Solyndra's bankruptcy is forcing leaders to question whether it's appropriate to use taxpayer money on emerging technologies.
Not only did the solar-panel manufacturing company get more than $500 million in federal loans, the state of California gave it millions of dollars in tax breaks.
A board that administers the tax breaks took the first steps to suspend them while it looks at ways it can tighten the qualifications.
"Green" companies and projects in California are eligible for a three-year sales-tax exemption for buying manufacturing equipment.
Solyndra had used $25 million of the $34 million that was approved.
State Senator Alex Padilla (D-Los Angeles) pushed through the tax break last year.
"I think it's worthy of a time-out, a re-assessment, a re-doing of everything we can to vet those companies, to do proper due diligence before we invest taxpayer money into their operations," said Padilla.
The solar industry thinks it's a bad idea to suspend the tax breaks, which helped create 650 jobs so far and cement California's hold as one of the country's solar manufacturing leaders.
"This is a growing business, and with any growing business, there's going to be companies that fail and succeed -- 95 percent of them are succeeding," said Steve Maviglio, Californians for Clean Energy and Jobs. "So why are we penalizing an industry that's creating jobs because of the fault of one company?"
Although it's essentially in effect now, the board will formally vote on suspending the tax breaks next month.
It's unlikely California taxpayers will see any of the $25 million they gave the Fremont company.
But the board will look at Solyndra's application with a fine-tooth comb to see if there are any misrepresentations the state can use as a basis for a lawsuit to recoup some money.