IRA debates: a view from the schools
This post is the basis for a keynote lecture I'm giving in France on June 9th. Feedback welcome, and wish me luck!
I've been following debates about the Inflation Reduction Act in a few different arenas. One of them is the left political economy, where socialists of various stripes are debating the significance of the legislation. While the terms of the debate are complex, it kind of boils down to a simple question: is this a good thing?
Over the last few weeks there's been a lively back-and-forth on this question, ignited partially by an essay I referenced a few weeks ago by Dylan Riley in the New Left Review. Riley critiqued the IRA for doing little to address contemporary capitalism's overcapacity problem. Advanced in various essays by one of the more pre-eminent marxist political economists, the historian Robert Brenner, the overcapacity thesis--so far as I understand it--is that global capitalist firms, particularly American ones, are making too much stuff and competing in the same markets to generate enough profit for productive development, causing instability and stagnation.
Riley says the IRA is just a greener policy of overcapacity and that, to make a real difference in this stagnation (and the climate crisis for that matter), the means of finance would have to be "seized at once."
Other leftists of various stripes--I'm not sure exactly how to categorize them yet--disagreed with Riley. Eric Levitz slammed it with a redbaity attack on anti-capitalism generally and J.W. Mason took more acute issue with the concept of overcapacity as the basis for Riley's critique in Jacobin. In the new issue of NLR, Aaron Benanav comes to Brenner's defense, specifically Mason's attack on overcapacity, and provides a pretty good case I have to work through more.
Another line of critique recently came in the form of a twitter thread by Daniela Gabor, a leading light of left heterodox finance. One of her big concepts is derisking, which is when a government makes certain kinds of investments more attractive for finance capital. Derisking is a problem in climate finance because it's not clear that making investments more cozy for financiers will really mitigate carbon emissions--it just greens finance.
In the thread she uses a mixed analogy for the IRA: that the policy is all carrots and no sticks, and thus a "green subsidies race to the bottom," when compared to the EU and China's policies.
Rather than the threat of greening overcapacity (Riley's concern), Gabor is raising the concern that the IRA just gives money to green finance and green infrastructure companies without an eye towards changing the political economies that brought about the climate problem in the first place. The new issue of Dissent has a whole series of essays but heavy-hitting green socialists, like Alyssa Batistoni and Kate Aronoff, talking about the IRA as both a disappointment, an opportunity, and the best we have.
I've come at this question from the point of view of school facilities finance. It's a niche angle, but it's concrete. And I have to say I'm still ambivalent. These new moves in the ongoing IRA debate in left political are making me revisit some examples and cases I've written about before in a fresh light. These examples aren't IRA projects, but they're the kind of thing that the IRA would take on and promote. When we look at them through an IRA lens, we maybe get some information to answer the questions posed in the debates above.
A cold shoulder
Awhile back I wrote about the Philadelphia School District's most recent big bond issuance from 2021, a part of which was specifically devoted to green bonds.
The bond tells us which companies the district worked with on the green projects. It reports that Johnson Controls International (JCI) will be the main contractor. JCI is a buildings maintenance firm with an otherwise innocuous website. The district contracted $8.6 million of work with them last year.
Looking up the company's history, I saw that as recently as 2016 the company was called simply Johnson Controls. Then it merged with an international company called Tyco and moved its base of operations from the United States to Ireland. Why? The corporate tax rate is much lower in Ireland and the company wanted to take advantage of it. In fact, it has not paid $150 million of US taxes per year by moving from the US to Ireland.
Merging with another company internationally and then moving to get a lower corporate tax rate is a form of tax inversion. In 2016, when JC became JCI, Hillary Clinton of all people called the move outrageous.
The whole thing with JCI is an example of what doing green bonds means: it means green capitalism. Also, the district needs to pay a special bond counsel lawyer to make sure the deal is legal. This firm is called Eckhert Seamans. Then there are the banks. At the bottom of the first page of the bond statement is a list of all the investment banks involved in the deal: Siebert Williams Shank & Co, LLC; AmeriVet Securities; Barclays; Bank of America Securities, LLC; PNC Capital Markets; Ramirez & CO; and RBC Capital. The first bank, Siebert Williams Shank, is in big font above all the others. I recognized the name from other bonds I'd seen from the district. There's a thing about Siebert that makes me mad.
When you look it up, the news articles all talk about how it's one of the biggest investment banks run by white women and people of color, not just white men. The CEO is a Black woman, for example. I suppose we should applaud Siebert and the district for contracting them to the tune of $716,000 last year.
