The Buffalo Billion fraud and bribery scheme: corruption and pay-to-play, a symbol of everything they’re doing

Commentary by Marita Noon

When New York’s Democrat Governor Andrew Cuomo gushed over SolarCity’s new solar panel factory in Buffalo, New York, the audience likely didn’t grasp the recently-revealed meaning of his words: “It is such a metaphor – a symbol of everything we’re doing.”

The 1.2 million square foot building, being built by the state of New York on the site of a former steel plant, is looking more and more like another political promise of help for one of the poorest cities in the state that ends up enriching cronies without ever achieving any potential for the people.

Yes, it is a symbol of everything they’re doing.

Previously, during her first senatorial bid, Hillary Clinton also promised jobs to the economically depressed region of the state of New York – 200,000 to be exact. Citing a report from the Washington Post, CBSNews states: “Jobs data show that job growth stagnated in Upstate New York during her eight years in office, the report said, and manufacturing jobs dropped by nearly a quarter.” The Post’s extensive story reveals that jobs never materialized – despite “initial glowing headlines.” It claims: “Clinton’s self-styled role as economic promoter” actually “involved loyal campaign contributors who also supported the Clinton Foundation.” Through federal grants and legislation, she helped steer money to programs, companies, and initiatives that benefitted the donors but failed to reverse the economic decline of the region.

Now, new corruption charges reveal the same pay-to-play model linked to Cuomo’s upstate “Buffalo Billion” economic revitalization plan – and the promised jobs also look they will never materialize.

Back on January 5, 2012, Cuomo announced a $1 billion five-year economic development pledge for Buffalo.  It was to be the governor’s banner economic initiative with the SolarCity factory as the cornerstone and a pledge of 1,460 direct factory jobs. Other companies, including IBM and a Japanese clean-energy company were also lined up.

With the state-of-the-art solar panel factory ready for equipment to be installed, the wisdom of the entire program is being scrutinized – and is coming up short.

First, on September 22, two of Cuomo’s closest aides – along with several others – were charged in corruption and fraud cases involving state contracts worth hundreds of millions of dollars. Addressing the press at his Manhattan office, U.S. Attorney Preet Bharara asserted: “that ‘pervasive corruption and fraud’ infested one of the governor’s signature economic development programs. Companies got rich, and the public got bamboozled,” reports The Observer. Bharara described the bid-rigging and bribery arrangement: “Behind the scenes they were cynically rigging the whole process so that the contracts would go to handpicked ‘friends of the administration’ – ‘friends’ being a euphemism for large donors. Through rigged bids, state contracts worth billions of dollars in public development monies, meant to revitalize and renew upstate New York, were instead just another way to corruptly award cronies who were willing to pay to play.”

The 79-page criminal complaint notes that campaign contributions to Cuomo poured in from people connected to the bribe-paying companies as soon as those businesses began pursuing state projects.

One of the companies that received the lucrative contracts was LPCiminelli – run by “Cuomo mega-donor” Louis Ciminelli. He allegedly offered bribes to Cuomo confidante Todd Howe – who has admitted to pocketing hundreds of thousands of dollars from developers to rig bids on multimillion-dollar state contracts linked to Buffalo Billion projects.

Ciminelli received the $750 million contract to build the SolarCity plant. The Buffalo News cites Bharara as saying: “the state’s bidding process for the factory being built for SolarCity at RiverBend in South Buffalo turned into a ‘criminal’ enterprise that favored LPCiminelli, where company executives were given inside information about how the deal was to be awarded.”

Part of Cuomo’s deal with SolarCity – in which the state owns the building and equipment with SolarCity leasing it under a 10-year deal – requires the company to meet a timetable of job-creation quotas or pay hefty penalties. Even before the building was complete, however, the company slashed its job commitment from 1460 to 500. According to the Investigative Post, SolarCity claims it will still employ the original number, but due to automation, the majority of them will not be at the Buffalo plant. With the state’s $750 million investment, that works out to $1.5 million per manufacturing job. In a press release, Cuomo promised 1460 “direct manufacturing jobs at the new facility.”

