The Vermont Student Assistance Corporation (VSAC) has a problem.

It would probably be an exaggeration to say that VSAC is in trouble. The half public-half private, non-profit corporation has been around for a long time. It has millions of dollars in the bank, and the support of most state officials. Its survival, for now, does not appear to be in doubt.

But it must have a problem. Otherwise, it would not be seeking $50 million in “moral obligation debt” from the state.

A moral obligation is not an appropriation, at least not yet. VSAC is not asking for taxpayer money. It is asking the state to promise that, should the corporation ever need that $50 million (or any part thereof), the Legislature would have to consider coughing it up.

At that point, according to a written statement  submitted to the Senate Finance Committee last week by VSAC Vice President and General Counsel Thomas A. Little, “The General Assembly may appropriate monies to replenish the reserve fund (that basically means, “bail out the corporation”) but it is not legally required to.” (Little’s italics)

Well, only if it wants the state to retain a good credit rating.

“We really wouldn’t have the option of not paying,” said Senator Dick McCormack, a Democrat from Bethel, who observed that in such a situation the state would be like the driver who said, “I’m not stuck now but I will be if I move the car.”

At the committee meeting, Little told the senators that it was unlikely that VSAC would ever have to ask the Legislature for the money. The state provides moral guarantees for other financial entities, none of which has ever asked the Legislature for payment. Such a step would be, he said, “a bonding authority’s last resort.”

But he appeared to be careful not to promise the senators that under no circumstances would VSAC have to call in the chit it was asking the lawmakers to issue. The conversation proceeded as if all participants understood the pickle VSAC may be in.

VSAC borrows money so it can lend money. It borrows by issuing bonds-sometimes hundreds of millions of dollars at a time-then lends the money, as part of the federally guaranteed student loan program,  to Vermonters to go to colleges and universities anywhere in the country. VSAC pays off its loans from the revenue it gets as the students (or their parents) pay off theirs.

It is a system that for decades has helped hundreds of thousands of Vermonters go to college. But now it is in danger, and VSAC faces the possibility of the worst kind of dilemma – being squeezed at both ends of  its process. On one end there is less money to borrow. On the other, there may be fewer students to whom to lend.

Last year , VSAC held a bond sale and, in effect, nobody came. Though VSAC’s bonds are highly rated, they do not always “have the absolute promise of liquidity,” Little told the committee.

That’s bankers talk meaning that the bond-holders might not be able to go up to the teller window and cash in their bonds for face value.

With “tightening credit (investors want) liquidity,” Little said, and since VSAC’s bonds didn’t have enough, the result was a “failed auction.” VSAC couldn’t sell its bonds.

It managed to get the money using another kind of bond. A more expensive kind. And for its next trip to the bond market, investors and rating agencies want the Corporation to “over-collateralize” by 106 percent.

For example, Little said, for “a typical $300 million bond issuance,” VSAC would need “$18 million in additional assets…to put in a bond trust.”

VSAC would put “$6 million of its reserve fund in the pledged equity account,” Little said. And the other $12 million? Well, that’s why VSAC wants the “moral obligation” pledge. The state wouldn’t actually put $12 million in an account, or anywhere. It would sort of exist in the abstract, unless VSAC asked for it.

Little and State Deputy Treasurer Beth Pearce told the senators how unlikely it was that VSAC would need the money. Only about two percent of VSAC borrowers default on their loans, which are mostly guaranteed by the Federal Government, Pearce said, adding that both the Treasurer and the Governor have to approve any bond issue.  VSAC, she said, had done “a tremendous job” despite “disruptions in the bond market,” and its bonds are highly rated.

A bit less highly than a few months ago, though. The rating for its bond insurer, Ambac Financial Group, was downgraded by Moody’s Investor Services on February 2. That means it will have to pay a higher interest rate. Ambac lost $2.4 billion in the third quarter of last year and is seeking $1 billion from the Federal TARP funds.

It does sound like disruptions in the market.

Then there’s that potential problem on the student end. In his statement, Little said VSAC would help collateralize its loans “by the steady increase in the equity of the bonds flowing from the principal and interest payments of the student loan borrowers.”

But suppose there aren’t as many of them. Here VSAC may run up against  the newly energized Direct Student Lending program. Last year, according to an analysis of Education Department figures by researchers at the New America Foundation, 416 colleges and universities switched to the system in which students borrow directly from the federal government, without bothering with firms such as VSAC.

