Taking On Captured Government Agencies

July, 2021

Lincoln — As an NU undergraduate many years ago, I studied the relationship between the economy and government.  A pattern emerged:  first came good times for business, with little government involvement beyond providing infrastructure, paid for by taxpayers, so business could thrive.  Then came scandals and demands from the public for the government to regulate excesses.  Then the regulated industries worked their way into the government, "capturing" regulatory mechanisms to serve their own interests.  Inevitably, there were more scandals, whereupon the process would repeat.

During much of the first two decades of this century, I've been in struggles with captured agencies.  When necessary, I've had to go to court as a citizen with standing to protest and to stop egregious waste, fraud, and abuse.

In 2007, I sued nine student-loan lenders for civil fraud.  They were taking advantage of a captured agency, the U.S. Department of Education.  By 2015, my legal team had won seven settlements.  The other two cases were a draw:  one lender paid false claims back to the U.S. Treasury, but only about half of what I estimated it owed, and then got out of the case on the basis of sovereign immunity.  The final lender, PHEAA, fought us twelve years through federal district court, federal appeals court, and the U.S. Supreme Court.  We won the latter.  PHEAA won one big district court decision, but at great cost.   My counsel estimated they spent $10-15 million on that decision, which is ironic because we had signaled willingness to settle in 2014 for $7.5 million.  What were they thinking?

Now the federal contracting arms of PHEAA, known as AES and FedLoan Servicing, are collapsing, so we can move that tie into the win column. The real winners are millions of borrowers who have been ill-served by PHEAA.  

For years, PHEAA had many former employees well-placed at the U.S. Department of Education to protect it. But PHEAA perjury in April was one scandal too many, so the cycle of scandal and reform has once again repeated.  (Here's a good question: which other servicers are sufficiently in a cycle of reform to be trusted to pick up the millions of PHEAA accounts?)

At the state level, where I have long worked on conservation issues, I was taken aback when the Nebraska legislature, in 2019, merged the Department of Environmental Quality with the state Energy Office.  This looked as if the government itself was welcoming capture.  Soon enough, the new Nebraska Department of Environment and Energy showed it was much more interested in energy, especially in subsidizing ethanol, than it was in environmental quality.  NDEE watched as the Alt-En ethanol facility in Mead poisoned everything around, for miles.  And that, unfortunately, might even be an optimistic assessment of the scope of the environmental disaster.  

Another taxpayer and I sued to block the ethanol subsidies, which were coming at the expense of conservation programs.  That lawsuit is still in court, so I will not comment on it other than to refer readers to newspaper articles about it, which I believe are basically correct.  We'll see how this turns out; there are still important issues for the court to decide, the situation is fluid and could be taking twists to reveal if agencies are still in a capture rather than a reform mode.  We've been at this a year and I wouldn't be surprised to see it go on considerably longer. 

I am almost always the last person who wants a lawsuit.  They require time and money; they can get very difficult if FOIAs and discovery are involved; they can turn into Jarndyce v. Jarndyce situations.  Recommendation: let's all read our Dickens and decide to work to avoid litigation.

Which is not to say that I regret these lawsuits.  Sometimes it's necessary to step in to stop transgressions in order to move on to the reform part of a cycle, which might even last.  Students of government should take note that PHEAA is collapsing and its business may well go to others that kept their noses clean in the first place or have cleaned up their acts.  

PHEAA Departs Federal Student-Loan Servicing

July, 2021

Washington — So PHEAA, the student-loan lender and servicer, is collapsing its organization.  I join with many others who are cheering its demise as a federal student-loan servicer, for I have been pointing out for most of the past two decades that the organization, also known as American Education Services and FedLoan servicing, has engaged in fraud against taxpayers and abuse of student-loan borrowers.  

With a great legal team behind me, we won an important victory over PHEAA when federal courts, affirmed by the U.S. Supreme Court in 2017, determined that PHEAA did not have sovereign immunity from borrower and other lawsuits.*  Unfortunately, Secretary Betsy DeVos tried to protect PHEAA by coming up with rules that substituted for immunity, but federal courts across the nation have struck them down and the Biden administration has appropriately withdrawn them. 

This surely influenced PHEAA's decision to depart federal student-loan servicing as a contractor.  No longer can it brush away litigation against it.  Let me put it this way:  PHEAA has ruined many borrowers' lives, and justice will be sought.  

