Capitols and capital

SAT question: How do you explain the Obama administration's $528 million loan to solar panel manufacturer Solyndra, now bankrupt?

A. Corruption. Major Obama donor/Solyndra investor George Kaiser-through his George Kaiser Family Foundation-made four visits to the White House on March 12 and 13, 2009. He says he did not discuss the Solyndra loan there.

B. Patriotic wisdom. President Barack Obama said on Oct. 3, "Not every single business is going to succeed in clean energy, but if we want to compete with China ... we've got to make sure our guys here in the United States of America at least have a shot."

C. "Mistakes were made." Some people goofed-but avoid personal responsibility by phrasing this in the passive voice.

D. Governmental arrogance. Bureaucrats are bad at picking winners and losers, particularly when it comes to start-up companies.

Answer key:

A. May be correct, since the Department of Energy reportedly fast-tracked the Solyndra loan, over objections that the company was too risky, and announced it two weeks after Kaiser's visits.

B. The Obama administration is sticking to this free-spending position. The U.S. Department of Energy just rushed through $4.7 billion more in loans for solar energy companies to beat a midnight deadline Sept. 30, when the fiscal year ended.

C. Plenty of evidence for this. Regarding Solyndra, it's not only that "hindsight is always 20-20," as President Obama said: "People felt like this was a good bet." Staffers at the Office of Management and Budget had early concerns. Forbes on Sept. 17 headlined one story, "Yes, It Was Possible to See This Failure Coming," and explained how Solyndra right from the beginning was non-competitive in pricing against not only other kinds of energy providers, but even against other solar panel manufacturers.

D. Probably the best answer, as even Obama administration members and associates sometimes admit privately. In December 2009, Solyndra investor Brad Jones sent a worried email to President Obama's top economic adviser at the time, Larry Summers. Jones wrote about the Obama administration's first year of dispensing largesse: "The allocation of spending to clean energy is haphazard; the government is just not well equipped to decide which companies should get the money and how much." Summers responded, "I relate well to your concern that gov is a crappy vc [venture capitalist] and if u were closer to it you'd feel more strongly."

One problem facing the United States, though, is that "crony capitalism" and governmental picking of winners and losers are roiling not only the White House: Many state governors and their associates are trying to do on a smaller scale what Team Obama has done big-time. They generally fare as poorly. U.S. solar manufacturers SpectraWatt (which received New York taxpayer funds) and Evergreen Solar (Massachusetts taxpayer funds) declared bankruptcy weeks prior to Solyndra's collapse.

Since it's easy for Republicans to blast Obama and for newspapers to cover Washington misdeeds, WORLD decided to look beyond the Beltway at two governors who have tried to pick winners and losers. We examined the record of one Republican governor with stellar corporate connections, Mississippi's Haley Barbour, who has not been dogged by a full-court press. We then reviewed the pickings of Texas governor Rick Perry that are now being examined in the light of his presidential candidacy.

Barbour, former chairman of the Republican National Committee, is well-connected: For years before becoming governor in 2004 he was a Washington lobbyist for major corporations ranging from Philip Morris to Microsoft. During the past year and a half he has brought six green energy manufacturers to Mississippi with taxpayer-backed loans totaling $400 million. The loans will be funded with bonds in a state where the total fiscal year 2011 budget is $4.5 billion.

The six companies receiving loans-Twin Creeks Technologies, Soladigm, Stion, KiOR, Calisolar, and HCL Cleantech-do not appear to have direct ties to the Barbour administration, though Calisolar's chairman, John Correnti, is a friend of Barbour's. The loans seem strange in that The Wall Street Journal in March quoted Barbour's disapproval of the Obama's administration's green energy funding: "The federal government too often is picking winners and losers. I don't think we should be saying we are willing to fund this kind of energy but not that kind of energy."

Despite that rhetoric, Barbour has placed his own bets on manufacturers of monocrystalline and thin-film solar panels, renewable crude, energy-efficient glass, solar silicon, and bio-fuels and bio-products. State legislators, thinking of the 4,550 green jobs these companies collectively promise, have supported him. Although all six companies are venture capital-backed, and most had no previous commercial-scale manufacturing experience, legislators asked few questions.

Solar panel manufacturer Twin Creeks Technologies was the first green energy company to receive a Mississippi stimulus. In April 2010, the California-based company announced its intent to set up its first commercial-scale plant in the state and received a $50 million loan award. Twin Creeks held its grand opening in May of this year, but it still isn't manufacturing a commercial product. The company has promised to create 500 jobs over the next five years, and 180 by the end of 2011, but in June it reported having 15 employees. On Oct. 3 it listed two job openings on its website.

