God bless the Obama Administration and the U.S. government. We have really got the A-team now working on green innovation in our country.
—JOHN DOERR, Obama contributor and billionaire investor, who owns a large stake in sixteen companies that have received government loans or grants
IN THE AUDACITY OF HOPE, Barack Obama tells a story about visiting Los Angeles in 2000: His credit card was declined by a rental car company. It was a "very dry period" for his law firm, and he was devoting most of his energy to his work as a state senator. Then suddenly a wealthy political donor named Robert Blackwell agreed to pay him a $112,000 legal retainer over a fourteen-month period.
But here's what Obama failed to note in his book, and what came to light only later, thanks to investigative reporting: State Senator Obama subsequently helped Blackwell's table tennis company receive $320,000 in Illinois tourism grants to subsidize a state Ping-Pong tournament.1
Giving specific access and benefits to those who help you get elected (or get rich through investments) is a time-tested American tradition. You can make a business of government service by helping friends who help you. Politicians have always tried to provide favors in the form of tax breaks, regulatory exemptions, and constituent services to a select group of financial friends. Politicians regularly get special provisions inserted in the tax code to help friends in certain industries. Or they try to get them access to particularly powerful bureaucrats. But the best form of payoff and patronage for rich friends and supporters? Give them billions of dollars in taxpayer cash.
When William "Boss" Tweed ran the Tammany Hall political machine in New York City in the nineteenth century, he forced potential candidates to put up cash to win nomination (and then certain election) to office. Once the electees arrived, they would enrich themselves, but they also funneled money back to Tammany Hall. It was more than just crony capitalism; it was also a system of rigged elections. What brought Tweed down, however, was classic cronyism. He began to construct a courthouse in lower Manhattan in 1861, siphoning off several times its value in government contracts. Finally, a New York Times investigative series pointed out so much blatant graft—one Tweed crony was paid so much for just two days of work that he became known as "the Prince of Plasterers"—that charges were brought, and Tweed was jailed after milking the courthouse for a decade (construction would not be completed until 1880).
The game of funneling taxpayer money to friends has exploded to astonishing levels in recent years. Now that annual federal outlays exceed $3 trillion, there are extraordinary opportunities to get a piece of the action. Government checks routinely find their way to very wealthy Americans. Convincing the public that billionaires need the money can, needless to say, be tricky. But if a government check somehow serves the "public interest," it can become part of a larger program and might escape scrutiny.
With the dramatic events surrounding the 2008 financial crisis, beginning in 2009 the United States embarked on the greatest reverse—Robin Hood transfer of wealth in its history. Tax money was taken from all, rich and poor, and given to billionaires. Under the guise of an economic stimulus plan to create jobs and to develop alternative energy, Washington has handed out billions of dollars in cash and federal loan guarantees. With the exception of some reports on the solar power company Solyndra, almost entirely unreported by the media is the fact that an overwhelming amount of this money has been directed to wealthy financial backers of President Obama and the Democratic Party. This is Boss Tweed's financial payoffs writ large. Many recipients served on the President's campaign finance committee, or functioned as campaign donation "bundlers" (coordinators of individual contributions that can be combined into large gifts), or were major contributors themselves. In short, they raised and donated millions for Obama's 2008 campaign, and in return, the companies they own or lead have received billions in government-backed loans and outright grants. (The cash grants, by the way, are tax free.)2
When President-elect Obama came to Washington in late 2008 following his electoral victory, he was outspoken about the need for an economic stimulus to revive a struggling economy. He wanted billions of dollars spent on "shovel-ready projects" to build roads; billions more for developing alternative energy projects; and additional billions for expanding broadband Internet access and creating a "smart grid" for energy consumption. After he was sworn in as President, he proclaimed that the allocation of taxpayer money would be based strictly on merit—not doled out to political friends. "Decisions about how Recovery Act dollars are spent will be based on the merits," he said, referring to the American Recovery and Reinvestment Act of 2009. "Let me repeat that: Decisions about how Recovery money will be spent will be based on the merits. They will not be made as a way of doing favors for lobbyists."3
Really? Let's look at the results.
It would take an entire book to analyze every single grant and government-backed loan doled out since Barack Obama became President. But an examination of grants and guaranteed loans offered by just one stimulus program run by the Department of Energy, for alternative energy projects, is stunning. The so-called 1705 Loan Guarantee Program and the 1603 Grant Program channeled billions of dollars to all sorts of energy companies. The grants were earmarked for alternative fuel and green-power projects, so it would not be a surprise to learn that those industries were led by liberals. Furthermore, these were highly competitive grant and loan programs—not usually a hallmark of cronyism. Often less than 10% of applicants were deemed worthy to receive government support.
