Public vs. Private

by Norma Vavolizza

Here’s an interesting statistic: 85% of all fire departments in the U.S. are either entirely or mostly volunteer, and they often operate on very modest budgets. That’s according to the National Volunteer Fire Council. Also interesting to note: private equity firms are buying up companies that produce things that fire departments need.

After one such takeover, a volunteer fire department in Connecticut reported a jump in the subscription price it paid for critical software that tracks emergencies. Their yearly rate went from $795 for a phased-out product to $5,000 for what was advertised as a superior replacement product.

In addition to purchasing software platforms, private equity firms are buying the manufacturers of radios, fire-truck engines, and flame-retardant chemicals. As a result, the cost to end-users generally goes up. This new reality makes it difficult to maintain, let alone replace, old equipment. And money for the training of firefighting crews—because volunteers come and go—is much less. All this hits rural areas especially hard. But regardless of where people live, taxpayers wind up paying the price in dollars, safety, or both.

Why is this happening? The phenomenon of private equity firms buying up vital resources that support the public good is attractive because tax law, as presently written, advantages these buy-outs—whether in housing, healthcare, or even community newspapers. The carried-interest tax provision allows private equity companies to pay a lower tax rate because their incomes are classified as investments.

Can free markets coexist with the delivery of vital public goods and services?

That’s up to our legislators—and us. Clearly, ethics entered into the thinking. Last year, Oregon took a first step by passing legislation that prohibits private-equity firms from controlling healthcare practices. Other states can do the same and more if voters demand it. Then Congress can eliminate the carried-interest tax loophole. And we can tell our elected representatives that in a country that says it cares for all its citizens, some practices are no longer acceptable.