How private equity firms prey on the middle class and destroy jobs throughout Idaho | Opinion

When I think back to my arrival in Boise in 2003, I remember a robust retail sector that managed to keep a thriving downtown retail base going. And I remember the successful Boise Town Square mall, a beehive of retail activity when some malls wiped out business in the downtowns of mid-sized cities.

Treasure Valley residential also enjoyed, as they do today, a complement of strip malls housing a variety of retail, but retail in the 21st century was in for a shocking turn of events.

Online shopping and a pandemic teamed up to throw retail for a loop in 2020, but it hardly explains what happened to the retail chain Shopko. It had three stores in the Treasure Valley — until it didn’t in 2019, well before the pandemic could be used as an excuse for Shopko’s demise. Some business news and analysis would blame the competition from Walmart, described as a cut below Shopko, and Target, a cut above. But a more insidious development hidden from shoppers until its stores folded was the private equity firm, Sun Capital, which bought Shopko and then worked its destructive brand of capitalism on the retail chain until it declared bankruptcy.

Private equity firms have also managed to swoop in and feed on hospitals, prisons, nursing homes, mobile-home parks, the newspaper business and medical practices.

Brendan Ballou, a federal prosecutor, and former Special Counsel for Private Equity at the U.S. Department of Justice, opens his book, “Plunder: Private Equity’s Plan to Pillage America,” with how Sun Capital managed to destroy Shopko with the financial and managerial tools private equity firms employ to bankrupt companies they buy and enrich themselves in the process. Once Sun Capital bought Shopko, it forced the retailer to sell most of its property, locking the retailer into 15-to-20-year leases and saddling it with expensive rental fees that drained the retailer of its assets.

It also forced Shopko to borrow $180 million to pay Sun dividends and charged it a quarterly $1 million “consulting” fee and an additional 1% fee on certain large transactions. Eventually, Sun Capital initiated layoffs, closing all Shopko stores, and leaving 14,000 employees out of work. And there you have how private equity firms wreck companies they acquire.

Too often, the only folks who benefit from private equity’s financial wizardry are the firm’s executives whose schemes build inequality into the American economy as they amass huge amounts of wealth. According to Ballou, Sun Capital is owned by two billionaires, one of whom, Marc Leder, has been described as the Hugh Heffner of the Hamptons with his lavish lifestyle and partying.

They throw significant sums of cash at Democrats and Republicans to protect their money-making machines from government oversight and reform.

Leder threw a fundraiser for Sen. Mitt Romney, no stranger to private equity as a former executive with Bain Capital with its own history of destroying jobs. Romney told the crowd that supporters of President Obama “believe that they are entitled to health care, to food, to housing, to you-name-it.” He makes it look like a crime to expect health care, food and housing in the American economy. Of course, what he didn’t expect was a recording of his remarks at the private fundraiser.

Idaho’s own Sen. Mike Crapo sits on the Senate Banking Committee, and he’s one of private equity’s favorite beneficiaries of their generous contributions to lawmakers willing to protect the decided advantage private equity has over unsuspecting patients, shoppers and others subjected to the brazen capitalism practiced by private equity.

The Boise Town Square mall is the perfect visual for understanding the impact private equity finance had on the retail economy in recent years. Remember Payless Shoes, KB Toys, Gymboree, Radio Shack, Brookstone, Sears — all tenants of the mall a few years ago, but now all gone thanks to the destructive practices of private equity’s business model.

Retail establishments are hardly the only example of private equity running roughshod over Idahoans. Pulitzer-prize-winning NBC journalist Gretchen Morgenson and Josh Rosner have just written their account of how private equity ravages America with their book, “These Are the Plunderers: How Private Equity Runs — and Wrecks — America.” St. Joseph Regional Medical Center in Lewiston, Idaho finds its way into their analysis as a once-nonprofit hospital, later managed by LifePoint Health, owned by Apollo Global Management and the perfect example of a billionaires’ private equity heaven.

In 2020, nurses at St. Joseph’s staged a protest over working conditions and wages that were 12% below other hospitals in the area. How could there be such a gap between St. Joseph’s and other area hospitals? When a private equity firm takes over a hospital, retail establishment, nursing home, mobile home park or other investment that pits clever wealth managers against people just getting by, it’s reminiscent of country singer Alan Jackson’s song, “’bout the little man that built this town, before the big money shut ‘em down and killed the Little Man….”

I don’t know how literal Jackson intended to be by “killing” the little man, but the way private equity has invaded health care in America, private equity’s role in health care is deadly. Ballou cites researchers at the Universities of Chicago and Pennsylvania who documented 20,000 premature deaths in nursing homes owned by private equity over a twelve-period year period.

Private equity claims that they practice “value-oriented investment” which is code for what happened in Lewiston and what is happening across the country as private equity firms brag about how they are making life more comfortable for their investors including large pension funds. But tragically, they are doing so by taking from those who have little or no access to generous pension funds and are victimized by so-called value investing which is little more than slashing budgets and firing workers.

At least Robin Hood stole from the rich to give to the poor. Private equity flips the Robin Hood model.

The crowning blow for fiscal prudence in the Lewiston example came when Apollo, after bleeding hospitals to the bone, sold LifePoint Health in 2021 and walked away with a $1.6 billion gain. Morgenson and Rosner also report that LifePoint enjoyed $1.4 billion of pandemic relief money, much of it in the form of loans it never has to repay. (Some of Apollo’s ill-gotten gain its way into Crapo’s campaign war chest. )

As host of Readers Corner, I track developments in the publishing world always looking out for a new book to shed light on issues that seem so intractable and challenging. Private equity certainly qualifies as a dark and murky business kept that way for fear that some daylight might clean up the business and remove it from its relatively unregulated state.

When I see two books published on the same subject within a year, reporting how private equity is pillaging America, and then a third book aimed specifically at the impact private equity has on the media and our democratic way of life (“Hedged: How Private Investment Funds Helped Destroy American Newspapers and Undermine Democracy” by Margot Susca) it sure looks like private equity is losing its “private” charm and should be regulated just as publicly-traded companies are in America. Stay tuned as this column covers more about how we can hold private equity firms accountable.

Bob Kustra served as president of Boise State University from 2003 to 2018. He is host of Readers Corner on Boise State Public Radio and is a regular columnist for the Idaho Statesman. He served two terms as Illinois lieutenant governor and 10 years as a state legislator.