Selling Assets of Missouri’s Secondary Market - The “MOHELA Plan” Paul Wagner Deputy Commissioner Missouri Department of Higher Education

What is MOHELA? ► Missouri Higher Education Loan Authority - created by statute in ► Core Purpose – to purchase federally guaranteed student loans from lenders to provide liquidity and specialized service. ► MOHELA then services those loans through the repayment period. ► MOHELA is one of the largest non-profit secondary markets in the country, annually purchasing over $1.5 billion in student loans.

What was the Governor’s Original Plan?   In January 2006 the Governor announces a plan to sell MOHELA for an estimated $425 million.   The money would be used for a research and economic development-focused construction plan called the Lewis and Clark Discovery Initiative.   The vast majority of this funding would flow to colleges and universities for research buildings, business incubators, and other campus construction projects.

What was MOHELA’s response?   The Board responded by proposing the sale of approximately half of its portfolio to generate an estimated $450 million.   Three board members resign in protest, chair resigns in protest, the Governor appoints replacements.   The executive director is fired.   Several other board members resign due to conflict of interest concerns, the Governor appoints replacements.

What were cited as the benefits? ► Unique opportunity to refocus Missouri’s economy on life science research and address long-standing capital needs in higher education  Large new life science research buildings on the UM- Columbia and UM-Kansas City campuses  Several other major construction projects on university campuses  Several regional business incubators to assist in commercializing research  Establishment of the Missouri Technology Corporation to recruit and support fledgling high-tech companies

What were the main objections? ► ► The sale would threaten MOHELA’s existence which would jeopardize students’ access to low cost student loans. ► ► MOHELA’s authorizing statute did not allow for spending on capital projects, etc. ► ► The Governor’s plan did not directly benefit students. ► ► Community colleges and many Missouri private institutions use MOHELA, but none would benefit from the sale. ► ► Political geography - most of the money went to “Democratic” areas of the state (KC, St. Louis, Columbia) when the Governor and both legislative majorities are Republican.

The End of the 2006 Session ► ► The legislature did not pass the Governor’s proposed spending plan   The spending bill was approved by both chambers, but final approval was procedurally linked to a separate House bill to limit appropriations to public universities unless scholarship appropriations increased to certain levels.   That separate proposal did not have widespread support, and both failed.

What Happened Between 2006 & 2007? ► ► Agreements on other spending helps shore up legislative support   $40 million for FQHCs   $45 million for scholarships ► ► Voters pass Amendment 2   Legislature may not restrict stem cell research beyond federal restrictions   Hopes and reaction of Pro-Life groups

Impact of Amendment 2 ► ► Staunch opposition to MOHELA plan from Missouri Right to Life and the Catholic Conference ► ► Any building could be used for stem cell research, even if not currently designed for that. ► ► Research buildings and several others replaced by renovations, geographically dispersed agriculture conference facilities, community college maintenance and repair. ► ► University of Missouri pledges to not conduct stem cell research in “MOHELA” buildings. ► ► Collapse of Democratic support

The 2007 Session - SB 389 ► SB 389, a sweeping higher education omnibus bill includes:  Statutory changes to MOHELA’s authorizing statutes (protection for the Board)  Establishment of the Lewis and Clark Discovery Fund  A schedule of transfers from MOHELA to the fund totaling $350m ► The revised spending bill for the projects is introduced separately. ► Senate Democrats filibuster SB 389, objecting to several provisions. ► The filibuster is ended by a rarely used tactic, large projects in Kansas City and Columbia are removed. ► SB 389 passes as does related appropriations bills.

Where are we now? ► SB 389 to take effect on August 28, 2007 ► Initial transfer of $230 million from MOHELA into the fund to be made by September 15 th (then $5 million quarterly to September 2013) ► Governor has pledged to restore UM-Kansas City and UM-Columbia projects

Almost 2 years in, still a long way to go? ► Challenges with long-term cash flow regarding construction projects ► August 9 th – class action lawsuit filed on behalf of borrowers seeking to immediately prevent the cash transfers and any spending