Even more are likely to switch to Direct Lending this year, according to Ben Miller of the Foundation, and part of the reason is politics. Direct Lending, he said, was a creation of the Clinton Administration, and it has more support among Democrats, including President Barack Obama, whose campaign pledged to “save taxpayers …billions by eliminating the more expensive private loan program.”

In an interview, Little said that conversion to Direct Lending “seems to ebb and flow,” and that the only college in Vermont using the program is Middlebury.

“UVM and the State Colleges were in the Direct lending program and came out,” he said. ” We find schools are looking now to customer service,  knowing their students are getting good deals on cost of the loans and getting personal service. As long as we’re able to do that, we don’t think there’s a threat from the Direct lending program.

VSAC, with its large staff of counselors and loan officers, does seem to offer better service than, for instance, Sallie Mae, the largest of the for-profit student lenders. But Ben Miller said many colleges find it easier to deal with the government directly.

The Moral Guarantee bill, H 166, seems likely to pass. At last week’s meeting, Sen. Mark MacDonald, a Democrat from Williamstown, worried about approving the credit for VSAC without having an overall policy setting priorities in case other state-backed authorities, including UVM, the State Colleges, and the Telecommunications Authority sought similar guarantees. The committee chair, Democratic Sen. Ann Cummings of Montpelier, (who is on the VSAC Board of Directors)  agreed and urged him to work up a policy.

The committee meets again on the bill tomorrow.

NOTE: Because of a (still-unexplained) computer glitch, Friday’s post did not get onto the site until 8:40 AM. For those who check in earlier and thought we were taking the day off, it is right below today’s post

For various reasons, Vermont Newsguy did not go to the Democratic State Committee meeting in Montpelier on Saturday.

One of those reasons was confidence that some if not all of Vermont’s major news organizations would staff the meeting, so there would be an account of what happened on the air or in the newspapers.

Nope.

At least not as far as could be ascertained from a  reasonably rigorous perusal of the Burlington Free Press (in print) and the Times-Argus/Rutland Herald, Brattleboro Reformer, and Valley News (on line), plus the web sites of the state’s three television stations and Vermont Public Radio.

Could some of the reporters who covered the meeting just have written about it the political blogs the newspapers operate — VT Buzz at the Free Press; Vermont View of the Herald/Times Argus Vermont Press Bureau, or in Blurt, the staff blog of Seven Days?

Nope

This is not healthy in a democracy.

Let’s start off by being charitable to the news bosses who did not assign anyone to cover the meeting. It wasn’t very well publicized; the Democratic Party’s web site has been dormant for at least a month and didn’t even mention the meeting as an impending event.

Nor did it seem likely that the meeting would produce much of a news story. The now-former Party Chairman, Ian Carleton, provided the news Friday when he announced that he would resign effective immediately, making Vice Chair Judith Bevans of Albany the acting chair, probably until November. What else was there to say?

Something, as it turns out. Bevans said she told the committee that it would be a mistake to be led by an acting chair for nine months.

“I will do whatever I will do as acting chair or chair or whatever,” she said. “But I think the committee should be led by an elected chair, who would have more gravitas.”

The committee agreed, and will meet in Randolph on March 21 to elect a new chair. Bevans said she is a candidate and does not know whether anyone will oppose her.

OK, this isn’t exactly a stop-the-presses, hold-onto-your hat story. But it’s news. And news organizations should cover general meetings of major political parties.

Why?

This comes close to being one of those “If you gotta ask, you’ll never know,” situations (Louis Armstrong to the woman who asked him to explain jazz), but let’s try:

There are only two parties in every state (well, three in this one) and each one has only one or two general meetings a year; covering them is not a huge investment.

While the parties are private organizations, legally speaking, they are effectively part of state government. They choose candidates, influence policy, guide the public discussion. The public ought to know how they govern themselves and what they are up to.

Most people don’t care? Could be. It’s still the job of responsible journalism to tell them.

In fact, it is the job of responsible news organizations to employ one person (at least) who covers politics and state/local government full time. A reporter who gets to know the pols. Not just the office-holders, but the activists, the money-raisers, the office staff, the county, town, and neighborhood leaders. Without such a reporter, a news organization can not do a good job covering state and local government. Even if no news at all comes out of a state committee meeting, that reporter should be there to schmooze,  to hear the latest gossip, to meet new sources and solidify relationship with old ones.

By this standard, there is no responsible news organization in the state. (Though Shay Totten of Seven Days usually covers such meetings; it’s a surprise that he wasn’t there).

Besides, as it turns out, there may have been some fireworks at that meeting.

So at least is the account John Odum at the lively and entertaining liberal web site Green Mountain Daily.

