A House panel probing now-bankrupt Solyndra says the President’s own $787 billion stimulus program in 2009 is partly to blame for the failings of the Department of Energy’s loan guaranty program for green energy companies like the defunct solar panel maker.
And the House panel memo notes the President’s stimulus program not only authorized even more breaks to green companies applying for taxpayer funds from the DOE, but that the President’s stimulus program planted its own sort of stimulus czar at the DOE in order to smooth out problems and to help ensure the White House’s new stimulus program was well represented.
This official also worked to more quickly facilitate the expenditure of federal stimulus money on companies like Solyndra.
President Barack Obama’s $787 billion stimulus plan had an estimated $27.2 billion in planned subsidies to pay for energy efficiency and renewable, green energy, including solar. Separate from that, the DOE had a loan guaranty program for green energy dating back to 2005, launched under the George W. Bush Administration, that eventually grew to an estimated $40 billion.
Solyndra had received $535 million in federal loan guarantees, spending an estimated $528 million.
The President had toured Solyndra’s facilities before it collapsed, and Vice President Joe Biden had joined Energy Secretary Steven Chu to announce its new federal loan guaranty in September 2009. Secretary Chu is scheduled to testify about Solyndra tomorrow on Capitol Hill.
Solyndra’s top investor was an investment fund for a family foundation backed by billionaire George Kaiser, a major donor to President Obama.
“We are disappointed in the outcome of this particular loan, we support Congress’ mandate to finance the deployment of innovative technologies, and believe that our portfolio of loans does so responsibly,” a DOE spokesman told FOX Business in an email, adding, “the Department has consistently cooperated with the Committee’s investigation, providing more than 186,000 pages of documents, appearing at hearings, and briefing or being interviewed by Committee staff eight times.
"As this extensive record has made clear, the loan guarantee to Solyndra was subject to proper, rigorous scrutiny and healthy debate during every phase of the process.”
The latest information about Solyndra is coming from a panel at the House Committee on Energy and Commerce, the Subcommittee on Oversight and Investigations. According to its memo, Congress enacted legislation in 2005 authorizing the DOE to give loan guarantees to companies working to reduce air pollution. But Congress waited until 2007 to give $4 billion in appropriations to the DOE for this program.
By the fall of 2008, the DOE picked companies that might be eligible, and one was Solyndra. By that time, members of Congress had been criticizing the DOE loan program for not making any loan guarantees “in the three years since” the program had been created, the report notes.
So the pressure was on. And here was a big sticking point. The 2005 legislation said any company wanting government money must pay “in full for the cost” of their federal loan guarantees. That means because they were getting a taxpayer-backed loan, they in effect were getting an insured loan, so the company had to pay what’s called a “credit subsidy,” in case the company defaulted. That subsidy could “total in the tens of millions of dollars,” the House panel report says.
And the 2005 legislation required companies to pay this subsidy in full at the time of the loan guaranty, the House panel memo says.
In early 2009, DOE Secretary Chu had issued a directive to officials working on the loan program “to take measures to accelerate the review and issuance of loan guarantees,” the House panel report says.
By then the President’s stimulus plan was passed, and that “made an important change” to the way the DOE ran its loan guaranty program, the memo says. The stimulus plan wiped out the credit subsidy, causing taxpayer costs to rise.
Companies getting DOE loan guarantees “would no longer have to pay the credit subsidy cost,” the report says. That gave them less incentive to protect taxpayer loans.
“Instead, the stimulus appropriated approximately $6 billion in funding to pay for the credit subsidy costs of these projects,” the panel says.
What did companies have to show to get yet another taxpayer-backed subsidy for their own no money down, no income, taxpayer-backed loans?
Nothing — they only had to show a deadline date for when construction on their green energy project would begin, says the House panel report.
“In order to be eligible for this funding, the stimulus required that the projects begin construction no later than September 30, 2011,” the memo says.
Why did the White House decide to fully fund these loan subsidies?
The House panel report says “because many loan guarantee applicants had been unable to come up with the funding themselves.”
Meaning, the private credit markets took one look at the potholes in their balance sheets and ran away from funding these green companies like Solyndra. So they instead came with their tin cups to the U.S. taxpayer.
But the House panel memo says the President’s stimulus plan had this “unintended effect” on companies — it let them go lax on monitoring their financial risks.
