Watchdog Group Alleges Illegal Contributions from Pennsylvania Teachers’ Union to Shapiro

The alleged scheme amounts to laundering union funds to donate to Josh Shapiro’s gubernatorial campaign in violation of state and federal law.

T he Freedom Foundation, a union watchdog group, filed complaints with Pennsylvania and federal authorities on Thursday alleging that the Pennsylvania State Education Association (PSEA) and the Democratic Governors Association (DGA) executed an illegal scheme to contribute to Governor Josh Shapiro’s 2022 campaign.

The group outlines a scheme by which the PSEA contributed $1.475 million from its general treasury to a PSEA-created group called the Fund for Student Success (FSS), which was not registered as a political committee. The FSS then donated to the DGA, which contributed to Shapiro’s campaign.

This scheme, the Freedom Foundation alleges, violates Pennsylvania law, which says that unions cannot use member dues to make political contributions and that groups making political contributions must be registered with the state government as political committees. It also alleges that the FSS submitted a fraudulent tax return to the IRS by improperly reporting its contributions, and that the DGA did not properly disclose the receipt of the funds under Pennsylvania law.

These allegations are politically noteworthy for two reasons. The first is that Shapiro flip-flopped on school choice, a policy that teachers’ unions oppose. During the campaign for governor, Shapiro said he was in favor of a school-choice program for low-income students, but as governor, he line-item-vetoed funding for the program that the legislature had included in the 2023 state budget. The second is that Shapiro is reportedly under consideration to be Democrats’ vice-presidential nominee under Kamala Harris.

The Alleged Scheme

The PSEA is the largest public-sector union in Pennsylvania, with 137,087 members, according to its disclosure form with the U.S. Department of Labor. It is a major player in Democratic politics in the state and was a major backer of Shapiro’s successful 2022 campaign for governor.

The PSEA has a political fund, PSEA-PACE (political action committee for education), which is funded by voluntary contributions from PSEA members. PSEA-PACE is properly registered as a political organization with the IRS and as a political committee with the Pennsylvania government.

PSEA-PACE is allowed to contribute to campaigns because its funds do not come from the union’s general treasury. The PSEA regularly solicits donations to PSEA-PACE from its members and correctly notes on those solicitations and in public statements that member dues cannot be used for campaign contributions. That is a good practice, both in light of Pennsylvania law and Supreme Court precedent from Janus v. AFSCME, which said that political activity by public-sector unions is political speech and that financial support for it must be voluntary under the First Amendment.

PSEA-PACE gave $806,566, across seven cash contributions and one in-kind contribution, to Shapiro’s campaign in 2021–22. Those donations were perfectly legal and properly reported. The PSEA makes contributions like this all the time and knows the proper legal procedure to do so.

That’s what makes its activities through the Fund for Student Success suspicious. The FSS was created by the PSEA in 2018 to engage in advocacy about public education. It is registered as a political organization with the IRS but is not registered as a political committee with the Pennsylvania government. And unlike the PSEA-PACE, the FSS is funded directly from the union’s general treasury.

The FSS did not make a campaign contribution directly to Shapiro. It did, however, make two contributions totaling $1.475 million to the Democratic Governors Association in 2022. Soon after receiving those contributions, the DGA made large contributions to Shapiro’s campaign.

The first FSS contribution to the DGA was on May 17, 2022, for $925,000. The second was on May 31, for $550,000. The very next day, June 1, the DGA contributed $500,000 to Shapiro’s campaign. It then made further contributions in July, August, and September, worth $5.1 million combined. In total, the DGA gave $5.65 million to Shapiro’s campaign, nearly all of it coming after the contributions from FSS.

The DGA is properly registered as a political organization with the IRS and as a political committee with the Pennsylvania government. The problem is that it did not report the FSS’s May 2022 contributions on its report to the Pennsylvania government. It did report the contributions to the IRS.

The FSS did not report its May 2022 contributions to the DGA on its IRS Form 990. The only expenditures it reported between September 2021 and August 2022 were to Put Pennsylvania First, an independent political fund that existed only from April to December 2022. The reported amount of those expenditures is $1.475 million, exactly the same amount the FSS gave to the DGA.

But Put Pennsylvania First did not report ever having received contributions from the FSS. The Freedom Foundation alleges in its complaint that the FSS fraudulently reported on its IRS Form 990 that the funds were given to Put Pennsylvania First rather than to the DGA. “The FSS would have reason for such a deception since, unlike the DGA which contributes directly to candidates, PPF was an independent expenditure committee operating, ostensibly, independent of any candidate’s campaign,” the complaint says.

The scheme, as alleged, amounts to a form of money-laundering, where the PSEA sought to disguise illegal donations from its general treasury to the Shapiro campaign by passing them through intermediaries. The $1.475 million the FSS gave to the DGA far exceeds the reported $806,566 the union legally gave through PSEA-PACE. The failure by both the FSS and the DGA to properly report the contributions, and the failure by the FSS to register as a political committee in Pennsylvania, adds to the impression that these contributions were not legal.

