Archives for Stimulus

Solar Subsidies in Minnesota, Part 2

In Finance and Commerce, freelance writer Dan Haugen attempts to answer the question that I posed a couple of weeks ago.  Dan phrases the question from the point of view of two local solar manufacturers, “How will Silicon Energy and TenKsolar manage in oversupplied solar panel market?”  (Read more….)

Fox News Story Featuring David Strom: ‘Green’ Recycling Company Bankrupt Weeks After Getting Millions

From Fox News in Mankato: Fox News covered this story featuring policy fellow David Strom.

MANKATO, Minn. –

What if you could find a way to make money off other people’s trash? On top of that, you’d be helping the environment, turning that trash, in this case plastic agricultural film, into anything from outdoor decks to plastic furniture. Even better, in the midst of a recession, the company becomes an oasis of employment and economic development.

Genesis Poly Recycling was supposed to do all of that. Taking old silage bags and hay wraps and turning them into plastic pellets to be sold to other companies. But it never got off the ground, and is currently bankrupt… but not before taking millions of dollars in taxpayer money.

Two years ago, Genesis Poly CEO Dan Hauschild said, “We’ll be creating quite a few jobs. 30 to 40 right away and in a couple years be around 120… and then there’s more opportunity to expand we’ll go way beyond that in the next five years.”

Hearing those numbers, Mankato was happy to oblige. The city pulled out plenty of stops… acting as an intermediary of sorts, by purchasing the property at 480 North Industrial Road for $850,000, money acquired through a grant with the state’s Department of Employment and Economic Development (DEED). The old Spartech site would be rented out to Genesis Poly. Along with the site purchase, Mankato lent Genesis Poly half a million dollars for equipment.

That $500,000 was stimulus money given to DEED, and applied for by the city of Mankato. Once paid back, the city could lend it out to another company. At least that was the plan.
Reality however, begged to differ.

Mankato City Councilman Mike Laven says, “I don’t think anyone of us saw a 2-month window and that closing. That wasn’t our process.”

In the spring of 2010, Genesis Poly went belly up. And with it went Mankato’s money. Along with a $100,000 loan from the Minnesota Pollution Control Agency, and another $7.44 million through a loan with U.S. Bank… 70% of which was backed by the Department of Agriculture.

Genesis Poly was in talks with the Minnesota USDA well before they went to U.S. Bank, and small government advocates are saying the USDA’s involvement could have played a role in U.S. Bank’s willingness to throw money at Genesis Poly.

David Strom, a policy fellow at the Minnesota Free Market Institute says, “There’s an implicit sense of Too Big To Fail. If the government is in, they’re going to keep throwing money at it. It looks like a less risky way to spend your money. You don’t even have to look at the books, ’cause it doesn’t matter. Government is going to back you up.”

But perhaps the most disappointing aspect of this whole story: this isn’t the first time Genesis Poly has gone bankrupt.

Back in 2008, with the same idea and the same investors, AGSI Recycling, as it was called, out of Savage, disintegrated as well, costing another $57,000 for the MPCA, and taking the 8 million pounds of plastic they had collected for production and dumping it all in a landfill.

Strom says, “This company in particular had already gone out of business once. The business model didn’t work. Yes they could produce something that was useful, but not at a price that anyone was willing to pay. If government has to shove money in, you’re burning up that kind of green to create another kind of green coming out the other side. And it just doesn’t make sense.”

U.S. Bank refused to comment on the story, citing the ongoing litigation in the matter – a multi-party lawsuit currently making its way through Blue Earth County Court, with the City of Mankato, the MPCA and U.S. Bank suing Genesis Poly and a separate investor, Crown Machine.
The case is currently in the discovery phase, with the first court date set for February 7th of next year.

Recessions and Recoveries: Lessons Not Learned by Tom Kelly

Tom Kelly is the chairman of the Minnesota Free Market Institute. He is also a fellow at the Center of the American Experiment (CAE) and a partner in the Finance and Restructuring Department at Dorsey & Whitney. He wrote the following piece for CAE and we republish it with CAE’s gracious permission. You can read Mitch Pearlstein’s wonderful forward and Tom’s piece entitled Recessions and Recoveries: Lessons Not Learned here.  Tom has a wonderful, conversational style we think you will enjoy. He explains why Keynesian policies have been and continue to be a failure–and why politicians are so attracted to them despite those failures. And Tom offers five lessons in hopes that we can stop repeating the past:

Lesson One: The future belongs to the new.

Lesson Two: The “new’ comes from the private.

Lesson Three: Creation requires destruction.

Lesson Four: Recessions are a normal part of the economic cycle.

And Lesson Five: Government must let markets solve economic problems.

Here is a teaser to get you started:

“We are now three years into the financial crisis triggered by the bursting of the housing bubble, and more than two years into the resulting recession and lingering aftermath. It was the deepest recession we experienced in a generation—by some measures, the deepest since the Great Depression of the 1930s. In terms of economic policy, however, we have regressed to the early 1970s, before the last “great recession” of 1974-82, when Richard Nixon infamously said “we are all Keynesians now.” Today’s policy debate has been dominated by ideas that were tried, and found wanting, during the 1970s. The policy responses to date have consisted of two sets of actions. One is increased federal spending and “targeted” tax breaks, based on the theory of a “multiplier” effect that will result in each dollar spent and each dollar of tax relief being respent several times. The second is unnaturally low interest rates. This combination of policies failed to generate economic growth a generation ago but is being tried again on a far grander scale today. Why has this happened?”

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