When tycoons and politicians do business, taxpayers lose

If your blood hasn’t boiled in awhile, you must have missed the AJC story earlier this week about Range Fuels — a multimillion-dollar lesson in why taxpayers usually lose when billionaires with hare-brained schemes sidle up to politicians.

It’s been about a year since Range Fuels shut down its facility in Soperton, the South Georgia town where it had promised to turn our state into a world leader in turning wood into ethanol. There was just one problem: Range didn’t actually know how to turn wood into ethanol. The resulting failure cost taxpayers $64 million in federal loan guarantees and another $6 million in state funds.

This past week, the AJC’s Dan Chapman reported the sale of Range for a mere $5.1 million. The lucky bargain shopper? A New Zealand firm bankrolled by Vinod Khosla — the former tech executive who just happens to have been one of the main backers of Range.

Too bad Georgia didn’t invest in one of Khosla’s other ethanol endeavors: In its 2011 ranking of the richest Americans, Forbes described Khosla as “the rare Silicon Valley venture capitalist able to generate profits from a clean tech portfolio.” I’m sure his portfolio’s profitability has nothing to do with the fact that taxpayers shoulder losses by the million on dogs like Range Fuels.

To the degree the public is upset about inequality, the anger seems to stem less from the existence of inequality — which we’ve always had, and always will — and more from the belief that the inequal gains were ill-gotten. The belief that the system is being rigged.

The Occupy movement blames this chiefly on bankers and big business generally, the tea partyers on big government. They are both right when they notice the overlap between their respective targets.

Both parties are guilty of enabling this overlap. Range Fuels was handed money by a GOP governor, Sonny Perdue, and the Republican Bush administration; solar-panel flop Solyndra by the Democratic Obama administration. Both George W. Bush and Barack Obama oversaw bailouts of financial firms and auto makers. Need I go on?

And while failures make headlines, the relative successes line private pockets with public largesse, too.

The timing of this lesson couldn’t have come at a better time. As Georgia’s leaders mull ways to spur the economy during the 2012 legislative session, Range Fuels should be an indelible reminder of the folly of using taxpayer dollars and tax-code loopholes to enrich private firms and individuals.

That goes for the CAPCO scheme, which hands money over to private companies to invest without retaining a stake for the state.

That goes for any other effort that calls for the state to invest directly in private firms — an enticing opportunity for corruption now and years into the future.

That even goes for using hotel/motel tax revenues, once they are freed up from paying off the Georgia Dome, to build an outdoor stadium that will accomplish little besides cannibalizing the Dome’s business and making a lot more money for the Falcons.

The hidden danger of economic downturns is that they invite all manner of bad decisions made with scarcer-than-ever public monies, all in the name of “jobs.”

Yes, Georgia needs jobs. And, yes, there are things Georgia’s leaders can do to encourage their creation. But we don’t need more “friends” like Vinod Khosla, or more misadventures like Range Fuels.

– By Kyle Wingfield

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232 comments Add your comment

GT

January 6th, 2012
5:54 pm

We need to track this more closely, not just make it a macro story. The details need to go out so we don’t do this again. I am afraid states and federal governments are like the community S&Ls who are not equipped to be making these big discussions. I bet there is not but a hand full of people in this state that could be qualified to think in these terms and none of them are politicians.

That is a landfill plastic recycling operation in Cordele that had the same fate. Grass root small business that grows organically is the door out of this recession. These huge numbers for public offers or half baked ideas like Range or the landfill is not how business evolves. Follow the money and I bet it ended up in the pockets of Wall Street not main street. And they will tell you they earned it.

The REAL GodHatesTrash, Superstar

January 6th, 2012
6:01 pm

Georgia has the best legislators money can buy. And they are cheap cheap cheap because they are stupid stupid stupid.

Santa Klausen

January 6th, 2012
6:11 pm

Wood into ethanol indeed.

catlady

January 6th, 2012
6:19 pm

I’m tired of stuff like this. Let me add to your list, Kyle: That state tax write-off for donating to a tuition fund for many private schools (K-12). It takes money away from public needs and converts it to private schools–it is WRONG!

spaceman109

January 6th, 2012
6:27 pm

kyle….this article is most welcome. it should remind commenters like td that republicans are just as into gommint giveaways “in the name of jobs” as are democrats. i seem to recall that many free-marketeers believe that a company should stand or fall on its own rather than getting gommint handouts. soooo….where was the outrage among georgia repubs when this company got those handouts? i guess such handouts are totally nifty so long as the g.o.p. does it.

spaceman109

January 6th, 2012
6:27 pm

i shall see you all again at 9 when lunch break comes! :D

redneckbluedog

January 6th, 2012
6:35 pm

So is Mitt a tycoon or a politician..!?!?

redneckbluedog

January 6th, 2012
6:39 pm

To that point exactly…..you would be FOR or AGAINST the Keystone XL pipeline…!?!? Because there’s some pretty heavy hitting going on with both tycoons and politicians on that one….

