For the record, Middlebury College does not require its students who get government-guaranteed loans to get them directly from the Federal Government.

So says Tom Little, the Vice President and General Counsel of the Vermont Student Assistance Corporation (VSAC), clearing up a misunderstanding that led to an error in Tuesday’s post about VSAC.

Whose executives and workers could not have been too cheerful yesterday, when they heard that President Barack Obama’s budget included a proposal to do away with guaranteed student loans through private companies.

VSAC officials were still trying to get the details late in the day, but the Corporation’s spokesperson, Irene Racz, “it sounds like they want to move everybody to direct lending.”

That wouldn’t totally put VSAC out of business. It could survive – though no doubt as a smaller, less prominent, organization – servicing and guaranteeing student loans.

But don’t count VSAC out yet. Unlike many student lending outfits, it’s a non-profit corporation. It has worked closely with all three of Vermont’s representatives in Congress. All of three of them have influence in Washington, and Sen. Patrick Leahy has influence squared. If he decides to fight for VSAC, he’s likely to prevail.

This was an interesting week for Vermont Newsguy, with two unprecedented occurrences (OK, “unprecedented” after less than three months is a small distinction, but now and then you gotta go with what you got).

For the first time, a post (yesterday’s) was devoted to the goings-on in just one Vermont town. Or, in this case, city. It was Newport, to which the American Institute of Architects is going to send a Design Assistance Team next month to help local residents make plans to spruce up the downtown area.

I knew about the goings-on in Newport because I live nearby. The way the world works is that nobody lives nearby everyplace, and it’s quite possible that something just as interesting is going on near where you live.

If so, let me know. Look toward the upper right hand corner of your screen. It says, “Send a news tip.” That, believe it or not, is the place to click to send a news tip. As in the case of the Newport planning, the tip doesn’t have to be about a scandal or a controversy. An incident, plan or trend can be interesting even if it doesn’t enrage anyone. (Besides, just wait. It probably will by and by).

(Oh, and right above “send a news tip,” it says “donate.” A few readers have this week. Thanks. Others are invited to follow their example.)

The other new development in the short life of this web site is that for the first time it became the object of dispute on another web site. After Monday’s post about last Saturday’s Democratic State Committee meeting, at least one commentator on the liberal blog “Green Mountain Daily” lit into your humble agent as a purveyor of “hearsay” while others leapt to our defense.

Well, it’s a free country, and being lit into now and then is one of the charms of reporting and commenting on public affairs in public. Going into detail on the backing and forthing would not be worth the trouble, but we all owe some gratitude to GMD blogger John Odum for raising three legitimate political questions, as follows:

–Did some of the few Democratic Party operatives who kept going to the office over the last several weeks use their access to computerized voting records to give Secretary of State Deb Markowtiz’s all-but-announced candidacy for governor a head start?

–Were Sen. Leahy and/or Rep. Peter Welch involved in this skullduggery?

–Is EMILY’s list, a big-bucks Washington-based fund-raiser for pro-choice Democratic women, committed to Markowitz, perhaps to the tune of $2 million, even though another pro-choice woman, Sen. Susan Bartlett of Hyde Park, is also considering the governor’s race?.

And the answers are: Apparently so; Hardly likely; Probably (but not $2 million).

Nobody, including Acting Party Chair Judy Bevans has denied that a party staff member or two who either have gone or are in the process of going to work for Markowitz seem to have taken or transferred some files over to her campaign.

As outrages go, this one is pretty minor, if only because it has almost no consequences. As already-announced candidate Sen. Doug Racine said yesterday, “there’s plenty of time” for the other candidates to get those files, and it’s early. Racine said he was satisfied that Bevans will make sure the playing field is even.

One of the alleged perps of the heist was Carolyn Dwyer, who has been a senior campaign operative for both Leahy and Welch. This does not prove they were involved. Getting involved in a primary 18 months from now would be an extremely stupid move for either Leahy or Welch. For one thing, being painted as the choice of the party establishment could  doom a candidate in the primary. Leahy and Welch, neither of whom is even moderately stupid, no doubt know that.

Now, as to EMILY’s list, which is run by a woman named Ellen. (There is no Emily. It’s an acronym for Early Money Is Like Yeast (because it makes the dough rise. Get it?). Its whole idea is that a candidate who gets a little money early can use it to raise her profile and get more.

So EMILY’s list wouldn’t give $2 million in Vermont, where no candidate for governor has yet spent more than about half of that. It gives smaller increment seed money.

But it may have decided to back Markowitz. At least that’s the impression one of its officials gave Bartlett, who said she spoke to EMILY’s list twice, and that “the second time was not as warm a conversation.”

She said that when she estimated a campaign for governor would cost “between three quarters of a million and a million, they said, this is going to be a $2 million race. I said, ‘I don’t think that’s helpful.’”

Bartlett, who agreed that  Markowitz had a closer relationship with EMILY’s list than she did, added that the person on the other end of the phone said, “the guys must be happy to have you in the race,” which she took as a hint that she not run, lest as the “other” woman in the race, she would hurt Markowitz’s candidacy.

