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December 12, 2008

Unions, employers push for relaxed pension rules

Why rescue Big Three?: 'Cascade of financial damage' awaits with failure of rescue

Trades help Fort-Shelby Hotel make an unlikely comeback

Smooth journey for giant Marathon coker drums

News Briefs


Unions, employers push for relaxed pension rules

By Marty Mulcahy
Managing Editor

Following this fall's calamity in the money markets, as well as the loss of construction man-hours brought on by the declining economy, multi-employer pension plans that serve building trades unions aren't looking for a financial bailout - but they are looking for a change in federal rules to keep them out of a deeper funding hole.

In a Nov. 19 letter to leaders on the House Ways and Means Committee, which holds sway over union pension rules, the Multi-Employer Pension Plan Coalition wrote "to express our deep concerns over the worldwide financial crisis that has resulted in an unprecedented and precipitous drop in the plans' invested assets…."

Specifically, members of the coalition said they were looking for relief from the Pension Protection Act (PPA) of 2006, a law designed to improve the health of pension plans by imposing new accounting rules, changing funding requirements for plans, and establishing benchmarks for plans to show they are staying solvent.

Since the PPA was adopted, pension plan administrators had been counting on an improving stock market and increased man-hours over time to improve funding positions. Then came the crash on Wall Street - and there's no clear end in sight to higher unemployment and a stock market and economic outlook that are probably not ready to move in a happy direction.

The coalition asked Congress for relief for pension plan administrators that would relax funding rules. Failure to do so, the group said in its letter, "would jeopardize the financial viability of contributing employers, and/or require correspondingly deep cuts in the benefits for covered employees, to meet the ambitious funding requirements" of the Pension Protect Act.

John Tesija, a funds attorney for a dozen Michigan-based pension plans, said to simplify a very complex set of rules, assume that a pension fund was 70 percent funded last summer, and was attempting to reach the 80 percent funding level that would put it in a good "green zone" for the new federal pension funding rules. The Pension Protection Act shortened the period for funds to meet those higher funding goals to a ten- or 15-year time-frame.

"Now, this fall, the market creates a 20 or 30 percent loss, so now the fund is only at a 40 or 50 percent funding level," Tesija said. "And man-hours are down in all the trades. That's a tremendous hole for a fund to crawl out of in a shortened period of time."

If the pension funding time frames are not lengthened to 20 years or longer, as the coalition is requesting, the Pension Protection Act calls for increased funding contributions by employers and workers, or benefit cuts for retirees. "No one wants to see that," Tesija said.

The coalition represents some 10 million active and retired workers, and includes a diverse group of 50+ unions, employer associations, large employers, trade associations and other industry advocates seeking to preserve 1,530 multi-employer defined benefit plans. The group is no Johnny-come-lately: it was formed to promote the interests of multi-employer plans after the U.S. market contraction from 2000 to 2002.

AFL-CIO Building Trades Department President Mark Ayers said affiliate union leaders are encouraging Congress "to take action that would provide additional time for plans to meet the funding mandates (in the Pension Protect Act), and to gauge the market contraction and lessen its adverse impact on employment and benefit security in the short-run."

Even the U.S. Chamber of Commerce supports relaxing the pension funding law, signing on to a letter that said "unless the funding rules are modified, they will cause an increase in unemployment and slow economic recovery."

The coalition urged Congress to act before the end of the year. They wrote, ominously, "for many of the stakeholders, delaying action may push the ability to weather this economic storm beyond the point of no return."


Why rescue Big Three?: 'Cascade of financial damage' awaits with failure of rescue

By Thomas I. Palley
Special to Press Associates

DETROIT (PAI) - Bankruptcy of the nation's Detroit-based "Big Three" automakers - who aren't as big as they used to be - poses a fundamental threat to the U.S. financial system's viability. That means funds from the $700 billion bank bailout law, called TARP money, can legitimately be allocated to the auto companies.

The question will come up again, because congressional Democrats, finding that the car company execs had no good plan for how to use the cash, sent them away to construct viable rescue plans for their firms - and told them to come back with the blueprints at the beginning of December.

But even if Congress agrees to allot money to rescue the firms - and, more importantly, their workers - congressional GOP opposition and the GOP Bush regime Treasury's opposition to the bailout is a monumental blunder. It is absolutely critical that the Big Three get help as quickly as possible.