Twin Creeks' new 88,000-square-foot factory, funded with $22 million in state dollars, sits in Senatobia. No sign or logo identifies the plant. Twin Creeks spokesperson Tarpan Dixit says the plant is not in commercial production but in "validation mode" and waiting for certification-but that's not the message conveyed by state officials. At Twin Creeks' grand opening in May, Barbour said he was "delighted to celebrate the start of production" at the factory. In September Kathy Gelston, chief financial officer of the Mississippi Development Authority-the state's economic development agency-said the factory was producing "sellable panels."

Tate County Economic Development Foundation director J.E. Mortimer recently toured the factory and saw the equipment: "We are still looking for really good things from this company. ... Solyndra is nothing at all like Twin Creeks." Gelston has said the green energy companies can only use the loans for building and equipment, so taxpayers have collateral if any of the companies collapse. But she admits that the Authority hasn't assessed the forced liquidation value of the assets, should a fire sale become necessary.

Some involved in the Twin Creeks deal have political connections. W.G. Yates & Sons Construction of Philadelphia, Miss., built part of the Twin Creeks plant. Executives and family members from W.G. Yates' parent, The Yates Companies, gave $25,000 to Barbour's federal PAC in August 2010. The Yates Companies also donated this year $10,000 of in-kind air travel to Haley's PAC, a Barbour fundraising arm in Georgia. Several partners at one Twin Creeks backer, DAG Ventures, are Republican donors. Firm co-founder John Duff Jr. gave more than $100,000 to the Republican National Committee, and then started giving to the Democratic National Committee.

Yates spokesman Kenny Smith said, "The Yates family did give money to the governor's Georgia PAC because they were optimistic that he was going to run for president and they were supporting him in that effort. It had absolutely nothing to do with the work at Twin Creeks."

It's hard to know about funding of the five other companies: Secretive hedge funds back some of the companies, hampering transparency. One venture capital firm, Khosla Ventures, funds four of the six green companies that received loans from the state. Artis Capital Management, a hedge fund with ties to Khosla, backs two of the companies. Artis (also a backer of Solyndra) is an intensely secretive $1 billion hedge fund. Its website is password-protected, and its investors are unlisted. Public filings with the SEC only reveal the company's president and counsel, and neither appears to have ties to the Barbour administration. Last year Artis partner David Lamond gave a paltry $500 to Haley's PAC in Georgia.

Barbour has also promoted an experimental $2.4 billion clean coal plant owned by Mississippi Power Company (MPCo.), which is part of Southern Company. When the plant comes on line, rates for poultry farmers will increase by more than 30 percent, and other customers also anticipate increases. (In the public electric utility model prevalent in southeastern states, power companies are regulated monopolies required to provide customers with the cheapest electricity available, but they are also private companies: Captive customers must pay for any improvements approved by state regulators.)

The new plant idea has much to commend it: The plan is for the plant to mine on-site, low-grade lignite coal, insulating customers from market volatility in fuel costs. It is likely to be the first commercial-scale power plant in the nation to capture its carbon dioxide emissions. MPCo. argued for the plant's economic benefit by comparing it to the alternative: a plant with much lower construction costs that would run on natural gas, a fuel that has historically been subject to significant market cost spikes.

Barbour said the new plant would be a "home run for Mississippi," but his backing for the project raised some eyebrows: Southern Company since 1999 has spent more than $2 million with BGR Group (formerly Barbour, Griffith & Rogers), according to federal lobbying disclosure documents. Barbour helped found BGR and, according to a blind trust document filed with the Mississippi Ethics Commission, owns shares and has a profit-sharing plan with the firm. (Barbour's blind trust is supposed to insulate him from conflicts of interest: Assets are placed into a trust at the time of inauguration and kept by a trustee away from the official's eye.)

The new plant is being built with the help of $270 million in U.S. Department of Energy funds that BGR helped Southern Company to get and then hold onto, after Florida officials said no to the building of a coal plant there. Critics of the new coal plant note that drilling technology has advanced in recent years and new supplies of cheap shale gas have flooded the market: The Department of Energy now says natural gas costs will be low and stable for years to come, making this coal plant economically questionable. If this holds true, the plant will have imposed significant costs on customers instead of saving them money as promised. Plant critics point out that Mississippi's Baseload Act makes it possible for customers to be charged for a power plant's construction even if it is never completed or never works properly.

