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John Hood: Stimulus story is telling

by John Hood

In the homestretch of the Senate race between incumbent Kay Hagan and challenger Thom Tillis, the disclosure that Hagan’s family profited from the 2009 stimulus package she voted for has drawn a great deal of attention.

     Well, let me clarify that statement. It has drawn lots of attention from out-of-state media outlets and from Carolina Journal, the newspaper published by my organization. It has thus far drawn scant attention from the North Carolina press corps. That’s too bad. The story is an instructive illustration of how easy it is for noble-sounding government initiatives to devolve into crass raids on the public treasury.

One provision of the 2009 stimulus created a grant program for alternative-energy projects. The program was administered by the North Carolina Department of Commerce’s Energy Office during the administration of Gov. Beverly Perdue, a Democrat and former lieutenant governor who presided over the state senate when Kay Hagan was a member.

In 2010, a company called JDC Manufacturing applied to the Energy Office for a $250,644 grant to replace light fixtures and gas furnaces and install rooftop solar panels at its 300,000-square-foot building in Reidsville. The total cost of the project, JDC stated, would be $438,627, of which 57 percent would come from the taxpayers and the rest, $187,983, from JDC itself.

The company was owned by Kay Hagan’s husband Chip and two of his brothers. In the application, JDC claimed that the building’s infrastructure was outdated and that current energy costs had “prevented the tenant from growing their business as desired due to the energy operating costs.” Who was this cost-constrained tenant of the JDC building? A company also owned by Hagan family members called Plastic Revolutions, as Carolina Journal’s Don Carrington has reported. Chip Hagan serves on its board.

The double-dealing didn’t end there. In its application, JDC stated that its initial estimate of the cost of installing solar panels were “based on quotes or commercially available prices” but that “the final project design and installation work will undergo an open bid once awardees are notified” about the status of the grant.

The same week JDC submitted the application, however, Chip Hagan and his son Tilden founded yet another company, Solardyne, later renamed Green State Power. Somehow, this inexperienced company managed to win the contract to install the solar panels on JDC’s building, no doubt through an “open bid.” Interestingly, JDC had included its conflict-of-interest policy in its application for public funding. “Employees are to avoid any conflict of interest, even the appearance of a conflict of interest,” the policy stated. “The appearance of a conflict of interest can cause embarrassment to the company, jeopardizing the credibility of the company. Any conflict of interest, potential conflict of interest, or the appearance of a conflict of interest should be reported to your supervisor immediately.”

Perhaps the conflict of interest was worth assuming, however, because it turned out that the JDC building retrofit cost $114,519 less than originally estimated. Unfortunately, the savings didn’t accrue to the taxpayers, who were still compelled to fork out the full $250,644. Instead, JDC spent only $73,464 of its pledged $187,983 investment.

The story doesn’t end there, believe it or not. A year later, JDC secured another government grant, this one for $50,000 from the Department of Agriculture, to put another solar array on the same building. Once again, Hagan-owned Green State Power got the contract.

The next time you have solar panels installed on your property at partial public expense, you may want to hire yourself, too. If there’s a cost overrun, you get paid more for the project. If there’s a cost savings, you get to pay less for the project.

Is the Hagan stimulus story the most important issue in the Senate race? Not to my mind, although it is certainly relevant. Its true import is to show how quickly government grant programs can become convoluted and self-serving. The state can and should make effective use of private vendors and grantees to supply legitimate public services. Retrofitting private buildings for private use isn’t one of them.

Hood is chairman of the John Locke Foundation.

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