Last week, the House Energy and Commerce Subcommittee on Oversight and Investigations heard testimony from top Treasury officials regarding the department’s role in the Solyndra loan scandal. More hearings are planned as investigators continue to shift through documents provided (reluctantly) by the Obama administration.
The most notable piece of evidence unveiled last week was a memo authored by the DOE legal counsel defending the controversial decision to prioritize private inventors ahead of taxpayers with respect to the first $75 million recovered in Solyndra’s liquidation. But while it sheds some light on DOE’s dubious rationale in this case, the revelation appears to raise more questions than it answers. Here is a look at a few of the questions Republican investigators will hope to answer in the coming weeks and months:
#ad#Who was involved in the decision to restructure Solyndra’s loan agreement? At a previous committee hearing, Jonathan Silver, the former head of the DOE loans programs, told members under oath that he would provide them with a list of all the individuals involved in the decision to subordinate taxpayers in the restructuring agreement. Silver has since resigned. The committee is still interested in speaking to the people involved in the decision, particularly Susan Richardson, the chief counsel of the loans program who wrote the authorizing memo.
Energy secretary Steven Chu has already assumed responsibility for approving the restructuring agreement, and the committee certainly hopes to hear from him at some point as well. The most pressing question, though, remains the extent to which the White House was involved in the decision. E-mail evidence already suggests the White House was rather aggressive in pressuring the Office of Management and Budget to rush its approval of Solyndra’s initial $535 million loan guarantee. Given President Obama’s connections to George Kaiser, the Oklahoma billionaire whose family foundation (through investment arm Argonaut Ventures) was one of the private investors receiving preferential treatment in the loan restructuring — not to mention the political capital Obama himself had invested by making Solyndra a “green jobs” posterchild — it is certainly reasonable to ask whether the White House exerted any undue pressure on DOE officials. An e-mail among Treasury staff on Aug. 28, 2011, just days before Solyndra filed for bankruptcy, paints a disturbing picture:
I think DOE should be thinking through whether the proposed deal is just giving the investors more time to extract more value from the firm before bankruptcy . . . in which case it’s clearly in the investors’ interest regardless of the firm’s prospects.
Which brings us to the next question.
Why did DOE repeatedly ignore concerns from Treasury and OMB regarding the legality of the loan restructuring? As early as December 2010, just as DOE was entering negotiations to restructure Solyndra’s loan agreement, senior OMB officials were questioning the legality of the decision to subordinate taxpayers to private investors. The Energy Policy Act of 2005 stipulates that loan guarantees approved by DOE “shall be subject to the condition that the obligation is not subordinate to other financing.” In other words, the taxpayer comes first. In an e-mail dated Dec. 15, 2010, a senior OMB official raised doubts about DOE’s creative interpretation of the statute. “I think they have stretched this definition beyond its limits,” the official wrote.
Officials at the Treasury Department, meanwhile, were arguing that at the very least DOE ought to consult Treasury, OMB, and the Department of Justice “before any ‘deviation’ is granted from the financial terms of the Loan Guarantee Agreement.” In an e-mail dated Feb. 14, 2011, just days before the restructuring was finalized, Gary Burner, chief financial officer of the Federal Financing Bank (an arm of Treasury) raised the issue with Frances Nwachuku, the director of portfolio management for the DOE loans program:
Unless DOE has other authorities, these adjustments may require approval of the Department of Justice pursuant to 31 USC 3711 and 31 CFR Part 902. Unless other authorities exist, this statute rests with DOJ the authority to accept the compromise of a claim of the U.S. Government in those instances where the principle balance of a debt exceeds $100,000.
#ad#Nwachuku wrote back that Burner’s concern was based on a “gross misunderstanding” of the restructuring agreement. In his testimony before the committee last week, Burner told members that he had never, in 28 years of experience at the Treasury Department, witnessed a federal loan agreement that subordinated taxpayers to private investors. “It would have been wise for [DOE] to go to the DOJ,” he said.
In fact, Treasury officials were raising these concerns as recently as August 2011. Mary Miller, assistant secretary for financial markets at Treasury, explained in an Aug. 17, 2011, e-mail to OMB deputy director Jeffrey Zients that DOE had failed to acknowledge Treasury’s repeated requests. “While I expect that DOE has a view about why loan subordination can occur without DOJ approval or Treasury consultation, I wanted to correct any impression that we have acquiesced in the steps to date,” Miller wrote. That same day, another senior Treasury official wrote Zients, “reiterating our current understanding that the authority to approve a potential restructuring resides with the Department of Justice.”
What is the administration trying to hide? Granted, this is exactly what Solyndra investigators have been trying to figure out since Day One, but the suspicions keeps piling up. First of all, the White House is refusing to turn over all the documents that Republicans have requested, including any Solyndra-related messages President Obama might have received on his BlackBerry. Not exactly living up to his pledge that “transparency will be the hallmark of my administration,” but it’s hardly the first example.
A DOE memo justifying the subordination of taxpayers to private investors was not provided as part of the House subcommittee’s initial request for documents from DOE and the White House relating to the Solyndra loan. Instead, it was turned over by OMB following a subpoena from the committee, after which DOE checked again and “found” the document, as well as an earlier draft dated a month prior to the release of the official copy.
The draft copy, submitted on Jan. 19, 2011, is addressed to Secretary Chu as a “Memorandum for the Secretary.” However, the subsequent final version is not addressed to Chu, but is labeled instead a “Memorandum for the General Council.” Rep. Lee Terry (R., Neb.) said he was perplexed as to why this was the case. It seemed likely, Terry argued, that it was done deliberately, in an effort to absolve Chu of his involvement in a dubiously reasoned legal opinion.
House Republicans plan to hold another hearing in the coming weeks and hope to hear from DOE officials. They’ll be looking for answers.
— Andrew Stiles is the Franklin Center’s 2011 Thomas L. Rhodes Journalism Fellow.