Blackstone asked to re-invest in community

Toussaint Losier

The Blackstone Group LP is clearly awash in cash.

As one of the world’s largest private equity firms and the City of Boston’s largest commercial property owner, it recently offered a $20.1 billion cash buyout to Hilton Hotels Corp. If approved by Hilton’s board, the deal would make Blackstone one of the world’s largest hotel owners, as well.

While business analysts have praised these multibillion-dollar business deals, a coalition of Greater Boston labor and community activists have started a grassroots campaign of sorts to get Blackstone to acknowledge its role in widening the gap between rich and poor and, more important, to start investing in Boston and other cities where they do business.

Local activists held a news conference last month in Downtown Boston and stood outside of 100 Summer Street, a Blackstone-owned office building. Representatives from the Service Employees International Union (SEIU) and other members of the “Secure Jobs, Secure Communities” campaign highlighted pressing local issues and called upon the company to invest locally.

“At a time when Boston residents are reeling from the affects of the soaring costs of housing, health care and education, I’m very concerned that Blackstone is not investing more in Boston, where they do so much business,” said City Councilor Chuck Turner.

Blackstone is worth a total of more than $33 billion. It manages $88 billion in corporate assets, an amount 38 times the size of the City of Boston’s budget.

The company has not responded to Turner.

Though Blackstone’s recent stock offering raised more than $4 billion from stock market investors, much of the company remains a private equity firm and, as such, is treated differently than publicly held companies.

In an April 2007 report, “Behind the Buyouts: Inside the World of Private Equity,” the SEIU highlighted the role of private equity firms in engineering corporate buyouts.

According to the SEIU’s report, “private equity buyout firms operate virtually free of oversight and public accountability, their profits and practices largely hidden from view.”

The report goes on to suggest that because they are unaffected by the federal securities laws, tax liabilities and regulations that restrict public companies, private equity firms are a major contributor to the increasing concentration of wealth among the top 1 percent of Americans.

These firms generally raise capital from sources other than the stock market to purchase large companies, either restructuring them to make them more profitable or selling off their assets. While private equity firms have been around for decades, it has only been in the past five to seven years that there has been a serious concentration of wealth in these firms.

“The key principals at the largest private equity firms are billionaires,” the SEIU report continues. “Using money from banks, insurance companies, pension funds and other wealthy individual investors, they continue to launch corporate buyouts worth billions, even tens of billions of dollars, extracting fees of hundreds of millions of dollars from the companies they buy and often generate profits of 20 percent or more.”

The report also notes that firms like Blackstone have made huge profits during a period of increasing income disparity. For example, reports show that that the top 300,000 Americans received nearly as much income as the bottom 150 million Americans combined. SEIU also pointed out that the top half of the country received 440 times as much as people in the bottom half, doubling the gap from the 1980s.

The SEIU report connected this rising wealth gap to the ability of private equity firms to take advantage of tax loopholes. For instance, if Blackstone had paid taxes at the standard rate of 35 percent in 2006 — instead of the microscopic rate of 1.4 percent — the firm’s “tax bill would have increased from just $32 million to nearly $800 million.”

The organizers of last month’s conference, Community Labor United (CLU), are a coalition of seven labor unions and 10 community-based organizations that promote the interests of low- and middle-income families.

“We believe,” explained CLU Senior Organizer Darlene Lombos, “that they are making wealth off of the hard working people of Boston and that they are extracting that wealth and investing in other places. And all we are saying is that if you are going to make that wealth off of these people, that you [should] invest back in their communities. How many homes they could be saving with just a portion of the $4 billion that they made in two days?”

Various speakers called attention to the fact that security guards in buildings owned by Blackstone receive low wages and few benefits. They addressed this not only as a labor issue, but also an economic problem that has a real impact on the neighborhoods of Roxbury, Dorchester and Mattapan, where many of the security guards live.

“We want Blackstone to put that money back into the community to better our community,” said Maggie Brown, a member of the Boston Workers Alliance.

Campaign members delivered a signed letter to representatives for Blackstone chairman and CEO Stephen A. Schwarzman, calling on him to meet with them to discuss how the Blackstone Group could help meet the needs of local residents.

They have not received a response.