Congress Sticks It to the Taxpayer by Supporting No-Strings-Attached Green Energy Loans
Earlier this week the House Appropriations Committee passed a $27 billion budget for the Department of Energy. You might think that the DOE already has enough trouble trying to spend the $39 billion it received in the federal stimulus act enacted earlier this year (that’s almost twice the DOE’s entire budget for 2007), but you’d be wrong-when it comes to taxpayer dollars, the money pit otherwise known as the DOE can’t get enough.
There are many problems with the DOE’s bloated budget, but I’m only going to address the most egregious: The Congress’s support for no-strings-attached “clean energy” loans.
As I’ve noted elsewhere, in 2005, the Congress created a Loan Guarantee Program for “innovative” energy production that reduces greenhouse gas emissions responsible for so-called “global warming” (it hasn’t warmed in a decade, but that’s a different story). With the LGP, the federal government promises to cover the loan in case of default, which makes credit cheaper for borrowers.
The Congress put the DOE in charge of the LGP, despite the fact that the Department has no expertise disbursing loans and its woeful history of picking energy technologies to support. The decision to put the DOE in charge is all the more suspect given that these are risky loans to unproven technologies (according to federal estimates, the default rate is expected to be 50%).
At the time, the Congress seemed to protect the American taxpayer from bad loans by stipulating that the borrower pay a “credit subsidy cost,” a fee equivalent to the value of the risk that the government takes by facilitating cheap credit, unless funds are otherwise appropriated. To date, the Appropriations Committee has yet to allocate funds to pay for the credit subsidy cost, although in the stimulus act passed earlier this year, “Hollywood” Henry Waxman (D-Beverly Hills), inserted language appropriating $6 billion to subsidize the credit subsidy cost for a subset of ultra-green projects.
Assuming that the credit subsidy cost is 10% of the loan, the $6 billion LGP subsidy in the stimulus act puts the taxpayer fully on the hook for $60 billion. But that’s not enough for the Obama administration, which asked for more than $900 million in 2009 and $3.5 billion in 2010 to cover the credit subsidy cost (page 436 of the White House’s proposed budget).
Last month, the Energy and Water Subcommittee of the Appropriations Committee seemed to balk at the President’s request. The Sub-Committee report stated,
“This Subcommittee has long pushed the Department of Energy on management and cost issues. The bill before us today continues to stress that point to the new Administration and directs the Department to continue to work with the Government Accountability Office (the GAO) to implement its recommendations. The Department continues its 18 year membership in the GAO’s annual list of programs that are at high-risk for fraud, waste, abuse, and mismanagement. While the Department has made progress, recent history has shown that there is substantial room for improvements.”
Clearly, the Sub Committee recognizes that the DOE has problems spending taxpayer money. Yet the Sub Committee only recommended a decrease of the President’s proposed subsidy (-$465 million in 2009 and -$1.5 billion in 2010), rather than an outright rejection, and the full Committee agreed.
So the Appropriations Committee believes that the DOE is a “high-risk for fraud, waste, abuse, and mismanagement” but then it chose to remove a major taxpayer protection from “fraud, waste, abuse, and mismanagement” by allocating more than $2 billion to cover the credit subsidy cost of risky green energy loans. F. Scott Fitzgerald famously said that first-rate intelligence is the ability to hold two entirely opposite thoughts in one’s head at the same time. By this reasoning, Members of the Appropriations Committee are a bunch of whiz kids.