Nevertheless, a large proportion of the winners were companies with Obama-campaign connections. Indeed, at least ten members of Obama's finance committee and more than a dozen of his campaign bundlers were big winners in getting your money. At the same time, several politicians who supported Obama managed to strike gold by launching alternative energy companies and obtaining grants. How much did they get? According to the Department of Energy's own numbers ... a lot. In the 1705 government-backed loan program, for example, $16.4 billion of the $20.5 billion in loans granted went to companies either run by or primarily owned by Obama financial backers—individuals who were bundlers, members of Obama's National Finance Committee, or large donors to the Democratic Party.4 The grant and guaranteed loan recipients were early backers of Obama, before he ran for President, people who continued to give to his campaigns and exclusively to the Democratic Party in the years leading up to 2008. Their political largesse is probably the best investment they ever made in alternative energy. It brought them returns many times over.
FRIENDS GIVE FRIENDS BILLIONS OF OUR MONEY
Those who directed these loan programs were themselves fundraisers for the Obama campaign. One might think that the Department of Energy's Loan Program Office, for example, which has doled out billions in taxpayer-guaranteed loans, is directed by a dedicated scientist or engineer. Or perhaps a civil servant with considerable financial knowledge. Instead, the department's loan and grant programs are run by partisans who were responsible for raising money during the campaign from the same people who later came to seek government loans and grants. Steve Spinner, who served on the Obama campaign's National Finance Committee, and was a bundler himself, was the campaign's "liaison to Silicon Valley." His responsibilities included fundraising, recruiting more bundlers, and managing Obama's relationship with a cadre of very wealthy donors. After the 2008 campaign, Spinner joined the Department of Energy as the "chief strategic operations officer" for the loan programs. A lot of the money he helped hand out went to that same cadre of wealthy Silicon Valley campaign donors. He also sat on the White House Business Council, which is made up of Obama-supporting corporate executives.
Another Obama fundraiser who was positioned to lead the allocation of taxpayer money to Obama contributors was Sanjay Wagle, who served as the managing cochairman of Cleantech and Green Business Leaders for Obama, which raised millions for Obama's campaign. Wagle's day job was as a principal at VantagePoint Venture Partners. After the 2008 election, Wagle joined the Obama administration as a "renewable energy grants adviser" at the Department of Energy. VantagePoint owned firms that would later see federal loan guarantees roll in.
Leading the loan programs at the DOE with Steve Spinner was Jonathan Silver, who would serve as executive director. Silver formerly served in the Clinton administration, first as counselor to the secretary of the interior and later as assistant deputy secretary of the Department of Commerce. He is a strict partisan: when it comes to his own campaign contributions, the recipients have all been Democrats. His wife has served as financial director for the Democratic Leadership Council. His business partner, Tom Wheeler, was an Obama bundler, and his wife was an outreach coordinator for the campaign. According to the DOE, as director of the loan programs "Silver will be responsible for staffing the programs, and leading organization analysis, and negotiation."
Silver managed the loans with advice from his "strategic adviser," Steve Spinner. The grants, on the other hand, originated in the office of Cathy Zoi, who served as the assistant secretary of energy for efficiency and renewable energy. (Wagle was her adviser.) Zoi had previously worked in the Clinton White House as the chief of staff on environmental policy, then as the CEO of former Vice President Al Gore's Alliance for Climate Protection. You may be thinking, "So what? Why would we expect anything less of political appointees?" But the numbers don't lie: the recipients of loans and grants from these programs were Obama cronies. Were the funds doled out based on the merits? You decide.
The Government Accountability Office has been highly critical of the way guaranteed loans and grants were doled out by the Department of Energy, complaining that the process appears "arbitrary" and lacks transparency. In March 2011, for example, the GAO examined the first eighteen loans that were approved and found that none were properly documented. It also noted that officials "did not always record the results of analysis" of these loan applications. A loan program for electric cars, for example, "lacks performance measures." No notes were kept during the review process, so it is difficult to understand how loan decisions were made. The GAO further declared that the Department of Energy "had treated applicants inconsistently in the application review process, favoring some applicants and disadvantaging others." As the GAO noted in another report, the Recovery Act "never defined what was meant by transparency." Similarly, the Department of Energy's inspector general, Gregory Friedman, who was not a political appointee, chastised the alternative energy loan and grant programs for their absence of "sufficient transparency and accountability." He has testified that contracts have been steered to "friends and family."5
Friends indeed. The Department of Energy loan and grant programs might be the greatest—and most expensive—example of crony capitalism in American history. Tens of billions of dollars were transferred to firms controlled or owned by fundraisers, bundlers, and political allies, many of whom—surprise!—are raising money for Obama again.
