MoHELA plan on hold after lawsuit threat

CHESTERFIELD, Mo. -- Gov. Matt Blunt's plan to use student loan profits for a college building boom was put on hold Friday after a warning from Attorney General Jay Nixon's office that anyone voting for the plan could be sued.

The board of the Missouri Higher Education Loan Authority had been expected to vote Friday on the plan to use $350 million of its money to finance construction projects at state colleges and universities.

But that vote was scrapped after an attorney for the board said that one of Nixon's assistants had warned Thursday evening that anyone voting for the measure could be sued for a violation of fiduciary duties. Attorney Mike Lause said Nixon assistant Paul Wilson also had warned that at least one member could be sued for a conflict of interest.

According to Lause, who works for the law firm Thompson Coburn on MOHELA's behalf, Wilson indicated that the suit would not necessarily come from Nixon himself, "but by others lining up to sue."

The MOHELA board rescheduled a vote for Sept. 27.

Earlier in the week, Nixon had sent a nine-page letter to MOHELA blasting the plan as "ill-conceived" and suggesting it might be illegal for a variety of reasons.

Nixon spokesman Scott Holste confirmed that Wilson had indicated that MOHELA board members could be sued if they voted for the plan. He said Nixon had made no decision whether to sue but acknowledged "there is that risk of litigation" from others.

Thompson Coburn attorney Jan Paul Miller said Friday evening that Wilson had been responding to his question. But "I walked away from the conversation believing there would likely be a lawsuit," Miller said.

Blunt said in a written statement that he was disappointed in the canceled vote but pleased the board set a new date and encouraged members to approve his plan then. But Blunt's staff reacted with indignation against Nixon, calling his alleged actions a "blatant abuse" of his power.

"It's an outrageous act ... rising to what's close to a threat," said Blunt's chief of staff, Ed Martin, who attended the meeting at MOHELA's Chesterfield headquarters. "Unfortunately, he scared people enough that we're going to have to delay this."

Before board member Marilyn Bush, of St. Louis, referenced the potential lawsuit during the meeting, a majority of board members had seemed inclined to support the plan. In fact, Bush particularly had expressed support, calling it "a very thoughtful and well-balanced agreement."

Bush, an executive at Banc of America, had been singled out by the attorney general's office as having a potential conflict, Martin said. Banc of America Securities is among the financial partners of MOHELA and was consulted in analyzing the financial impact of the proposed deal.

Bush declined to comment about the legal ramifications.

Holste noted that Bush had recused himself from MOHELA votes on other financial matters in February and March. Nixon said he was pleased the vote was postponed.

"The board's decision to not put this proposal to a vote today gives an opportunity for badly needed examination and process on this matter," Nixon said in a statement, adding he hoped the board would insist on legislative approval of a bill specifically allowing MOHELA's money transfer to the state.

The seven-member board requires four votes to pass a motion. But one of those members -- James Ricks, of Cape Girardeau -- had been advised by Lause to recuse himself because his employer, Southeast Missouri State University, would receive some money for campus construction projects.

Another board member, John Greer, of Marshfield, was opposed to the plan, saying it put MOHELA on the hook for hundreds of millions of dollars of payments to the state without a firm guarantee that the students the agency serves would get any benefit in return.

In exchange for MOHELA's $350 million to be delivered over six years to the Missouri Development Finance Board, the state and the University of Missouri would have pledged their support of several initiatives for MOHELA.

Foremost among those was a pledge by the Department of Economic Development to allocate at least $1.1 billion in tax-exempt bonding authority to MOHELA over 11 years, which would enable the quasi-governmental agency to continue underwriting student loans. Also included in the proposed agreement would be a pledge from the University of Missouri to consider increasing its use of MOHELA loans and a pledge by Blunt's administration to support legislation that would grant MOHELA the power to originate student loans instead of merely buying them on the secondary market.

Nixon argued that amounted to mere "illusory consideration," because MOHELA would get only a pledge of support -- no guarantee of action -- for the latter two items. Nixon noted that MOHELA receives annual bonding authority anyway, suggested the state lacked legal authority to offer a multiyear bonding package and said that, regardless, the bonding authority wasn't worth anywhere near $350 million.

A financial analysis presented Friday by MOHELA's treasurer estimated the pledged bonding authority at between $275 million and $299 million. If the University of Missouri increased its use of MOHELA loans by $20 million to $120 million annually, MOHELA could gain anywhere from $180,000 to $2.6 million annually, said agency treasurer Scott Giles.

If the Legislature granted MOHELA power to initiate more student loans, that could result in savings of $600,000 to $8.75 million, based on a volume of $50 million to $500 million in loans that it otherwise would buy on the secondary market, he said.

Under the plan, $335 million of the money MOHELA would pay to the Missouri Development Finance Board would in turn be passed on to colleges and universities for building projects. The remaining $15 million would be placed in an endowment as incentives for high-tech companies and to commercialize university research.

Department of Economic Development Director Greg Steinhoff said that for every day the projects are delayed, their costs grow by $70,000.