WASHINGTON -- A pending U.S. Supreme Court decision in a case involving mandatory union agency fees among public sector employees won't have much impact on credit ratings if the court rules against the required fees, Fitch Ratings said Thursday.

Mark Janus is an Illinois state employee who is the lead plaintiff in the union agency fees case heard by the U.S. Supreme Court in February.
Mark Janus is an Illinois state employee who is the lead plaintiff in the union agency fees case heard by the U.S. Supreme Court in February. Brian Tumulty, The Bond Buyer

Any change to the spending flexibility among governmental units that results from the court decision is likely to be incremental, according to Fitch.

Labor unions, however, are dreading the impact the ruling might have on their clout in the 23 states, the District of Columbia and Puerto Rico where collective bargaining rights are protected.

One of those states – Missouri – has an August ballot referendum on whether to join the 27 other states with right-to-work laws allowing all workers to opt out of union membership and any dues they collect.

The liberal-leaning Illinois Economic Policy Institute issued a report May 9 predicting an 8.2% drop in the rate of union membership among state and local government employees, which could result a 3.6% decline in wages because of a drop in bargaining clout.

Robert Bruno, co-author of the Illinois EPI report who serves as director of the labor education program at the University of Illinois Urbana-Champaign School of Labor and Employment Relations, said the changes could occur over three to five years.

“If you go to Wisconsin, if you go to Michigan, if you go to Iowa or Indiana, there isn’t just right-to-work laws, there are other limitations on bargaining,” said Bruno, who maintained that's another result of the loss of the power of labor unions.

In 1977, the Supreme Court ruled unanimously in Abood v. Detroit Board of Education that a labor union can require agency fees for the cost of contract negotiations and grievance representation while non-members can opt out of fees for political purposes.

But the court is reconsidering that ruling.

The nine justices of the high court heard oral arguments in February in a challenge by Mark Janus, an Illinois state employee who is seeking to abolish a requirement that he must pay agency fees to his union, a local of the American Federation of State County and Municipal Employees.

Janus is a child care support specialist who has worked for the state of Illinois for about 11 years.

His agency fees are equivalent to about 78% of full union dues. Full union dues include money spent on political advocacy.

The high court split 4-4 in an earlier, similar case decided after the death of conservative justice Antonin Scalia.

Justice Neil Gorsuch, who joined the court last year, is considered a key vote in the Janus decision which is expected within the next month.

Fitch’s report said a ruling in favor of Janus would put all states in the same situation as right-to-work states.

Fitch rates the spending flexibility for 962 state and local governments, 57% of which are or are in right-to-work states.

Among right-to-work states, 9.4% have triple a ratings and 77% are rated double a. Among non-right-to-work states, 6.6% are rated triple a and 73.2% are double a.

Fitch Managing Director Amy Laskey said in press release, “A productive and flexible working relationship can be achieved regardless of the legal structure, in which case the workforce evaluation is a neutral factor.”

“Statewide teacher strikes in several [right-to-work] states in recent months demonstrate that management's flexibility to adjust spending can still be inhibited in the absence of required agency fees,” the report said. “Although Fitch's workforce evaluation focuses on local governments, these events underscore how states can also be affected by labor pressures even though they are generally funders of services rather than employers.”

Organized labor groups, however, say that a ruling in favor of Janus would immediately invalidate many existing worker protections they have bargained for.

“Thousands of municipalities would have contracts invalidated,” Justice Elena Kagan, a member of the liberal wing of the court, said in agreement with the labor unions during the oral arguments in February. “Those contracts probably cover millions, maybe up to over 10 million, workers.”

David Frederick, who represented the American Federation of State, County and Municipal Employees (AFSCME) in court, told the court in February that the issue is whether “states, as part of our sovereign system, have the authority and the prerogative to set up a collective bargaining system in which they mandate that the union is going to represent minority interests on pain of being subject to any fair labor practice.”

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