The stated goal of the energy giveaways was to create "green jobs." Yet many of these grants and loan guarantees created few or no jobs, according to the federal government's own records. Often, taxpayer money was given to politically connected companies for projects that were already under way or even completed. Often these companies were money losers that needed government funds to stay in business or turn a profit. By the White House's own admission in internal memos, these grants and guaranteed loans proved to be very lucrative for key political financiers. Several huge checks or loan guarantees were given to small companies with revenues of less than $1 million.
In a memorandum for the President, signed on October 25, 2010, and leaked to the media, senior White House officials Larry Summers, Ron Klain, and Carol Browner explained what an economic boon the grants and loans were to the companies involved. Many of the companies had "relatively small private equity (as low as 10%)," reads the memo, while generating "an estimated return on equity of 30%." Those companies would have been hard-pressed to negotiate that sort of arrangement in the private sector. The memo further points out that if you win government money, it can make all the difference between success and failure. A wind farm can cost 55% less than it would for a company that didn't get government support. Government grants cut costs in half for some solar energy companies. The memo also makes clear that the grant review process was not handled solely by the Department of Energy; the White House staff itself was involved in picking winners and losers. The memo notes that the grants and loans receive a "policy review" by the White House.6
White House involvement is particularly interesting because several loans appear to have gone to companies with direct connections to senior White House staff. Granite Reliable Wind, for example, was offered $135 million in loan guarantees. Why is that significant? Because it is largely owned and managed by CCMP Capital, which is where the White House Deputy Chief of Staff Nancy-Ann DeParle had been managing director before joining the Obama administration.
The alternative energy loan and grant programs were originally created in 2005, but they were not very active. Indeed, hardly any loans and grants were offered during the Bush years. The reason? The 2005 law required that the companies receiving loans or grants have a sizable amount of their own money in the game, a "down payment" on projects. But the 2009 stimulus bill removed that provision. Wealthy investors in green-tech companies could now get large government "investments" with very little of their own money at risk.
These government grants and loan guarantees are important not only because they provide access to taxpayer (or taxpayer-guaranteed) capital. Such support also serves as a "seal of approval" from the federal government, opening up access to other private capital. The stock prices of firms rise and fall simply on the news that their applications are under consideration. In May 2011, for example, when it was revealed that First Solar, a sustainable-energy company, was merely "in the running" for government loans and grants, the company's stock rose 5% on the news. Forbes even speculated that thanks to the government loans and grants, Americans might well "mint several 10-figure fortunes."7 As Faysal Sohail, the managing director of the venture firm CMEA Capital, told the San Francisco Business Journal, "Getting $25 million from the government does make a difference to investors."8 The crony-capitalist road to riches was simple: invest in a green-tech company, secure a much larger investment from the federal government, take your company public, and make lots of money. Indeed, as President Obama's Council of Economic Advisers estimated, by July 2010 the government grants and guaranteed loans had stimulated an additional $134 billion of private investment in green- energy firms.9
The attorney and lobbyist Steve Farber, a major donor to the Democratic National Committee and cochair of the host committee for the 2008 convention in Denver, which nominated Obama for President, understood exactly how the system worked. He had raised $40 million for the inauguration, and now he could raise some cash for himself.10 Shortly after the federal government started writing Recovery Act grant checks, Farber boldly placed an ad in the Wall Street Journal touting the services and connections of his firm, Brownstein Hyatt Farber Schreck. "Expertise in sustainable energy law is worth nothing without connections," it read. "Learn how we've helped clients obtain funding from the Department of Energy through the American Recovery and Reinvestment Act."
Farber was blunt, but he spoke the truth in a way that only a lobbyist will sometimes do. He was right: when it came to getting access to tens of billions of dollars in taxpayer money, passed around as a stimulus for the economy, connections were the key.
Another Obama fundraiser, Steve Westly, echoed that sentiment. In addition to amassing more than $500,000 for Obama's election in 2008, Westly cochaired California's Obama for President campaign. Westly is a Silicon Valley venture capitalist who also advises high-tech start-ups on financial matters. And like Farber, he has not been subtle about advertising the Obama connection.
"We believe that with the Obama Administration, and other governments ... committing hundreds of billions of dollars to clean tech, there has never been a better time to launch clean tech companies," reads his company's website. "The Westly Group is uniquely positioned to take advantage of this surge of interest and growth."
In addition to regularly attending White House events and state dinners (he was on hand to greet the Chinese premier), Westly also serves on the advisory board of the Department of Energy. Four companies in which Westly had a major financial stake just happened to receive loans, grants, or stimulus money from the Obama Energy Department: Tesla, Recyclebank, Edeniq, and Amirys Biotechnologies. And at least two other companies that later joined his portfolio, Amonix and CalStar Products, received Department of Energy funding.
