An opinion has been requested concerning whether the Executive Director (the Director) of the Maryland Higher Education Loan Corporation (MHELC or the Corporation) may serve on the Advisory Council of a private vendor of services to the Corporation.
The Corporation was established in 1963 to make and guarantee loans to students (or their parents) who are residents of the State, to help them meet their educational expenses at undergraduate, graduate or vocational schools. (Education Article §§10011014, Annotated Code of Maryland.) The Director is appointed by and reports directly to the MHELC Board of Directors. The Corporation was originally funded by a reserve established by the General Assembly. Its current resources come from insurance premiums charged to loan applicants, a non-interest bearing federal loan, investment income and funds received under a reinsurance policy from the federal government. In addition to its authority to enter into agreements with the federal government, MHELC is authorized to accept gifts and bequests and to enter into agreements with private entities for the purpose of receiving funds or services.
The authority to contract with private entities (§1003(b)(6)(ii)) was established in 1965 with the anticipation that the Corporation would purchase certain processing services from a private organization. The Director indicates that after some investigation, the United Student Aid Funds, Inc. (USA Funds or the Fund) was selected on a sole source basis as it was the only entity providing such services at the time. From the Fund's Annual Report it would appear that there are now competitors in this field, as the entity has recently lost its contracts to lower bidders in at least two other states. It currently contracts with nine jurisdictions, including Maryland. The Director states that the possibility of changing MHELC contractors has been discussed by the Corporation's Board of Directors, though at the current time the only action in this regard is that the experience of states with other contractors is being monitored. The Corporation continues to contract with the Fund on a sole source basis.
The Fund is a private non-profit corporation established in 1960 to provide loan guaranty and processing services to educational loan programs. Basically, a student loan application is presented to a private lending institution with student and college sections completed. If the lending institution approves the loan then it is sent to MHELC, which applies its own criteria and determines whether the loan can be guaranteed under the agency's program. Applications approved by MHELC are submitted to USA Funds, which does not redo the review or totally re-investigate the application, but has a larger data base against which it further evaluates an application. From this point on, a guaranteed loan would be totally serviced by the Fund. The student's progress and status are monitored, a repayment schedule is established and implemented, and follow up action is taken if payments are stopped. When a borrower defaults, USA Funds pays the loan and institutes collection proceedings on behalf of MHELC. The Corporation is billed for any loan purchases made by the Fund, and periodically receives any funds collected by the Fund in follow up of defaulted loans.
The Advisory Council of USA Funds was established in 1966 "to bring together an interested group of persons who could provide wisdom, guidance and expertise to the staff and the management of the *Fund*, and to serve as a bridge between *the Fund* and the publics it serves. " In addition to fifteen members generally representing the groups with which the Fund deals (such as lending institutions and student aid officers), the Council includes as ex-officio members representatives from the State agencies for which it serves as a processing agent. The Council is a formal group and the names of the members are listed in the Fund's Annual Report. These persons are selected by the Fund, and though they originally were only the directors of the State agency, currently the Fund's policy is to invite the highest State officer responsible for the student loan program. In states where the loan agency is part of a larger department, this would be a department head or similar official.
The Director has served on the Council since 1973. He states that though the agency does not actually control the selection of its representative, the Corporation's Board could request assignment of another person if it wished. This has never been suggested. He describes the Council's role as two-fold: 1) to work with the Fund's Board of Trustees (as opposed to the operating staff) providing advice on operating policies; and 2) to bring to bear the individual member's own expertise on overall policy affecting financial aid in general. The Director states that his participation primarily reflects his years of experience in the field, and his general views of what is best for the State of Maryland. He provides a report to his Board of his participation in the Council's meetings; he has not generally sought direction from the Board prior to the meetings. The Council provides for reimbursement of travel and living expenses, and for an annual meeting stipend of $200. The Director's duties include significant responsibilities for monitoring and implementing the agency's contractual relationship with USA Funds, and also include his representation of the Corporation on the Advisory Council.
The issues raised in this request relate primarily to the outside employment prohibitions of §3-103(a) of the Public Ethics Law (Article 40A, §3-103(a), Annotated Code of Maryland, the Ethics Law). Subsection (a)(1)(i) of this section prohibits an official or employee from being employed by an entity that contracts with his agency. As USA Funds plainly contracts with MHELC, this prohibition applies to bar the Director's service on the Council. We have long held that service on a private board, even if non-compensated, can be viewed as employment (Opinion No. 80-41), and have barred service on both private and public entities, having both advisory and operational roles, even where the entity is totally non-profit (Opinions No. 83-13 and No. 82-22).
We have also, however, found that some relationships with private entities that are part of the employee's official State duties do not constitute outside employment for purposes of §3-103(a). In Opinion No. 80-5, for example, an employee of the Maryland Port Authority (MPA) was permitted to serve on the Board of Directors of the Seafarer's Center, a non-profit volunteer entity organized to provide services to crews of ships calling at the Port of Baltimore. The Center had been established with the MPA's assistance and was to lease space (without charge) from the MPA at Dundalk Marine Terminal. The agency was advised that the service on the Board was allowable, as long as it was clearly part of the employee's official duties and within the following constraints set forth in the Opinion:
1) his appointment and service [were to] be at the pleasure of the Port Administration;
2) it [was to] be made clear that his actions on the Board reflect the officially defined policy of the MPA; and
3) it [was to] be clear that no compensation, reimbursement or other remuneration be provided to him in connection with his service to the Board.
A second Opinion dealing with service to a private entity as part of official duties was No. 82-28. This Opinion involved a nurse employed by the Board of Examiners of Nurses who was to serve, without compensation, on a committee of the National Council of State Boards of Nursing. The nursing examination used in Maryland was purchased under contract from the National Council, and the nurse's work for the Council had to do with development of draft materials to be used in the examinations. We treated this as allowable service as part of official duties and permitted acceptance of certain expenses as permissible gifts to the agency.
Despite some factual differences between this request and situations presented in prior Opinions, we believe that the Director's service on the Council may be allowed as part of his State employment. He clearly serves only because of his official role in the Maryland student loan program, and his State duties are described as including his representation of MHELC on the Advisory Council. We also note that the Council's role is advisory, and a primary function is to address operational issues related to contract implementation (somewhat like the situation in our Opinion No. 82-28).
For the Director's service to be viewed as State duties not covered by §3-103(a), however, both he and his Board must recognize the constraints that need to be placed on this service. For example, he is barred from accepting fees or payment for activities performed as part of or growing directly out of his official duties. (Opinions No. 83-4, No. 82-28, No. 81-44, and No. 80-7.) He is also not permitted to accept reimbursement of expenses in connection with official duties except in circumstances similar to payment of such expenses by the State, and consistent with applicable State procedures. (See Opinions No. 81-31 and No. 82-28.) Also, as set forth in our discussion of Opinion No. 80-5, his Board should be involved in his appointment to the Council; and he should take care to ensure that he speaks for his agency and that his service is clearly defined to be an official MHELC representative.
Herbert J. Belgrad, Chairman
Reverend John Wesley Holland
Betty B. Nelson
Barbara M. Steckel
Date: September 28, 1983
1 Except as otherwise expressly cited to the Maryland Register, citations are to Commission Opinions published in COMAR Title 19A.