Personally, I support the pipeline…and I supported Range Fuels as well as Solyndra…the road to energy independence is not going to be smooth, but we have no choice….

redneckbluedog

January 6th, 2012
6:40 pm

Almost forgot….Johnson/Paul…2012….

bluecoat

January 6th, 2012
6:45 pm

Our elected need leave the financing of new or old enterprise to the venture capitalist.Remodeling old motels, converting celluose,peanut hulls,kudzu whatever to fuel.I think corn to ethanol still being susidized.at a cost of more to produce,than energy gained.

bluecoat

January 6th, 2012
6:51 pm

Hillbilly D

January 6th, 2012
6:54 pm

When tycoons and politicians do business, taxpayers lose

That’s why government needs to stay the hell out of business and picking winners and losers. No subsidies, no tax breaks, no nothing.

If Vinod Khosla making out like a bandit on this isn’t illegal, it damn sure ought to be.

To the degree the public is upset about inequality, the anger seems to stem less from the existence of inequality — which we’ve always had, and always will — and more from the belief that the inequal gains were ill-gotten. The belief that the system is being rigged.

Kyle, you hit the nail on the head there Bud. All of us in the Great Unwashed know that things are never going to be equal, we just ask them not to piss in our ear and tell us it’s raining.

bluecoat

January 6th, 2012
6:56 pm

who in their right mind would not support the pipeline?It means work for us.But we do not want to contaminate our water.When done do safely.

redneckbluedog

January 6th, 2012
7:00 pm

The government understands the scarcity of oil…Most folks don’t….Do you think they would be building a “TAR SANDS PIPELINE” if you could just turn on the oil faucet..? VC won’t invest money until they can get returns……The government has to act BEFORE oil gets to $500/barrel….and they’re not all going to be winners….

Do you think the TVA didn’t have problems…It’s still having problems…National Labs, The Hoover Dam, the Pentagon…Lot’s of discussion went into all these…But I’m glad they pushed forward….One the other hand..”Star Wars” was a pretty big flop…I’m still looking forward to that one….The Road to Nowhere..!?!? Not so much….

redneckbluedog

January 6th, 2012
7:01 pm

Biodiesel is a better renewable answer than ethanol anyway….

hryder

January 6th, 2012
7:05 pm

Come November, Vote all incumbents holding public elected office OUT!!!!!!

bluecoat

January 6th, 2012
7:07 pm

Find and follow where your rep,sen,personally investing,buying property.Do same.

Dusty

January 6th, 2012
7:08 pm

I’m not sure I have all the crooks and turns of this story straightened out. Let’s see.

Ranger Co. says it knows how to make ethanol from pine trees. Wants to build plant in Georgia.

One participant & financier in Ranger is Khosia. He’s rich but not a builder.

Ranger tells Gov. Perdue they are good, make jobs, raise money but can’t build their own plant without help ($$$$)..

State & Federal money in the millions is found and given to Ranger. Plant built. Ranger CANNOT make ethanol. Investment totally lost, mostly State & federal money.

Bankrupt plant sold for far less than money borrowed. Buyer is Khosia who was one of the origianl pushers of Ranger. He now plans to produce ETHANOL and any profit is his.

Fed & state money *taxpayer’s $$$” is long gone.

This sounds more crooked than a snake, any way you put it. We’ve been took by a crook!

bluecoat

January 6th, 2012
7:22 pm

You never get too old to learn.Did not know VC only invested when they were getting returns.How many gallons in a barrel oil?Is it a valve or faucet.Tarsands pipeline,mean they gonna pump sand.How is a pentagon shaped?Where is TD to answere all these questions.

saywhat?

January 6th, 2012
7:26 pm

From glimpses of enlightenment like this, I think we may be able to eventually turn Kyle into somewhat of a progressive yet. It just may take a long, long, long time to fully deprogram him.

td

January 6th, 2012
7:34 pm

Sorry to be late to the party today but I had some customers that thought they were libs and were entitled to services without having to pay for them and I had to go convince them (Georgia redneck style) that this is still America and one has to pay for services rendered.

I found this quote for all the whiners on this blog that only know how to complain and never provide any answers.

“One of the penalties of not participating in politics is that you will be governed by your inferiors.”