As a joint investigation of Westly by ABC News and the Center for Public Integrity makes clear, he confidently traded on his connection to Obama, mentioning it in e-mails to Department of Energy officials with whom he was discussing business.11 But Westly was only one player in a very large drama.
The first guaranteed loan provided by the Obama administration for alternative energy was massive: $573 million for a solar energy company called Solyndra. The company got a low interest rate and the knowledge that if it could not repay what it owed, the government would pick up the tab. In short, a very nice deal. President Obama paid two visits to Solyndra's California factory to tout the grant. As it turned out, 35% of the company was owned by an Oklahoma billionaire named George Kaiser, who was a bundler for the 2008 Obama presidential campaign. (Each Obama bundler raised a minimum of $100,000 for the election.)12 Nonetheless, since receiving the loan Solyndra has declared bankruptcy, laid off workers, and closed down its first factory.13 The economic reality is that Solyndra loses money on every solar panel it sells. The company has never been profitable. The plan was simple, and would become a pattern with other companies: secure government money, go public, and get out. As one investor in Solyndra told the Wall Street Journal: "There was a perceived halo around the loan. If we get the loan, then we can definitely go public and cash out."14 Based on the terms of the taxpayer-backed loan, Kaiser and other investors will be paid before the government.
That loan set the tone for a whole series of others, as well as for outright grants offered to a large collection of Obama financiers. One of the biggest apparent winners in the sweepstakes for taxpayer dollars was a company called Leucadia Energy. The company gained approval for a number of projects running into the billions of dollars. It received $260 million for an industrial carbon capture project in Lake Charles, Louisiana; approval for $1.6 billion in loan guarantees for a coal gasification project in Indiana; and another $1.6 billion for a synthetic gas project to be based in Chicago. (Some of these projects have faced local opposition because of concerns about pollution, and have not been completed.)15
So how on earth did Leucadia Energy manage to attract so much federal money? According to Manta.com, an aggregator of public information about small businesses, Leucadia at the time of the government's decision had one employee and $120,000 in annual revenue. The company is a subsidiary of Leucadia National, whose chairman and CEO is Ian Cumming. Cumming served as a member of President Obama's 2008 National Finance Committee and was on the 2008 Democratic National Convention Committee. Curiously, Ian Cumming wrote three rather large checks to Democratic Party committees just weeks before his funds were approved. He wrote a total of $69,900 in checks in April 2009.
The ostensible purpose of these massive stimulus loans to Leucadia was to create jobs. But according to a government audit, as of December 2010, eighteen months after the loans were made, the Leucadia projects had resulted in a grand total of three jobs.16
A total of $2.1 billion was offered to Solar Trust of America to build a solar facility. Both Citigroup Global Partners and Deutsche Bank have a lot of money at stake, $6 billion. The vice chairman of Citigroup Global Partners was, until recently, Louis Susman. And who is Susman? He sat on Obama's National Finance Committee and raised so much for the Obama campaign that he got the nickname "the Vacuum Cleaner." In appreciation, Obama made him ambassador to Great Britain. Deutsche Bank North America's CEO, Seth Waugh, was an Obama campain bundler. The project's partner is Chevron, which heavily favored Obama over McCain in 2008 campain contributions.17
A company called Solar Reserve received $737 million in loan guarantees. One of the largest investors in Solar Reserve is CitiAlternatives. The head of CitiAlternatives, before he joined the Obama administration, was Michael Froman. Obama and Froman first met at Harvard Law School, where they served on the Law Review together. When Obama ran for the U.S. Senate in 2004, Froman introduced him to major Democratic Party players like Robert Rubin, raised money for the campaign, and advised Obama on policy. When Obama ran for President, Froman helped raise large sums of money on Wall Street. After he secured election, Obama asked Froman to join him in the White House as deputy assistant to the President and deputy national security adviser.
DEPARTMENT OF ENERGY GRANT AND LOAN RECIPIENTS FROM THE OBAMA CAMPAIGN'S NATIONAL FINANCE COMMITTEE
INVESTING IN POLITICIANS CAN BE HIGHLY PROFITABLE
A company called Brightsource received $1.4 billion in loan guarantees to build the Ivanpah Solar Electrical System on federal land in California. Who owns Brightsource? By far the single largest shareholder (25%) is Mr. Wagle's VantagePoint Partners. One of only four partners at the firm is Robert Kennedy Jr., from that famous political family. Although he initially supported Hillary Clinton, Kennedy came around to supporting Obama, comparing him to his father and his uncle. He declared during the election that Obama was a "transformational figure in American history who's been able to excite the same intensity and feeling amoung Americans as I saw during my father's 1968 campaign and my uncle John F. Kennedy's 1960 campaign." Now an environmentalist and an investor in green technologies, Kennedy wrote an article for CNN.com in the summer of 2008 with the apt title "Obama's Energy Plan Would Create a Green Gold Rush." And now Kennedy was in a good position to cash in.