“If somebody wanted to get me out of the race, that wasn’t the way to do it,” Bartlett said.

Reached in Washington, Jonathan Parker of EMILY’s list said “we have not made any sort of commitment” to any candidate. But he acknowledged that the organization has had more dealings with Markowitz and “we think she’s great.”

Whatever the EMILY’s list person said to Bartlett, it is probably true that if both women run, both would be at a disadvantage. Gender is not the only factor women voters take into account when deciding which candidate to support. But it is one factor, especially in primaries, where the candidates rarely differ very much on issues.

Markowitz, who has already formed an “exploratory committee” is all but certain to run. Bartlett, who as chairman of the Senate Appropriations Committee is wrapped up in the state budget controversy, said she has not yet decided

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.

First, on this edition of the Friday wrap-up, sum-up and clean-up, a clarification and the exposure of a trade secret, all in one.

In Tuesday’s entry dealing with the flapette over a plan to cut the salaries of officials at non-profit organizations in order to free up money for health programs, it was noted that  the Vermont Student Assistance Corporation (VSAC) “appears to get no state appropriation, so cutting those salaries would save no  money for use in other programs.”

Let’s start by exposing the trade secret. When a reporter writes that something “appears to” or “seems to,” said reporter is fudging. What he or she really means is that he or she is not really sure whether the words following “appears to” are accurate.

Often, such fudging is acceptable, even necessary. Yesterday’s posting, for instance, noted that the Legislature’s pro-labor caucus “seems to have had some difficulty holding onto the interest…of its own members.” In that case, the difficulty was the (duly noted) impression of one of those members. It was not a provable fact.

VSAC’s state appropriation or lack thereof is, and a couple of readers wrote in to say that the Corporation does indeed get state money.

They are more right than wrong, though the complete picture seems (watch that word!) complex. VSAC does get state money, but paying its big-wigs lower salaries might not free up a dime for health care or anything else.

Irene Racz, VSAC’s Director of Public Affairs, said that for this Fiscal Year (FY 2009) the Legislature first appropriated $19 million for VSAC, but that after two rescissions, the Corporation ended up with $18,362,607.

But she said the money doesn’t go to VSAC; it goes through it, directly as grants to students, most of them undergraduates from low and middle-income families. None of it, she said, goes to pay the salaries of VSAC’s roughly 300-person staff, including President Donald Vickers, whose salary is $222,000 a year.

Most of the money for running VSAC comes from interest on its loans, she said, though there are also some Federal funds earmarked for the administration of the federal loan and grant programs the Corporation administers.

So cutting Vickers salary by five percent to $210,900 would not free up $11,100 for other uses, as Rep. Patricia O’Donnell, a Vernon Republican, hopes would happen if a bill she introduced became law. The state money would still go right to the students; the salaries would continue to come from interest payments.

But wait a minute. What about the statement that appeared on this site just yesterday, the one citing the economic consensus that “money is fungible,” with a dollar here easily replacing a dollar there? Presumably, VSAC could cut Vickers’s pay, add  $11,100 of interest profit to the student grant pot, and let the State keep the same amount to help support the health programs so dear to Rep. O’Donnell’s heart.

Presumably but not necessarily. To the economist, money is fungible. To the administrator and sometimes to the law, it may not be. Most State agencies, for instance, get some money from the Federal Government, and have to use it for specified purposes.

Speaking of Rep. O’Donnell’s plan, let’s be clear that the criticism of it in Tuesday’s post related not to its merits, but to its likely effectiveness (or lack thereof), and whether she had done enough homework to demonstrate that effectiveness. From the perspective of equity, it does seem to have some merit. Most Vermonters could live quite nicely on a mere $210,900 a year. Forcing someone to give up that last $11,100 so middle-income elderly people could buy their prescription drugs is not likely to arouse massive opposition.

But O’Donnell’s plan would also affect non-profit officials who earn as little as $60,000 a year, the same level at which many state employees will have to take five percent pay cuts.  As mentioned here Tuesday, that’s the functional equivalent of a stiff state income tax hike. A little further research reveals that it is in many cases the functional equivalent of  a 100 percent state income tax hike.

Speaking of rasing taxes, and failing to raise taxes, there was a quite deliberate omission in the section of yesterday’s post about the taxes that Vermont businesses pay to the State’s Unemployment Insurance Fund.

Employers contribute a small percentage of the first $8,000 of each worker’s pay. Yesterday’s post noted that the $8,000 figure had not been changed since 1983. It did not say — because there had been no time to find out – whether the percentages had changed since then.

They have not, said Valerie Rickert, Director of Unemployment Insurance & Wages at the Labor Department. In other words, that tax is just what it was a quarter of a century ago. Other states, Rickert said, have raised their rates.

It is easy to understand why Vermont – which has the 16^th highest  average effective unemployment insurance tax rate (or did in 2007, according to the Public Policy Institute of New York) – would be reluctant to raise that tax on businesses. But now the Fund is running low, and even tax-hating Gov. Jim Douglas is calling for an increase.