Earlier this week, the Treasury Department’s Office of Inspector General (OIG) released an audit report on Treasury’s role in reviewing, in March 2009, the Department of Energy’s (DOE’s) $535 million loan guarantee to Solyndra, the solar panel manufacturer that filed for bankruptcy in September 2011. Before going belly up, Solyndra burned through $528 million of the $535 million it received from Treasury’s Federal Financing Bank (FFB). Nearly all of the defaulted loan will be paid off by American taxpayers.
An agency’s OIG is supposed to be a watchdog guarding the public fisc from waste, fraud, and abuse. Watchdogs bark and even bite. This watchdog pussyfoots.
The title of the audit report is “Consultation on Solyndra Loan Guarantee Was Rushed.” Well, it was that. Treasury signed off on the Solyndra loan guarantee only two days after being asked on March 17, 2009 to vet it so that DOE could issue a press release touting the loan on the morning of March 20.
A more accurate title would be “Consultation on Solyndra Loan Guarantee Was Half-Assed.” Granted, government reports must eschew the use of idiomatic pejoratives. Nonetheless, the OIG did not have to make excuses for Treasury and DOE. The report ascribes to regulatory vagueness derelictions more reasonably attributed to negligence, incompetence, and pliancy in the face of political pressure. [click to continue…]
Yesterday, I participated on a panel discussion about the Department of Energy’s Loan Guarantee Program for low carbon energy sources. I’ve long been a fierce opponent of the DOE’s green bank—see here, here, here, and here for my take.
In a nutshell, I argue that investment banking is well outside the core competency of Energy Department bureaucrats, so there is no reason to believe that they could start a successful green bank from scratch. Even if they could, political concerns would trump economic reasoning, such that loan authorizations would get funneled to the well-connected, instead of the deserving.
Regarding this last point, consider this recent report by the Center for Public Integrity and ABC News, on the remarkable correlation between the success of DOE Loan Guarantee applications and the amount of money that the applicant raised for Barack Obama’s campaign for the White House.
In addition to the panel, we also organized a coalition letter to the House Appropriations Committee, on the need to excise the DOE’s green bank from the budget. Signatories included CEI, Taxpayers for Common Sense, George Marshall Institute, National Taxpayers Union, and the Nonproliferation Policy Education Center. Click here for a copy of the letter.
As I describe elsewhere (here, here, and here), the Department of Energy’s green bank is one of the worst government programs, ever.
For starters, financing is well outside of the DOE’s core competency, so there’s no reason to expect that it could start a successful banking operation from scratch. There’s also the fact that government has a horrid record picking energy ventures in which to invest taxpayer money. As such, the odds of the green bank failing were high when it was created by the 2005 Energy Policy Act.
During the whole of the program’s existence, evidence has mounted confirming that the green bank is a bad idea. The Government Accountability Office, the top federal watchdog, has issued three separate reports raising serious doubts about the DOE’s management of the program. These suspicions were validated when the DOE first loan guarantee, for $535 million, went to a California solar power company, Solyndra, that now teeters on the brink of insolvency.
Unfortunately for taxpayers, it gets worse, because the results of a recent investigation suggest that the green bank lacks transparency. Last week, the DOE’s Office of the Inspector General published a report finding that the green bank 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 (available here), 15 loan guarantees (out of 18 total) lacked “pivotal” information regarding risk ratings.
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I’ve been a vehement critic of the Department of Energy’s Loan Guarantee Program (see here and here). In a nutshell, I argue that the DOE has no business starting a bank from scratch. Even if it could cobble together the necessary expertise and infrastructure, the U.S. government has a long history of picking losers in the energy market (see: breeder reactors, synfuels).
My case against the DOE’s green bank has been made persuasively by the Government Accountability Office, the top federal watchdog. In 2007, 2008, and 2010, the GAO released reports concluding that the program is being not being run well.
My case was further made by the pending collapse of the first recipient of a loan guarantee. In September 2009, the DOE issued a $535 million loan guarantee to Solyndra, a company that you may recall from reports of it being a total financial disaster. It canceled an IPO after a PriceWaterhouse Cooper audit found that the company’s shaky finances “raise substantial doubt about its ability to continue as a going concern.” Evidently, Solyndra already has lost $557 million. In November, the company announced that it would shutter a plant and lay off 170 employees.
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My CEI colleague Chris Horner and I have a piece in today’s Daily Caller, on the Department of Energy’s awful green bank.
This excerpt aptly summarizes out take:
The point of a green investment bank is ostensibly to facilitate the commercialization of new, dormant or otherwise commercially unsuccessful technologies by providing easier financing than is available in the real world, where people scrutinize where they invest their money. It turns bureaucrats into bankers, but with your money, and no real-world incentives to “invest,” as the word connotes and denotes.
Critics argue that these bureaucrats are picking winners and losers. If only. In fact, they just pick from losers.
I especially like that last line, about how the green energy industry is a loser. As Chris and I have explained elsewhere, any industry, like green energy, that owes its creation to government handouts is fundamentally uncompetitive, and, therefore, will always be on the taxpayer dole.
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Energy Secretary Steven Chu today testified before the Senate Energy and Natural Resources Committee on the Obama administration’s budget for the Department of Energy (DOE). Despite the fact that the DOE has yet to spend $21 billion in stimulus money (about 60% of its 2010 budget), the White House proposed a 12% budget increase.
Minnesota Senator Al Franken was unconcerned with the deficit implications of giving billions more taxpayer dollars to a bureaucracy that has yet to spend the billions of taxpayer dollars it already has. Instead, he had a much more parochial matter in mind.
His line of questioning for the Energy Secretary focused on Sage Electrochromic, a Minnesota-based window manufacturer. Senator Franken explained that the window company had received a $70 million loan guarantee from the Department of Energy, which you’d think would be pleasing to the Senator. After all, a federally backed loan is a taxpayer subsidy that allows recipients to obtain better financing.
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Back in February 2009, when everyone thought a deep depression was imminent, Keynesian economists and their political boosters demanded big government spending. According to their calculations, a “timely, targeted, and temporary” infusion of taxpayer money would defibrillate our moribund economy, the growth of which would make the trillion-dollar price tag seem like small potatoes. It was elementary!
So the White House pushed, and the Congress passed, a gigantic trillion-dollar stimulus, the American Recovery and Reinvestment Act. It was, however, anything but “targeted.” Instead, it was a grab bag of special interest handouts.
About $90 billion of those taxpayer funded giveaways went to “green” energy, which is about as trendy a cause as there is right now. Today, on the thirtieth of June, almost a year and half after the stimulus passed, the Department of Energy has awarded a scant 15% of its “green” energy stimulus funds. So much for “timely.”
Despite the fact that so little of the stimulus has yet been spent, House leadership already wants more. This week, powerful chairman of the House Ways and Means Committee, Michigan Representative Sandy Levin (D) is pushing a bill that would extend Stimulus green energy tax incentives, to the tune of $20 billion. So it seems that “temporary” was also a sham.
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