Plato

td

January 6th, 2012
7:41 pm

You libs sound like crony capitalism is what conservatives are all about. Bunch of BS (Barbara Streisand). As Kyle pointed out this is going on on both sides of the political spectrum. This is what happens when you vote for people who think government has a role in every part of peoples lives and think governments role is to create jobs.

The REAL GodHatesTrash, Superstar

January 6th, 2012
7:48 pm

Thankfully, Mr. Khosla the billionaire won’t have to pay much tax on his ill-gotten gains since we still have the Bush tax cuts.

Jobs created? Zero, zed, nada.

Rafe Hollister

January 6th, 2012
7:49 pm

That outdoor stadium absolutely is the biggest boondoogle ever to hit this state. If the State Gov provides one dime to the Arthur Blank enrichment fund, I think I may move. There is nothing wrong with the Dome. The SEC says they will move the SEC Championship if they have to play it outdoors. The Peach/Chick-Fil-A bowl was a loser before the Dome.

Blank snickers when he says he needs a smaller outdoor venue. He wants less seats to sell, so that he can charge more per seat, and create competition for the seats. That means he will have less incentive to keep the fans happy, just let them quit coming, he has a waiting list of stupid people wanting to buy a ticket. He wants more suites, he gets paid for those on an annual basis, and when corporate fans get disgusted and quit filing up the suites no one notices and he still gets rent.

Government needs to get out and stay out of corporate affairs. Green energy will never catch on until we get close to running out of cheap and reliable oil. Given permission to explore and develop that is years in the future. Stop the money for these green energy boondoogles.

Hillbilly D

January 6th, 2012
7:56 pm

I don’t care what kind of stadium Arthur Blank has or where he builds it, as long as there is not one dime of public money involved.

Bullet County

January 6th, 2012
8:19 pm

Kyle,

Well said.

@@

January 6th, 2012
8:22 pm

Range didn’t actually know how to turn wood into ethanol.

And we didn’t know that beforehand!!??!! You can bet a venture capitalist wouldn’t have invested before researching THAT little detail.

Stories like this give me gas.

The Snark

January 6th, 2012
8:26 pm

Agree 100% with your comments, but … not really appropriate to put “auto bailouts” in the same bucket with the rest of these fiascos. Whether you think it was government’s role to intervene (and I respect the views of anyone who says it wasn’t) the auto bailout has been pretty damn successful. I’d hate to think where our unemployment figures would be right now if GM and Chrysler had gone belly up. Instead, there’s a lot of people working for them and their suppliers today, and profitability is coming back. All in all, not the same kind of deal as Range or Salyndra or CAPCOs.

The Snark

January 6th, 2012
8:28 pm

td:

Perhaps you can explain how Sonny Perdue left the Governor’s office a richer man than when he entered it. Here’s a hint: the “libs” (whoever they are) didn’t do it.

mike

January 6th, 2012
8:34 pm

Ole Sunny involved ? Well that answers everything.

Rafe Hollister

January 6th, 2012
8:34 pm

Snark
Why justify the auto bailouts by claiming jobs were saved. If that is so, why is Oblamer laying off 500,000 soldiers and Marines, maybe we should bail out the Def Dept.

If these bailouts were so successful, why are we subsidizing the Chevy Volt by $250,000 per vehicle. Seems to me Kyle is right, Gov throwing good money after bad.

td

January 6th, 2012
8:34 pm

The Snark

January 6th, 2012
8:28 pm

If you had been reading any of my post for the past several years then you would know that I thought Sonny was nothing more then a RINO. If it was not for the job he did with reducing the budget and hurting k-12 education the least amount as possible without raising taxes then I would think he was no better of a governor then Roy Barnes.

Rafe Hollister

January 6th, 2012
8:46 pm

@@

Stories like this give me gas.

Must be why The Snark left us!

Dusty

January 6th, 2012
8:59 pm

Why did Ranger NOT know how to make ethanol? Is that not what the owner now, the infamous Mr. Khosia is planning to do ? Make ethanol at the same plant? Or does he have other plans? It seems that this plan with pine trees to ethanol is something that can be done. But not Ranger!!!

I think Gov Perdue got fooled just like a lot of other people and he wanted jobs. He was rich before he became governor. Surely all the agencies that were involved investigated this plan. As @@ suggested, surely some venture captalist must have taken a better look at this project.

Although a lot of people were fooled completely, we cannot grow without new ventures.

But, as Hillbilly suggested, build anything you want but don’t use taxpayer money to do it.

spaceman109

January 6th, 2012
9:14 pm

stories like this one (and thousands more which are similar) make me wish i could just retire from a business world which is, in my humble opinion, ethically and morally bankrupt….and shot clean through with cronyism and corruption.

o well….just gotta keep doing what i do. gotta do something with my all energy! :D

spaceman109

January 6th, 2012
9:15 pm

by the way….cronyism knows no political party. just ask jon corzine :)

ByteMe

January 6th, 2012
9:22 pm

As @@ suggested, surely some venture captalist must have taken a better look at this project.