Under the headline, “Has Markowitz already been ‘annointed’ (sic; his spell-check musta been on the fritz)) by Leahy, Welch, VDP over other gubernatorial contenders?,” Odum suggests that, with the blessings of Sen. Patrick Leahy and Rep. Peter Welch, supporters of Secretary of State Deb Markowitz used their access to the party’s voters lists to grab an unfair advantage over the other prospective candidates.

Odum writes that it is “clear… that Markowitz’s campaign manager, Jason Powell, has made use of…the Voter File freely…that the other candidates only heard about this second hand and were not brought into the process .. that this entire situation has proceeded with the full knowledge of Party players directly linked to the offices of Peter Welch and Patrick Leahy.”

And how is this clear? That’s not…well…clear. Odum does say that State Sen. Susan Bartlett, herself a potential candidate for governor “read from a letter … promoted (by legislative leaders that ) explicitly calls for an end to the brazen preferential treatment and appearance of a pre-ordained favorite.”
Sounds juicy. But is it reliable?

Now, the point here is not to censure Odum, who has been generous in his praise of this web site, and who should be thanked for doing what no reporter did – provide some information about what happened at the meeting. But his account presents an illustration of the difference between activist blogging and journalism.

A reporter (and Odum, to his credit, does not claim to be one) would have provided more attribution and explanation, as well an effort to reach Jason Powell (for whom I could not find a phone number Sunday). A reporter would have made clear whether “brazen preferential treatment,” etc. was a quote from the letter Bartlett read or a paraphrase by an observer with a particular point of view.

Judith Bevans said the Bartlett letter expressed “more concern than complaint,” and the concern had to do with the “perception” rather than the reality of unfairness.  ”We are going to have an equal playing field,” she said. Needless to say, she, too, is an observer with a point of view. But a quote or two from the Bartlett letter might have clarified matters.

As it stands, Odum’s blog provides some support for the contention that Markowitz operatives may have taken unfair advantage, none at all for the involvement of Leahy and Welch.

Then Odum drops something of a bombshell, saying that EMILY’s List, the well-heeled, national,  pro-choice political action committee “has committed to supporting (Markowitz, and) is hoping to power a $2 million campaign for Markowitz.”

That’s a passel of money in this state. If true, that’s a helluva story. Again, though, no attribution. Did Odum hear it from someone at the meeting?

Turns out he wasn’t there. A colleague, he said via e-mail, “blackberried
me while discussions were going on… ”

Hmmmm, His blog sure read as though he’d been an eye-witness. But it’s OK. As mentioned, he’s not a reporter, and so not to be held to the same rules as a reporter.

That’s why one should have been there.

The Vermont State College Board of Trustees did not, as many expected it would, choose a successor to retiring Chancellor Robert Clarke at its closed executive session meeting in Waterbury last Saturday.

The 15-member Board will try again March 12 at Castleton State College.

In the morning, the Board interviewed all three finalists chosen by a Search Committee. But instead of producing a new chancellor, the afternoon executive session produced a deadlock, according to knowledgeable sources, all of whom spoke on the understanding that they would not be identified.

The deadlock may have been influenced by the unusual presence at the afternoon meeting of Gov. Jim Douglas. The governor is one of the trustees, and occasionally attends meetings, as he does of the University of Vermont Board, where he is also an ex officio member.

But it is apparently rare for him to attend an executive session, and his presence may have reflected a greater-than-usual interest in choosing Clarke’s successor, perhaps related to the proposal he made in his Inaugural Address last month to merge the University with the State College system.

The week before, Douglas attended part of the UVM Trustees meeting.

Last week the governor appointed a five-member task force to examine the merger proposal, with former House Speaker Stephen Morse as its chairman. The task force is expected to report its recommendation to the governor by November 15. Task forces appointed by a governor to examine a proposal of the governor rarely if ever conclude that it is a bad idea.

According to some sources, the two “insider” candidates-Tim Donovan, the president of Community College of Vermont; and Karrin Wilks, the Senior Vice President of the State College system – are the front-runners for Chancellor. The third candidate is Ellen Earl Chaffee, the recently retired president of Valley City State University in Valley City, North Dakota.

One trustee said all three candidates were “very impressive.” This trustee did not say why the two Vermonters seemed to be preferred over Chaffee. But the trustee cautioned that Chaffee might still end up with the job as a compromise candidate. (NOTE: SEE UPDATE BELOW)

Another source said the Trustees were impressed by how much Chaffee knew about the Vermont State College system. “She must have done a lot of research,” this trustee said. Wilks was described as “not as outspoken, kind of laid back,” in comparison with the other two, but very capable.

