Labor:

Old Vegas-style financing offered for city hall

Then, union pension fund loans built casinos; now, laborers, desperate for jobs, offer loan to government

SUN FILE PHOTO

Mayor Oscar Goodman has declined to comment on the laborers union offer but has noted the difficulty of financing a new city hall.

By Michael Mishak (contact)

Friday, July 17, 2009 | 2 a.m.

COURTESY CITY OF LAS VEGAS

Artist's rendering of Las Vegas city hall project. Las Vegas plans to build a 303,000-square-foot city hall at First Street and Clark Avenue.

City Hall project gets support, leaders note risks (7-1-2009)
For mayor, unusual disappointments (6-26-2009)
Goodman: Economy could kill City Hall project (6-18-2009)
Supreme Court sides with council in city hall battle (5-28-2009)

Taking a page from the city’s past, the laborers union has offered to finance as much as half of the cost of a new Las Vegas city hall — from its pension fund.

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.

“We decided to step up to the plate and put our money where our mouth was,” said laborers spokesman Tom Morley, who also serves as the union’s political director. “We’re willing to step up and make sure that this project goes through ... We want those jobs.”

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

For the city, and Las Vegas Mayor Oscar Goodman in particular, the proposal could be a shot in the arm.

This winter, Goodman said the city would be “cheating our future” if it scrapped the city hall plan, comparing the development to Depression-era projects such as the Empire State Building and Rockefeller Center.

But after months of bullish assessments, city officials have started to acknowledge the harsh economic realities.

Last month, Goodman cited sluggish credit and bond markets as the primary obstacle to funding the new city hall. The city had planned to sell to investors special certificates of participation to pay for the project.

The city expected to offer the certificates at an interest rate of 5 percent. But potential investors balked because, unlike general obligation bonds, the certificates do not have a dedicated funding source. The city, which would decide each year whether to make payments, would have had to raise the interest rate to 7.5 percent to sell them, adding millions to the cost of the project.

In some ways, the laborers’ offer is not surprising.

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.”

The sheer size of the possible investment signals the acute desperation felt by the building and construction trades as Strip construction projects stall and dry up.

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.”

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.

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.”

Reporter Sam Skolnik and Sun librarian Rebecca Clifford contributed to this report.

Discussion: 8 comments so far…

By bdover

7/17/09 at 10:02 a.m.

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If I was a member of Local 872, I would be concerned that investing such a large amount of my money into a single project night jeopardizes my retirement. Public projects in this town tend to go way over budget-Can you say Clark County Courthouse? While it does produce Union jobs, you wonder about the risk/reward factor. Yes, cities don't go under, but another CC courthouse disaster might stall any more city development for years. And note I didn't even mention Fontainebleu...
By CynicalObserver

7/17/09 at 1:12 p.m.

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Part 1 of 2:

This is a serious comment which I hope the Laborers' Union, their business managers, advisors and lawyers and City officials will take to heart. It is a warning without any malice towards building of a new City Hall.

Back in the Recession of 1980 to 1982, the multi-employer construction industry pension funds in L.A. wanted to invest their pension assets in construction loans, to spur the construction industry and create construction jobs when mortgage loans were hard to get. The unions created a "coop", where each construction trade's pension fund would invest some of their assets in each construction loan the coop made. The coop had a very reputable L.A. law firm doing the legal work to underwrite the legal risks of, document and close the loans. The coop had two tiers of business advisors, one from the real estate investment industry and one from the pension industry, underwrting the loans from an economic point of view. To my knowledge, none of those construction loans ever went into default.

Surprise, surprise, in 1986 the U.S. Department of Labor personally sued everyone involved on behalf of the pension funds: pension trustees, business advisors, underwriters, individual lawyers, law firms, accounting firms. The Labor Department's view was that the investment of construction industry pension fund money to create construction industry jobs was a breach of fiduciary duty, because the welfare of retirees was put at risk for the benefit of others, who were not yet pensioners. The law under which the claim was brought was called ERISA.

After a year or two of really ugly and expensive litigation, here's what happened: All of the pension trustees were removed and paid huge fines, for which they had no insurance. All of the investment advisors, business managers, and accountants were removed and paid huge fines, for which they had no insurance. All of those people were permanently barred from having any involvement with any pension funds again.

The "first name lawyer" for the law firm representing the coop which made the loans was forced by the Labor Department to retire, and stipulate that he would never again have anything to do with construction industry pension funds. His law firm's malpractice insurer was forced to pay "full policy limits" to compensate for the lawyers' malpractice in failing to heed ERISA. Regardless of whether or not they had been involved in making the pension fund coop loans, every partner in that law firm had to go into his own pocket and pay a very, very big sum to the Labor Dept., over and above what the malpractice insurance paid.
By CynicalObserver

7/17/09 at 1:18 p.m.

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Part 2 of 2:

The lawyers and accountants' professional misconduct was officially reported by the Labor Dept. to their respective California licensing agencies.

The only people who the Labor Dept. graciously allowed to escape the disaster unscathed were the secretaries at the investment advisors, underwriters and accounting firms, and the young lawyers who were mere employees not partner/owners of the law firm.

This "resolution" of the Labor Dept's enforcement of ERISA was handled very quietly, but reported in California legal publications. The caption of the lawsuit, filed in U.S. District court, was something like U.S. Dept. of Labor v. Bley. At the beginning of the case, the Labor Dept. got a court order that no pension fund money could be used to defend any of the parties.

