August 04, 2015, 11:00 am
A case study in
pay-to-play cronyism
By Dan Epstein
7
News flash: Government subsidies and
special-interest favors go hand in hand.
The latest example comes from a federal
green-energy loan program. Last month, the DC District Court ruled that Cause of Action, where
I am executive director, can proceed with a lawsuitagainst the Department of Energy. We’re
suing the federal government for the blatant political favoritism
in its $25 billion “Advanced Technology Vehicle Manufacturing Loan
Program.”
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In
principle, this taxpayer-funded program was supposed to support the manufacture
of energy-efficient cars. In practice, it rewarded a select few well-connected
companies.
Since the program was created in 2008, numerous
businesses have applied for its taxpayer-backed financial support. Yet only a
small number were approved. Among the lucky few were two electric car
manufacturers: Teslaand Fisker.
Both companies’ political connections run deep,
especially Tesla’s. The company’s founder, Elon Musk, was a max donor for President Obama. One of
its board members, Steven Westly, was appointed to a Department of Energy advisory board. And another Obama bundler,
Tesla investor and adviser Steven Spinner, secured employment in the department’s Loan
Program Office—the very office that gave the company a taxpayer-backed
loan.
Fisker also has friends in high places.
The company, which has since gone bankrupt, was backed by a San Francisco venture capital
firm whose
senior partners donated millions to the 2008 Obama campaign
and other Democrat causes. One partner, John Doerr, parlayed his support into a
seat on the President’s Council of Jobs and Competitiveness.
Such connections can allow a company to exert
political pressure to enrich itself. Unsurprisingly, Department of Energy
emails show that such pressure was rampant in its loan programs.
There’s no shortage of examples. The department’s
leaders—including then-Secretary of Energy Steven Chu—repeatedly promised to
deliver results to politicians like Rep. Steny Hoyer
(D-Md.) and Sen. Harry Reid (D-Nev.). One emails reads, “DOE has made a political
commitment” to approve a company’s loan. Another says the “pressure is on real
heavy” from none other than Vice President Joe Biden. And still another shows an employee asking, “what’s another billion anyhow?”
Unsurprisingly, the Obama administration gave Tesla
and Fisker preferential treatment, and then
some.
The Department of Energy revised its review process
in order finish the companies’ applications faster. The government gave them
extraordinary access to its staff and facilities—even to the point of having government
employees personally walk them through the loan application and approval process.
The department ignored its own lending rules in order to approve the companies’
loans. And it renegotiated the
terms of some loans after the companies could not keep their original commitments or
were experiencing financial difficulties. Tellingly, Fisker
has since gone out of business, despite receiving over a billion dollars in
loans through this federal program.
Now contrast this preferential treatment with what
happened to XP Vehicles and Limnia, neither of which
have the same political connections. (My organization is suing the Department
of Energy on their behalf). The two companies partnered to manufacture an
energy-efficient sport utility vehicle that would have competed with Tesla and Fisker’s cars. They applied for loans in 2008 and 2009
under the same loan program.
The department refused them both—and it used bogus
reasons to do so.
For starters, the department made claims that were
laughably false. To take one example: It rejected XPV’s application
because its vehicle was
powered by hydrogen. It was an electric SUV. It also raised objections that it didn’t raise
with other companies whose applications were approved. For instance: The
bureaucracy criticized the proposed all-electric
vehicle for not using a specific type of gasoline. Yet Tesla and Fisker received the loans despite producing similar
all-electric cars.
In light of these obvious problems and hypocrisy,
both companies presented the Department of Energy with detailed rebuttals. Yet
the government failed to respond. To this day, both XPV and Limnia
are awaiting a satisfactory reply. In the meantime, XPV has gone out of
business, unable
to compete against its politically connected—and subsidized—rivals.
This casts the Department of Energy’s loan program
in a new light. It was sold to the American public as a means of promoting
energy-efficient vehicles. Instead, it was used to benefit a select few
well-connected companies. It was a blatant crony handout, paid for by the U.S.
taxpayer.
Sadly, similar examples are widespread in
Washington. That’s no surprise considering the feds spend roughly $100
billion a year in
taxpayer-funded handouts to businesses. This breeds the sort of
government-business collusion Americans think is rampant in Washington. In
fact, over two-thirds of
likely voters think
the federal government helps businesses that hire the most lobbyists, shake the
right hands, and pad the right pockets. They’re right.
This points to a simple conclusion: Politicians and
bureaucrats shouldn’t use the public’s money to pad private companies’ bottom
lines. As the Department of Energy’s green-vehicle loan program shows, the
capacity for corruption is immense—and inevitable.
Epstein is executive director of Cause of Action, a
government watchdog.