The Department of Energy’s Stimulus Loans Went to “Junk” Grade Investments and Firms That Spent the Most Lobbying

Study details the role political connections and lobbying played in securing loans

A new Reason Foundation study finds 22 out of 26 projects were rated as “junk” grade investments before they were awarded taxpayer-backed loans as part of the Department of Energy’s Section 1705 loan program, which was part of the 2009 stimulus bill that focused on renewable energy, electric power transmission, and biofuels projects.

The report also highlights taxpayer-backed loans given to companies with ties to Senate Majority Leader Harry Reid, former Vice President Al Gore, former New Mexico Gov. Bill Richardson, and a company founded by former Maine Gov. Angus King, who is now a U.S. Senator. According to the Reason Foundation study, the companies that spent the most on lobbying received the biggest Section 1705 loans.

“These projects were rated by credit rating agencies as junk investments with a high likelihood of failure, but the Department of Energy didn’t seem to care because it was giving loans to the firms that were well connected or were spending the most on lobbying,” said Julian Morris, vice president of Reason Foundation and co-author of the report.

The Reason Foundation report also questions why 83 percent of the American Recovery and Reinvestment Act’s Section 1705 loans went to solar energy projects, with wind receiving 11 percent of the funds.

“The U.S. gets less energy from solar than it does from biomass or even geothermal,” Morris said. “It smacks of crony capitalism that the energy technology with the lowest market share, solar, got nearly all of the Obama administration’s loans. It is a managerial failure that the administration chose so many high-risk projects in one energy sector and didn’t diversify its investments.”

“Ideally, the government would get out of the business of funding speculative energy projects like Solyndra,” said Victor Nava, co-author of the report and policy analyst at Reason Foundation. “If the government insists on continuing to fund these projects, it should shift to a system that rewards success. The federal government could encourage innovation and competition by offering prizes as we’ve seen with the X Prize, for example.”

The full report is online here and here (.pdf).

About Reason Foundation

Reason Foundation is a nonprofit think tank dedicated to advancing free minds and free markets. Reason Foundation produces respected public policy research on a variety of issues and publishes the critically acclaimed Reason magazine and its website www.reason.com. For more information please visit www.reason.org.

Contacts

Julian Morris, Vice President, Reason Foundation, (212) 495-9599
Victor Nava, Policy Analyst, Reason Foundation, (786) 359-8427
Kristen Kelley, Communications Specialist, Reason Foundation, (443) 722-5592




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