A federal court judge has delayed ruling on a lawsuit challenging the U.S. Department of Education's selection of a designated bonding authority for a financing program aiding black colleges.
U.S. District Court Judge Gladys Kessler had been expected to role on the case Oct. 31. But after a hearing Monday, Kessler said she now hopes to reach a decision by Dec. 1, according to an Education Department spokeswoman.
In the suit, filed Sept. 19 in federal district court in Washington, D.C., a joint venture of Grigsby, Brandford & Co. and A.H. Williams & Co. said the department's selection of Pryor, McClendon Counts & Co. as bonding authority was "arbitrary and capricious, lacking a rational basis and an adequate statement of reasons."
The Education Department, meanwhile, has agreed not to complete its agreement with Pryor McClendon until Kessler reaches a decision, said the department spokeswoman, who requested anonymity. An order signed by Kessler prohibiting the contract from moving forward expired Monday.
In its suit, the Grigsby Brandford joint venture is seeking either to be named bonding authority, or a court order forcing the Education Department to reconsider the proposals by all three finalists.
The Historically Black College and University Capital Financing Program was approved as part of the 1992 reauthorization of the Higher Education Act of 1965. Section 704 of the act gave the Education Department the authority to create the program, which is designed to help black colleges and universities gain access to the capital markets.
The plan provides a federal government guarantee of up to $357 million for taxable bonds issued under the program.
The Grigsby Brandford joint venture, Pryor McClendon, and M.R. Beal & Co. were the three finalists for the designated bonding authority slot. The authority will be authorized to issue federally guaranteed bonds and to use the proceeds to provide loans to the schools. The bonding authority also would oversee an escrow account that will serve as a debt service reserve fund for loans made by the program.
In court papers, Grigsby Brandford and A.H. Williams allege that their proposal was ranked first among the finalists by three of the five members of a review panel directed to make a recommendation to Education Secretary Richard W. Riley.
After the recommendations were submitted to Riley, the secretary met with "a group of politically appointed officials" and Pryor McClendon was selected, the joint venture alleges.
The judge's decision to delay her ruling in the case pushes the timetable back again on the start of the loan guarantee program, which Education Department officials had originally hoped would be up and running by last spring.
Department officials said interest in the program is high and that the $357 million limit was expected to be reached within two years of the start of the program.
"The whole thing is just sitting there waiting for the [designated bonding authority] agreement to be signed,"an Education Department official said. "I hope someone gets it and gets it soon so we can get the program up and running. There are significant infrastructure demands at [historically black colleges and universities] and a lot of schools are waiting on the program."
The official, who asked not to be identified, said the department is confident that Kessler will rule in its favor.