKET LINES!!!!!!!!

The National Right to Work Committee® | Vegas Laborers Union Gambles with Union Pension Fund and Taxpayers Funds to Build a Union-Only Project March 10, 2013 at 1:28 pm

[…] on Las Vegas Residents and businesses already suffering in the Obama economy.  Ben Brubeck’s blog post and the Las Vegas Sun provide additional […]

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