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October 25, 2012

From Bad to Worse: U.S. Taxpayers Keep Losing Money on Solyndra

October 25, 2012
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U.S. taxpayers think they lost around $535 million in the Solyndra federal loan guarantee by the Department of Energy. But, in fact, the loss could be as high as $849 million, more than 50 percent higher. After Solyndra went bankrupt in August of 2011, the U.S. department of Energy approved a deal to attract more private investment to the company. Part of the deal was that the private creditors could write-off more than $350 million in taxes, making the total loss to American taxpayers for Solyndra as much as $849 million. Further, one of these private creditors is a company owned by a major donor to President Obama.

The Solyndra Debacle Gets Even Bigger

After filing for bankruptcy in August of last year, Solyndra sold its manufacturing plant, fired around 1,000 employees and proved that its business model was not viable. But, according to the Internal Revenue Service (IRS), Solyndra still had real assets that the IRS refers to as “tax attributes,” totaling between $875 million and $975 million in net operating losses that can reduce future taxable income by as much as $350 million. Besides the ‘tax attributes’, Solyndra also had a total of $12 million in solar tax credits that can reduce tax liabilities by an equal dollar amount.

The Department of Energy allowed private investors to capture these tax attributes and get first dibs in the case of bankruptcy in exchange for $75 million to keep Solyndra in business. According to a fair reading of the law, this deal was in violation because American taxpayers are supposed to get first dibs in recovering any losses from bankruptcy, should it occur.[i]  To break the rule, the Department of Energy produced a legal analysis claiming that this prohibition applies only when a loan originates, not when it is modified, as was the case with the Solyndra deal.[ii]

The two main private creditors in this deal are Argonaut Ventures I LLC, the main investment vehicle for the George Kaiser Family Foundation—a major fund raiser for President Obama—and Madrone Partners LP, an investment fund associated with the family that controls Walmart.[iii]  According to the Washington Post, the George Kaiser Family Foundation is a nonprofit that was created under a special tax law that allows the wealthy to park their assets tax-free.

The deal between these 2 investors and the U.S. Department of Energy was made in February 2011 when DOE subordinated its repayment interests to these two companies. The companies in turn made the debt available to other investors for equity warrants, which would revert back to the Argonaut-Madrone holding company if Solyndra went under, giving the holding company 99.9 percent control of  the net operating losses. Mr. Kaiser noted in September 2011, after Solyndra became defunct, that the holding company would merge with other Argonaut businesses that could use the tax break.

By providing this deal to Argonaut and Madrone, the U.S. Department of Energy was worsening U.S. taxpayers’ position than if the agency just allowed Solyndra to go under. The IRS and Department of Energy are now requesting the bankruptcy courts to reject the deal, stating that bankruptcy is designed to give a business a second chance, not provide a large tax return to investors. At best, taxpayers will recoup at most $27 million of the original $535 loan guarantee to Solyndra.

The Obama Administration Record

History has shown that governments are not good at picking winners and losers in the market place. Rather than listening to history, the Obama Administration provided loan guarantees and other federal dollars to companies that it hand-selected. The Heritage Foundation put together a list of 34 companies that received federal support from taxpayers that have faltered or are now faltering. That is, these companies have either gone bankrupt, laid off workers, or are heading for bankruptcy. The list below provides the 34 companies along with the amount of money they were offered by the U.S. Department of Energy and other federal government agencies. The amount of money listed does not include other state, local, and federal tax credits and subsidies.[iv] The at-risk total is approximately $7.5 billion, of which $1.6 billion is in receivership. And the total will likely get larger as more is known such as the Solyndra loss described above.

  1. Evergreen Solar ($25 million)*
  2. SpectraWatt ($500,000)*
  3. Solyndra ($535 million)*
  4. Beacon Power ($43 million)*
  5. Nevada Geothermal ($98.5 million)
  6. SunPower ($1.2 billion)
  7. First Solar ($1.46 billion)
  8. Babcock and Brown ($178 million)
  9. EnerDel’s subsidiary Ener1 ($118.5 million)*
  10. Amonix ($5.9 million)
  11. Fisker Automotive ($529 million)
  12. Abound Solar ($400 million)*
  13. A123 Systems ($279 million)*
  14. Willard and Kelsey Solar Group ($700,981)*
  15. Johnson Controls ($299 million)
  16. Schneider Electric ($86 million)
  17. Brightsource ($1.6 billion)
  18. ECOtality ($126.2 million)
  19. Raser Technologies ($33 million)*
  20. Energy Conversion Devices ($13.3 million)*
  21. Mountain Plaza, Inc. ($2 million)*
  22. Olsen’s Crop Service and Olsen’s Mills Acquisition Company ($10 million)*
  23. Range Fuels ($80 million)*
  24. Thompson River Power ($6.5 million)*
  25. Stirling Energy Systems ($7 million)*
  26. Azure Dynamics ($5.4 million)*
  27. GreenVolts ($500,000)
  28. Vestas ($50 million)
  29. LG Chem’s subsidiary Compact Power ($151 million)
  30. Nordic Windpower ($16 million)*
  31. Navistar ($39 million)
  32. Satcon ($3 million)*
  33. Konarka Technologies Inc. ($20 million)*
  34. Mascoma Corp. ($100 million)

*Denotes companies that have filed for bankruptcy.

Conclusion

As the Heritage Foundation report states, “The government’s picking winners and losers in the energy market has cost taxpayers billions of dollars, and the rate of failure, cronyism, and corruption at the companies receiving the subsidies is substantial. The fact that some companies are not under financial duress does not make the policy a success. It simply means that our taxpayer dollars subsidized companies that would’ve found the financial support in the private market.”

And as the Wall Street Journal reports,

“This raises a question or two for the President who once called Solyndra a “testament to American ingenuity and dynamism” and who keeps accusing Mitt Romney of supporting tax breaks for outsourcing and corporate jets, which he doesn’t. Here one of Mr. Obama’s own billionaire pals is trying to sidestep a federal tax bill amounting to hundreds of millions of dollars as a result of an epic crony capitalist fiasco.

The larger problem is Mr. Obama’s economic model that seeks to picks winners and losers and misallocates capital. That’s bad enough. But does he have to stick it to taxpayers twice for the same failed investment?”



[i] Washington Examiner, Taxpayer loss due to Solyndra may be as high as $849 million, October 22, 2012, http://washingtonexaminer.com/report-taxpayer-loss-due-to-solyndra-may-be-as-high-as-849-million/article/2511398#.UIWSRG_BF8E

[ii] The Wall Street Journal, The Solyndra Memorial Tax Break, October 15, 2012, http://professional.wsj.com/article/SB10000872396390444799904578050803545600588.html?mg=reno64-wsj

[iii] Washington Post, Investment in failed solar firm Solyndra raises questions about non-profit’s purpose, September 27, 2012, http://www.washingtonpost.com/politics/investment-in-failed-solar-firm-solyndra-raises-questions-about-nonprofits-purpose/2011/09/27/gIQAVByZ2K_print.html

[iv] The Heritage Foundation, President Obama’s Taxpayer-Backed Green Energy Failures, October 18, 2012, http://blog.heritage.org/2012/10/18/president-obamas-taxpayer-backed-green-energy-failures/


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