The Freedom Foundation outlines several ways in which this scheme, if it occurred as alleged, would violate Pennsylvania or federal law:

• The FSS’s failure to register and report as a political committee would violate Pennsylvania law. Committees that receive contributions in excess of $250 are required to register. The law defines committees as groups that accept contributions or make donations, both of which the FSS did according to its IRS forms; but such activities were never reported to the Pennsylvania government.
• The DGA’s failure to report its receipt of contributions from the FSS on its state report would violate Pennsylvania law. “There is little doubt the transactions occurred,” the complaint says, noting that the DGA reported receiving the contributions on its IRS Form 8872, the disclosure form political organizations use, and the FSS reported making the contributions on its Form 8872. It simply failed to report it to the Pennsylvania government, as the law requires.
• The DGA would have violated Pennsylvania law by acting as a conduit for an illegal donation. Because the FSS was funded by the PSEA’s general treasury, and it has received money from no other source, it was not allowed to contribute to Shapiro’s campaign. The PSEA has in the past acknowledged this limitation, saying in its union magazine in 2018 when the FSS was created that it “will not — and legally cannot — provide campaign contributions to candidates, elected officials, or campaign committees.” Passing the money through the DGA does not change that fact. As the complaint notes, the PSEA operates only in Pennsylvania, made political endorsements only in Pennsylvania, and presumably would not care about gubernatorial elections outside Pennsylvania. Its strong public support for Shapiro, combined with the FSS’s large donation to the DGA, would suggest the money was meant to be spent for Shapiro’s election, and the DGA did spend for Shapiro’s election the day after receiving the second FSS contribution. The complaint also says that there could be a paper trail detailing this aspect of the scheme because the FSS’s grant-making process, as outlined by the group itself, would require documentation.
• The PSEA’s donations to Shapiro through the FSS would violate Pennsylvania law. The PSEA is a nonprofit corporation under Pennsylvania corporate law, and all corporations in Pennsylvania are prohibited from making contributions to candidates. In addition, under Pennsylvania labor-relations law, unions are prohibited from making contributions to candidates from their general treasuries. Independent expenditures the FSS has made would be legal, but not its contributions to the DGA/Shapiro. The donations through PSEA-PACE were legal, but that’s because they were funded through voluntary contributions, were made through a political committee registered with the Pennsylvania government, and were properly reported.
• The PSEA’s officers would have committed theft by deception from their members under Pennsylvania law. They repeatedly promised members that their dues would not be used for campaign contributions, then proceeded to use their dues for campaign contributions. The PSEA has a fiduciary duty to its members to not use their dues for illegal purposes. This theft would also constitute a fraudulent and deceptive business practice and racketeering under Pennsylvania law, the complaint says.
• The FSS’s IRS Form 990, which said that its contributions went to Put Pennsylvania First instead of the DGA, would violate federal law. It would constitute a fraudulent tax return, filed under penalty of perjury.

Neither the PSEA, the DGA, nor Shapiro’s office replied to emailed requests for comment for this story.

The Political Implications

Shapiro ran for governor in 2022 as a different kind of Democrat. On the campaign trail, he said he supported Lifeline Scholarships, a Pennsylvania school-choice program for low-income students. In a questionnaire that Shapiro’s education secretary submitted to the Pennsylvania Senate before his confirmation hearing, he said Shapiro supported the program. On June 23, 2023, the governor himself told Dana Perino on Fox News that he was open to funding the program in the state budget so long as it did not accompany cuts to public-education funding.

But as John Fund wrote on June 27, 2023, “if the scholarships make it into the state budget that must be passed by June 30, it will be because Democratic governor Josh Shapiro has broken ranks with teachers’ unions.” The PSEA staunchly opposed Lifeline Scholarships. A June 22, 2023, letter to Shapiro that the PSEA cosigned with other major unions in the state announced their “complete opposition to the idea of implementing any school voucher program in Pennsylvania, whether it is called ‘lifeline scholarships’ or anything else.”

Republicans controlled the Pennsylvania Senate, and Democrats controlled the House, but with only a one-seat majority. One Democratic senator from Philadelphia voted with the Republican majority to approve funding for Lifeline Scholarships, proving bipartisan compromise was possible. Shapiro only had to flip one Democrat in the House to pass the budget with the funding intact.

Instead, he made a deal with Democratic House leadership to pass the budget conditional on Shapiro’s using his line-item veto to remove the funding for Lifeline Scholarships. As he did so, he said he still supported the program.

As NR’s editorial noted at the time, this action was a betrayal to Pennsylvania students and demonstrated weak leadership by Shapiro. But it made sense for him politically. “If the government unions and their allies want to defeat Shapiro in the Democratic primary in 2026,” the editorial said, “they would command an army of volunteers and receive millions of dollars from around the country to do so.”

Now we know that the PSEA’s donations to Shapiro may have been $1.475 million higher than previously believed. The $806,566 in donations legally made and properly reported were already significant. But another $1.475 million on top of that, plus the implicit threat of more money backing a primary opponent in 2026, might help explain why Shapiro backed down.

Shapiro’s main selling point as a running mate to Kamala Harris is his image as a more centrist Democrat to Harris’s more left-wing policy views. Opposing school choice to please teachers’ unions, on the other hand, is an entirely conventional Democratic position. If Shapiro is just another Democrat, his appeal in potentially balancing out Harris’s progressivism on the ticket goes away.

Shapiro also has executive experience as the governor of a large state. Harris has won statewide elections, but only for California attorney general and U.S. Senate. Given that the vice president has no constitutional powers except breaking ties in the Senate, she has never been in a chief-executive role in government where tough decisions are part of the job. Shapiro’s experience on issues such as quickly reconstructing a bridge that collapsed because of a truck accident on I-95 is one of his other selling points as a running mate.

Even if this alleged contribution scheme is found not to have broken the law, his failure to push through a school-choice program he supports undermines the claim that he possesses uniquely strong leadership credentials. If the contribution scheme is found to be illegal, that failure will also involve a criminal conspiracy on the part of entities that opposed the program while having donated to his campaign.