Solyndra became the poster child of spectacularly poor political and policy judgment when it filed for bankruptcy, laid off a thousand employees, and left taxpayers holding the bag on $535 million in loan guarantees. In testimony Thursday before the House Committee on Oversight and Government Reform, the other shoe dropped. Apparently, many of the companies that received loans under the auspices of the same infamous program were well-established entities that essentially double-dipped to grab as many taxpayer dollars as possible.
Like kids at Dairy Queen, these politically-connected companies filled their cones with soft-serve from the Department of Energy's Section 1705 loan guarantee program and then dipped it into the vast vat of taxpayer funding made available through President Barack Obama's economic stimulus program (the America Recovery and Reinvestment Act or ARRA). According to Mercatus scholar Veronique de Rugy's testimony, approximately 90 percent of the 1705 program loans went to subsidize power plants often backed by big companies with extensive resources. In fact, taxpayers ended up guaranteeing a $90 million loan to Goldman Sachs subsidiary Cogentrix—not exactly a fledgling operation needing a leg up.
Now comes the double dip: Companies such as NRG Energy Inc.—closely linked to Senate Majority Leader Harry Reid—not only received $3.8 billion 1705 loans (almost a quarter of the total), but three subentities of the same company received a total of at least 39 grants under the stimulus law. According to de Rugy, NRG is still " eligible to receive $430 million from the Department of the Treasury."
While happily House Republicans are moving to end the Energy Department's loan guarantee program, the Export-Import Bank, reauthorized in May in a rush of bipartisan irresponsibility, was part of the double-dipping in a particularly distressing manner. According to de Rugy, First Solar raked in $646 million in 1705 loan guarantees through partner Exelon and landed another $547.7 million of the same from the Ex-IM bank. As members of both parties tout their fiscal responsibility, perhaps they should keep this example in mind as well as the following:
…Some of the Ex-Im money went to a Canadian company named St. Clair Solar, which is a wholly owned subsidiary of First Solar. St. Clair Solar received a total of $192.9 million broken into two loans to buy solar panels from First Solar. In other words, the company received a loan to buy solar panels from itself. (emphasis added)
While I don't share this perspective, one ostensible rationale for risking taxpayer dollars in loan guarantees is to help firms that achieve some politically blessed "societal good" access to capital they could not otherwise receive. Setting aside for a moment the fact that government in general has an abysmal track record for picking winners and losers, it turns out that most of the guarantees went to entities that don't meet that test.
Instead of focusing on providing real value in the marketplace, companies are being handsomely rewarded for currying favor with politicians. When resources are misallocated, the economy takes a hit. Consumers pay higher prices, chances of a robust economic recovery go down and political access takes precedence over productivity. It's a double whammy: misused tax payer dollars and consumer consequences.
Unfortunately, while Webster's Dictionary tells us the first known use of the term "cronyism" was in 1840, the green energy loan guarantee fiasco and the Ex-Im Bank reminds us that the practice is alive and well today in our nation's Capitol.