Would Buffalo Financial Advisor Recommend RiverBender Project?

By: Mike Madigan

Buffalo is being offered the opportunity to invest $1 Billion of its own money by NY State.

How that money is invested may determine Buffalo’s future prosperity. This investment should not be done rashly. Review the following assessment and comment on whether you would recommend such an investment:

Buffalo is being offered a total of $1B of its own money to invest in job creation and business development.

Cuomo has decided to invest over three quarters of that money ($750M) in one single investment/one single company (SolarCity) and the project is called Buffalo Riverbend.

How did we come to that decision – was it rash or well planned?

In November 2013 the stated scope of the RiverBender project involved $225M in NY State Buffalo Billion funding with the objective of making this region a hub for high-tech research that would employ between 850 and 2020 employees. The Hub would be run by the State University of New York’s Research Foundation and would initially involve two different companies with more partners being sought (Silveo and SORAA):

http://www.buffalonews.com/city-region/buffalo/high-tech-hub-for-buffalo-includes-state-funding-15-billion-from-2-firms-20131121)

Less than a year later in September it was announced that the cost of the RiverBender project has more than tripled to $750M, the number of companies involved has been halved from two to one, the number of employees which was originally estimated at between 850-2020 will be 1500 over five years (no real change) and the site is no longer a “Hub for High Tech Research” and is now just a direct purchase of land, buildings and equipment in a sweetheart deal setting up SolarCity to manufacture Solar Panels on the site. The NY Research Foundation would have no logical role in such an activity.

When this radical scope change was announced in September embarrassingly the Buffalo News served as Cuomo Cheerleader rather than questioning the extreme cost increases and complete change in project scope that occurred in less than one year. The News failed to question whether this extreme gamble of most of the Buffalo Billion on one company was a good choice. http://www.buffalonews.com/city-region/riverbend/historic-day-for-buffalo-zemsky-says-of-solarcity-riverbend-plans-20140923

Is this a good investment?

It is well known that the solar industry is currently suffering extreme over capacity resulting in the closure and bankruptcies of many companies. The NYS and U.S. subsidies for Solar Panel installations expire in 2015-2016 and will likely not be renewed driving costs up and return on investment down and with it demand which would compound an already serious over capacity concern.

The Silveo technology is between 21 and 24% efficient which is good but not unique in the industry. Disruptive technology is being researched that may exceed Silveo’s efficiency and if feasible it would greatly reduce demand for their panels if cost effective. Additionally Silveo has never gone to large scale manufacturing – it is not yet a proven technology and scale-up may prove a very real challenge that may impact cost (such scale-ups are high risk).

Is SolarCity a reputable partner in such investments based on their past conduct?

It has been well reported that SolarCity is currently under federal investigation for allegedly defrauding taxpayers. To quote the attached article “If SolarCity is found guilty of misrepresentation, the really bad news for SolarCity wouldn’t be the funds it would have to raise to pay back the amounts owed; it’s the potential hit its brand may take for essentially defrauding taxpayers.” http://seekingalpha.com/article/2364215-the-impact-of-a-federal-investigation-and-lawsuits-on-solarcitys-stock-price

If this was your future retirement money would you place three quarters of it on this investment. The real question is – is this an “investment” or an “extreme high stakes gamble”?

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