Another reason for PHEAA's departure is a potential perjury charge against its CEO for giving false and misleading information to a U.S. Senate student-loan oversight committee.  On the day he was to explain himself to the committee, July 7, PHEAA announced that it would no longer be a federal contractor.  I only hope that the committee will begin looking into all the other instances of fraud and perjury committed by PHEAA over the years.  

There is a reason, however, to temper any celebration of PHEAA's departure as a federal contractor.  Millions of borrower accounts will have to be transferred to other servicers, potentially even to Navient (formerly Sallie Mae), which has also had its problems and has been the target of lawsuits by state attorneys general and the federal Consumer Financial Protection Bureau.  This comes at a difficult time because the temporary federal student-loan repayment reprieve, granted by Congress during the pandemic, is set to expire soon.  

All of which is to say that it is even more important for the U.S. Department of Education to cancel as many student loans as possible immediately, under powers given to the Secretary in 20 U.S.C. 1082.  In a previous blog post, I recommended several ways this could be done, and the reasons for it.

This also could prompt the U.S. Department of Education to widen its circle of servicers, to look to experienced credit card and mortgage loan organizations to service student-loans.  The department, long beset by a revolving door relationship between its administrators and the student-loan industry, needs to free itself from industry capture.  This might also be the time to adopt an entirely different student-loan model, such as Australia's or other countries' models that handle student-loans through their tax systems.

PHEAA's departure as a federal contractor is a silver cloud with a dark lining.  It should be a catalyst for bold action to address the nation's student loan mess. 


* U.S. ex rel. Oberg v. PHEAA, 4th Circuit (2015) 

Student Loan Servicer Perjury in the Senate

July, 2021

Washington — The chair and ranking member of a U.S. Senate oversight committee have given student-loan servicer James Steeley, CEO of PHEAA, until July 7th to explain his false and misleading statements given under oath during an April hearing. 

What is unusual about this is not that PHEAA committed perjury (it has a history of it), but that PHEAA was turned in by an official of the U.S. Department of Education.  The senators' bipartisan letter to PHEAA was prompted by a detailed letter from Richard Cordray, the head of Federal Student Aid and former director of the Consumer Financial Protection Bureau.

In the past, the Department was more likely to help PHEAA cover up its false statements, and even go so far as to create new policies to keep borrowers, state attorneys general, and consumer advocates from suing PHEAA for its many mistakes.  For example, when PHEAA lost its sovereign immunity in a U.S. Supreme Court decision in 2017, meaning it was subject to suit by borrowers, Secretary of Education Betsy DeVos invented a "preemption" doctrine instructing servicers like PHEAA not to respond to efforts by state and federal consumer protection offices to resolve student-loan borrower issues.  

Federal courts in many jurisdictions overturned this doctrine and it has since been formally withdrawn by the Department of Education, but only after three years of consumer injustices.  

Why is PHEAA so prone to perjury?  Some have said it is just a part of their organizational culture.  I believe it is the result of not being held to account over many years.  Now would be a good time for the Senate committee to look at past PHEAA occasions of perjury and to ask those who have looked the other way to explain themselves.  

First and foremost would be when PHEAA withheld documents from the Department of Education's Inspector General, "under penalty of perjury," in 2007.  This came to light in 2017, but to our knowledge, the IG never took action, to this or any other similar violation. Such inaction may have created a moral hazard situation, through which PHEAA learned that there is actually no penalty for perjury.  

The only time I know PHEAA was disciplined was in a federal court.  In 2014, U.S. magistrate judge John Anderson rebuked PHEAA for withholding documents dealing with potential financial fraud and levied a $45,000 penalty.*  However, it must be added that neither the Department of Education nor the Department of Justice brought the matter to the attention of the judge, although they both knew about it.  (The judge learned of it through outside litigation, to which I was a party.)   

But this was a rare act of discipline of a student-loan servicer.  Both ED and DOJ have a history of giving student loan lenders and servicers a pass on even the most egregious occasions of waste, fraud, and abuse, costing taxpayers astounding sums.  Moreover, they have agreed to keeping records confidential so that the public is not able to know how fraud was committed, by whom, by what means, for what reasons, and to what effect on the integrity of student-loan programs.   

This is a good public-policy oversight subject for the Senate committee.  Did past federal indulgence of fraud and perjury among certain student-loan contractors lead to the predictable PHEAA perjury in April?  I've been involved in student-loan programs for five decades, and can say without doubt that the answer is yes.  Perhaps the Senate will now start to get to the bottom of why student-loan programs have become such a mess.  

