In late 2009, Solyndra, a California-based manufacturer of solar power rooftop components, received a $535 million loan guarantee from the Department of Energy (DOE). It was the first such loan guarantee offered by the DOE with stimulus money. Last week, in a major blow to President Barack Obama’s green jobs agenda, the solar company became the latest stimulus-beneficiary to fail. It announced that it was entering Chapter 11 bankruptcy proceedings.
The announcement came as a surprise to many observers, such as Rep. Henry Waxman (D-Beverly Hills). Over the summer, Rep. Waxman, the architect of the stimulus program that benefited Solyndra, praised the company’s economic outlook. In an April letter, he boasted that “Solyndra has obtained additional equity investments from existing equity holders, an indication of investor confidence in the company’s prospects.”
California Governor Jerry Brown, too, must have been surprised by Solyndra’s sudden collapse. Two weeks ago, he invited Solyndra, Inc. to join him onstage to unveil a proposed package of tax subsidies for green energy companies. Solyndra’s presence was supposed to lend evidence to the “success” of past clean energy subsidies. Obviously, this is a poor omen for Governor Brown’s tax plan.
Surely the most shocked by Solyndra’s announcement was President Barack Obama. Until this week, he thought Solyndra was a great investment. So high was the President’s esteem for this solar biz that he took the time to visit its California facilities in 2010. He said that Solyndra manufactures “incredible, cutting edge solar panels.”
Unlike Rep. Henry Waxman (D-Beverly Hills), California Governor Jerry “Moonbeam” Brown, and the current Commander in Chief, some of us weren’t so surprised.
Wall Street, for one, was not surprised. It’s not like you had to be Warren Buffet to know that the company was in dire straits. During the summer of 2010, Solyndra executives floated an IPO, but they but they were rebuffed by everyone after a PricewaterhouseCoopers audit “raise[d] substantial doubt about its ability to continue as a going concern.” A few months later, in November 2010, this warning was validated when the company shuttered one of its two California plants.
Nor were federal watchdogs surprised by Solyndra’s collapse: For years, they’ve been sounding the alarm over the Department of Energy’s Loan Programs Office, which guaranteed the Solyndra loan.
- In a 2007 report, the Government Accountability Office (GAO) questioned, “whether this program [LGP] and its financial risks will be well managed.”
- In a July 2008 follow-up study, GAO said that the “Department of Energy is not well positioned to manage the LGP effectively and maintain accountability.”
- A February 2009 report by the DOE Inspector General warned that “…in a number of critically important areas, the [DOE] had not fully developed and implemented controls necessary to successfully manage the program.”
- In July 2010, a GAO audit expressed concern that 50% of the conditional loan guarantees it examined had been issued before full reviews were conducted.
- In March 2011, DOE’s Office of the Inspector General faulted the Loan Programs Office for poor recordkeeping. It stated that the program “could not always readily demonstrate, through systematically organized records, including contemporaneous notes, how it resolved or mitigated relevant risks prior to initiating loan guarantees.” According to the report, 15 loan guarantees (out of 18 total) lacked “pivotal” information regarding risk ratings.
What went wrong? How could the Obama administration have risked half a billion taxpayer dollars on this lemon of a business?
For starters, politics too easily corrupts the process. In the wake of the unfavorable PricewaterhouseCoopers audit that exposed Solyndra’s shaky finances, Shyam Mehta, a senior analyst at GTM Research, told E&E Greenwire that “Solyndra has the powerful lobbyists in the business. So they get a lot of love from the government.” Notably, a primary financier of the solar company was George Kaiser, who was major fundraiser for President Barack Obama’s campaign for the White House. Especially suspicious is the timing of Solyndra’s loan guarantee: It was closed 10 months before the next such loan guarantee; in the ten months thereafter, 10 loan guarantees were issued. It certainly seems as if the Solyndra loan guarantee was rushed out the door, for whatever reason.
It is also eye-raising that the terms of Solyndra’s financing were uniquely generous. Although the government typically guarantees loans made to a company by a commercial bank, this was not the case for Solyndra. It borrowed the money from the Federal Financing Bank, part of the Treasury Department. As a result, it enjoyed much lower interest rates than those that other loan guarantee recipients had to pay.
These strange circumstances compelled the House Oversight and Investigations Subcommittee to initiate a probe into whether or not political connections had anything to do with Solyndra’s favorable loan guarantee.
Another possible explanation for the Solyndra debacle is the administration’s need for speed when it came to spending stimulus money. Rushed investments usually are rash investments. DOE’s Loan Programs Office is basically an investment bank. Yet fiscal analysis is well outside the core competency of DOE bureaucrats. As can be gleaned from the various warnings issued by federal watchdogs listed above, creating a bank from scratch is difficult. These reports suggest that proper safeguards and vetting were not in place. Despite these ongoing problems, the Loan Programs Office was told to spend the stimulus money as fast as possible. For example, immediately after the stimulus was enacted, DOE Secretary Steven Chu promised to quickly “start cutting checks.” In order to facilitate this check-cutting, he told reporters that he had reduced loan-guarantee paperwork from 1,000 pages to 50 pages. He said, “You don’t need 1,000 pages to show this is a suitable loan.” Essentially, he shortchanged the vetting process so that the DOE could speedily issue the loans. In the wake of Solyndra’s collapse, this was clearly a mistake.
The Congress, too, put a premium on speed. In August 2010, Senate Majority Leader Harry Reid (D-NV) bemoaned that, “They [the DOE Loan Programs Office] have been, in my opinion, very, very slow in putting that money out.” This sentiment was seconded a month later by Sen. Mark Udall (D-Colorado), who said that, “I know [Secretary Chu] has been working in a focused manner to accelerate the grants program as well as the loan programs…But the DOE has not been as agile as all of us would like it to be.” Speaking about the loan guarantee program, Sen. Byron Dorgan advised that, “I do think it’s important to get them out the door.”
On the one hand, the federal watchdogs warned for years that the DOE’s green bank lacked proper controls to responsibly handle taxpayer money; on the other, Members of the Congress and the Obama administration were trying to rush the money out the door. The fall of Solyndra is evidence of the latter’s folly.