(Washington, D.C.) – Today, Citizens Against Government Waste (CAGW) issued a call for a full and open investigation of the Energy Department’s (DOE) $38.5 billion loan guarantee program (LGP).  The program has been the subject of four Government Accountability Office (GAO) reports detailing its management weaknesses, arbitrary selection processes, and vulnerabilities to manipulation and politicization.  The scandal surrounding solar panel manufacturer Solyndra, which laid off 1,100 workers and filed for bankruptcy in early September after receiving a $535 million loan guarantee from the DOE serves as a catalyst for a complete audit of this LGP and similar loan programs in other agencies.    

The GAO practically predicted a Solyndra-like flame out.  The LGP was a poorly-crafted program that lacked robust internal management controls, clearly delineated performance benchmarks, transparent eligibility requirements, and operated with little accountability.  Nonetheless, it received large amounts of stimulus money in the Recovery Act.

The GAO presciently predicted in July, 2008 that the “Risks inherent to the LGP will make it difficult for DOE to estimate subsidy costs, which could lead to financial losses and may introduce biases in the projects that receive guarantees...The likelihood that DOE will misestimate costs, along with the practice of charging fees to cover the estimated costs, may lead to biases in the projects that receive guarantees…To the extent that DOE underestimates the costs and does not collect sufficient fees from borrowers to cover the full costs, taxpayers will ultimately bear the costs of shortfalls.”  Further, GAO stated that “Expanding the LGP at this juncture, when the program’s risks and costs are not well understood, could unnecessarily result in significant financial losses to the government.”

A September 27, 2011 Los Angeles Times story reports that “At a White House meeting in late October, Lawrence H. Summers, then director of the National Economic Council, and Timothy F. Geithner, the Treasury secretary, expressed concerns that the selection process for federal loan guarantees wasn't rigorous enough and raised the risk that funds could be going to the wrong companies, including ones that didn't need the help.”

“The federal government operates more than 120 direct or indirect loan programs,” said CAGW President Tom Schatz.  “The Energy Department’s program has now come under the spotlight only because of Solyndra’s spectacular implosion.  The government’s loan guarantee programs must be subject to greater oversight and it is time for a full audit of their activities, their management, and their results.  Candidly, it might be time for the federal government to rethink the whole idea of loan programs.  The government has a lousy track record of either funding risky ventures and losing taxpayer money or funding companies and industries which are mature and profitable and don’t need the money.  Transferring taxpayer funds to emerging technologies and industries poses too many financial risk to taxpayers, and those companies should raise money on the capital markets, which are better positioned to take those risks.  Conversely, any business project that is mature and financially stable doesn’t need taxpayer money anyway,” concluded Schatz.

Citizens Against Government Waste is a nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, mismanagement and abuse in government.