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CONSTRUCTION KNOWLEDGE BLOG

November 2, 2011

Gov’t in Construction: A Confederacy of Dunces
Filed under: Industry outlook — Tags: — nedpelger

Beacon Power Corp, which previously received a $43M US Dept of Energy loan guarantee, just filed for bankruptcy protection. Beacon developed a 20 MegaWatt flywheel storage facility in upstate New York to help manage electrical grid power fluctuations. LeChase Construction, Rochester NY, built the New York plant and hasn’t received final payment, making them the largest creditor. The photo below gives a sense of the facility.

Beacon Power had also received a $24M Smart Grid stimulus grant to build another 20 MegaWatt flywheel storage facility in Hazle Twp, PA. Since Beacon was still searching for financing for that facility, I assume it won’t be proceeding.

The US Government’s recent record on project funding has had some spectacular flame-outs. The most famous being Solyndra, which received a $535-million Dept. of Energy loan guarantee to make solar panels and filed for bankruptcy in September. As an added kicker to that story, the news today noted that the Solyndra former CEO was given about a half million dollar severance package.

Now I understand that many venture capital firms select losing projects, that the skill in picking a winner is far from a science. For that reason, though, the government shouldn’t be in the VC business. When the government tries to direct businesses with grants and loan guarantees, markets distortions occur. Solar panels all over Germany, which has so little sunshine, tend to be the result. Similarly, corn ethanol in the US, which raises food prices (putting many into poverty) and does nothing to improve the fuel balance.

On a more local note, I spoke last week to a buddy working as a bridge carpenter. He is helping construct a new bridge that boggles his mind in terms of complexity and uselessness. He sees the government simply spending cash for the sake of creating jobs. What a shame when so many bridges and other infrastructure projects really need to be completed.

I propose a merit based government funding process. To begin, the government stays out of VC type funding. A market already exists to fund entrepreneurs and the government can only pollute that process. The infrastructure funding, though, needs to be done by the government, but could be done in a non-political way.

The politicians would decide the amount to go into the pot for annual spending. An independent technical committee would evaluate projects in some double blind way and select those that deliver the most value. Then the politicians could vote only yes or no on the funding package.  Merit project funding could be one of the changes that helps America get back on the right track.

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