Maine’s tangled MES

When serious questions arose a year ago about whether the benefits of the tax-exempt bonds Maine issues for student loans were being passed along to students, the Legislature did the wise thing. Rather than wish it all away or take a hasty stab at it, lawmakers formed a commission of experts to assess the performance of all state entities with access to this precious low-cost money.

The Commission on the State Ceiling on Tax-Exempt Bonds, headed by University of New England President Sandra Featherman, has completed its work and made its findings and recommendations to the Legislature. Maine citizens should be pleased to learn that the portion of the $150 million in tax-exempt bonds the federal government allows the state each year that goes to housing, infrastructure and business development is well spent. The benefits of borrowing at as much as 2 percent below commercial rates are demonstrable.

The same cannot be said of the $50 million of the total federal cap that goes to student loans. The commission found what others who’ve gone before have found: The affairs of the three involved entities — MELMAC, MELA and MES — are hopelessly tangled. The end of one thread is the beginning — or perhaps it’s the middle — of another.

MELMAC, a quasi-state agency, and MELA, a nonprofit created by Gov. Brennan, are the entities with access to the bond-cap money. Somehow since 1993 the two have become essentially indistinquishable from MES, a private non-profit which has an exclusive services contract to administer loans, perform marketing and other business functions. MELMAC and MELA employees all ended up on the MES payroll. MES President Richard Pierce, a former Republican Senate leader, ended up head of all three outfits. The three boards became so intermingled the members dropped all pretense of independence. The service contracts, now exceeding $3.5 million, were awarded without competitive bids.

And the nonprofit MES began turning some very handsome revenues in excess of expenditures. Enough to buy the for-profit Sylvan Learning Centers in New Hampshire and Maine. Enough to bankroll (at least $2.5 million) the for-profit Intelligent Learning Corp. and its online Portland College now seeking degree-granting authority from the Legislature. Working for this nonprofit became quite rewarding: at one point, Mr. Pierce and his wife has combined MES incomes approaching $300,000; Mr. Pierce’s solo compensation package last year neared $250,000; expense accounts rival the Maine median household income; the head office is at Portland’s City Center, some of the state’s priciest real estate.

Yet somehow, despite all this financial acumen, or perhaps because of repayment rules that make the deep discounts promised almost impossible for borrowers to obtain, MES has been unable to convince the Featherman Commission — or any other group of policy experts, state officials or legislators who’ve tried — that the benefits of the tax-exempt bonds make it beyond that Portland high-rise.

Sorting it out

The commission recommends, first things first, that MELMAC and MELA be merged into a single state student loan authority, with consolidated functions, fixed responsibilities, state oversight and an executive director with a living and breathing staff — the way it’s done in 47 other states.

The commission also recommends that vendor contracts, like the ones MES has, should be awarded on a competitive basis, with performance reviewed and evaluated regularly. No loan authority board member can have any business connection with a vendor. The tax-exempt bonds should be available to all student-loan originators in the state. The commission also suggests that FAME, the Finance Authority of Maine, be the state-designated loan guarantor and the coordinator of outreach programs.

The most startling thing about some of these recomendations — competitive bids and the avoidance of conflicts — is that they have to be made at all. Similarly, the commission’s recommendation that the state adopt a proposed rule requiring the full disclosure of the terms and conditions of discounts offered in conjunction with student loans indicates that the formation of this commission was long overdue.

MES describes these commission recomendations as “using a sledge hammer to do some fine tuning.” As the Legislature prepares for what many predict will be the most contentious issue of the session, it’s important for lawmakers to recognize that the situation calls for a major overhaul, not minor adjustments, and that the Featherman Commission has laid out what seem to be the right tools for the job.