Barbour spokeswoman Laura Hipp told WORLD that alternative energy companies must "meet benchmarks before receiving state funds" and must return the money if they violate their contracts. She said Twin Creeks now employs only 16 people but stated the company is only contractually "committed to employ 500 employees within five years." She said, "Mississippi Power's facility fits in perfectly with our plan to provide an affordable, stable fuel source produced in Mississippi for generations-not simply five or 10 years down the road."

Presidential candidate Rick Perry has interwoven politics and economics throughout his 11 years as governor of Texas. WORLD noted on Sept. 10, "Big donors to Perry's campaign have received support for their interests in low-level radioactive waste disposal, horseracing, poultry, new technology, and other endeavors. As one former aide said, 'Some fleas have attached themselves to the dog.'"

Many Perry donors have given hundreds of thousands of dollars and, according to studies by the Los Angeles Times, The Washington Post, The Dallas Morning News, and other newspapers, received subsidies and contracts for their businesses. These hostile observers have been unable to prove "pay to play" connections, though, because Texas government under Perry's watch has been so pro-business that many non-contributors have prospered just as much.

The Washington Post found the most frequent payoff, if there was one, was appointment to a prestigious board like the University of Texas regents. That's a tradition in Texas and other states, which is why conservative regents often enjoy their positions and do nothing to check liberal academic dominance.

The Los Angeles Times analysis found that half of the 150 large givers to Perry over the last decade-he raised $37 million from them-received business contracts, tax breaks, or appointments. For example, Joe Sanderson gave $165,000 to Perry, and his Mississippi-based company received a $500,000 grant to open a Waco chicken hatchery and processing plant. Unrelated, since Perry has made it clear, as one of his campaign commercials notes, that "Texas is open for business"? Related? Observers differed.

The biggest Perry donor, clocking in at $1.1 million, is leveraged buyout master Harold Simmons. One company he owns, Waste Control Specialists (WCS), received a license to construct the first new low-level radioactive waste disposal site in the United States in three decades.

Simmons, listed by Forbes last month as the 33rd richest American ($9.3 billion), told the Dallas Business Journal in 2006 that WCS was losing several million dollars a year, but approval of a license would give the company "a fantastic future." Simmons said, "We first had to change the law to where a private company can own a license, and we did that. Then we got another law passed that said they can only issue one license. Of course, we were the only ones that applied."

Simmons said his company had found in west Texas "a perfect site ... with perfect geology, and the people out there are all for it. The problem is with the bureaucracy. ... But we think the odds are highly in our favor that we will be able to work through the bureaucracy." His forecast was accurate: As the Texas Commission on Environmental Quality in 2007 and 2008 considered whether to give licenses to WCS, Simmons met twice with Perry. The Commission voted 2-1 to give WCS a go-ahead.

The dissenting member, Larry Soward, told the Los Angeles Times that "the other two commissioners knew full well it was a very important matter to the governor's office." Perry did not reappoint Soward when his term ended in 2009. WCS is now poised to aggregate not only radioactive waste from 35 states but hundreds of millions of dollars. The ugliness or beauty of this decision is in the eye of the beholder: The Times saw undue influence, but Perry defenders say he cut through the bureaucracy.

During September The Wall Street Journal joined with Texas reporters in questioning Perry's connections. Unimpressed with government's record in picking winners and losers, both conservatives and liberals examined the Texas Emerging Technology Fund created at Perry's request in 2005: It has committed $200 million from taxpayers to fund 133 start-ups. The Journal noted that Perry, along with his allied lieutenant governor and the speaker of the Texas House of Representatives, has final decision-making authority concerning the grants.

The Dallas Morning News found that some $16 million from the tech fund has gone to firms invested in or run by major Perry contributors. This past spring state auditors pushed for greater transparency in fund management but found no evidence of fraud or illegal activity. While Texas-sized grants have not led to enormous losses like Solyndra's, one medical imaging company that received a $1.5 million award in 2007, ThromboVision, went bankrupt last year.

Texas state Rep. David Simpson, elected in 2010 with Tea Party support, said the fund is "fundamentally immoral and arrogant [with] the appearance of impropriety, if not actual impropriety." Another Republican, state Sen. Mike Jackson, noted "criticism about the lack of transparency and insinuations of cronyism." The Texas House of Representatives in May voted 89-37 to close the fund-only to have the legislature's conference committee keep it in business, with $140 million more to spend.

That's not a good conclusion, according to Michael Sullivan, who heads Texans for Fiscal Responsibility. Sullivan points out: "Government should not be playing the role of venture-fund capitalist. ... It's always easy to spend other people's money, and especially easy to spend other people's money to the benefit of one's own friends." Taxing one business to fund another, and forcing taxpayers to invest in companies, is inherently unfair.