Finding a solution to the PACT problem
By Staff
Johnny Mack Morrow
Columnist
There is an old saying that goes “if you don’t have the time to do it right the first time, when will you have time to fix it?”
Doing it right was on the mind of House members as we debated a fix for the Prepaid Alabama College Tuition program, known as PACT. The program has been moving toward financial insolvency, and the 44,000 families that bought PACT policies saw the dream of sending a child or grandchild to a public university threatened.
PACT was set up in the early 1990s as a way for families to prepay tuition by buying policies from the state. In the early days of the program, information given to families included that once a policy was paid for, tuition was guaranteed.
The guarantee was removed from paperwork a few years later, but the promise was still implied: fulfill the PACT payments and tuition would be there when a child was ready.
PACT was designed so the state could invest the money conservatively and generate returns large enough to cover the tuition costs as the policies, and the kids, matured.
The PACT board, chaired by the state treasurer, let the fund go heavily into investments that took a huge hit when the recession came crashing down in 2007. When the investment value fell, there was not enough money to cover the program’s obligations.
It was, for all intents and purposes, insolvent.
Bad investments were not the only cause of the problem.
Tuition at Alabama’s public colleges and universities has skyrocketed over this last decade, far outpacing the rate of inflation. One of the reasons why PACT was attractive to so many families was the fact that tuition costs have far outpaced growth in family income, making college increasingly unaffordable to average folks.
The combination of tuition hikes and bad investments made PACT unable to meet its obligations.
There was a moral obligation for the state to make good on the PACT promises, yet it was important that taxpayers and others would not be penalized by any solution.
And it was important to find a permanent solution, not a stop-gap.
What passed the House met these important points.
First, new funds to back PACT were located. The bill that passed the House makes available $236 million freed when the state begins to pay off education construction bonds in the next decade.
As the debt service on these bonds is reduced, the left over budgeted funds can be used to fund the PACT shortfall. This makes sure that no money going to K-12 classrooms will be affected.
Second, in the bill that passed the House, tuition increases for PACT students will be capped at 2.5 percent a year. This rate can be increased in years when the investments by PACT make it affordable.
In order to make this solution permanent, the obligations of PACT had to be fixed, not floating as they were before.
Locking down skyrocketing tuition was absolutely necessary.
The universities fought this tuition ceiling, and it was a close 52-41 vote to overcome an amendment that would have stripped the cap. In the end, a majority understood it was important to do it right today, not simply pass along the problem to tomorrow.
The bill goes on to the Senate, where another attempt to strip the tuition cap will undoubtedly happen. Let’s hope senators have the same impulse to do it right the first time.
The problems with PACT underscore the growing worry among many Alabama families about affording college for their kids. If our public colleges and universities become unaffordable to working families they will have certainly failed in one of their principle missions.
If they become too expensive to train the next generation of teachers, nurses, and civil engineers, they will certainly have failed the state.
Johnny Mack Morrow is a state representative for Franklin County. His column appears each Wednesday.
