Another vote to fix PACT problem

There is an old saying that came to mind as the House debated a fix for the financially troubled PACT program for a second time this legislative session: if you don’t have the time to do it right the first time, when are you going to have time to fix it?

PACT is the state sponsored Prepaid Affordable College Tuition program, marketed for years by the state of Alabama through the state treasurer’s office. Initially, the policies were sold as guaranteed by the state.

Later that language was altered, but the program’s guarantee was still implied.

Nonetheless, there are more than 44,000 families that bought these policies, and the state certainly has a moral obligation, if not a legal one, to uphold these policies. Some folks say that the state should do nothing.

However, there is no doubt if a legislative solution was not found that it would go to the court, costing legal and other expenses and no one, including the universities, would be better off for it.

PACT got into trouble for two reasons, and both highlight why so many Alabama families bought policies.

First, college tuition over the past decade soared at an extraordinary rate, much higher than the rate of inflation or the increase in family income. Since 2001, tuition at the two flagship universities in our state has gone up an average of 7.66 percent each year.

During that same span, inflation as measured by the consumer price index went up only 2.48 percent, meaning that tuition increases have been more than double the prices of everything else in the economy.

Affordability is fast becoming a major issue for most families in the state, no wonder why so many bought into a way to keep college affordable for their children and grandchildren. PACT was marketed as a way to pay for tomorrow’s college tuition at today’s prices.

The state program was to take the money from the policies and invest in low-risk securities and use the interest and principal to pay for the tuition when a student was ready to enter college. The steep increases in tuition began to outpace any returns in investments, weakening the program.

Then the recession hit, and the bottom fell out of the stock market.

As it turns out, PACT was heavily invested in stocks that took a huge hit, further increasing the growing financial problems of the program. By the end of last year, State Treasurer Kay Ivey sent letters to policyholders in essence saying the program was insolvent.

She had one thing right: it was a mess.

PACT families then did a very smart thing and got organized. They held meetings around the state and made email lists and got press coverage. They talked to their legislators about solutions. They became experts on what the problem was and what the solutions were.

The solution has two components.

First, new funds were made available from the debt-service of education bonds. As the state begins to pay off these bonds in the next decade, the money freed from lower debt can go into the PACT fund.

The second component of solution is a 2.5 percent yearly cap on tuition increases for PACT students. This cap can increase if the investments of the program get a higher return. The Senate has not voted on the House bill, and their version came to us without a tuition cap.

Yet, without the caps, a financial crisis in the future is all but certain.

There is a good faith effort to find a fair and permanent solution to the PACT program, and all groups involved must do their part. Now the bill goes to a conference committee between the House and Senate, where hopefully an agreement can take place.

It is not easy, but permanent and fair solutions rarely are.

Johnny Mack Morrow is a state representative for Franklin County. His column appears each Wednesday.

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