I'm for race and gender justice. But is it race and gender justice when white women and people of color are at the helm of an apparatus that's forcing thousands of kids of all races and genders to attend toxic schools? Toxic finance leads to toxic school buildings. Is it race and gender justice when an ultra wealthy Black woman runs an investment bank that indebts a school district serving the diverse working class of Philadelphia, a majority minority city, whose school buildings are poisoning teachers and students? I don't think so. Yet the money that Siebert helps front for the loan to the district will go towards greener school infrastructure.
So in the case of Philly's green bond we see a few things. The district will engage in projects that reduce emissions, this is good. They're going to pay JCI to do it. This isn't great given the company's tax inversion and it's status as a big old capitalist firm. But at least in this case we'll have some form of mitigation.
The green bond throws money over to Siebert, which is bad. Let's think about this from an IRA perspective. While the IRA will send more money over to companies like JCI, it can potentially be used to divert this money from Siebert and send it elsewhere. Rather than going to the municipal bond market, districts can go to the EPA, Treasury, and green banks, which will have different investment structures. So fine, there are carrots to JCI (not great) but there's a cold shoulder to Siebert (not too bad). Is the cold shoulder to finance capital enough to make us excited on the left?
Manchester
My next example comes from an actually-existing green school project from Manchester, Connecticut. The district contracted with a company called CMTA to decarbonize Buckley Elementary School.
It looks and sounds great. There's been a lot of excitement at the local and state level around this project. From local reporting, it looks like the school is open. But follow the money and things get more sobering. CMTA is part of the Legence network of sustainable builders. This is a constellation of private construction and maintenance companies that are branded as greener than not. Legence is actually a BlackStone portfolio company, meaning that CMTA and all its cousin companies are managed by and get their financing through Blackstone, which is one of the biggest private equity firms in the world.
Okay, not great. The IRA encourages this kind of project, sending money to companies like Legence. But again, here we have an example of infrastructure getting built that will reduce carbon emissions at large scales. The Manchester case is also interesting for other reasons: it features all kinds of other players that got resources and influence, like architects and engineers devoted to mitigating climate change, like Randall Luther at TKSP, a Hartford-based architecture firm specializing in energy efficiency. These people should be getting more work! They deserve carrots!
Or Gene DeJoannis. A retired engineer and part of the green movement, he's been a central force behind advocating for net zero emissions in the school buildings in Connecticut. He states the case very clearly for schools:
“Schools last a long time, so the extra care we take now will pay dividends for many years,” he said, noting that children will be learning about climate change in buildings that are not contributing to the problem, but instead are a daily example of how we can avoid making it worse. “Perhaps their school building will inspire them to reduce the damage we have done to our planet,” he said, “and help restore it to a safe balance between our carbon emissions and what our air, earth and oceans can safely absorb.”
To the extent that the IRA might send out money and resources to people like Luther and DeJoannis, and help seed projects like Buckley Elementary, I can't help but think it's a good thing. While Manchester had to sell a big bond for around $90 million to get the project done, and Morgan Stanley was the underwriter. The IRA could again divert some of the cash flow from Morgan Stanley on this deal. So...good?
All we have
A friend recently passed along this exciting announcement from the EPA in Colorado: the state received a $3 million grant, out of the IRA, to put together plans for more green projects in the state. My friend sent it to me because the announcement took place at a school, the International Academy of Denver at Harrington.
Of course, I got excited too. Here's an example of the IRA in action around schools! So I got to googling and wanted to see exactly how the grant was going to be used to benefit Denver Public Schools. I searched for stuff about this particular school, and Denver Public Schools green projects generally, but found nothing.
All I could find were articles saying that Denver might close this elementary school where they did the EPA announcement! I reread the press release carefully and realized that they were just using the school as a location for the announcement, not because there was any project happening at the school. I mean, there very well could be an IRA green infrastructure project happening at the Academy, but also it might close.
The ambiguity there spoke to my own ambivalence about the legislation. And also how high-stakes it is. School closures are awful for communities, and so is a catastrophically changing climate. Is the IRA just an empty announcement that advances the status quo, or is it something to be hopeful about? Benanav ends his essay with this remark:
Along the way, winning more robust frameworks for decarbonization, within the context of still-capitalist economies, will be essential. But victory in the push for what Daniel Aldana Cohen has called ‘one last stimulus’ will merely open up a whole new terrain of struggle, in which the fight to keep people organized and mobilized, and to democratize the investment function, will determine our future. I am not saying that the prospects look good, but they are all we have.