By By Lt. Gov. Jim Folsom
There has been a great deal of discussion and consternation in recent days among participants in Alabama’s Prepaid Affordable College Tuition (PACT) program. Understandably, many parents, grandparents and students became concerned after the program’s chairman, State Treasurer Kay Ivey, distributed a letter stating there are problems with the continued viability of the program.
I am deeply troubled by the prospect that the program may not be in a position to fulfill its obligations to approximately 48,000 students who are depending on PACT to cover the cost of their college tuition and mandatory fees.
For many, PACT was seen as a guarantee from the state that their dreams of a college education would be secured by their participation. Participation, I might add, that came for many at great sacrifice.
When then-State Treasurer George Wallace, Jr. and I first developed the tuition program which bore our names until it was subsequently re-branded as the Prepaid Affordable College Tuition Program, we saw it as a vehicle by which Alabama families could “lock in” payment of future college tuition and fees.
Our goal, and the subsequent result, was that a college education was made more affordable and opened up the halls of higher education to many who would otherwise be unable to pursue a college degree.
In the ensuing 12 years, while I was out of office and pursuing a career in private industry, decisions were made by those then in charge of the program to move the investment strategy away from one that relied on fixed assets and government securities to one more heavily weighted toward stocks.
While a more risky approach, such a strategy offered the possibility of greater returns and, consequently, lower cost to participants. For a majority of the past 10 years, the returns on the program’s investments were very good. Unfortunately, this has not been the case for the past 18 months, resulting in a reported loss of value for the fund of nearly half of its assets.
When PACT was established, program documents and contracts stated that participants were guaranteed their tuition and fees would be paid. There was no equivocation, no citing of legal terms, and no doubt left in anyone’s mind that the program would fulfill its stated obligation.
Much has been made of the fact that program documentation and contracts haven’t, at least since 1996, included any specific guarantees for the full payment of tuition and fees. One need only review, however, the marketing materials and public statements by program officials to feel that such a commitment was implied if not explicitly stated. Thus, thousands of Alabama parents and grandparents have come to expect that PACT will live up to its moral duty to make good on its perceived promise. I will find anything less than this to be unacceptable.
I am committed to finding a resolution to the current problems that exist with the PACT program. First and foremost, people need to know that the fund is not in danger of running out of funds anytime soon. According to Treasurer Ivey, it costs approximately $60 million to fund tuition and fee costs per year. With close to $500 million in assets, the program is in a position to continue paying current costs while we seek to find a long-term answer to the funding shortfall.
I have every confidence that the nation’s economy, along with the markets in which PACT assets are invested, will recover over time. At present, there is a need for patience and a restoration of credibility for the program. Stricter accountability and transparency in the operation of the program are in order, and should be an integral part of any discussions about outside involvement in achieving a solution to the current fiscal problems.
To that end, I have been in discussions with legislative leaders to see how we can get actively involved in bridging the gap between where the program finds itself today and where it needs to be in the future. I have thus far been encouraged by the response, notwithstanding the obvious impact on any forthcoming assistance by the budget shortfalls being experienced in both public education and state government.
At this point, I want to make it abundantly clear that from its inception the program represented a sacred trust between those investing in the program and the State of Alabama. I hold firm to the vision that created this program and reiterate that – regardless of changes in the statutory language – I believe that investments in the program entitle PACT holders to the agreed-upon return of full payment of college tuition.
This is not the time for panic, for a rush to find a band-aid solution or for commentary that might cause a ‘run on the bank’. Such action will only exacerbate the current difficulties and short-circuit the long-term goals made for our children’s future.
As the economy rebounds, as it inevitably will, we have every reason to be optimistic that Alabama’s PACT investments will again begin to grow.
In the weeks and months ahead, I will be intimately involved in efforts to resolve what we all hope will be a short-term setback. I ask for your continued trust and patience as we go forward. PACT is not in danger of running out of money in the foreseeable future and I, for one, intend to see that PACT continues to provide the wherewithal for Alabama students to realize their collegiate dreams. It is our responsibility as leaders to make certain it happens.
(Lt. Governor Folsom may be reached at 334.242.7900 or info@ltgov.alabama.gov