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KOVACS and VERNUCCIO: UAW: Building taxpayer burdens

Obama robs John Q. Public to pay auto union workers

- The Washington Times - Wednesday, February 29, 2012

President Obama and United Auto Workers (UAW) President Bob King are touting the "achievement" of the auto bailouts while slamming Republicans who opposed them. Over the weekend, UAW members chanted, "Thank you, President Obama!" at a rally.

Now the UAW is attacking former Massachusetts governor and presidential candidate Mitt Romney for calling Mr. Obama on putting the union ahead of taxpayers and investors. Instead of letting General Motors (GM) and Chrysler go through the normal bankruptcy process, Mr. Romney pointed out, the president gave "these companies to the UAW."

The fact is that the UAW has benefited from billions of taxpayer dollars, not just through the direct bailout of General Motors and Chrysler, but also through various programs that gave government dollars to the union's health care plan. Yet even with the taxpayers supporting it at seemingly every turn, the UAW's health insurance fund is billions in the red.

Five short years ago, the UAW, with help from the Big Three Detroit automakers, set up its Voluntary Employee Benefit Association (UAW VEBA), a trust intended to curb escalating health care costs. The UAW VEBA removed health care liabilities from the Big Three's balance sheets. More than 820,000 Big Three retirees thought their health care was secure. Former UAW President Ron Gettelfinger predicted at the time that the fund would last 80 years. Mr. Gettelfinger's confidence notwithstanding, the UAW VEBA is underfunded by $20 billion, according to Department of Labor records.

The UAW VEBA's liabilities stem from imprudent management. The union negligently miscalculated increases in health costs and assumed an unrealistic 9 percent annual return on investment. Despite the government pouring funds and subsidies into the UAW VEBA since its creation in 2007, underfunding has remained a problem throughout its short history.

Before the bailout, the Big Three committed $57 billion to the UAW VEBA ($33 billion from GM, $9 billion from Chrysler and $15 billion from Ford, the company that did not ask for a bailout). Then, as part of the bailout, the UAW received significant stakes in General Motors (17.5 percent) and Chrysler (55.5 percent).

In addition to the direct handouts, Obama administration policies have substantially increased health care subsidies to unions. The American Recovery and Reinvestment Act stimulus expanded the Health Coverage Tax Credit (HCTC) to VEBAs. For eligible employees, the HCTC removes the responsibility of paying for health care from employers and unions, placing the burden squarely on taxpayers' shoulders instead.

The HCTC subsidy increase expired in 2011, bringing the subsidy down to 65 percent. However, the Trade Adjustment Assistance Extension Act of 2011, which Mr. Obama signed on Oct. 21, once again increased the subsidy to 72.5 percent. The HCTC program amounts to a $10 billion taxpayer subsidy for health care, to which any UAW VEBA participant can now apply.

The Early Retiree Reinsurance Program (ERRP) is another Obama administration policy that directly funds preferred special interests at the expense of the taxpayer. The Affordable Care Act (Obamacare) created the ERRP to offset rising costs of early retirees' health care. The federal government allotted $5 billion to the ERRP, of which the UAW VEBA received $208.8 million, making it the top recipient of ERRP funds.

In mid-February, General Motors, in light of record profits, issued profit-sharing checks to 47,500 UAW members. Paying UAW members bonuses before repaying taxpayers - the federal government owns a 27 percent stake in GM - indicates that the car company has learned little from the bankruptcy and would not hesitate to seek another taxpayer bailout.

This all leads to the questions: How can the UAW VEBA have any liabilities? Why does the federal government continue to subsidize unions? With more than $1 billion in assets and more than 500 officers and employees earning six figures, the UAW can well afford to pay for the benefits it has promised its members before asking for more taxpayer handouts.

President Obama has shown no willingness to stop redistributing the wealth from taxpayers to union bosses. Congress needs to end the flow of taxpayer funds to Big Labor's coffers.

Trey Kovacs is a policy analyst at the Competitive Enterprise Institute (CEI) and editor of WorkplaceChoice.org. F. Vincent Vernuccio is labor-policy counsel at CEI.

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