Surely they did. Private investors lost about $150 million on the boondoggle and the aforementioned Khosla is a VC. That’s what he does for a living after making millions helping to start Sun Microsystems.

ByteMe

January 6th, 2012
9:24 pm

BTW, Kyle, this column has a much more defensible position than the one you took a few days ago where instead of giving it directly to businesses you wanted to give state pension money to VCs who somehow wouldn’t screw it up.

@@

January 6th, 2012
9:38 pm

Rafe:

Must be why The Snark left us!

Happy to help.

Lil' Barry Bailout (Revised Downward)

January 6th, 2012
9:46 pm

Soperton and the failed Chevy Vilt are what happens when the government tries to replace free markets.

Big, expensive fail.

Michael H. Smith

January 6th, 2012
9:47 pm

the auto bailout has been pretty damn successful.

Yeah, for the UAW union!

I hope they like the car company we U.S. taxpayers bought for them. Good to see they’re making those GM cars (the ones that catch fire) in China as well.

Then again, these are the reasons is why I now only buy Hyundai (parent company of KIA) made right here in the good old USA (Alabama and Georgia) by well paid non-union American workers. :) :) :)

bluecoat

January 6th, 2012
10:07 pm

TD @734 what you are describing is theft and liberals do not excluvisly own that title.

Freedom Lover

January 6th, 2012
10:09 pm

The Washington Post is out with a story and quite telling graphic that shows the number of billionaires that have donated to each of the presidential candidates including the president.

The big winner – Mitt Romney with 40. Follow with 30 by the President (you know, the guy who represents the 1%). And in last place, Ron Paul with 0 donations from billionaires.

Here is the link: http://www.washingtonpost.com/politics/billionaire-donors/2011/12/05/gIQAa3spXO_graphic.html

Now Ron has plenty of donations from millionaires, but way more from the common man. You know, in this day and age, you can become a millionaire with hard work, some good investments, and the like, but it takes manipulating the government tax structure, regulatory apparatus, subsidy mechanism, and protectionist trade system to become a billionaire. I mean even Bill Gates made tons of money off government contracts. The US government owns 25% of all the PCs in the nation, and if you want to do business with the government you need to share files, etc. and they must be compatible. Don’t tell me that didn’t help sales of Microsoft products.

I guess if you are in agreement at all with this article, its obvious who the uncorruptible one is – but that has always been the case – Ron Paul. Ron Paul 2012. The last hope for america.

Freedom Lover

January 6th, 2012
10:13 pm

Oh, and by the way, the biggest contributors to Mitt Romney’s and the presidents campaigns (and their PACs) are Goldman Sachs, Citigroup, and other major banks. Shock, huh?

As a group, the biggest contributors to Ron Paul’s campaign are current and retired members of the US military. Check it out. Last quarter there were stories all over the internet from news organizations that spanned the spectrum from conservative to liberal that supported the evidence that is available on the Federal Election Commission web page.

I guess they like his foreign policy – but why wouldn’t they? They are the ones being sent to die for the empire and the military industrial complex rather than in defense of america.

Michael H. Smith

January 6th, 2012
10:13 pm

The folly of using taxpayer funds is the measure of whom or what is being enriched, Kyle. Not all government funding of market ventures are boondoggles, though admittedly, more seem to fail than succeed.
We might want to tie future government funding (or bulk thereof) to the actual results produced by a project, – not to the sales pitch or the rosy promises made – before we turn over taxpayer money to these people.

[...] When tycoons and politicians do business, taxpayers loseAtlanta Journal Constitution (blog)The Occupy movement blames this chiefly on bankers and big business generally, the tea partyers on big government. They are both right when they notice the overlap between their respective targets. Both parties are guilty of enabling this overlap. …and more » [...]

Cutty

January 6th, 2012
10:30 pm

It’s Obama’s fault!!

Thought I’d get that out the way.

Michael H. Smith

January 6th, 2012
10:37 pm

Cutty
January 6th, 2012
10:30 pm

Well, at least it is an honest start.

yuzeyurbrane

January 6th, 2012
11:17 pm

Kyle is right on this one. Unfortunately, this is an old old Georgia tradition with no party label.

Lynn

January 6th, 2012
11:22 pm

Yes, by golly, you “got it”, Kyle. As one example: How fair would have it been of Georgia to have exempted corporate jet parts from sales tax, just to turn around and start taxing LABOR for auto repairs? Not very.

Seeking fairness, is not inherently class warfare.