Even the 500 jobs will only materialize if the plant actually starts production – currently slated for June 2017. SolarCity’s future is, as Crain’s New York Business puts it: “uncertain.”

Amid the company’s myriad problems are the facts that it has never been profitable, nor does it have manufacturing experience.

In February 2014, SolarCity’s stock price peaked at about $85 a share. Today, a share is less than $20. Microaxis gives it a probability of bankruptcy score of 48 percent. Crains reports that it posted a $251 million loss in Q1 2016 and a loss of $230 million in Q2. To “stop the bleeding,” Elon Musk (a donor to both the Obama and Clinton campaigns and the Clinton Foundation), who owns more than 20 percent of the company, announced that Tesla (of which he also owns more than 20 percent) would purchase SolarCity – this after as many as 15 other potential buyers and investors looked at the company and decided to pass. SolarCity even considered selling the solar panel manufacturing business.

Both SolarCity and Tesla are, according to the Buffalo News, facing a “cash bind” – this despite receiving billions in federal and state grants and tax credits as I’ve previously addressed. Tesla is described as “cash-eating electric vehicle and battery making businesses.” For SolarCity, its model – which finances its solar panel installations in order to make a profit on a lease that can be as long as 30 years, while it collects the lucrative government incentives worth billions (a practice for which Solar City is currently under Congressional investigation) – requires constantly raising new money from investors. Once the Tesla deal was announced, SolarCity’s lenders started to pull back.

The Buffalo News reports: “Stock in SolarCity…now trades for $4 a share less, or 19 percent less, than what Tesla is offering – a gap indicating that investors are uncertain the deal will be completed.” Additionally, the deal is being challenged by four separate lawsuits – which could delay the deal. Addressing the merger, one analyst said: “We see a lot more that can go wrong than can go right.”

Then there is the manufacturing angle. Originally, the Buffalo plant was going to manufacture high-efficacy solar panel modules developed by Silevo – a company SolarCity bought in 2014. Crain’s reports that it will instead produce complete solar roofs: something it says “Dow Chemical recently abandoned after five years because it could not find a way to make a profit on the technology.” But then, the Buffalo News says: “The initial production in Buffalo is expected to include photovoltaic cells that SolarCity purchases from suppliers and are used in the products that will be assembled in the South Park Avenue factory.”

Whatever the plant builds or manufactures, getting it operating will be expensive – even with the New York taxpayers owning the building and equipment – and will drain scarce cash from SolarCity at a time when its financing costs have increased.

Buffalo residents wonder if they’ll be stuck with the world’s largest empty warehouse and without the promised jobs.

No wonder the entire project is in doubt. Because of the Cuomo administration corruption allegations, other proposed job-creators, including IBM, have pulled out until the probe is completed.

For now, Cuomo is not a part of the criminal complaint – though his name is mentioned many times – and he claims he knew nothing about it, nor does he think he’s a target of the ongoing federal probe. “It is almost inconceivable the governor didn’t know what was going on,” Doug Muzzio, a professor of public affairs at Baruch College, said. “And if he didn’t know what was going on, you can argue he should have known.”

Bharara has suggested that the better name for the program would be: “The Buffalo Billion Fraud and Bribery Scheme.”

Yep, the Buffalo Billion project is a “symbol” of the political promises and crony corruption – “everything we’re doing” – that takes taxpayers dollars to reward political donors and then walks away when the jobs don’t materialize.

The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc., and the companion educational organization, the Citizens’ Alliance for Responsible Energy (CARE). She hosts a weekly radio program: America’s Voice for Energy – which expands on the content of her weekly column. Follow her @EnergyRabbit.