It says: “When borrowers were required to pay the credit subsidy costs themselves, they were incentivized to review their projects and minimize any potential risks because these risks would result in higher credit subsidy costs.”
That’s because, under the credit subsidy, the riskier a project got, the more the federal government could charge green companies in the way of way of even more credit subsidies, in order to keep them in line to get their projects to succeed and to pay back taxpayers.
But by obliterating the credit subsidy, and “with the government paying the subsidy” instead on behalf of green companies, the incentive for green companies “to minimize risks in the project is diminished,” because the government could not use the loan guarantee contract to crack down on it by threatening to get more money out of the company with higher credit subsidies, says the House panel report.
Which green company was one of the first benefactors of the new relaxed rules?
Solyndra, says the House panel report, which got its first DOE loan guaranty commitment in March 2009.
But even before then, there were high level concerns at the DOE that Solyndra wasn’t ready for any federal help.
“According to interviews of DOE staff conducted by (House) committee staff, it was clear to the DOE staff that, by January 2009, the Solyndra application was not ready for conditional commitment because of the number of significant issues that remained unresolved,” says the House panel memo.
But then the DOE got its own stimulus czar, called a “DOE ARRA Advisor,” ARRA standing for the American Recovery and Reinvestment Act.
This new stim czar then stepped in to help the DOE in managing the $35 billion in new funding it had received under the stimulus.
The new DOE stimulus czar met with DOE staff in February 2009 “in order to identify additional resources and assistance it needed to reduce the cycle time for decision-making,” the House panel report says.
Meaning, the new stimulus czar worked to speed up the spending of taxpayer money on green energy projects.
The new DOE stim czar smoothed things over, says the House energy report, even going to far as to help facilitate meetings with Solyndra’s credit committee and the DOE.
White House staffers even weighed in, the report says.
“In fact, some emails suggest that the dates of the Solyndra Credit Committee and CRB (the DOE’s Credit Committee and Credit Review) meetings were coordinated with White House staff,” says the House panel report.
That’s because the President was working hard to publicize the taxpayer-funded stimulus plan as a success story in creating jobs.
The House panel report cites a March 5, 2009, email between DOE staff that states: “[h]ot off the press. Dates were reviewed with [the ARRA Advisor]. The wish is to have Solyndra through the CRB in time for the President‘s speech in California on the 18th.”
The DOE and Solyndra finally settled the loan guaranty terms on March 10, 2009, but the DOE still had misgivings about the company‘s financials, among other things, says the House panel report.
Despite that, with the enactment of stimulus still fresh on their minds, the DOE and the White House scheduled the announcement event for the closing of the Solyndra loan guarantee, says the House panel report.
On “August 11, 2009, an advisor in the office of (then) White House Chief of Staff Rahm Emanuel contacted the DOE ARRA Advisor and the Chief of Staff to Secretary Chu to discuss the potential announcement value in Solyndra,” says the House panel report.
The report says: “Over the next few weeks, various options and schedules were discussed; ultimately, the staff decided to plan an event that would feature a speech via satellite by Vice President Biden and an appearance by (DOE) Secretary Chu.”
But there was a big problem. Solyndra was still financially unfit, a major issue that was repeatedly raised at the DOE since December 2008, says the House panel report.
In fact, the DOE saw that the company‘s own “financial model showed it running out of cash in September 2011,” says the House panel report.
“Just over one week after the White House and DOE began scheduling the Solyndra announcement, a DOE staff member identified a major outstanding issue in the Solyndra deal, relating to the working capital and liquidity of the company,” says the House panel report.
DOE then hurriedly incorporated all of this information in a report for the Administration. DOE staff briefed the Office of Management and Budget about the problems, the House panel report says.
But “it is plain from the documents produced” to the House panel “that OMB staff felt that they had to rush to complete their review in time for the announcement event at Solyndra‘s facilities on September 4, 2009,” says the report, an event that involved the Vice President.
The House panel report says an OMB staff member “even contacted Vice President Biden‘s office and stated that OMB” had “to do rushed approvals on a couple of occasions (and we are worried about Solyndra at the end of the week).”
The report says “that staffer also emailed his superiors at OMB to recommend that the announcement be postponed.”
But that didn’t happen, as the White House was in full court press to tout the President’s stimulus plan, which was receiving glowing headlines.