Another Stimulus Beneficiary Bites the Dust

by Veronique de Rugy

Yesterday, I mentioned a few of the companies that went under after receiving stimulus money. Today, another stimulus recipient announced that it was filing for bankruptcy. The Washington Post reports:

A123 is the fifth prominent clean-energy firm the Obama administration subsidized with loans or grants that has filed for bankruptcy protection, joining solar firms Solyndra and Abound Solar, energy firm Beacon Power, and battery company Ener1.

The cost of this new failure to taxpayers is not known yet since it will depend to what happens to the company’s assets during the bankruptcy process. However, it could be a significant amount of money. As Forbes’s contributor Lara Hoffmans reports, in spite of  turning a negative $1 billion ever since its founding in 2001, A123 had received $249 million in 2009 as part of the stimulus bill as well as another $125 million in tax credits from the state of Michigan. Also, “[t]o ensure there was a market for A123’s batteries, American taxpayers (some of them unwittingly, some unwillingly) gave Fisker Automotive a $529 million loan to make cars that would use said batteries,”Hoffmans explains.

This type of corporate double-dipping is very common. Here are few examples among DOD’s 1705 loan guarantee beneficiaries.

On top of the $500 million it got under the Section 1705 loan program, Solyndra benefited from a $10.3 million loan guarantee that the Export-Import Bank extended to a Belgian company to finance a sale of Solyndra products. (That’s what the Ex-Im Bank does: give taxpayer money or taxpayer-backed loan guarantees to foreign firms that buy American goods and services). Now that Solyndra has collapsed, taxpayers will pick up that tab too.

Of course, we shouldn’t be surprised by this new failure. If you give government money (in the form of grants or loan guarantees) to a company that can’t make it on its own, chances are that this company still won’t make it once its given the worst incentive in the world to produce stuff that consumers want to buy at a price they can afford to buy it.

Now, according to the Washington Post, Johnson Controls, a company which makes batteries and energy systems, has bought A123’s factories. It has also received a $299 million stimulus grant to build two battery plants but has already announced that “it is running one at half-capacity and has put off plans to build the second.”So we will see how that “investment” works out for taxpayers.

One thing is sure, however. The claim made by DOE that encouraging investment in green technology would create up to 5 million jobs is unlike to see the light of day. Based on the DOE data, we see that for the 1705 program alone, the $16 billion loan guarantee program created some 2,378 permanent jobs–jobs which are promptly lost when a company goes under.

Sadly, in spite of these visible failures, these programs will remain popular with Congress and the executive branch. That’s particularly the case with loan guarantee programs. That’s because in general most of the financial cost of these guaranteed loans will not surface for many years. Consequently, Congress can approve billions of dollars to benefit special interests without much political costs.