MOHELA board opposes alternative use of assets;
BYLINE: Christopher Tritto
The board of the Missouri Higher Education Loan Authority (MOHELA) has denounced a Democratic bill that would tap authority assets to pay for academic scholarships and primary health-care programs. By a 6-to-1 vote Feb. 27, the board passed a resolution that states Senate Bill 362 is "not financially feasible."
The bill, sponsored by Sen. Wes Shoemyer, D-Clarence, was submitted as an alternative to a Republican bill that supports Gov. Matt Blunt's controversial Lewis and Clark Discovery Initiative, which would direct $350 million from MOHELA to fund building projects at state colleges and universities.
Instead of funneling that set amount of money to the Lewis and Clark plan through a one-time agreement, Shoemyer's bill would require MOHELA to annually transfer 1.5 percent of its assets to support various scholarship and health-care funds in perpetuity. With about $6 billion in assets, MOHELA would be on the hook for roughly $90 million this year.
"This bill would damage MOHELA financially," Raymond Bayer Jr., MOHELA's executive director, told board members at this week's meeting.
Liscarnan Solutions LLC of West Chester, Ohio, a consulting firm that has been reviewing the potential impact of the Lewis and Clark initiative and related legislation, pointed out that MOHELA's student loans do not earn a net spread of 1.5 percent after the payment of all expenses. Also, the structure of MOHELA's bond debt does not allow for a yearly 1.5 percent extraction of assets or earnings.
"Assuming that MOHELA could legally comply with the terms of SB 362, it would suffer chronic financial losses and soon be drained of sufficient assets and earnings to remain viable," Seamus O'Neill, a partner at Liscarnan, wrote in an evaluation provided to MOHELA on Feb. 27.
Bayer and O'Neill also noted the bill does not contain any "triggers" or "fail safe" devices to protect bondholders should the withdrawal of funds threaten MOHELA's ability to remain financially viable. In addition, the proposed annual withdrawal of assets would likely damage the high credit ratings that allow MOHELA to issue low-cost bonds, according to Liscarnan.
"SB 362 may have the unintended effect of terminating MOHELA's future access to the financial markets and may compromise the performance of MOHELA's currently outstanding debt instruments," O'Neill wrote. The bill could also threaten MOHELA's ability to continue offering benefits, such as low interest rates and loan forgiveness programs, to its student loan borrowers, according to O'Neill's evaluation.
The bill also does not directly provide for promised future allocations of tax-exempt private activity bond capacity in consideration for MOHELA's cooperation. Under Blunt's plan, MOHELA would receive more than $1 billion worth of bond capacity over 10 years to raise money to buy more student loans and replenish its assets.
SB 362 remains under consideration in the Senate Education Committee.
The original higher education bill, SB 389 -- sponsored by Republican Sen. Gary Nodler of Joplin -- would authorize the Lewis and Clark initiative and allow MOHELA to cooperate with the Missouri Department of Economic Development and Missouri Development Finance Board (MDFB) to provide funds for buildings on state college campuses and for the Missouri Technology Corp. to support the commercialization of university research.
Nodler's bill could change considerably in the coming days and weeks. Several of the building projects supported by Blunt were stripped from the plan by the Senate Education Committee, but some or all of those could be added back to the bill through amendments.
Senators also are discussing the possibility of eliminating the MDFB's role as a pass-through agency for MOHELA's money to reach the college projects and Missouri Technology Corp. Instead, the money from MOHELA would be appropriated by the Legislature. That approach appears to be attracting lawmakers who have complained the original process would allow the governor to direct funds to projects while bypassing the Legislature, Bayer said. The new tactic also would eliminate the MDFB's condition that the buildings funded not be used to support stem cell research.
Blunt may still have some say in which building projects are funded, however. He is expected to provide the Senate Appropriations Committee with a revised project list as part of a supplemental budget process. Lawmakers would determine which of those projects would receive MOHELA money and how much each would get, but they would not be allowed to add projects to the list, Bayer said.
Bayer and Will Shaffner, MOHELA's director of business development, said they expect a modified version of SB 389 and the House supplemental budget bill could be coordinated to reach their respective chambers for votes as early as next week.