The financial crisis that began in 2007 has been persistently marked by clouded thinking and haphazard policy making. Now, the Treasury is headed for a mistake of historic proportions with its refusal to bail out the Big Three automakers.

Make no mistake, if Detroit's Big Three go bankrupt, the perfect storm really will have arrived with a collapse in both the real economy and the financial sector. This financial threat means the TARP bailout funds authorized by Congress can legitimately be used to support the automakers. Treasury's refusal risks a general meltdown, the consequences of which will extend far beyond America's shores.

Proponents of a Big Three bailout, including the United Auto Workers, have emphasized the enormous job losses associated with a bankruptcy scenario. Those include jobs directly provided by the automakers, as well as jobs with parts suppliers, auto dealers, and the car transportation industry.

They also could include job losses among unionized workers in industries that supply raw materials that go into cars. Those raw materials include steel, rubber, plastic and - for consumption - oil.

These job losses will then be multiplied locally and nationally. Lost wages will reduce consumption, causing additional job cuts, while factory closures will reduce investment, thus hurting employment in capital goods industries. Lost incomes will also cause lower tax revenues, resulting in public sector employment cutbacks.

Other arguments for a bailout are that the automakers are essential for closing the U.S. trade deficit, and their demise could see another surge in imports. The automakers are also the backbone of American manufacturing, driving advances in manufacturing technology and they are needed if America is to be a world leader in the coming "green" transportation revolution.

Additionally, the Big Three are vital to national security, supplying important military transportation assets. Lastly, bankruptcy will impose massive costs on the government's Pension Benefit Guaranty Corporation (PBGC), further worsening the fiscal outlook.

All of this is true. But missing from this array of arguments is the damage Big Three bankruptcy will do to financial markets. In one fell swoop, the hard-won gains to stabilize the financial system will be blown away.

The Big Three and their auto finance associates (such as GMAC) are huge debtors whose liabilities are held throughout the financial system. The auto firms told Congress they have been talking to Treasury about financing for GMAC, Ford Motor Credit and Chrysler's financing arm, but have gotten nowhere.

If the car companies and their finance subsidiaries go bankrupt, the insurance industry will quickly enter a spiral of collapse as it is likely a large holder of these debts. Pension funds will also be hit, imposing further costs on the PBGC.

However, the greatest damage risks coming from the credit default swaps (CDS) market that brought down American International General, the huge insurer that is now virtually owned by the federal government. Huge bets have undoubtedly been placed on the bonds of GM, Ford, Chrysler, and GMAC, and bankruptcy will be a CDS "triggering event" requiring repayment of these bonds.

Moreover, a Big Three bankruptcy will bankrupt other firms, risking a cascade of financial damage as their bonds and equities fall in value and further CDS events are triggered. This is the nightmare outcome that risks replicating the Crash of 1929.

Opposition to the bailout is surfacing the worst of conservative economics that has already got us in this mess. Federal Reserve and Treasury opposition to hands-on intervention meant they were slow to understand the financial system could not be saved by just ring-fencing the commercial banks. Now, they are failing to understand the systemic financial significance of the Big Three.

Conservative hatred of unions is also on display, when it is union weakness that has caused wages to stagnate and forced America to rely on debt and asset price inflation as the engines of growth. Instead, the conservatives are demanding the UAW slash its members' wages and benefits to unrealistically low levels - even after the union and the car companies have already agreed on a two-tier wage-and-benefit system that significantly slams new workers.

Another conservative charge is a bailout would infringe "free trade" rules, but it is these rules that have fostered the trade deficits that destabilized and undermined the American economy - and the car companies. UAW President Ron Gettelfinger made that point in his congressional testimony. The reality is world trade will suffer far greater damage from the global economic fallout of a Big Three bankruptcy.

There's at least one Republican, Tennessee Sen. Bob Corker, who questions the need for three U.S. auto firms. How do we know the others in the GOP even want auto companies to survive?

Lastly, that old conservative favorite of moral hazard is again on display, with claims that American manufacturing will become a permanent beggar of government funds. The fact is business always lobbies Congress for favors and tax breaks, and the Lehman Brothers' experience should have taught the foolishness of mixing moral hazard parables with crisis management.