* Dan E. Moldea (2020).  Money, Politics, and Corruption in U.S. Higher Education, p. 120.  




Remember the Lincoln Climate Action Plan?

July, 2021

Lincoln — On Monday, March 22, 2021, the Lincoln city council approved the Lincoln Climate Action Plan with these commendable goals regarding prairies and the environment:

Continue to support prairie restoration and protection of natural resources.

Continue to support the Lincoln Parks Foundation and Parks and Recreation Department Land Trust initiative, working in partnership with landowners to preserve native prairie, wetland areas, and other natural resources.

Create a Carbon Sequestration Plan. This plan would involve an analysis of Lincoln's tree canopy, parks and greenways, open lands, composting activity, open water areas, impervious surfaces, grasslands, and native prairie.

A mayoral aide recommended the plan to the council:  "We can’t just make things up as we go," she said. "We have to have a plan and a strategy and a vision. It’s already costing us."

But with the ink barely dry on the Climate Action Plan, city government promptly got back to making things up. The Urban Development Department devised a tax-increment-financing (TIF) proposal to destroy a broad swath of grasslands nearly a mile long, including two environmentally critical prairie parcels, claiming that the properties must yield to a developer's quickly-revealed plans for affordable housing.

The city council's initial response gave regrettable hints of losing interest in the Climate Action Plan. Some of the reactions were favorable to TIF development of the two aforementioned prairie parcels (one owned by the city, the other by the Lincoln airport authority) that had been zoned residential in 2007 but never developed. Their thinking: if we zoned them residential in 2007, we shouldn't reconsider, Climate Action Plan or not.  

The city council's initial reaction was not surprising because the Urban Development Department, claiming ignorance, had not revealed to the council that the UNL Center for Grassland Studies had recommended in 2020, after a scientific review, that the two publicly owned parcels should be protected from development.

It is instructive to look back at what previous councils and mayors have done with regard to Lincoln's rare grassland prairies, when they have discovered that their actions would endanger them.

• In 1994, the council changed a native prairie's zoning from residential back to agricultural on a 27-acre property previously planned and platted by S.E. Copple's Commonwealth organization.

• In 2005, the city's Airport West Subarea Plan identified another native prairie for future residential use. Fortunately, the 7-acre parcel has now been reclassified as an Environmental Resource.

•  In 2011, the Comprehensive Plan was changed by the mayor and council to exclude several native and restored tallgrass prairies which had previously been identified for future residential housing.  

•  In 2018, the mayor and council declined to sell the very two same (now TIF-targeted) grassland and riparian parcels for purposes of residential housing, asking instead for the recommendation from the UNL Center for Grassland Studies as to the parcels' importance to the Nine Mile Prairie ecosystem.  That resulted in the identification of these parcels as habitat-rich flora and fauna corridors. 

In other words, previous councils knew, when it came to prairie protection, how to put the brakes on development, even before "carbon sequestration" was a part of our everyday vocabulary.     

Some who would profit from the pending TIF proposal have been quick to cite a 2007 city agreement and called for the city to place the disputed parcels into the hands of developers yet this year, claiming a deadline for action.  

The problem with relying on this obscure 2007 agreement is that when the unimplemented part of it is unearthed, it will be evident that it is out of date.  The agreement specified in 2007 that "time is of the essence" but time has eroded away any sense of urgency and with it the foundation of some of the agreement's assumptions.  When the 2018 council actually took up the agreement many years later, it was apparent that staff was unsure who even owned the properties ("Additional research regarding the ownership of both parcels may be needed"). The sponsor of the 2018 proposed action, the Lincoln airport authority (LAA), was not clear about the federal role in oversight, suggesting that the previous zoning and the newly revived sale proposals were "derived from" federal regulations, which do not, however, require residential zoning as highest and best use for appraisal, as the city may once have believed.  In any case, federal law has changed since 2007.  The obligations of the city in the 2007 agreement are to take actions that are "reasonably required." There is nothing in the agreement that precluded the city from reviewing its environmental impacts, as it chose to do in 2018 and can do in 2021 in light of the Lincoln Climate Action Plan.  Nothing constrains the city from protecting the interests of its own citizens and taxpayers as conditions have changed over the many years.  As old documents are exhumed, it may be determined that LAA ascribed to itself zoning jurisdiction it did not have over properties it did not own, all in an agreement that remains, wisely, unimplemented. 

