Thursday, December 16, 2010

Slouching Toward the 2011 Budget

congress The way Congress decides how to spend money is fairly straightforward: the President presents a budget proposal to Congress that is then hashed out in committee and then by the full House and Senate and then is voted upon.

In some years, though, Congress cannot quite get through all the spending bills and funds the government via other means.

For example, the House last week passed a continuing resolution. That means that the 2011 budget will mirror the 2010 budget with a few tweaks here and there. And the Senate now seems likely to do the same.

What does this mean for nuclear energy? In most respects, we can’t know until later. Energy Secretary Steven Chu has introduced a list of new projects he’d like DOE to undertake and there are older programs that are being retired. A continuing resolution will not fund the new projects – because they were not in the 2010 budget – but will fund the retired programs. So money will need to be swapped around, some new programs will get less money or will wait until 2012.

But there are a few noteworthy bits to note now:

The Senate would provide $8 billion in new loan guarantees for nuclear power plant construction under a large omnibus year-end spending bill.

That's a bit more than the $7 billion the House approved last week—but far less than the $36 billion President Barack Obama requested in his budget.

DOE has a few projects in line for loan guarantees and the $7 (or $8) billion will about cover them. Loan guarantees don’t really necessitate any outlay from Congress aside from administration, so increasing it doesn’t really affect budget lines very much.

The Senate may vote this week, so stay tuned.

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Loan guarantees are not completely non-controversial. Aside from the usual anti-nuclear energy suspects, the current mood of fiscal discipline also brings opposition, though I’d say extant examples are not notably honest. For example:

Ryan Alexander, president of Taxpayers for Common Sense, says the record of the Department of Energy in administering loan programs is not encouraging. She cites a 2003 Congressional Budget Office study says default rates can hit 50 percent or more, and that would mean that several projects totaling billions could leave the government footing the bill.

Luckily, there’s not much I have to say here about that 2003 study, because reporter Jesse Emspak does it for me:

The CBO Study doesn't actually say that default rates would be 50 percent, however; it says that the default rate was an assumption that would have to be re-evaluated when the projects were executed.

Just so. Maybe we can now consider that abandoned 2003 study well and truly kaput.

The rest of the story is quite interesting:

But now, some groups that see themselves as fiscal conservatives are saying that the loan guarantees would unfairly shift the risk of defaults to the taxpayers and cost the government money that could better be spent elsewhere. Those with a more libertarian bent say the guarantees distort the cost of capital. If the private sector was willing to finance nuclear energy, they say, it would be done.

Well, these are groups feeling their oats after being out of fashion for awhile, so a little overreach is to be expected, and I admit I find the arguments simultaneously novel (for mainstream consideration) and faintly dusty (libertarians have always felt government “distorts the cost of capital.”) But they add perspectives to the discourse and that’s always welcome.

2 comments:

SteveK9 said...

'unfairly shift the risk of defaults to the taxpayers'

Are we living in a comedy of the absurd? We just spent oh, ~ 10 trillion (God only knows) on the defaulting banks. And we are worried about something that is 1) a lot less risky, and 2) actually will benefit the country.

Rod Adams said...

I wonder if it is any coincidence that many of the "fiscal conservative" groups have been receiving substantial contributions from people with strong interests in selling coal, oil and natural gas? It is also amusing to me that their idea of fiscal conservatism includes tax cuts for corporations and individuals making lots of money selling fuel for existing plants but does not recognize that a revenue decrease is exactly the same as an expenditure increase from an accounting perspective.

Strong pressure FOR tax cuts along with strong pressure AGAINST reducing the risk of innovation and investment is fundamentally a position that benefits the status quo and the haves over the have nots.

In other words, it is a very traditional position that would have been popular among the robber barons and trusts that dominated the American economy in the 1890s.