Political Support for Energy’s Loan Guarantees

Several weeks ago, 127 House Republicans joined 155 Democrats to defeat an amendment introduced by Rep. Dennis Kucinich (D-OH) and Rep. Tom McClintock (R-CA) that would have shut down the Department of Energy’s Title 17 loan guarantee program. That’s the program that gave birth to Solyndra, which has come to symbolize the failure of the Obama administration’s crony capitalist policies.

Why would members of Congress, and Republicans in particular, continue to support this federal boondoggle incubator? A new paper from Cato adjunct scholar Veronique de Rugy that looks at the Energy loan guarantees explains:

One reason is it serves three powerful constituencies: lawmakers, bankers, and the companies that receive the subsidized loans. Politicians are able to use loan programs to reward interest groups while hiding the costs. Congress can approve billions of dollars in loan guarantees with little or no impact to the appropriations or deficit because they are almost entirely off-budget. Moreover, unlike the Solyndra case, most failures take years to occur, allowing politicians to collect the rewards of granting a loan to a special interest while skirting political blame years later when or if the project defaults. It’s like buying a house on credit without having a trace of the transaction on your credit report.

Veronique notes that most of the money for the loan guarantees issued under section 1705 of Title 17 have gone to large and established companies:

These include established utility firms, large multinational manufacturers, and a global real estate investment fund. In addition, the data shows that nearly 90 percent of the loans guaranteed by the federal government since 2009 went to subsidize lower-risk power plants, which in many cases were backed by big companies with vast resources. This includes loans such as the $90 million guarantee granted to Cogentrix, a subsidiary of Goldman Sachs. Currently, Goldman Sachs ranks number 80 on the list of America’s Fortune 500 companies.

In recent testimony before the House Budget Committee, Chris Edwards and I also discussed the crony nature of the president’s “green” energy subsidies:

President Obama's green energy programs illustrate how corporate welfare creates corrupting relationships between businesses and politicians. The Washington Post found that “$3.9 billion in federal [energy] grants and financing flowed to 21 companies backed by firms with connections to five Obama administration staffers and advisers.” It also noted that the “main players in the Solyndra saga were interconnected in many ways, as investors enjoyed access to the White House and the Energy Department.” According to the New York Times, Solyndra “spent nearly $1.8 million on Washington lobbyists, employing six firms with ties to members of Congress and officials of the Obama White House.”

American businesses, of course, have a right to lobby the federal government. But given that reality, Congress throws fuel onto the corruption fire by creating business subsidy programs. When subsidy money flows out the door from Washington to businesses at the same time that money flows back from businesses to Washington for lobbying, it's no surprise that we get influence-peddling. Corporate welfare undermines honest and transparent governance, and Americans are sick and tired of the inevitable scandals.

Unfortunately, most members of Congress apparently aren't sick and tired of it.