There are undoubtedly colossal problems in Detroit, and the Big Three could never be convicted of an excess of imagination. But "free trade" economic policy has also contributed to their current condition through trade agreements and an over-valued dollar that have promoted auto imports, as Gettelfinger pointed out to Congress. The car companies did not.

All of this must be fixed. But sacrificing the Big Three will accomplish none of this and risks the real prospect of an economic depression.

(The author is the former chief economist of the AFL-CIO and former chief economist of the U.S.-China Commission).


Trades help Fort-Shelby Hotel make an unlikely comeback

DETROIT - It's not as grand as the recently opened Westin Book-Cadillac a few blocks away, nor is it modern and flashy like the city's three new casino hotels.

The DoubleTree Fort-Shelby Hotel opens this month as a simpler, unpretentious but elegant addition to the city's burgeoning stock of hotels. Slated to open Dec. 15, the renovated hotel will have 204 rooms on floors 2-10, and 56 apartments on floors 11-22. The top two floors will be made into luxury penthouses.

"We're in pretty good shape, we're at the point where we're putting the finishing touches in," said Thomas Simko on Dec. 2. He's vice president of operations for The Brinker Group, which is managing the Fort-Shelby renovation. "To see this place in May 2007, and then now after the phenomenal restoration, it's like night and day. The building is just beautiful."

About 150 Hardhats were on the job in the days before the hotel was slated to open, taking care of those finishing touches. The lobby and the first floor restaurant were a buzz of activity, as was the magnificently restored main ballroom. "They've done a very good job, we've been pleased with the overall experience," Simko said.

Named after a long-buried fort near the building at Lafayette and First Streets, the original construction on the Fort-Shelby took place in two different phases. First a 10-story building was completed in 1917, and when that proved successful, a 22-story tower was added in 1927.

The first tower was completed two years after the opening of the now-demolished Detroit Statler Hotel, which set the standard for new hotels in the city at the time.

According to the Forgotten Detroit website: "Though not as large or grand as the Statler, the Fort Shelby offered patrons many new innovations. Like the Statler, each room had a bath with running water. The building was fireproofed. The guest rooms all offered modern heating.

"There was a hotel-owned automobile garage built across the street. The restaurant equipment was the most modern then available. The hotel's most notable feature were the servidors. A servidor was a compartment built into a guest room door. Each side of the compartment had a door and a signal. A guest could place an item of clothing needing pressing into the compartment and a hotel employee would open the servidor from the hall to collect it. It could also be used to deliver items to the guest without disturbing them.

"The servidor's most praised service was its removing the need to tip employees. The Fort Shelby offered the first servidor service in Detroit." (The servidors didn't make a return to the renovated hotel).

The Pick Hotel chain took over operations of the Fort-Shelby in 1951. By the early 1970s, the hotel was losing money, and it closed in December 1973.

As a hotel, the building has basically been empty since that time. A first floor bar closed a decade ago, leaving the hulking building completely abandoned. Windows were broken, and trees grew from the rooftops, and the roof leaked.

A comeback for the hotel was seen as highly unlikely, and it took years to assemble the right combination of investors and tax credits to fund the $82 million renovation of the building. A deal finally came together about two years ago.

The building was completely gutted and a new floor plan put into place that allowed for larger guest rooms. Simko said the main structural problem was on the west side of the building, where a six-story steel column was rotted by the incursion of rainwater from a leaky roof drain. The fix involved encasing the column in concrete.

"Initially we had to overcome the structural restoration, but overall it's been a pretty straightforward job," Simko said. "Now, in the latter stages, there really aren't so many challenges."

THE ORNATE CEILING in the Detroit DoubleTree Fort-Shelby's Crystal Ballroom is painted by Kal Saaidi of Painters Local 37, working for Madias Brothers.

FINISHING TILE WORK at the front desk of the DoubleTree Fort-Shelby Hotel in Detroit is Emerus Shaw of Bricklayers and Allied Craftworkers Local 1 and Hospitality Stone.

THE FORT-SHELBY Hotel was built along Lafayette Ave. in two stages - the 10-story section in 1917 and the 22-story addition in 1927. The spiffing up of the exterior masonry is one of the most striking aspects of the renovation.