Regulatory reform comes to Maryland

I harbor no illusions that my post from the other day regarding the declining optimism of Maryland business owners goaded him into action, but today Governor Hogan announced the formation of a Regulatory Review Commission (RRC), charged over the next three years with “(f)ixing our burdensome antiquated, broken and out-of-control regulatory environment in Maryland.” The ten members of the RRC are volunteering their time to “focus like a laser beam on these issues”, said Hogan.

It’s interesting that the Democrats are claiming the Augustine Commission (which was created in the waning months of Martin O’Malley’s second term) was intended to address these issues and saying Hogan shouldn’t need three years to address the problem. How soon they forget that Larry’s Change Maryland organization was convening business summits over the last three years to gain the business perspective, not to mention the fact it was their administration which put out a number of these job-strangling regulations in the first place.

To me it’s just sour grapes. Ask yourself: had Anthony Brown won, would curtailing regulations be a priority? Thought not. The Augustine Commission report would have been filed and ignored.

But I hope the RRC has the latitude to go beyond just regulations and into other areas like taxation and, more importantly, looking into where other states succeed. Take a state like Texas, where hundreds of thousands of jobs have been created (as a net gain over jobs lost, not as a one-for-one swap) over the last decade. What attracts these entrepreneurs and leaders, and what assets can Maryland use to emulate their gains? Granted, a good portion of the Lone Star State’s gain came from abundant energy resources that Maryland can’t match, but there are other areas we may be able to do as well or better if we make that a goal. Unfortunately, over the last eight years our state took its cues from states like California and New York, places where capital and population have been fleeing.

Another question is just how cooperative these Democrats, who are already trying to take credit for the little bit done in 2015, will be to the RRC’s agenda as they submit their findings.

Take the “rain tax” as an example – a Democrat introduced the vastly watered-down bill that eventually passed, so they will surely henceforth try and take credit for ending the “rain tax.” But the mandate for affected counties to have a watershed protection and restoration fund did not go away (page 4 here) – it’s just up to the county to fill it, and most will likely retain some version of the “rain tax.” The actual repeal of the “rain tax” on this Hogan-sponsored bill was killed in committee by the Democrats therein on a straight party-line vote. (I used that vote as one of the committee votes on the monoblogue Accountability Project.) So it’s a fairly safe bet the Democrats are only paying lip service to the issue of regulations now because to them more is better – that’s how they’ve run Annapolis for most of the decade I’ve lived here and probably my whole life before that.

So the RRC can’t just exist in a vacuum. Now that Larry Hogan has experienced the way Democrats in the General Assembly basically gave the finger to his mandate, he will need in the coming months and years to take a page from the Reagan handbook and go straight to the people. Democrats may claim the last election was about “divided government” but the motivation was clearly behind a more conservative direction for the state.

While I would have preferred a more rapid formation for the RRC, this is a definite feather in the cap for Larry Hogan. Let’s hope that it’s not just for show but instead gives us an agenda even the Democrats can’t stop.

Secession over energy

You might recall that an ongoing, back-burner thought we on the Eastern Shore have had is the idea of seceding from the state of Maryland – a state which otherwise belittles us, doesn’t share our concern about the agricultural community, and tries to lord it over us because we only have a small percentage of the population. With a Republican governor that sentiment has diminished somewhat but it’s still active among a few.

The southern tier of counties in the state of New York have a similar beef. Their state is controlled by the denizens of the Big Apple, which overshadows both the urban enclaves of Buffalo, Rochester, Syracuse, and Albany and the rural areas upstate. Those who represent the urban areas have prevailed on the state government to ban fracking in the state, which means areas within the Marcellus Shale formation can’t tap into that valuable resource, while just a few miles away Pennsylvania towns and cities are thriving. This story by Tina Susman of the Los Angeles Times makes it plain that residents in that area are frustrated, just as those who live in the western end of Maryland have been pleading for the state to lift its de facto ban on the practice. Instead, the Maryland General Assembly put yet another two-year delay on the books.

