WHEREAS:

            The retirement security of AFSCME members depends on the investment of workers’ deferred wages in sound financial asset classes; and 

WHEREAS:

            U.S. pension funds provide 42 percent of the capital for all private equity investments; and 

WHEREAS:

            Private equity is a form of capital that is not publicly traded on a stock exchange. Private equity firms invest in private companies or take over public companies; and

WHEREAS:

            The private equity industry uses a lack of transparency to mask its true rate of return, its use of leverage, its effect on real economic growth, and what is being done with investor money.  Moreover, private equity firms often prohibit investors from communicating with one another about these problems; and

WHEREAS:

            Private equity firms charge a 2 percent annual fee to manage pension funds’ capital and then take 20 percent of the profits, which is excessive, compared to more traditional, transparent investments, in light of the risk borne by pension funds.  Private equity firms may also extract additional fees from the companies they operate, without disclosing or sharing those fees with pension funds; and

WHEREAS:

            Because of the carried interest tax loophole, private equity managers pay a 15 percent tax rate on their money management income, rather than the 35 percent tax rate for ordinary income, costing the U.S. billions in lost revenue.  In addition, the U.S. tax code allows companies to deduct interest expenses from their taxes and results in the use of financial engineering by private equity funds to avoid paying their fair share in taxes.

THEREFORE BE IT RESOLVED:

            AFSCME will educate public pension trustees and members about the risks of private equity investment; and

BE IT FURTHER RESOLVED:

            AFSCME will encourage Congress to end the carried interest tax loophole to make private equity managers pay income taxes at ordinary rates on their compensation, just like everyone else.  AFSCME will also encourage Congress to end tax loopholes that allow corporations to avoid paying their fair share of taxes; and

BE IT FINALLY RESOLVED:

            AFSCME members, who are public pension fund trustees, will demand fee fairness and greater transparency regarding returns, the use of debt, the management of operating companies, and the extraction of fees, from private equity managers.