There has been a statewide firestorm over the virtual collapse of Alabama’s prepaid college tuition plan. Participants are very upset with the board that manages the failing plan. Created in 1989, the Wallace-Folsom Prepaid Affordable College Tuition Plan (PACT) was designed to let people pay a fixed amount when a child is young in anticipation of getting tuition and fees paid at an in-state public university when that child finishes high school. Now it appears the plan, which has 49,000 participants, is in big trouble. Lots of public officials – even those who have no direct relationship to the plan – are catching a great deal of criticism and blame for what the public perceives to be a major problem in how the fund has been run.
It appears that the PACT program put far too high a percentage of its funds in the stock market, which has been hard hit by the economic downturn, and that turned out to be unsound money management. I am told that up until 1995, the program’s literature repeatedly said the plan “will guarantee payment,” but plan officials are now saying there was never a “guarantee” in state law. Interestingly, the language referred to was removed in 1995. The program’s assets dropped from $899 million in September 2007 to $463 million at the end of January — a 48% decline – and that’s unacceptable in a program of this sort.
State Treasurer Kay Ivey’s office administers the program and has a ten-member board in place, which includes Lt. Governor Jim Folsom and Post Secondary Chancellor Bradley Bryne, a former state Senator. In addition to the Treasurer and the board, there is another key player involved in running the PACT program and that’s a firm by the name of Callen & Associates. This is a national firm that most folks I have talked with didn’t even know was involved in the Alabama program. It will be most interesting to learn the exact role played by Callen & Associates and the extent of that role in the decision-making process relating to the investment of PACT funds.
The board has agreed to keep paying tuition, but not allow new enrollees in the program. The board transferred $1.3 million from a scholarship fund into the PACT program. The board also agreed to ask the state Legislature to put about $45 million annually into the program. Fortunately, the board unanimously passed a resolution not to dissolve the program. Without a doubt, the PACT program is in deep trouble.
A lawsuit, filed last month by two participants in the program, named the state Treasurer and several corporations as Defendants. Interestingly, no members of the board were sued. It doesn’t take a political scientist to figure out that this matter has created the first real issue of the upcoming governor’s race. Observers believe it’s one that will certainly carry over into 2010.
Source: Associated Press
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