Brightsource badly needed this infusion of taxpayer cash. It had been losing lots of money. It had debt obligations of $1.8 billion and in 2010 lost $71.6 million on revenue of just $13.5 million. The company was blunt in its filings with the Securities and Exchange Commission: "Our future success depends on our ability to construct Ivanpah, our first utility-scale solar thermal power project, in a cost-effective and timely manner." And there were no guarantees: "Our ability to complete Ivanpah and the planning, development and construction of all three phases are subject to significant risk and uncertainty."18
A billion dollars in taxpayer money being sent to wealthy investors to bail them out of risky investments—does this sound familiar to anyone?
Another alternative energy company, Abound Solar, cashed in $400 million in grants to increase its production of solar panels. One of the first and largest investors in Abound was billionaire heiress Pat Stryker, who invested through her company, Bohemian. An early financial supporter of the Obama campaign, Stryker has given hundreds of thousands of dollars to Democrats, $87,000 to Obama's Inauguration Committee, and $500,000 to the Coalition for Progress.19
A company mentioned earlier, First Solar, received a whopping $4.7 billion in loan guarantees for three solar projects. And who is behind First Solar? The biggest investors include billionaire Ted Turner, a big financial backer of Obama's in 2008, and Goldman Sachs. The financial giant's employees gave Obama more than $1 million in campaign contributions in 2008, making it one of his largest contributors.20 And two Goldman executives sat on Obama's 2008 National Finance Committee. As a bonus, perhaps, billionaire investor Paul Tudor Jones, another Obama bundler, also owns a stake in First Solar, whose CEO, Michael Ahearn, gives generously (and exclusively) to Democrats.
When news of the loans to First Solar became public, the company's stock jumped more than 6%.21 For Goldman, it was just one Obama-era payoff. It also raked in another $90 million commitment for a solar site in Colorado, which was being developed by Cogentrix, a wholly owned subsidiary of Goldman Sachs. And U.S. Geothermal, in which Goldman was the second-largest shareholder, was given a $96.8 million guaranteed loan. It was the first geothermal project to complete a loan guarantee from the Department of Energy.22
The DOE handed over $102 million in loan guarantees to Record Hill Wind to build a wind farm in Maine. And who heads up Record Hill? Former Governor Angus King, along with Robert Gardiner, the former head of the Maine Public Broadcasting System. Neither has a background in energy. King, however, endorsed Obama in 2008 and campaigned for him.
The other top recipients pulled down various amounts, and in almost every case the numbers and the cronyism were notable. In some instances these projects have been delayed because of local politics, but the federal money has been approved:
The U.S. Treasury Department gave a $200 million grant to Peco Energy for a smart-grid network—that is, software and equipment designed to help utilities better monitor energy distribution and use. The company is owned by Exelon. Exelon executive Frank M. Clark (who is CEO of the company's ComEd unit) and board member John Rogers Jr. were both members of the Obama campaign's National Finance Committee. White House adviser David Axelrod was a longtime consultant for Exelon. For that $200 million, according to the same federal government audit, Peco (and Exelon) created a total of 102 jobs by December 2010.23
On July 1, 2009, the DOE awarded $100 million to the Basin Electric Power Cooperative in tiny Beulah, North Dakota. The money was for a grant to install "smart meters" to monitor energy consumption. The co-op's partner, which is actually overseeing the work, is Powerspan, a small alternative energy company whose largest investors include Daniel Weiss and Zeb Rice of the Angeleno Group. As with Exelon, both of these executives served on President Obama's National Finance Committee. The other major Powerspan investor is billionaire financier George Soros, who was also an early Obama supporter. The timing of their investment and the government grant is interesting. On April 23, 2009, Powerspan revealed that the Angeleno Group and Soros were new investors. Less than two months later, Department of Energy Secretary Steve Chu announced the $100 million grant. It was a big deal for Powerspan, which had raised only half that amount in private capital up to that point. As of December 2010, a year and a half after Chu's announcement, a government audit revealed that this project had created eight jobs.
