New U.S. union chief to face war over benefits

WASHINGTON/CHICAGO (Reuters) - When the largest U.S. union for public sector employees elect its first new president in a generation next week it will be a watershed moment. The new chief will be running an organization whose members are fighting almost unprecedented cuts in jobs, benefits, bargaining rights - and increasingly angry taxpayers who question the size of their pension and healthcare benefits.

With many U.S. states, cities and counties struggling to balance their budgets and facing big pension and health care funding deficits, employee costs are the obvious target. Underlining its problems, the labor movement was defeated in a recall election in the state of Wisconsin earlier this month when voters sided with Republican Governor Scott Walker, who had taken bold moves to limit union collective bargaining powers.

The struggle is evident even a few blocks from the site where more than 3,500 delegates of the American Federation of State, County and Municipal Employees (AFSCME) delegates is due to meet in downtown Los Angeles this week. Last Friday, the Los Angeles Superior Court announced that it was laying off 157 workers and cutting the salaries of another 250. And earlier in June, voters in the second and third-largest California cities after LA, San Diego and San Jose, supported imposing curbs on the pensions of city government workers.

The new president will not only have to help the union's 1.6 million members battle to protect their jobs and standards of living but also try to convince a skeptical public - many of whom have seen their own benefits under siege in the financial crisis and its aftermath -- that calls for reduced benefits for public sector workers are undeserved.

The public perception is "that public employees are overpaid, that the public sector itself is overstaffed and that the only victims here are the taxpayers," said Marick Masters, a labor historian at Wayne State University in Detroit.

Labor experts say the contest between Lee Saunders, who is currently secretary-treasury, and Danny Donohue, who is head of the union's New York branch, could be critical as the union decides on how it is going to adapt to an increasingly hostile environment. The current president, Gerald McEntee who backs Saunders and with whom he co-authored a book on how the American dream of equal opportunities is fading away for a middle class hit by the financial crisis, is stepping down after 30 years - 30 years in which union membership has become less popular in the United States, especially in the private sector.

According to the Bureau of Labor Statistic the percent of workers who were members of a union in 2011 was 11.8 percent, dramatically down from 20.1 percent in 1983, the first year for which comparable data are available.

At the same time there are fewer public workers - down to a total of 20.4 million in 2011 from 21.3 million in 2008.

"I think (the election) is tremendously important," said Gary Chaison, professor of industrial relations at Clark University in Buffalo, New York. Chaison said the outcome would affect AFSCME, public sector unions and ultimately the entire labor movement.

The contest could be close. Saunders beat Donohue only narrowly to get his current position in a 2010 election. Saunders, who was not immediately available to comment for this story, is stressing the need for the union to grow. He plans to work with both political parties, aims to make local chapters stronger, and leverage new technologies.

"We've got to continue to grow our union in order to build power within our union," he says in a campaign video. Saunders would be the union's first African-American president.

Donohue is casting himself as the outsider and reformer who will take AFSCME out of the cocktail circuit in Washington, D.C., and back to its grass roots of organizing and mobilizing. He has also been more willing to work with Republican leaders in local authorities.

"We've become checkbook unionists. We can give checks to people, we can contribute to politicians," he said in an interview. "We can win the White House and end up losing our members."

Reports that the union will spend upwards of $100 million to help President Barack Obama win re-election are not officially confirmed. "AFSCME has pledged to significantly invest into the next election cycle" spokesman Chris Flaming told Reuters, adding that two thirds of any spending will go to state and local campaigns.

The right-wing National Institute for Labor Relations Research said that AFSCME spent $66.5 million on 2010 political campaigns.

Donohue said that the union has been too focused on national politics to the detriment of local and state contests. He supports Obama, because "the alternatives are nightmarish," but he believes in building relationships with state legislators, governors and city leaders of either party.

Recently, Donohoue suspended the local union's endorsement of Andrew Cuomo, when the Democratic New York governor made pensions less generous.

"On the national level, the Republican party is not friendly to labor. On the local level you have to look at everyone," he said.

NOT MORTALLY WOUNDED, BUT A PRIME SCAPEGOAT

The Wisconsin defeat and the San Jose and San Diego voter outcome were seen as major setbacks to the labor movement, but in particular it was seen as a big blow to the public sector unions such as AFSCME. While private sector unions were bleeding members in their traditional base in the U.S. manufacturing sector over the past 40 years, the local government-focused unions were relatively unscathed.

But the financial crisis, the housing downturn and the 2007-09 recession combined to create a revenue collapse for almost all U.S. states and local governments. States have saved money by cutting staff and providing less funding to cities and counties, which, in turn are laying off thousands of teachers and other workers.

From May 2011 to May 2012, the private sector gained 1.9 million non-farm jobs, U.S. labor department data shows. Over that same year, state governments shed 14,000 jobs and other local governments 97,000 jobs.

Also, after years of shortchanging retirement systems, many states and cities are short billions of dollars to cover future benefits.

Adding insult to injury, the stock market declines triggered by the financial crisis devastated the investments used to provide the bulk of the funds' revenues. Estimates put the national gap at anywhere between $660 billion and $3 trillion, depending on how investment targets and liabilities are measured.

Taxpayers are worried that dwindling dollars will be pulled from vital state services to pay for pensions seen by some as too rich when compared to the private sector's retirement accounts.

Both candidates pledge to protect pensions. AFSCME, whose origins date back to 1932 when a group of Wisconsin state professionals gathered together in defense of civil services, says that its average member earns less than $45,000 per year and receives a pension benefit of approximately $19,000 a year after retirement.

In the election, McEntee has come under attack for using private jets, with Donohue saying he would end the practice as president, following the protocol of most other unions that require officers to fly commercial. He has also said he would cut the president's salary, which is near $400,000, by $100,000.

"Are they mortally wounded? I don't think so. Not yet. But there is a growing awareness across the country of this issue. Wisconsin was the first engagement in the war," said Mark Mix, president of the National Right to Work Legal Defense Foundation and the National Right to Work Committee, which aim "to eliminate coercive union power and compulsory unionism."

Now, he said, political leaders, even Democrats who have traditionally enjoyed organized labor's support, will "be able to say to the unions, ?Hey you guys have to cut me some slack on some things. If you don't give me some slack, I'm going to start to push. Where else are you going to go?'"

Masters, labor historian, said that to a large extent the unions are being blamed for doing a good job for their members.

"Public employee unions have worked very hard to make government a model employer," he said.

"They have pushed to make them professional, service oriented, well trained, well-educated and well-compensated for the jobs they do," he added. "Today, public employees are a prime scapegoat for the ails affecting government.

(Reporting By Lisa Lambert in Washington and James B. Kelleher in Chicago. Editing By Martin Howell, Tiziana Barghini and Bernard Orr)

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