7 min read
Are some greeds better than others? The Solyndra scandal, centered on billionaire donor George Kaiser, makes me wonder.

Everyone condemns the greed that motivates the man who picks pockets to get other people’s money. Another common image of greed is the ruthless businessman who, though already rich, pursues profits with misleading ads and browbeats potential investors for additional cash to expand his operations, which may or may not ever provide returns to the new investors.

Do these examples exhaust the vice of greed? What about a businessman, flush with billions and a major political donor, who brags that his “selfish, parochial” goal is to “get as much” federal dineros for his hometown as he can, using his considerable influence with White House officials? That’s what Kaiser said in a speech to his fellow Tulsans on July 8, 2009. (See this video excerpt for the quotation; the complete speech is here).

Kaiser explains that “there’s never been more money shoved out of the government’s door in world history and probably never will be again than in the last few months and the next 18 months, and our selfish, parochial goal is to get as much of it for Tulsa and Oklahoma as we possibly can.”

Is this zealous grab for other people’s money greed? The dollars at issue weren’t voluntarily donated by generous fellow citizens, nor were they knowingly risked by venture capitalists gambling with their own money. No, the dollars Mr. Kaiser sought to get his “selfish” hands on were tax dollars that his fellow citizens were compelled to provide, supposedly for the common good.

Over half a billion of those dollars, we now know, were squandered on Solyndra, a solar company that never came within $100 million of making a profit but had heavy backing from Kaiser. That looks like reckless greed to me, even if Mr. Kaiser’s personal bank account was never going to be enriched by the deal.

MediaMatters, a left-wing partisan watchdog group, disagrees. They defend Kaiser on the grounds that he didn’t invest his own money in Solyndra but only his foundation’s money. So move along, folks, nothing to see here. (AlterNet.org, another left-wing outlet, makes the same claim.)

Somehow I don’t think the left would treat the affair the same way if the billionaire in question were named “Koch” and the administration were named “Bush.” But leave that aside. Why isn’t it greedy and improper when a billionaire with enormous charitable resources – $4 billion in the George Kaiser Family Foundation as of 2009 – manipulates tax dollars into a dubious hobbyhorse project of his? Especially when that hobbyhorse is a for-profit company in which the billionaire’s foundation is the largest stockholder? And when the billionaire’s foundation ends up, at bankruptcy time, ahead of the taxpayers in the line to recoup something from the cratered company’s assets, even though federal law appears to make it illegal to put private investors ahead of taxpayers in such circumstances?

This picture could be made to look even worse, if Kaiser were subjected to a Kaiser Derangement Syndrome treatment that equaled the Koch Derangement Syndrome we’ve seen in the last year.

For example, it turns out that the “George Kaiser Family Foundation” isn’t exactly a foundation as conventionally understood. Legally speaking, it’s not a “private nonoperating foundation” like, say, the Ford Foundation or the Charles G. Koch Charitable Foundation. Instead, it’s a “supporting organization” of the Tulsa Community Foundation.

That fact has several consequences:

-- George Kaiser can use a much higher proportion of his donations to lower his personal income tax bill.

-- The Kaiser Foundation can own big chunks of for-profit companies like Solyndra, whereas it’s not clear a standard foundation could legally do so.

-- Unlike standard foundations, the Kaiser Foundation has no legal requirement to give away at least 5 percent of its assets every year (and so far it hasn’t come close to giving that much away – in 2009, the last year for which figures are available, it contributed just over 1 percent to charities).

In addition, the Tulsa Community Foundation, co-founded by Kaiser, also has no requirement to give away a proportion of its assets each year. The Washington Post reports that the Kaiser Foundation was so intriguing a philanthropic arrangement that the Senate Finance Committee, in its internal discussions of charitable abuses a few years back, used it as a whipping boy. The Post quotes an internal committee memo:

“Tax deductions for charitable contributions are intended to encourage transfer of wealth to those in need,” the memo said. “Individuals should not be allowed to ‘park’ their assets in charities in order to preserve their assets in perpetuity, while simultaneously benefiting from a charitable contribution deduction.” The loophole used by [the George Kaiser Family Foundation], the memo concluded, “is now being used by wealthy individuals to avoid the private foundation rules.” Those organizations, it said, were in effect “conducting the abusive activities Congress intended to curb” when it established the 5 percent minimum payout for foundations.

Some observers on the left have also criticized the Kaiser Foundation. Pablo Eisenberg of Georgetown University’s Center for Public & Nonprofit Leadership told the Washington Post that the Kaiser Foundation is “not supporting anything but itself.” Echoing that sentiment, Aaron Dorfman of the National Committee for Responsive Philanthropy observed, “if people have received a tax deduction for their gifts, those assets ought to be put to use sooner rather than later.” [See the Footnote, below, for more on Kaiser's philanthropic arrangements.]

I suspect some of this criticism is overblown. Kaiser has signed the Gates-Buffett “giving pledge” and sworn to give away most of his assets, and he is actively involved in all things charitable in his home state. He appears to work hard to identify and collaborate with effective charities, and it’s likely he will continue to build up good nonprofits and eventually fund them in amounts that remove the grounds for grumbling about his foundation’s payout percentage.