Smooth journey for giant Marathon coker drums

DETROIT - One of the first major tasks associated with the Marathon Petroleum Co.'s Heavy Oil Upgrade Project (HUOP) was the installation of a pair of "coker drums."

Built in Spain, then floated across the Atlantic Ocean through the St. Lawrence Seaway to Southwest Detroit, the drums weighed more than a million pounds each and required tons of special care by the building trades. The massive drums were lowered into place on Nov. 1 and Nov. 3. Mission accomplished.

"There was so much pre-planning, we went over everything," said Boilermakers Local 169 General Foreman Terry Sullivan, working for Mammoet USA, Inc., part of a Dutch company that specializes in hoisting and transporting heavy objects. "We set one on Saturday, the other on the next Monday. We couldn't have done it without a great crew. We had the right guys for the right job."

Upon arrival at docks on the Rouge River, the coker drums were offloaded from barges and onto "golhofers," - multiple axle flatbed trailers with wheels that can turn in an direction and handle uneven terrain. They transferred the coker drums more than a half mile to the Marathon site.

According to Marathon, the new hardware is part of their "delayed coker" processing system at the plant, which will convert asphalt-like material into liquid petroleum fuel blend components and petroleum coke (a coal-like substance). It also will allow the refinery to thermally convert and upgrade heavy Canadian crude oil into higher quality products such as gasoline, diesel and petroleum coke.

Construction on the refinery upgrade began last June and was originally expected to cost $1.9 billion and be complete in 2010. But due to "current market conditions," Marathon announced Oct. 31 that they are "reevaluating the project construction schedule," working on a new timeline and cost estimate, expecting to complete the analysis by the end of the year.

ONE OFTHE TWO "coker drums" - each weighing more than a million pounds - is wheeled into place at Marathon refinery in southwest Detroit. Photo by Terry Sullivan

THE SECOND OF TWO coker drums at Marathon Oil Refinery in Southwest Detroit is lowered into place.



News Briefs

Bush takes parting shot at unions
In a final-days attack on workers' rights, President Bush on Dec. 1 issued an executive order that denies collective bargaining rights to about 8,600 federal employees who work in national security, law enforcement and intelligence.

Nearly 1,000 of the workers currently are represented by a union, and some have been for more than 30 years. The biggest group affected by the order is the 5,000 employees of the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), which is now part of the Justice Department.

Peter Winch, national organizer for the American Federation of Government Employees, the largest federal employee union, says the union is determined to fight the executive order. "Bush's actions are within his legal discretion, but he has abused that discretion," Winch said. "There is no reason for this action. Nothing has happened from yesterday to today to change the national security situation to require such a change.

"We're asking President-elect Obama when he takes office to review all exclusions (from collective bargaining) since 1978. Several exclusions by this president were not done for national security reasons, but to stop unions."

In the executive order, Bush said it would be inconsistent with "national security requirements" to allow the employees to engage in collective bargaining over the conditions of their employment.

This is the same rationale the White House used in 2003 to deny bargaining rights to workers at the Transportation Security Agency, in one of the first shots in the Bush administration's war on federal workers.
- James Parks, AFL-CIO

Most Americans approve of unions
Despite the best efforts of corporate-backed anti-union groups, the Bush White House and anti-worker politicians demonizing unions on the campaign trail, most Americans continue to approve of unions, as they have for the past seven decades.

The latest update from Gallup on union support shows 59 percent of those surveyed back unions, while 29 percent disapprove of them. According to Gallup:

"Americans have generally held a favorable view of unions for decades - with no less than 55 percent of Americans saying they approve of labor unions in Gallup polls conducted from 1936 to 2008."

Not surprisingly, most of the support comes from Democrats and independents. Seventy-two percent of Democrats approve of labor unions, compared with 63 percent of independents but only 38 percent of Republicans.
Also, most respondents said unions should have more influence (35 percent) or the same amount of influence (28 percent), while 32 percent want to see less union influence.

The results reflect what other pollsters have found about public support of unions. More than three-quarters of Americans (77 percent) support strong laws, such as the Employee Free Choice Act, that give employees the freedom to make their own choice about whether to have a union in their workplace without interference from management. Also, some 60 million workers say they would join a union today if they could.
- Mike Hall, AFL-CIO


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