Solyndra President and Chief Executive Officer Brian Harrison, left,… (Jonathan Ernst / Reuters )
Reporting from Washington — Long before the politically connected California solar firm Solyndra went bankrupt, President Obama was warned by his top economic advisors about the financial and political risks of the Energy Department loan guarantee program that boosted the company's rapid ascent.
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.
Energy Secretary Steven Chu, also at the meeting, had a different view. Under pressure from Congress to speed up the loans, he wanted less scrutiny from the Treasury Department and the Office of Management and Budget, or OMB.
The divisions foreshadowed a question that has emerged since Solyndra's bankruptcy: Was the program's vetting process thorough enough? The disagreements also spotlighted an issue that has confronted Obama since he took office: What is the appropriate role of the government in stimulating the private marketplace?
Skeptics, noting that taxpayers could now be on the hook for $527 million the federal government loaned Solyndra, said the administration would have been better off making greater use of market incentives, not individual company loan guarantees.
"It was completely predictable that there would be a colossal failure among the bets," said one person familiar with the internal debate.
Defending the program as an overall success, administration officials say that the $17 billion in loan guarantees now on track to go to 30 companies will help double renewable energy generation in Obama's first term.
The program that funded Solyndra is set to expire at the end of the month, and the White House is pushing to provide more green-energy loan guarantees through other initiatives and keep the U.S. competitive globally. The Chinese government, the Energy Department says, last year committed $30 billion to solar-panel manufacturers.
Almost immediately after the 2008 election, Obama advisors began debating how to create jobs while reducing the nation's reliance on fossil fuels. Some advisors pushed to expand a George W. Bush administration loan-guarantee initiative to help green-energy companies launch commercially. Others were philosophically opposed to providing help to individual companies and warned against betting taxpayer money on inherently risky ventures.
Nevertheless, the administration went forward with the loan guarantee program as part of the 2009 stimulus law. High-level disagreements on the program continued.
In late October 2010, administration officials took their opposing views directly to Obama. In preparation, a memo was drafted by Summers, who remained wary of the program, and two others who were more supportive: then-energy advisor Carol Browner and Ron Klain, then chief of staff to Vice President Joseph Biden. The memo laid out their different concerns and options to fix a "broken process" for getting loans approved.
Warning that the program could "fail to advance your clean-energy agenda" by investing in companies that didn't need help, the memo proposed alternatives, including diverting the funds into grants available to the entire industry. By contrast, Energy Department officials wanted to end the "deal by deal" reviews by the Treasury and OMB, the memo said.
After the meeting, officials worked to streamline the process but didn't make significant changes.
It is unclear whether an overhaul would have helped anticipate the problems at Solyndra. In February, the Energy Department agreed to restructure the company's loan. A little more than six months later, Solyndra declared bankruptcy, laying off 1,100 people and triggering FBI and congressional investigations.
The administration originally touted the green energy program as a tool that would create or save tens of thousands of jobs. So far, 30 projects are on track to create about 16,750 construction jobs and 2,577 permanent jobs. The Energy Department notes that a related loan guarantee program helped save 33,000 jobs at Ford by helping the company modernize its factories.
But some critics argue that other government loan guarantee programs do a better job of protecting taxpayers.
For example, a Transportation Department program to spur infrastructure improvements limits loan guarantees to 33% of the cost of a project, said Autumn Hanna of the nonpartisan Taxpayers for Common Sense. Energy Department guarantees can amount to 80%.
Critics also question whether the Energy Department has the expertise to select which companies to help.
"Questions have to be raised about the quality of their analysis," said analyst Shyam Mehta of GTM Research in Cambridge, Mass.