But I sure wish he grasped why ordinary Americans see a big difference between the times he chooses to give away his own money versus the times he steers tax dollars to his favorite causes, for-profit and non-profit, by making numerous visits to the White House and chatting up cabinet secretaries. I, for example, applaud Kaiser’s donations to local charities serving young children. But I squirm when I hear him say, after he mentions the unprecedented outpouring of government largesse in the speech quoted above:

We’ve helped a number of entities to try to make effective grant requests for this funding. We’ve secured more than $40 million extra for Tulsa so far. We’ve made multiple trips to Washington to tell the story in education, health care, and energy to the respective cabinet secretaries in each of those areas and almost all the key players in the West Wing of the White House…. We’re trying to get Tulsa selected as a pilot project in various programs like Promise Neighborhoods, Race to the Top, Innovation Initiatives, challenge grants for early childhood education, and so forth.

Kaiser's next comment induces even worse cringing. What does he tell the White House chief of staff, the deputy director of the domestic policy council, and the rest of his D.C. pals?

we [at the Foundation] have the almost unique advantage in that we can say that whatever you do, we’ll match with private funding, and we’ll watch over it because we don’t want to be embarrassed with the way our money is spent, and so we won’t make you be embarrassed with the way your money is spent either.

I’m sure folks in the West Wing are glad to hear that in the wake of the Solyndra fiasco. The defunct solar company’s federal escapade is another of those swell public-private partnerships we’ve heard about – like the Fannie Mae and Freddie Mac debacle.

This points to the overlooked scandal in l’affaire Solyndra. The whole mess is an unusually public example of a common error in the nonprofit sector, namely, the notion that it’s easy to make the world better by pasting together government funding, nonprofit grants, and for-profit entrepreneurship.

William Schambra of the Bradley Center for Philanthropy and Civic Renewal skewered this phenomenon in a prophetic speech he delivered before Solyndra tanked:

Social entrepreneurialism’s cross-sector ventures at first sound so appealing, so sensible. Let’s combine the efficiency of the marketplace and the resources of government with the compassion of the nonprofit sector, keeping only the good qualities of each while leaving behind all the bad qualities! In the real world … we are just as likely to end up with the resources of charity, the efficiency of government, and the compassion of the marketplace.

In short, it’s likely that if Kaiser had actually had his personal checkbook in play, with hard-nosed business advisors at his elbow, he would have seen that Solyndra was a dog and saved the country hundreds of millions of dollars.

The Solyndra crash should also lead us to be skeptical, not just of the Obama administration’s “green jobs” programs, but of all its public-private partnership/social innovation fund efforts, such as Promise Neighborhoods and the other programs Kaiser mentioned in his speech. They’re likely to be as unproductive in housing, education, etc. as Solyndra was in solar energy. We just won’t have a stark market test like Solyndra faced to illuminate their failures.

FOOTNOTE: A valuable New York Times article from 2005 has additional criticism of Kaiser's philanthropic arrangements. It reports that he originally established a conventional foundation, before draining its resources into his new supporting organization. It also clarifies that "foundations are prohibited from holding stakes in businesses that, combined with the holdings of their donors, donors' families and some others, exceed 20 percent." Kaiser's supporting organization held a much larger stake than that in Solyndra and, had the firm's stock offering gone through, could have owned 50 percent of the company. The Times also noted that by switching his money to a supporting organization, Kaiser "reduced the amount of excise taxes the foundation would have had to pay on the additional investment income." Finally, the Times raised questions about the supporting organization's independence from the family for which it was named: "By law, the Tulsa [community] foundation controls Mr. Kaiser's supporting organization, which is supposed to be independent of him and his family. Some experts, though, questioned that independence. Two of the supporting organization's trustees, Mr. Dorwart and Phil Frohlich, sit on the board of the Tulsa foundation, and the third, Phil Lakin, is its executive director. Mr. Dorwart is Mr. Kaiser's longtime legal adviser, and Mr. Kaiser is the chairman of the Tulsa foundation's board, which is populated by many of his friends and business associates."

On a side note, the Times also reported that Kaiser "has protected his wealth by being savvy about taxes - when he pays them at all. During a stretch of the late 1980's and early 1990's, he paid just $2,688 in federal income taxes, claiming negative income in six out of seven years. When the I.R.S. sought $49 million in back taxes and penalties, he fought and wound up paying only $11,000 more. In the same period, he assembled a fortune by snapping up failed petroleum businesses in Oklahoma and one of their biggest lenders, the Bank of Oklahoma. He then used those businesses' operating losses and a keen understanding of tax law to keep virtually all the profits."

UPDATE: Stanley Kurtz commented on this post at National Review Online, as did Steven Hayward at Powerline. Tulsa talk radio host Pat Campbell discussed the topic with me (audio here). William McGurn follows up on this post with his own speculations on George Kaiser’s motivation in the Wall Street Journal.

4 thoughts on “The other Solyndra scandal”

  1. Claire Solt PhD says:

    What about the subversive aspect? This is the first time I knew that this is an OK story. OK is a major player in oil and gas, and hardly a natural fit with solar.

  2. Drew Anderson says:

    What about the fiduciary duty of a trustee or board member of a non-profit–including a supporting organization- to invest the assets wisely and with care?

    It appears a decent percentage of the “foundation’s” assets were invested in one risky venture that is now bankrupt. The increasing public evidence of the Federal lack of due diligence could also indicate a lack of non-profit board or trustee due diligence.

    The OK State AG or agency in charge of non-profit oversight in OK should investigate the situation.

    Normally with alternative and venture capital opportunities, non-profits seek outside, independent professional investment advisors who have a solid track record who later will select many investment choices and not concentrate or place a great deal of money on one company for the non-profit’s investment portfolio.Both Argonaut and the foundation invested in Solyndra and seemed to have failed to invest carefully.

Leave a Reply

Your email address will not be published. Required fields are marked *