Labor Union Airs Concerns About Private Equity By Judith Burns
WASHINGTON (Dow Jones)--A boom in corporate takeovers by private-equity firms is reducing state and federal tax revenue and may be putting pension plans at risk of losses as well, Service Employees International Union President Andy Stern said Wednesday.
Stern's comments in a teleconference with reporters signaled a stiffening opposition on the part of labor to private-equity takeovers. The SEIU, which represents 1.8 million members, said it has formed a committee to work with state officials to scrutinize the impact of such buyouts on state tax revenues and services. It estimates Carlyle Group's proposed $6.3 billion purchase of nursing home giant Manor Care Inc. (HCR) for instance, may result in the loss of $60 million of state and local tax revenues, for instance.
On the federal level, the SEIU announced it is launching an investigation of federal contracts with companies that are owned by the Carlyle, a leading private-equity firm. Stern suggested that might include a look at federal Medicare and Medicaid reimbursements to Manor Care. The labor official also called for Congress to revisit tax breaks for private-equity firms, saying: "We have a tax system that's not rewarding work, it's rewarding wealth.
Deductions for interest expense also should get renewed scrutiny, given the heavy borrowing employed by some buyout shops, according to Stern, who questioned "how much debt are we going to allow companies to leverage and still receive tax benefits?"
Pension fund investments in private equity are undergoing review as well. The SEIU said it is exploring whether to halt future investments in one of the largest private-equity firms, Kohlberg Kravis Roberts & Co., and said it has warned members' pension funds against increasing exposure to KKR by investing in its planned initial public offering. Stern said about 5% of SEIU's pension fund assets are invested in private equity, and that the union has carefully selected its holdings to avoid firms that rely on heavy use of borrowing to fund takeovers.
- By Judith Burns, Dow Jones Newswires, 202-862-6692; Judith.Burns at dowjones.com