In and around the state’s college and university communities, some observers believe that Douglas prefers Donovan. Here this account becomes based on conjecture and theory rather than hard fact. If Douglas expressed any pro-Donovan sentiments during the meeting, none of the trustees was saying so, sticking to the rule that, as trustee Peter J. Wright said, the proceedings of executive sessions should remain confidential  “to maintain the integrity of the process.”

Asked whether the governor had expressed any preference among the contenders at the trustee meeting, Douglas’s spokesman, Stephen Wark, said , “any deliberations in executive session are confidential . Personnel issues are private.” Neither he nor anyone else, though, would deny that the governor had expressed a preference for Donovan.

But at least some of the conjecture is based on knowledge of both the politics of higher education in Vermont and the personal relationships among some of the players.

Right now higher education politics is dominated by the UVM layoffs being announced today, and by Douglas’s merger proposal. The layoffs have nothing to do with the College Chancellor search. The merger proposal may, thanks to speculation among some education sources that the University wants it more than the State College system  does.

Officially, the leaders of both systems have offered similar reactions, saying the proposal is worth studying but might be difficult to implement fully.

In the view of some educators, though, UVM would have more to gain from a merger than the State College system. The University is richer, more prestigious, with more clout in Montpelier. It would likely dominate a merged operation.

That does not please many people close to the governance of the State College system. They are loyal to that system, insisting that in some ways it is more valuable to Vermont than is the university.

“We attract students from all over the state of Vermont,” said one source who is part of the College system. “More than 80 percent of our students are Vermonters and the bulk  of our students that graduate stay in Vermont.”

That attitude, which seems to be shared by most of the State College trustees, could explain last Saturday’s deadlock. The trustees don’t want to defy the governor. But they do want to preserve the autonomy of the College system, and may fear that Douglas’s choice would support his merger plan.

As to the personal  dynamics, several sources said that Douglas and Clarke have a relationship that is distant at best.

“I don’t travel in their circles, but I’ve been round the Statehouse enough to hear that talk,” said a professor at one of the state colleges.

Those reports help fuel the speculation that the governor prefers Donovan to Wilks, who has been Clarke’s second-in-command for years.  Sources in and around the State College system say Wilks is an independent-minded woman who would not follow all of Clarke’s policies or mimic his demeanor (prickly, in the eyes of some) . Still, on the face of it, one of the other candidates would provide a cleaner break with the ten years of Clarkes’ chancellorship.

But most of the State College trustees seem to admire Clarke,  and for obvious reasons. Under him, the system has grown and prospered. Clarke was out of town yesterday, but Wilks provided the statistical evidence: Since 2000, the system as a whole has grown by 41.7 percent in “full-time equivalent enrollment.”

The actual “head count” has grown by a smaller but still impressive  28.8 percent. At the state colleges, where many students attend part-time, the “full-time equivalent measure is probably more meaningful. That’s especially true at Community College of Vermont, where almost all students (and all faculty) are part-time, and where the full-time equivalent enrollment has risen by  a phenomenal 75.5 percent.

Even with the recession, Wilks said,  applications are coming in at a healthy rate and “things are looking good for the fall.”

The colleges have to grow to survive. They have very small endowments, and almost all the investment income, Wilkes said, goes to scholarships. To operate then, the schools need tuition from students and money from the state. It doesn’t get much of the latter.

For every dollar in appropriation we get three dollars in tuition, which is by far the most skewed ratio in country,”  Wilks said.

But perhaps not all counts at the state colleges have gone up. Wilks said she didn’t know whether the faculty had grown along with the student bodies, and the college system’s web site, full of information about enrollment and income , doesn’t seem to provide an account of whether the faculty has grown or shrunk under Clarke. There are 282 full-time professors at the colleges now, but the web site does not indicate how many there were in the past.

Some of the professors are convinced that full time faculty, at least, is smaller than it was before Clarke took over. Many professors also complain that the chancellor put too much emphasis on career education, giving short shrift to the liberal arts.

The numbers seem to support this contention, at least to some extent. At Lyndon State, for instance, almost all the recent growth has been in vocational-related courses. On the other hand, 607 of the 1,566 students at Johnson State are majoring in subjects that qualify as one of the liberal arts or sciences.

LATE UPDATE: ELLEN CHAFFEE WITHDRAW FROM CONSIDERATION FOR THE CHANCELLORSHIP FRIDAY AFTERNOON.