MCC Letter to the Missouri Senate - Sale of Assets of Missouri Higher Education Loan Authority

TO: Members of the Missouri Senate

FROM: Larry Weber, Executive Director and General Counsel, Missouri Catholic Conference

RE: SCS/SB 389 regarding sale of assets of Missouri Higher Education Loan Authority

Date: February 13, 2007

The Senate Education Committee voted on February 7, 2007, to recommend passage of SCS/SB 389, which among other provisions authorizes the sale of certain assets of the Missouri Higher Education Loan Authority (MOHELA) and distribution of those assets to finance the “Lewis and Clark Discovery Initiative”. Prior to final action by the committee, the committee voted to eliminate $113 million in proposed projects, including funding for a health sciences center at the University of Missouri at Columbia – a research facility associated with Harris-Stowe State University – the Center for Emerging Technologies incubator associated with the University of Missouri at St. Louis – business incubators in Kansas City and Columbia – and a health science center in Kansas City.

The Missouri Catholic Conference (MCC) opposes the proposed sale of MOHELA’s assets and distribution for capital improvements on Missouri’s public college campuses. The MCC’s objections are as follows:

1. MOHELA’s mission is to provide affordable low-interest loans to college students. These loans are badly needed. The University of Missouri, for example, has the highest tuition of any Big 12 school. Part of MOHELA’s historic mission is to provide access to higher education to a wide sector of Missouri citizens. Disbursal of MOHELA assets for purposes other than subsidizing college tuition hinders the ability of MOHELA to fulfill its historic statutory mission.

2. MOHELA’s assets have been built up by the families it serves – college students paying off loans for attendance at both public and private universities like St. Louis University and Rockhurst University in Kansas City. In fact, a disproportionate amount of the loans extended by MOHELA are to students at Missouri’s Catholic colleges and universities. The private universities that helped to build the wealth of MOHELA will receive no benefits from the MOHELA sale, and in fact will be harmed because their students will have fewer options to obtain financial assistance.

3. Even though SB 389 on its face seems to prohibit the spending of MOHELA’s sale proceeds for human life science research, it leaves the continued use of the buildings constructed with MOHELA funds to the discretion of the universities. Once the buildings are operational universities would be free to allow unethical experiments to occur in these facilities that involve human cloning or the destruction of human embryos. Because of the passage of Amendment 2 in November, 2006, if a university allows human life sciences research in a facility built or subsidized with state money, the university cannot disallow research involving embryonic stem cell research and human cloning,

In response to these objections, some have claimed that language in the agreement between the Missouri Development Finance Board and the universities provides that human cloning and embryonic stem cell research cannot be funded with these moneys, and that the proposal accordingly protects human life. It should be clear to all that as a result of passage of Constitutional Amendment 2 in November 2006, the state cannot limit its funding or subsidies for certain types of human life sciences research, to the detriment of other types of human life sciences research. In relevant part, Amendment 2 provides:

"7. The provisions of this section and of all state and local laws, regulations, rules, charters, ordinances, and other governmental actions shall be construed in favor of the conduct of stem cell research and the provision of stem cell therapies and cures. No state or local law, regulation, rule, charter, ordinance, or other governmental action shall (i) prevent, restrict, obstruct, or discourage any stem cell research or stem cell therapies and cures that are permitted by this section to be conducted or provided, or (ii) create disincentives for any person to engage in or otherwise associate with such research or therapies and cures."

The above language clearly prohibits the state from hindering any research, including human cloning and embryonic stem cell research, allowed by Amendment 2. As a further result of this and similar provisions in Amendment 2, the legislature cannot fund some life science research allowed by the amendment and prohibit funding of other research allowed by the amendment. It is settled law that a constitutional provision overrides a state statute in conflict with it. The contract terms between the Missouri Development Finance Board and the recipients of the sale proceeds, and the agreements entered into by the various public universities involved, are clearly government actions covered by this restriction. The legislature cannot reasonably expect the courts to uphold governmental spending restrictions that prohibit cloning or embryonic stem cell research in light of this provision of Amendment 2.

Even after amendment of SB 389 in the Senate Education Committee to remove the six human life sciences facilities, the intent of the legislature not to fund human life sciences can clearly be frustrated. The Cooperation Agreement entered into between the Missouri Development Finance Board, the University of Missouri and MOHELA provides, with respect to the schedule of projects to be constructed with proceeds of the MOHELA sale: "Exhibit A may be amended by written agreement of MDFB, the Governor, the President Pro Tem of Senate, the Speaker of the House, the Senate Minority Floor Leader and the House Minority Floor Leader. In addition, any amendment to a particular line item that affects the University shall require the consent of the University." This language would allow the six named officials to simply agree between themselves to include the six projects or any other project they want to. Further, the last sentence enables the University of Missouri to sue to require inclusion since the amendment to the agreement was made without its consent. Therefore, the vote by the Senate Education Committee to remove these six projects was ineffective to prohibit funding of these or any other projects from proceeds of the MOHELA asset sale.

Another claim made by some is that the transaction will not affect the fiscal health of MOHELA. Testimony at the hearing on SB 389 from a long-term member of the MOHELA board made it clear that MOHELA’s ability to continue to provide low interest loans and provide loan forgiveness will in fact be reduced. In general terms, the MOHELA transaction involves sale of nearly $2.4 billion of MOHELA assets in order to net approximately $335 million of sale proceeds. A portion of those net proceeds will be directed towards financial assistance for students and their parents to afford higher education; whereas currently, the entire $2.4 billion of assets is available for that purpose. Recent developments at the federal level, including efforts by Congress to reduce interest rates on student loans and recent budget proposal by the president to cut the federal subsidies payable to student loan entities like MOHELA, further diminish the financial outlook for MOHELA.

Claims that MOHELA’s bond rating would be unaffected by this transaction are irrelevant – MOHELA will remain solvent, just smaller. However, because of this reduction of the MOHELA asset portfolio, the ability of the agency to extend loans, and the ability of MOHELA to subsidize student interest rates, is necessarily reduced – MOHELA no longer has the same volume of assets to make loans or subsidize interest rates. Using a portion of the MOHELA sale assets to finance a new financial aid program means very little in light of the fact that currently ALL the assets currently are available for student loans. Reducing MOHELA’s ability to extend loans has a direct, detrimental effect on Catholic families and Catholic colleges and universities in Missouri.

Some have said that, by opposing the plan for distributing the MOHELA sale proceeds in light of Amendment 2, it is impossible for the General Assembly to ever fund construction on Missouri’s college campuses, since a college can always use the building for human life sciences research subject to the amendment. However, it is in fact possible for the General Assembly to control use of such facilities by exercising its discretion through the appropriations process. But by bypassing the appropriations process and financing these facilities through the convoluted process proposed by the Lewis and Clark Discovery Initiative, the legislature is forfeiting its right to control use of these facilities through the regular appropriations process by refusing to subsidize or fund research that is subject to Amendment 2. Although in a position to exercise its prerogative to control use of public funds, by enacting SB 389 the legislature is “washing its hands” of the moral implications of the construction projects proposed in the Lewis and Clark Discovery Initiative and preserving access to higher education.