In July, the Freedom Foundation filed a series of three complaints with federal and state authorities alleging the Pennsylvania State Education Association (PSEA) — the state teachers union — violated an array of campaign finance, labor and tax laws. The crux of the allegations was that PSEA illegally laundered nearly $1.5 million in members’ dues through an unregistered political committee and the Democratic Governors Association (DGA) to back Gov. Josh Shapiro’s 2022 gubernatorial campaign.

PSEA’s initial response to the complaints was to deny any wrongdoing, telling local press its conduct was “lawful.” On August 7, however, the Pennsylvania Department of State’s (DoS) Bureau of Campaign Finance requested PSEA respond to the allegations in the Freedom Foundation complaint subject to its jurisdiction. PSEA’s Sept. 6 response to DoS contains some startling admissions — and omissions.

1. PSEA admitted it uses members’ dues to support and oppose candidates for office.

For years, the PSEA has repeatedly told its members in writing that none of their dues are used to support or oppose candidates for office, correctly noting that Pennsylvania law prohibits unions from contributing to candidates out of their general funds.

For example:

• At least since the 2018-19 school year, PSEA’s membership enrollment forms for both teachers and education support professionals have stated that, “No dues dollars may be given to political candidates.”
• A document posted on PSEA’s website entitled, “Questions & Answers about Organizing,” states, “PSEA cannot use dues dollars for direct or in‐kind contributions to any candidates or political parties. PSEA cannot use dues dollars on activities or communications on behalf of any candidates that go to the public.”
• PSEA officials have been quoted in PSEA publications as stating that “no members’ dues are used to fund political candidates.”

Nonetheless, the Freedom Foundation complaint to the DoS alleges that, since 2018, PSEA has operated a political organization named the Fund for Student Success (FSS) that is funded entirely by PSEA’s general dues revenue and used to make expenditures supporting and opposing political candidates.

In its response to the DoS, PSEA admitted the existence of the FSS — which it described as a “separate segregated fund of PSEA” — acknowledged it “is funded solely by PSEA’s treasury,” and confirmed that, as a “political organization” registered with the Internal Revenue Service, the FSS is legally required to ensure its activities are for the purpose of “influencing or attempting to influence the selection, nomination, election, or appointment of an individual to a federal, state or local public office…”

Translation: Contrary to PSEA’s previous claims, it does, in fact, use members’ dues to make expenditures supporting and opposing candidates for office.

Contrast PSEA’s characterization of the FSS to the DoS with the way it described the FSS in the union’s September 2018 member newsletter which, as far as the Freedom Foundation is aware, was the PSEA’s only public acknowledgement of the FSS prior to the Freedom Foundation’s recent complaint:

“…[The Fund for Student Success is] a new PSEA account that will allow the Association to better communicate with the public about the needs of our students, schools, communities, and professions… The Fund for Student Success will not – and legally cannot – provide campaign contributions to candidates, elected officials, or campaign committees.”

If nothing else, as the Freedom Foundation explained in a recent op-ed for The Patriot-News in Harrisburg, PSEA lied to its members about not using their dues for politics.

2. PSEA offered no legal justification for its failure to register the Fund for Student Success as a political committee.

The Freedom Foundation’s complaint to the DoS alleged that the FSS violated Pennsylvania campaign finance laws by failing to register as a political committee and publicly disclose the contributions it receives and the expenditures it makes on electoral politics.

In its response, PSEA not only admitted — as it had to — that it has failed to register the FSS as a political committee but could offer no legal support for neglecting to do so. Instead, PSEA sought to deflect responsibility to the unidentified but purportedly “experienced campaign finance counsel” it consulted that reportedly “advised that the FSS’s activities did not qualify as that of a political committee under state law.”

PSEA also accused the DoS of failing to provide “any clear guidance on whether entities such as PSEA’s FSS must register and report as a Pennsylvania political committee…” But DoS regulations clearly specify that union-operated separate, segregated funds like the FSS “shall be deemed to be a political committee and subject to the same requirements as political committees.”

If anything, PSEA’s admission that it specifically considered whether to register the FSS as a political committee and decided against it bolsters the Freedom Foundation’s accusation that PSEA’s violations of campaign finance law were knowing and intentional.

3. PSEA admitted that the FSS filed an inaccurate 2022 tax return with the IRS.

Related to its allegations that PSEA illegally funneled nearly $1.5 million in members’ dues to Josh Shapiro’s gubernatorial campaign in 2022 through the FSS and the DGA, the Freedom Foundation alleges the FSS filed a fraudulent 2022 tax return with the IRS falsely claiming the $1.5 million in question was contributed to Put Pennsylvania First — a Pennsylvania political committee to which the FSS could have legally contributed — instead of to the DGA, to which it could not legally contribute.