$200 million went to Duke Energy for a smart-grid project. It also received $90.4 million for its Notress Windpower project in Texas, for which it had already started construction, in May 2008, and which would be finished in April 2009, just two months after the stimulus bill became law.24 That $90 million was delivered in September 2009, after construction was completed.25 For good measure, the Energy Department also granted environmental waivers for both projects.26 Duke Energy CEO Jim Rogers is a major DNC contributor and had reportedly been on President Obama's shortlist for energy secretary in December 2008. In March 2011, as reported by National Public Radio, Rogers took the "unusual step" of committing corporate assets to obtain a $10 million line of credit for the National Democratic Convention in 2012.27
A commitment of $308 million was made to Hydrogen Energy California, LLC, a joint venture between energy giant BP and the mining company Rio Tinto. BP appears to be the only major oil company that managed to receive substantial government support. According to the Center for Responsive Politics, BP gave more to Obama's political campaigns than to any other candidate over the past twenty years. In 2008, candidate Obama received $71,000 from the company. The project has created a whopping 23 jobs.28
$115 million in taxpayer money was committed to a company called First Wind, for wind energy projects in Utah and New York. Both projects were already under way when the funds were awarded. The New York project had been started in 2007.29 The largest equity stakeholder in the company is D. E. Shaw, a hedge fund that is one of the top three contributors to Democrats.30 The founder of the fund, David Shaw, was an Obama bundler, raising more than $500,000 for the 2008 presidential run. (And like many of the others mentioned here, he is at work on the 2012 election.) D. E. Shaw also employed Larry Summers, who served as the head of President Obama's National Economic Council. Another 42% of First Wind is owned by Madison Dearborn Partners, an investment firm with close ties to then—White House Chief of Staff Rahm Emanuel. The founder of the firm, David Canning, had been a bundler for George W. Bush. But he switched sides in 2008 and gave heavily to Obama. Madison Dearborn gave more to Emanuel's congressional campaigns than did any other business. "They've been not only supporters of mine, they're friends of mine," Emanuel explained on one occasion.31 In July 2010, First Wind also secured $117 million for a project in Hawaii called Kahuku Wind. It created 125 jobs. The plan was to secure taxpayer money and then go public. But in October 2010 First Wind had to delay its IPO because of weak demand.
$135 million went to Sapphire Energy for an algae biorefinery, which would create "super algae" that could be converted into energy. ARCH Venture Partners is a major investor in Sapphire. Bob Nelsen, the founding partner, served on Obama's National Finance Committee during the 2008 campaign. Before 2007, Nelsen considered himself a Republican, but he switched sides. He was apparently the only Republican on Obama's finance committee.32
The Treasury Department sent a $60 million stimulus to Vantage Wind Energy, LLC, which is a wholly owned subsidiary of Invenergy, LLC, a Chicago-based company headed by CEO Michael Polsky. Polsky is a major Obama donor and a financial supporter of the DNC who gave more than $30,000 to the 2008 Obama campaign and another $50,000 for the Obama inauguration. Invenergy also pulled in another $68 million in taxpayer money for the Beech Ridge Energy Wind Farm on September 22, 2010.33
$1.5 billion was approved for Summit Texas Clean Energy, LLC. The company is a subsidiary of Summit Energy, located on Bainbridge Island, Washington. The company's CEO is an attorney named Eric Redman, who is a former staffer for a Democratic senator and a major DNC donor. Like the others mentioned here, his campaign giving appears to be entirely to one party. The project manager for Summit Texas Clean Energy is former Dallas Mayor Laura Miller, a Democrat. A former newspaper reporter and environmental activist, she is perhaps best known as the daughter of the former head of Neiman Marcus. She has never worked in the energy industry. As of this writing, Summit had created 8 jobs.
$465 million in government loans went to Tesla Motors to build an electric car. Steve Westly, the venture capitalist, sat on the board of Tesla at the time, and his firm owned more than 2.5 million shares in the company. (He also personally owns an undisclosed number of shares.) Tesla founder Elon Musk was a major DNC contributor and in 2011 donated $35,800 to the Obama Victory Fund. (Steve Spinner was an adviser to Tesla before he joined the Obama campaign.) Tesla received its taxpayer loan in 2009 and went public in 2010. The IPO, made possible because of taxpayer money, made the initial investors even richer: the stock price surged 40%. Steve Westly made $1.2 million, and Musk $15 million. Since the IPO, Tesla's stock price has dropped and the company continues to lose money. Tesla's other major investors include Nicholas Pritzker, brother of Penny Pritzker, who was the Obama campaign's finance committee chair, and Sergei Brin and Larry Page, the founders of Google. The company's CEO at the time, Eric Schmidt, served as an informal adviser to President Obama. Dan Reicher, director of climate and energy initiatives at Google, was one of the founders of Cleantech and Green Business Leaders for Obama. When the administration proposed, in February 2011, to stimulate electric car sales by offering consumers a $7,500 rebate, stock in Tesla rose 6% on the news.34 Google's billionaires were also investors in Brightsource, which won the large loan guarantee mentioned earlier. $275 million went to Solar City, to install solar panels on military bases. Solar City is headed by Elon Musk, and Google is a large investor.
