O’Malley Staffer Joins Anti-Union Lobbying Firm, Part Two

In Part One, we described the powerful position of soon-to-be former O’Malley labor liaison Sean Malone and the lobbying activities of his new employer, Lisa Harris Jones. Today, we describe how those things came together in favor of Malone and against one of O’Malley’s biggest backers in 2006 – organized labor.

Mrs. Jones was employed by the Associated Builders and Contractors (ABC), a virulently anti-union trade association, to lobby on HB 1590 last spring. The bill’s intent was to crack down on worker misclassification, a common tax-scam practice in the construction industry. I described how the scam works in a blog post last year:

Under state and federal tax laws, workers are supposed to be classified as employees when they operate under an employer’s direction (such as under established hours of work), use tools and equipment owned by the employer and do not bear business risk. Employers are required to withhold income, Social Security and Medicare taxes and pay premiums for workers compensation and unemployment insurance for their employees. However, many employers misclassify workers as independent contractors and pay none of the above. Workers may (or may not) receive Form 1099 to report income as independent contractors, but these forms are often discarded. This problem is especially severe in construction but also afflicts trucking, janitorial services and other industries.

Employers have a huge incentive to misclassify. FICA payments (Social Security and Medicare) account for 7.65% of an employer’s payroll costs. In Maryland, state unemployment insurance premiums average 7.5% of payroll. Workers compensation premiums can range into the double digits depending on the occupation. All told, cheating contractors can shave 16% off their labor costs – not including workers compensation – when they misclassify. That is a huge advantage in an ultra-competitive industry like construction. Law-abiding employers face a grim choice between holding the line on compensation, cheating themselves or leaving the industry entirely.

State governments can lose massive amounts of unemployment insurance premiums and income taxes due to misclassification. A 2004 Harvard study found that Massachusetts was losing $12.6-35 million per year in unemployment insurance premiums and $91-152 million per year in income taxes. A 2006 University of Missouri-Kansas City study found that Illinois lost $53.7 million in unemployment insurance premiums and $149-248 million in income taxes in 2005. A 2007 Cornell University study found that New York was losing $176 million in unemployment insurance premiums alone per year.

At the time I wrote the above, I argued for a crackdown on misclassification to be included in the 2007 special session’s package. After all, if the state was raising taxes on working people (through the sales tax hike) and on legitimate businesses (through the corporate income tax hike), why not go after tax cheats first? But the General Assembly was uninterested and the issue was punted to 2008.

HB 1590 was a bill put forward by the state’s Department of Labor, Licensing and Regulation last spring after another anti-misclassification bill failed to move. That’s right, this was the administration’s own bill. But Mrs. Jones lobbied against it and the bill was killed on an 18-3 vote by the House Economic Matters Committee. What made her so effective? According to multiple sources, one factor in her favor was her "very close friendship" with none other than the Governor's labor liaison, Sean Malone.

In July, Malone had a lunch meeting with several labor leaders and discussed the administration’s position on the misclassification bill. Malone informed the attendees that they needed to negotiate any bill on misclassification with the ABC – a statement akin to telling the NAACP that they needed to clear their priorities with the Ku Klux Klan. Why? Because, according to Malone, the administration represented both the ABC and labor.

Had Malone forgotten the fact that labor pulled out all the stops to get Martin O'Malley elected while the ABC was an ally of Governor Ehrlich? Had Malone forgotten the fact that one of his chief duties as the Governor's aide was to promote the administration's own bills? And now, just two months later, Malone is taking a job with Mrs. Jones' lobbying firm, which is financed by the ABC.

No one can prove what Sean Malone did or did not do on the misclassification bill – a piece of legislation submitted by Labor Secretary Tom Perez. And no one can prove what understanding, if any, Mrs. Jones had with Malone as the bill progressed last spring. But the fact is that a bill that would have recaptured millions of dollars for taxpayers by going after tax cheats did not get out of committee. And the fact is that America’s worst anti-union trade association financed the effort to kill the bill. And the fact is that the Governor's labor liaison will be a richer man tomorrow while one of labor’s top priorities – an administration bill – languishes in limbo.

Does the Governor know about any of this?

There is one chance for a silver lining. With Malone’s departure, the Governor has an opportunity to appoint a successor who will treat labor – one of his biggest supporters in 2006 – with fairness and respect. Will he take it?

Disclosure: While the author is the Assistant to the General President of the Carpenters Union, this post is not an official statement on behalf of the union.