In both cases, the problem lies in the small minority of citizens who are blessed to live in an energy-rich portion of a state being forced by a majority who thinks they know better to suffer, watching those who live just a few miles away prosper.

Also in both cases, the chances of secession vary between slim and none, with slim vacating town to pursue a fracking job in an adjacent state.

Of course, this is the small drawback to having 50 different state governments: it allows for some to fail in their economic efforts. Both New York and Maryland have an economic engine which depends on the growing alliance and partnership between Wall Street and the federal government, with thousands of financial sector workers in New York City and thousands of federal employees in Maryland. In their worldview, we can secure all our energy needs from renewable sources and oil and natural gas are dirty, nasty fossil fuels. Problem is we still use an awful lot of those fossil fuels because renewables are extremely expensive or highly subsidized.

Perhaps what needs to secede is the crazy idea that fracking is something to be avoided at all costs from the laws of the several states. Until then, those poor people in New York and western Maryland will continue to see prosperity from afar.

Passing on prosperity

Since both have been mentioned in the news as potential Presidential candidates, governors Martin O’Malley of Maryland and Andrew Cuomo of New York have been natural rivals for the attention of the various interest groups that make up the constituency of the Democratic Party. It seems that they are always trying to one-up the other in enacting off-the-charts liberal legislation – when one allowed gay marriage, passed draconian gun laws, or pandered to illegal immigrants, the other tried to follow in rapid succession.

Martin O’Malley and Andrew Cuomo also both cast their lot with the radical environmentalists who claimed (falsely) that hydraulic fracturing for energy extraction would ruin their state’s environment. Yet while O’Malley relented ever-so-slightly in recent weeks, allowing the practice but with regulations one energy expert called “onerous and time-consuming,” Cuomo stopped the practice cold in his state by decreeing in an announcement last week that fracking would be banned, timed nicely after his re-election. Observers of both states are scratching their heads about these decisions, both in the media and in the energy industry. In New York, local media bemoaned the lost opportunity while landowners in the affected area called Cuomo’s ban a “worst-case scenario.”

Yet in the middle of all this sits the commonwealth of Pennsylvania, a state which has embraced the economic benefits of the practice to such a degree that Tom Wolf, the incoming Democratic governor of the state won’t ban it. (However, he may stiffen regulations and increase taxes on energy producers, which will be something to watch in the coming months.)

Granted, their good fortune of geography means Pennsylvania has the largest share of the Marcellus Shale which yielded all that natural gas, while Maryland only has a small slice and New York has a small but significant portion.  For their part, Ohio and West Virginia also have sizable portions of the formation, while Virginia’s share is similar to Maryland’s. Ohio has been nearly as aggressive as Pennsylvania in taking advantage of the shale – although recently re-elected Republican Governor John Kasich is also trying to increase taxes on producers – while West Virginia is lagging behind their neighbors and just beginning the process of allowing extraction.

It’s a given that fracking isn’t without risk, but neither are installing large solar farms or erecting 400-foot high wind turbines. Yet the natural gas and oil provided from fracking make for a much more reliable energy source than the intermittent electricity provided by the latter pair, sources which ironically need a natural gas backup to be consistent.

As time goes on we will see just what economic effects a fracking ban will have on the affected areas of New York. But as we have seen in states which have already began the extraction, the Empire State is missing out on the potential for investment and return that having the Marcellus Shale provides for those lucky enough to live over it. Hopefully our neighbors in western Maryland will see some benefits in the next couple years as Governor-elect Hogan puts “sensible” regulations in place to benefit all concerned parties.

Divergent directions

As you all know I have an interest in the energy field and a disdain for the unproven – so I’m no big fan of technology that’s not reliable 24/7/365. While renewable energy has its uses in limited applications, such as the solar panels on one’s roof or the windmill which augments the rural homestead, all of these sources need a backup for when we endure a week’s worth of cloudy days or still weather. So I have a bias toward the tried-and-true energy sources of coal, oil, and natural gas.

