A
case study in
pay-to-play cronyism
By Dan
Epstein
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 lawsuit against
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.”
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 rea lheavy” 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.