MELMAC’s magic

Just a few days ago, Consumers Union published “Building Strong Foundations,” a handbook for the creation of the charitable foundations that result when nonprofit organizations convert to for-profit. In it, CU makes the point that the assets of nonprofits belong to the public – those assets are, after all, the result of tax exemptions, an investment made by the public.

CU also makes the point that the charitable foundation is not an act of charity on the part of the converting nonprofit; federal law requires the assets be put into a foundation that has essentially the same mission. According to the handbook, the key to building a strong, beneficial and accountable foundation is for the nonprofit to work openly and cooperatively from the very start of the conversion process with government agencies, elected officials, community groups and experts.

Maine is undergoing a nonprofit conversion – the sale of the $504 million student loan portfolio of nonprofit Maine Educational Loan Marketing Corp. to for-profit NELnet of Nebraska. But the process and the $30 million education foundation it will create bear no resemblance to the ideal described by Consumers Union. The trick MELMAC seeks to pull off was conceived in secret and intended not for the eyes of the public, but only for a select audience of insiders. The guide was not a handbook of openness and cooperation, but a sleight-of-hand manual.

The public was not supposed to see, but it is expected to pay – twice. For not only does MELMAC enjoy the public investment of tax-exempt status, virtually that entire half-billion-dollar loan portfolio comes from the use of a scarce public resource. As much as one-third of the $150 million federal allotment of tax-exempt bonds Maine is allowed to issue each year has been devoted to student loans and almost all of that has gone to MELMAC.

Although MELMAC says this sale was in the works for two, maybe three years, the paying public (and the Legislature and the governor) only heard of it last week, two full weeks after the deal with NELnet was made, and then only because MELMAC needed a couple of state agencies to sign some papers. Had it not been for a couple of alert state employees and the quick filing of a lawsuit by the Attorney General’s Office, this sale to Nebraska by way of concocted corporations in Nevada and Delaware – two states devoted to for shielding corporations from public scrutiny – would have been a vanishing act of Maine assets. It would have happened just weeks before a new law to increase public oversight of MELMAC would have taken effect.

That law came after a year and a half of hard work by a study commission and lawmakers to straighten out the baffling tangle of MELMAC, its sister agency MELA and MES, the private nonprofit that had, through no-bid management contracts and other feats of legerdemain, taken almost total control of the non-profit student loan business in Maine and somehow spun off a couple of for-profit businesses at the same time. With a meeting Thursday of the Legislature’s Business and Economic Development Committee, the untangling started all over again.

This time, the committee might benefit from looking farther afield, as far as Nebraska. Thursday’s Omaha World Herald published a story on the proposed sale and on the attorney general’s lawsuit. The story also noted that NELnet itself was created just two years ago through a buyout of Nebraska’s nonprofit student loan entity – a buyout conducted without any public oversight. The resulting foundation already is in trouble for allegedly pressuring state universities to promote NELnet products.

By coincidence, an unexpected speaker at the Thursday’s legislative meeting was Rebecca Goldberg, a consultant for Consumers Union. After a few remarks about what deliberately created tangles say about the true desire to be forthcoming, she noted that the conversion of a non-profit student loan agency in Massachusetts with a portfolio three times the size of MELMAC’s yielded a foundation more than 10 times what MELMAC offers. Either the for-profit purchaser in Massachusetts got snookered or Maine is about to. And either the outrage expressed by a few lawmakers grows to a deafening chorus or a lot of lawmakers just aren’t paying attention.

The old magician still has a few illusions up the sleeve though. Here’s the setup: During its recent long tussle with the commission and lawmakers, the impenetrable MELMAC, MELA and MES triad became famous for its unwillingness to disclose to state officials pertinent information about their intertwined affairs; the attorney general’s lawsuit was filed to prevent this sale from going though without some public scrutiny. Now the trick: MELMAC says it would love to disclose pertinent information about the sale, but it can’t because of the pending lawsuit. Ta da.