Having said that, it amuses me when I see the potential for infighting among the environmentalist crowd as we could have a battle royale between the animal rights crowd and the renewable energy set – the reason: a study published in the journal BioScience and gleefully critiqued by Steven Hayward at Powerline estimates that 600,000 or more bats are killed each year by wind turbines – a much higher toll than previously thought. And as Michael Todd, writing at Pacific Standard, explains, it’s not for the reason you might think:

Given that wind turbines are basically a collection of whirring blades, you might assume that the bats found dead have been sliced and diced. You might also wonder how an animal that uses radar to find a single mosquito in the dark could fail to sense a monstrous wind turbine. The University of Calgary’s Erin Baerwald explained this to Discovery News in 2008: “When people were first starting to talk about the issue, it was ‘bats running into the turbine blades.’ We always said, ‘No, bats don’t run into things.’ Bats can detect and avoid all kinds of structures,” and are even better at detecting stuff that’s moving. No, they’re exploding. As I learned last year, “Baerwald and her colleagues discovered that bats’ ‘large, pliable lungs’ blow up from change in air pressure created by moving blades. Up the 90 percent of the dead bats they examined showed the internal bleeding consistent with their argument. Birds, by the way, have different kinds of lungs so their deaths are from the more predictable blunt-force trauma.”

Of course, bats are very creepy creatures and tend to be a nuisance if they get into your house. But they have one tremendously useful purpose: keeping the mosquito population at bay. A commentator on Hayward’s post writes about watching bats fly around at dusk and I can vouch for the fact that it is interesting to watch them maneuver around in the fading light of a summer evening, gorging themselves on those pesky bugs.

And the problem seems to be worst in the Appalachian part of the country, which includes the western part of Maryland. While it’s not prime territory for efficient windmills, that area is probably the most desirable in the state for the purpose.

Yet there is another energy source where the two westernmost Maryland counties are prime territory, and that’s the Marcellus Shale formation where natural gas is plentiful deep underground – and by deep I mean hundreds and hundreds of feet below the aquifers. I point this out because portions of New York state endure some of the same effects as their Marcellus cousins in Maryland; both are primarily rural areas which can use an economic shot in the arm. As is pointed out in a Wall Street Journal editorial from last week by Fred Siegel, those areas of southern New York along the Pennsylvania border suffer from the same faraway NIMBYism that the western panhandle of Maryland has to deal with – those who live nowhere near the area think they know best.

But unlike Maryland’s Martin O’Malley, whose sole response has been to study the subject to death, his potential Democratic presidential rival from New York, Governor Andrew Cuomo, at least was willing to allow some limited fracking in that specific region – that is, until he was told by the environmental extremists, “we’ll cream you if you open New York state to fracking.” While neither the western edge of Maryland nor that five-county area of southern New York along the Pennsylvania border (from Steuben County on the west to Broome County on the east and including adjacent Chenango County) has the worst unemployment numbers in their respective states of Maryland or New York, the fact is they can do better.

And it’s not just the energy companies booming – this story by Barbara Miller in southwest Pennsylvania’s Observer-Reporter newspaper (h/t Energy Tomorrow) points out the financial gains in just two of the state’s counties. Quoted in the story was Washington County Commission Chairman Larry Maggi:

I don’t want to use the word envious, but (other counties are) struggling and they do not have this resource to help them balance their budgets.

While amounts from $6 million to $18 million are drops in the bucket for a state budget, they can potentially be huge for some of the rural counties affected. Energy companies are accustomed to paying a fair royalty fee to local governments, knowing the market will support that toll while allowing a reasonable profit.

So, as you’ll see in the next week or so when my candidate dossier on energy is complete, there’s a big difference in stance between Maryland Democrats and Republicans on the fracking issue. Apparently most Democrats are happy with blowing up bats and chopping up birds, but Republicans want to create jobs.