The Obama administration also gave $529 million in government-backed loans to Fisker Automotive. Fisker is building a high-end hybrid-electric sports coupe called the Karma, which will cost $89,000. Fisker's top investors include John Doerr and former Vice President Al Gore. Fisker continues to lose money and is heavily in debt.
Tesla and Fisker were in rare company. Only 5 of 130 applicants for the Advanced Technology Vehicles Manufacturing Program received funding. (Other recipients in the program were big automakers like Ford and Nissan.) Many of the rejected applicants complained of unfair treatment. In a letter to Secretary of Energy Steve Chu, electric car maker XP Vehicles complained that the company was never contacted by the Department of Energy. "DOE reviewers never even talked to the founder, inventor, engineers, project leads or primary contractors to obtain additional information. Why was staff at DOE during the course of the year positive about the outcome and never asked for additional information?" Other companies that were not politically connected and were shut out—Amp Electric Vehicles was one—expressed similar frustration.35
Overall, John Doerr was one of the biggest winners in the taxpayer sweepstakes. A billionaire Silicon Valley venture capitalist, Doerr has donated almost $2 million to Democrats over the past twenty years.36 His firm, Kleiner Perkins Caufield & Byers (where Al Gore is now a partner), gave more than $1 million to Democrats since 2005. Doerr was an early Obama supporter who opened doors in Silicon Valley and was named as an outside economic adviser and a member of the President's Economic Recovery Advisory Board. As a member of that board he called for increasing fines for carbon pollution and pushing for rules to encourage electric utilities to move to a smart-grid system. As Doerr put it, "God bless the Obama Administration and the U.S. government. We have really got the A-team now working on green innovation in our country." That A-team was busy, of course, rewarding some of Doerr's own investments.
Of the companies listed on Doerr's website as part of his Greentech venture-capital portfolio, well over 50% of them received taxpayer grants or loan guarantees through Obama's stimulus program. Of the 27 listed, at least 16 received direct taxpayer support in the form of loans, grants, or stimulus work: Altarock, Amonix, Amyris, Aquion Energy, Ausra (which was acquired by Areva), MiaSole, OSIsoft, Primus Power, Transphorm, Recyclebank, Silver Spring, Great Point Energy, Hara, Harvest Power, Lilliputian Systems, and Mascoma. Considering that the acceptance rate in most of the Department of Energy programs was often 10% or less, this is a stunning record. That $2 million Doerr had invested in politics may have provided the best return on investment he had ever seen. Among the results:
Solar panel maker MiaSole received $102 million in special clean-tech manufacturing credits.
$24 million went to another Doerr company, Amyris Biotechnologies. The DOE grant was to build a pilot plant to use altered yeast to turn sugar into hydrocarbons. (Steve Westly was also a major shareholder.) Just weeks before the grant was announced, on December 4, 2009, Senator Dianne Feinstein and her husband bought $1 million of equity in the company (November 18). It was their only transaction of the entire year.
With federal money in hand, Amyris went public with an IPO the following year, raising $85 million. John Doerr's firm, Kleiner Perkins, did very well, more than tripling its investment. A $16 million investment was now worth $69 million. It's not clear how Steve Westly or Senator Feinstein did, but it's safe to assume that they did well too. Meanwhile, Amyris continues to lose money, and the grant created forty jobs.37
Curiously, in 2011 Senators Tom Coburn and Ben Cardin introduced legislation to immediately repeal the ethanol tax credit. This would threaten biofuel makers such as Amyris. So Senator Feinstein introduced her own bill that would repeal the ethanol tax credit for corn-based ethanol only. That would leave the credit in place for Amyris and actually benefit the company by making competing forms of ethanol more expensive.38
One of the biggest winners for Doerr was Silver Spring Networks, which provides "smart-grid projects." In 2008, Doerr and his partners invested $75 million in the company. Silver Spring doesn't receive grants from the federal government directly; it's a contractor for utilities and other companies that obtained grants to develop a smart grid. Close to 60% of Silver Spring's customers were winners of government grants, totaling more than $560 million.39
Silver Spring Networks won a lot of smart-grid projects because of how the stimulus bill was written. It was Al Gore, a partner with John Doerr at Kleiner Perkins, who inspired President-elect Obama not only to invest in clean energy but to put "billions more in the stimulus for construction of the so-called smart grid." Whether Gore revealed to Obama that he had his own money invested in Silver Spring Networks is not known.40
Gore was closely wedded to the Obama administration's alternative energy initiative, both directly and indirectly. President Obama asked Gore to serve as his "climate change czar," but the former vice president declined. In his place, Carol Browner, a Gore protégée, got the nod. Rahm Emanuel wondered openly whether Browner would work for Gore or Obama. "When Gore comes and chains himself to the White House gate, it will be Carol's problem," he told colleagues.41
