Big buyout firms exploit the tax code, use debt financing to vacuum cash out of portfolio companies, fire legions of workers, and they may actually endanger the public pension funds they claim to bolster.
Oh, and it’s possible they contributed to the bridge collapse in Minnesota.
That’s the case Andy Stern, president of the Service Employee International Union, the nation’s largest labor group, made during a conference call with reporters yesterday.
Since launching the “Behind the Buyouts” initiative earlier this year, the union has struck an adversarial but good-natured stance. The SEIU has coupled its public campaign with behind-the-scenes boardroom meetings with the biggest names in the business, emphasizing a desire to find common ground with buyout firms. That’s more or less gone now.
Asked why his tone changed, Stern said he’s become increasingly incensed with the response from LBO chieftains.
“They’ve not taken a single action, aside from assembling a huge lobbying contingent,” he said.
“We are pro-business and pro-America,” Stern continued, but argued that this particular business has become detrimental to the United States. The current battle over taxing the carried interest LBO firms earn from their deals is just the beginning.
Since buyout firms don’t pay corporate taxes and their portfolio companies get to deduct interest payments on leverage, they shirk their civic duty, Stern said.
He backed up his case by pointing to the Carlyle Group’s $6.3 billion acquisition of healthcare specialist and nursing home giant Manor Care.
The union contends that, during Carlyle’s anticipated five-year investment period, Manor Care will avoid paying $600 million in corporate taxes. During the same period, Manor Care will receive an estimated $14 billion in state and federal subsidies. The rewards will flow to Manor Care executives and Carlyle principals, Stern said.
Now for the Minnesota bridge part. By the SEIU’s calculations, the $60 million in state and local tax dollars that the Carlyle Group will avoid paying could fund the repairs of 22 structurally deficient bridges.