Of the 38 items listed in the President’s package of proposed rescissions worth a combined $15.4 billion in budget authority, the second biggest is $4.3 billion in the Department of Energy’s (DOE’s) Advanced Technology Vehicles Manufacturing (ATVM) Loan Program account. Cutting the remaining $4.3 billion in unobligated balances in the ATVM account would prevent the DOE from covering the cost of any new direct loans to vehicle or vehicle component manufacturers, effectively ending the program. Given the ATVM program’s inherent risky nature and poor track record, its demise is overdue and would prevent future losses to taxpayers.
The ATVM program was created in the Energy Independence and Security Act of 2007 to provide direct loans to advanced automobile and component manufacturers. In a continuing resolution (CR) for fiscal year (FY) 2009, the program received $7.5 billion in appropriations to cover the costs of providing up to $25 billion in direct loans backed by the “full faith and credit” of the U.S. Government to auto and component manufacturers. In effect, the ATVM program provided cheap loans to companies to build manufacturing facilities for “advanced” vehicles or vehicle components that were otherwise too risky for the private debt market.
The DOE issued five loans under the program from 2009 to 2011 worth $8.4 billion, with costs to the government, “subsidy costs,” of roughly $3.2 billion. The high subsidy costs reflected the perceived riskiness of the loans, which was eventually borne out when two of the five recipients later defaulted on their loans. The loan to Fisker Automotive and the DOE’s subsequent mishandling of the outstanding $168 million when Fisker defaulted cost taxpayers around $200 million.
In 2014, the Government Accountability Office (GAO) identified rescinding the remaining $4.3 billion in credit subsidy appropriations as a potential cost saving. Both at that time and as recently as February of this year, GAO noted that DOE had not demonstrated any demand for further ATVM loans. As a result, the $4.3 billion is simply sitting in a DOE account without any prospect of being used. The President’s proposal to rescind it, therefore, is low-hanging fruit that others have suggested for years, but it represents a good cut that would end a needlessly risky program.