Elon Musk Is Right. ULA Receives $1B From The Government, But Is It A Subsidy?

On July 17, 2017, Futurism posted the following:

THE BILLION DOLLAR MYTH?

On July 13, Elon Musk posted a graph on Twitter that showed SpaceX was completely cornering the commercial rocket market. Musk specifically highlighted the fact that his venture is entirely privately funded while other major companies listed get billions of dollars in grants each year despite a profound lack of launches.

About 11 years ago, two of these companies — Boeing and Lockheed Martin — merged to become the United Launch Alliance (ULA). Tory Bruno, President and CEO of the ULA, disagreed with Musk on Twitter, calling the billion dollar subsidy a “myth.” The tweet has since been deleted. Futurism reached out to ULA for comment at 1:53PM ET, and noted the presence of the tweet not long after. It was removed by 2:30 PM ET.

*5* Data Supports Elon Musk’s Claim that ULA Receives “Billion Dollar Subsidy”
The tweet from Bruno that was later deleted. Credit: Twitter

Today, Futurism received documentation that shows ULA does indeed receive this amount of money. According to the Department of Defense Fiscal Year (FY) 2018  Budget Estimates:

  • The Air Force budgeted $737.273M for ULA’s ELC in FY17 and $918.609M in FY18 (p. 105).
  • These Air Force contributions represent only 75 percent of the total ELC funding to ULA. The National Reconnaissance Office (NRO) funds the remaining 25 percent.
  • Thus, the full combined AF/NRO ELC financial contribution to ULA is $983.031M in FY17 and $1.224B in FY18.

It would seem that the biggest argument here isn’t about cost, though. It’s more about the definition of a subsidy. Is the $1.224B indeed a subsidy as Musk originally asserted?

AN OPPOSING ARGUMENT

One of the primary reasons this funding is needed, as discussed in the 2016 ELC contract itself, is the high cost of maintaining a large workforce and the constant depreciation of launch vehicles. An article from Teslarati points out the specifics:

“Due to contracting, ULA is required to maintain both the workforce and facilities necessary to produce and launch Delta vehicles, in spite of having nearly no ‘business’ thanks to Atlas V. Maintaining a workforce and set of facilities that is in part or whole redundant is not efficient or cost-effective, but it is contractually required. So, while the ELC contract Musk deemed a nearly pointless subsidy does have some major flaws, inefficiencies, and illogical aspects, it is not technically correct to label it a subsidy.”

Futurism reached out to ULA for a comment on the tweet and above data. A ULA representative referred us to a 2016 op-ed for SpaceNews on the topic in which Bruno addressed the criticism:

“Critics have asserted that ULA receives $800 million per year in a contract ‘for doing nothing,’ stating that it was a ‘retainer’ or ‘subsidy’ for ULA to “stay in business” for the Air Force. This is untrue and reveals a fundamental lack of understanding of this innovative contracting mechanism.”

Whether or not ULA would still receive this payment despite a lack of actual launches is not clear.

Regardless of how the money is labeled, however, SpaceX is still leading the launch race. In addition to launching rockets with an ever-increasing frequency over the next few years, Musk also plans to launch 4,000 satellites to provide the world with unilateral internet coverage and continue work on his mission to terraform Mars.

Elon Musk Is Right. ULA Receives $1B From the Government, but Is It a Subsidy?

Gary Reber Comments:

While I am opposed to subsidies and tax loopholes, as long as they are in place they should require the corporations receiving the grants, loan guarantees, tax breaks, etc. be fully employee owned using justice-managed Employee Stock Ownership Plans (ESOPs). Otherwise, taxpayer dollars are used to further concentrate the ownership of technological capital wealth among the already wealthy capital ownership class.

Optimally, we should eliminate all subsidies and tax loopholes. We should finance all future productive capital expansion of the economy by issuing and selling new stock with full-dividend earning payout requirements to the new owners. EVERY citizen would qualify to receive an equal Capital Homestead Account (ACA), a sorta IRA-account, with the requirement of past pavings to pledge as loan security for the banks. Such capital credit would be extended to EVERY citizen annually to specifically invest in qualified, viable corporations that are growing the economy. The full-payout of earnings dividend would first go to pay off the annual capital credit, and once paid would go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development.

Still, there is at least a theoretical chance, and sometimes a very real chance, that the investment might not pay for itself, or it might not pay for itself in the projected time period. So, there is a business risk. In addition to determining that the investment is viable and that the business corporation is credit worthy and reliably expected to make loan repayments, there needs to be security against default. Thus, for the lender to make the loan security must be provided. Loan security can be facilitated with private capital credit insurance or a government reinsurance agency (ala the Federal Housing Administration concept). The promissory note can be offset to the government’s central Federal Reserve Bank in return for the cash equivalent of the amount of the loan, less an administrative fee. The only cost to the direct lending bank in making a loan to CHA user accounts would be the administrative fee, or about 2 percent of the loan’s principal and then another 2 percent for capital credit insurance, with an additional quarter of a percent paid to the Federal Reserve Bank to monetize the loan and give the lender the same cash as it would have had if it had actually loaned money to the corporation. The lender’s cash loaned to the CHAa is replenished with the Federal Reserve Bank cash. When the company pays the CHAs enough money to enable the CHAs to repay the lender, the lender has to retrieve the note and pay back the Federal Reserve Bank. Thus, the loan cost would be essentially not more than 5 percent to allow ownership broadening financial capital to be invested in ownership broadening CHAs to create new capitalists. Thus, national capital credit insurance replaces the requirement past savings to pledge security.

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