Yet to be mentioned is adequate public notice.  The far-reaching TIF development proposal, which would short-circuit the 2050 Comprehensive Planning process for the area, was not well circulated before the city council's June 28 public hearing.  Citizens and taxpayers are in the dark when it comes to knowing what this is all about:  what agreement, what maps, what UNL report, what federal laws, what deadline?  This is even before we get into what promises were made to whom, by whom, to try to salvage the TIF development deal, once some watchful city council members started asking questions.

Not to be forgotten is the testimony conspicuously made at the public TIF hearing that certain individuals and groups, meaning environmental interest groups, were "not authorized" to voice their opinions on TIF public policy issues.  Surely the testifier knows that were it not for the Wachiska Audubon Society, many of the area prairies likely would not exist today.   Among the first people I'd want to consult about prairies for his opinion is the legendary Ernie Rousek of Wachiska.* 

The best thing for city government to do right now is to re-read what it just enacted in the Lincoln Climate Action Plan and act as if it matters, because it does.  Bird and pollinator populations are collapsing, climate change is evident everywhere, and the time for climate action is now. 

The way forward for the city council is simply to remove the contested areas from the TIF proposal and sort the issues out in the Comprehensive Planning process, which is already underway and has the advantage of actually involving the public in decision-making. 

That will send a message that the Lincoln Climate Action Plan has met its first test, and that this city council of 2021 means to put the action into the plan.  

* Among other scientific articles Wachiska Audubon has brought to attention is one that concludes it is not distance but landscape context that is important in prairie preservation:
"Using a focal-patch study design we demonstrated the importance of the surrounding landscape, often out to 4 km from the fragment edge, on prairie occupancy by grassland birds. Effective management of grassland songbirds will require attention to the landscape context of prairie fragments." Note: one TIF parcel is less than 1 km away from Nine Mile Prairie, and if developed with 100 houses as proposed would be a point source introduction of bird-killing cats, pollinator-destroying pesticides, and nighttime street lighting into the heart of the prairie environs.
See: Shahan, J.L., Goodwin, B.J. & Rundquist, B.C. "Grassland songbird occurrence on remnant prairie patches is primarily determined by landscape characteristics." Landscape Ecol 32, 971–988 (2017).

Don't Destroy Prairies for Poorly Planned Housing

July, 2021

Lincoln — "Affordable housing" is a current focus in Lincoln city government, but what this means and at what sacrifice of environmental values are considerations not getting much attention.

The Urban Development Department has proposed a tax-increment-financing (TIF) area in northwest Lincoln that would destroy habitat-rich prairie parcels in order to build residential housing.  It is doing its best to ignore a scientific report by the UNL Center for Grasslands Studies that calls for these parcels to be protected because they are part of, and essential to, a larger prairie ecosystem known as the Nine Mile Prairie environs.  

One might think, with the widely reported collapse of bird and pollinator populations, and the ever-more alarming prospects of climate change catastrophes, that destroying carbon-storing prairies would not be high on the city's agenda.  Not so.  The city seems ready to give the go-ahead for housing on the two parcels such as pictured below. The photo is of other recently built affordable housing in northwest Lincoln.  Note the expanses of concrete and what the future of existing riparian streams might look like after the bulldozers are done with them.  

Where else to build, instead? 

 Not far away from the area in dispute is a better alternative, which the city has already designated for commercial development.  It could and should become mixed-use or multifamily housing because the area does not need more vacant strip malls.  It needs housing with a vibe, even trendy.

The city is already planning, for good reason, to move NW 48th street over to NW 46th between West Adams and West Cuming.  Creative housing there would add a new walkable community deliberately integral to Arnold Heights and to the shopping center immediately to the south.  By building on this site rather than on the disputed parcels, vehicular traffic generated by housing would not constantly enter and exit the Arnold Elementary School area, endangering the children.  The disputed parcels can be accessed only through the school area, which is another reason the city should not build there. 

Because the city is already planning to move NW 48th and develop the adjacent land, it is plausible that the land could be considered a part of Arnold Heights for purposes of TIF financing. This would not be a case of possibly illegal TIF gerrymandering, as is the current TIF proposal. 

Below is a city planning document showing the road redesign for moving NW 48th traffic to NW 46th for a few blocks.  This is a good idea.  Just change the ensuing zoning designation from commercial to a category allowing affordable housing. 

There are other places for affordable housing, too, which do not insert vectors of bird-killing cats, pollinator-destroying pesticides, and glaring streetlights into the heart of Lincoln's rare remaining grasslands, while creating traffic jams.  We just need to look for them.