While the Laborers Union may be well intentioned NOW, the prosecution in the L.A. construction industry pension fund case set a very strong precedent in the Labor Dept. for not allowing multi-employer construction industry pension fund money to be used to create construction jobs in a recession.

Everyone involved in making a loan to build the City Hall, which may seem like a noble idea at this time, will end up being prosecuted under ERISA if this loan goes through. Does anyone involved personally want to go through several years of ugly litigation, paying their own attorneys fees, and then pay a huge fine out of their own pocket?

And dear Oscar Goodman, you were Morris Shenker's lawyer. You know that one of the driving forces behind the enactment of ERISA was Mr. Shenker's alleged control of a Teamsters Pension Fund. Do you realize that just because of that fact, you dear Oscar could end up being the first named defendant in the case, just because of Labor Dept. nostalgia for the old days?

Please guys, don't do this. There are still lawyers working in the Labor Dept's legal department who were there when ERISA was passed. Some of them had Federal marshals guarding them, for fear of assassination by you know who. I know this because one of those guys was my ERISA professor, and he's still at Labor.
By unionmember

7/17/09 at 3:42 p.m.

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I have been a long standing member of Laborers #872 and attend all membership meetings. I trust in the leadership of my Union and I highly doubt that any of this is true. I believe the newspaper has grossly misconstrued the situation.
There was never any loan coming from Local #872. There were talks between Developers and Real Estate Investment Managers that are professionals who currently manage real estate and have a responsibility to the pension plans that they currently manage.
My Local has been rebuilt from the ground up by our current leadership who has gone out of their way assisting our brothers and sisters which is part of the reason they have ran uncontested for the past three elections. I also know that they have worked directly with the Department of Labor to ensure that Local #872 is ran as a top notch organization.
It saddens me that a reporter from a so-called Union friendly newspaper must be kissing the Culinary Union's ass.
Those of you that understand unions and ERISA pension funds would know that an Executive Board of a Local Union has no control over a pension fund. Therefore I find it very hard to believe that the reporter that printed this actually knew what he was talking about. However, I will recommend to the Business Manager of Local #872 that Mr. Morley be terminated immediately for his comments whether they were misconstrued or not.
As a member of Local #872, I know that Mr. Morley is not an Official of my Local nor has ever been and was not authorized to speak on behalf of Laborers Local #872's leadership, pension funds or membership.
By Philly_Gambino

7/28/09 at 4:44 p.m.

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Investing union pension plan funds in a union-only job sounds like a real mess.

This reminds me of the union-only job at the Diplomat Hotel in Florida that was funded with pipefitter pension money.

I googled it and found this interesting blog:

http://www.thetruthaboutplas.com/2009/07...
By unemployed_legal_american_citi

8/6/09 at 10:12 a.m.

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HEY "UNION MEMBER" DO NOT CHASTISE MR MORLEY TOO MUCH ! REMEMBER THE LAST OFFICIALS of YOUR LOCAL WHERE EITHER FIRED OR SUSPENDED FOR STEALING FROM THE PENSION FUND,THEY NEVER DID CATCH THE LAST BUSSINESS MANAGER WHO STOLE MILLIONS !YOU SPEAK HIGHLY OF YOUR UNION NOW, BUT YOU ARE ONE OF THOSE GUYS WHEN SOMETHING OR SOMEONE DOES NOT MAKE YOU HAPPY YOU TURN ON THEM LIKE A SNAKE !YOU ARE PROBABLY ONE OF THOSE UNION GUYS WHO go back to union officials when other members speak their comments about them. YOU ARE ONE OF THOSE RATS WHO GO FROM JOB TO JOB, STANDS AROUND ALL DAY AND DO NOTHING AND GIVE THE UNION A BAD NAME !!!!!
By unemployed_legal_american_citi

8/6/09 at 10:20 a.m.

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ARE THEY GOING TO HIRE LEGAL CITIZENS ?? 3 OUT OF 5 UNION CONSTRUCTION WORKERS AT THE CITY CENTER PROJECT WORKING FOR PERINI ARE ILLEGAL IMMIGRANTS !! MANY LEGAL UNION MEMBERS ARE SITTING AT HOME UNEMPLOYED WHILE ILLEGALS ARE WORKING ! SOMETIMES 10 PEOPLE A DAY COME FROM THE UNION HALLS WITH BAD SOCIAL SECURITY NUMBERS, TO MAKE IT "LOOK" GOOD, PERINI SENDS SOME HOME BUT "KEEPS" MANY !tHE COSMOPOLITAN JOB ON THE CITY CENTER SITE refuses TO ACCEPT TRANSFERS FROM PERINI BECAUSE THE OWNERS OF THE COSMO WANTS ONLY LEGAL CITIZENS ON THEIR SITE !! IT IS A SHAME THE REST OF CITY CENTER DOES NOT HAVE THESE VALUES !
By unemployed_legal_american_citi

8/6/09 at 11:51 a.m.

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IF THE UNIONS HAD BETTER WORKERS INSTEAD OF A BUNCH OF BUMS WHO COULD NOT STOCK SHELVES AT WAL MART< THEY WOULD NOT HAVE TO TAKE PESION MONEY TO FUND JOBS ! IT IS A HORRIBLE THING TO SAY BUT UNIONS PROTECTED AND HELPED GOOD WORKERS OVER THE YEARS ! NOW THEY PROTECT BUMS< IT IS A DAMN SHAME !!