The question of Silver Spring's success in the smart-grid business is particularly interesting. The stimulus bill was vague on the protocols and technical standards required. The bill simply read:
Obama Bundlers, Large Donors, and Supporters
(as of September 15, 2011)
"The Secretary shall require as a condition of receiving funding under this subsection that demonstration projects utilize open protocols and standards if available and appropriate."42 This language had several Silver Spring competitors crying foul. According to Ed Gray, vice president of regulatory affairs for the smart-meter competitor Elster, the insistence on "open protocols" gave a leg up to Silver Spring at the expense of other providers. Some smart-grid companies rely on other types of standards or use proprietary technology in parts of their smart-grid networks. Silver Spring does not. And Silver Spring seemed not at all defensive about the move. "There's going to be a lot of people complaining," one executive told USA Today. "Leadership is helping people adapt to uncomfortable realities."43
Billionaire Vinod Khosla was also a big winner in the taxpayer-funded giveaway. Khosla had been the head of Obama's India Policy Team during the 2008 election and contributed to Democratic candidates. He was a major investor in Coskata, a relatively new company whose goal is to make fuel out of waste. Coskata received a $250 million loan guarantee from the federal government.44 Company executives have been quite clear that one important measure of corporate success is the amount of "government money we attract."45 Khosla's Nordic Windpower was approved for another $16 million for a wind power manufacturing facility in Idaho. And his company AltaRock secured $25 million in stimulus money.
In April 2010, $25 million went to ZeaChem, which hired Steve Farber (mentioned above) to lobby on its behalf. One of ZeaChem's major investors are Globespan Capital, where managing director Jonathan Seelig is a Democratic donor (he too has never given to another party). The other major investor is PrairieGold Venture Partners, which is headed by Paul Batcheller, a former aide to then-Senator Tom Daschle. The grant was awarded to modify a "demonstration sale" biorefinery. According to the federal government, the project created two jobs as of December 2010.
$21.7 million went to Solazyme, based in South San Francisco. The company was founded and is chaired by Jerry Fiddler, a large Democratic donor (who has also never given to another party). He was a contributor to the Obama Victory Fund, gave $24,000 to the campaign, and made contributions to the DNC. Principal owners of Solazyme include Kennedy's VantagePoint, Lightspeed Ventures, which is headed by John Luongo, another major Obama donor, and the Roda Group, where Roger Strauch is a DNC and Obama campaign supporter. Solazyme had receipts of $38 million in 2010 and lost $13.7 million. Taxpayer money created a total of thirteen jobs. After it received the money, Solazyme announced plans for an IPO.
The list goes on and on. It would take a large team of investigative reporters to untangle every example of cronyism, and it will take more time to assess how many actual jobs these billions of dollars might have helped stimulate. But there is no question that the money failed to produce any significant short-term job gains. The true short-term effect has been to enrich cronies of the party in power. The only thing that many of these grants and loans appear to have in common is how they stimulated the wallets of well-connected investors.
Cathy Zoi, who oversaw the awarding of grants, left the Department of Energy in 2011. Where did she go? She landed as the head of a new green-tech investment fund being established by George Soros, the investor whose firms received taxpayer money through Zoi. As Steve Coll of The New Yorker recently wrote, subsidies and support for individual companies amount to "Obama-era crony capitalism," which entails "politically connected investment groups using their inside-information networks to attach themselves to those sections of the federal bureaucracy that will be primed by their party's imperatives of federal spending."46
Crony capitalism is good for those on the inside. And it is lousy for everyone else. But it does provide a hybrid-powered vehicle to sustain a large base of rich campaign contributors with taxpayer money.
Imagine for a minute that you are a corporate executive and you start using your company's assets to "invest" in projects that in turn benefit you directly. What would happen? You would be risking possible criminal charges for the misuse of those assets. But if it's taxpayer money? Suddenly it becomes legal. Even acceptable. And for the billionaire who is looking to get a big return on his investment, there are few returns that can be higher than those resulting from campaign contributions. After all, how else can you turn half a million dollars from yourself and your friends into hundreds of millions of dollars after a single election?
Not surprisingly, many of those named here are raising money again, for President Obama's 2012 campaign. As a jobs program—the stated purpose—these billions in grants and loans were a failure. But as a method for transferring billions in taxpayer funds to friends, cronies, and supporters, they worked perfectly.