In a footnote, PSEA’s response to the DoS admits this allegation in full but attempts to downplay its significance: “PSEA acknowledges an administrative error in the completion of the FSS’s Form 990 for 2022, as the Form 990 should have indicated the contribution was sent to the DGA and not Put Pennsylvania First.”

The phrase “administrative error” — as applied to an inaccurate accounting for $1.5 million on a federal tax return signed under penalty of perjury in a way that conveniently obscures violations of state campaign finance rules — is working awfully hard here.

4. While PSEA claims its $1.5 million went to a DGA fund that doesn’t contribute to candidates, even the evidence PSEA cites shows otherwise.

Of the various allegations leveled against PSEA by the Freedom Foundation’s complaints, the accusation that PSEA indirectly contributed $1.5 million in members’ dues to Josh Shapiro’s 2022 gubernatorial candidacy is the most serious, potentially involving criminal penalties.  

Without getting too lost in the legal weeds, the matter boils down to this: If the $1.5 million in question was contributed to a registered political committee that engages only in independent expenditures — political advertising supporting or opposing candidates for office that is undertaken without coordination with any candidate’s campaign — PSEA may be in the clear, though it could still be liable for failing to register the FSS as a political committee or otherwise failing to report its expenditures as required.

If, however, PSEA contributed the $1.5 million to a political committee that, in turn, contributed funds to candidates’ campaigns, PSEA violated both Pennsylvania campaign finance and labor laws.

As the DoS has explained,

“…a political committee desiring to accept contributions from corporations, unincorporated associations and/or labor unions… must file a statement with the Department of State declaring its commitment not to make contributions to, or to coordinate expenditures on behalf of, any candidate’s political committee or political committee controlled by a political party. This type of political committee will be referred to as an Independent Expenditure Committee.”

(Emphasis in original).

So, where did PSEA’s $1.5 million go?

Since the PSEA has now acknowledged it didn’t contribute the funds to Put Pennsylvania First — the independent expenditure committee the FSS originally and falsely claimed received the funds on its 2022 tax return — that explanation is off the table.

Instead, the PSEA’s response to the DoS now argues the $1.5 million was contributed to a separate DGA entity than the one that contributed to the Shapiro campaign in 2022. Specifically, PSEA asserts its contributions went to a special “Labor Account” maintained by the DGA that it claims, without explanation, “may accept contributions from labor unions.”

The only problem is that PSEA offered no evidence that a legally distinct DGA entity exists.

Like the FSS, the DGA is registered as a “political organization” under the Internal Revenue Code and files regular reports of its contributions received and expenditures made with the IRS. The DGA’s registration filings with the IRS — signed under penalty of perjury — explain that the “DGA is a single entity that registers and files reports as a state political action committee under applicable state law.” (Emphasis added).

As its IRS filings would indicate, the DGA has also registered as a political committee with the Pennsylvania DoS, but no DGA “Labor Account” is separately registered with the IRS or with the DoS.

In other words, the DGA that is registered as a “political organization” with the IRS and reported receiving $1.5 million from the FSS is the same entity that is registered as a political committee with the DoS, as further evidenced by the fact that the DGA disclosures filed with the IRS and DoS reflect the same financial transactions.

And there can be no disputing that the DGA contributes funds directly to candidates. The DGA is registered with the DoS as a political committee, not an independent expenditure committee to which a union could contribute, and both its IRS and DoS filings disclose making contributions to candidates, including a total of $7.2 million given to Shapiro for Pennsylvania in the 2022 election.

But don’t take our word for it. As support for its claim that it contributed the $1.5 million to a separate DGA “Labor Account,” the PSEA points to a disclosure report filed with the IRS by the DGA itself disclosing receipt of the two contributions from PSEA’s FSS in May 2022 — the exact report the Freedom Foundation cited in its complaint as proof the funds in question went to the DGA.

The same DGA filing also discloses a $500,000 contribution it made to the Shapiro campaign on June 1, 2022.

If the entity to which PSEA admits it contributed discloses making contributions to candidates on the exact same report on which it discloses receiving funds from the PSEA’s FSS, that’s the end of the matter. PSEA’s contributions to the DGA violated Pennsylvania law. Full stop.

What happens next?

Now that PSEA has responded to the DoS, the agency will need to determine whether to continue investigating the Freedom Foundation’s complaint which, based on PSEA’s inability to offer adequate justification for its actions, is entirely appropriate.

And although PSEA’s response to the DoS is the first time the union has addressed the Freedom Foundation’s allegations in a formal setting, it likely won’t be the last.

At present, the next known step in the authorities’ processing of the Freedom Foundation’s complaints is scheduled for Oct. 31, when the Pennsylvania Labor Relations Board will conduct a hearing to take witness testimony and develop a factual record upon which to base its eventual decision on the merits of the Freedom Foundation complaint subject to its jurisdiction.

Stay tuned.