Alabama Representatives Craig Ford and Johnny Mack Morrow have taken a step toward finding a way to stabilize Alabaman’s Prepaid Affordable College Tuition program by introducing two bills to provide funding from the state. They are referring to the PACT fiasco as Alabama’s version of AIG.
One of the bills will provide short-term funding from the state’s unclaimed property and capital improvement funds. The other will provide $150 million over the next five years from the Alabama Trust Fund. This is a welcome development. Too much of the discussion among policy-makers has been behind closed doors up to this point. I am glad to see someone finally stepping up with a public proposal. It would be an even better proposal if it included a provision for some type of public accounting for the way the PACT money was handled.
Reps. Morrow and Ford have expressed hope that the money provided by these bills will be enough to allow PACT to meet its obligations until the economy starts to improve. The video below is from a press conference the two held in Montgomery yesterday.
There will be a lot of debate over this, no doubt. Even among people who agree that the state must find a way to ensure PACT contracts are honored, there is disagreement over where the money should come from. And of course, a healthy segment of the population is equating the effort to stabilize the fund with the massive transfer of wealth to Wall Street.
I’ve heard people saying that this is no different than giving state money to people who have lost value in their 401Ks, which completely ignores the fact that the state sold this program as pre-payment, and then invested more that 70 percent of those payments in stocks. I’ve even read comments where ignorant people compared stabilizing the PACT fund to welfare.
Given the level of anger over AIG, Wall Street, and those 401Ks, this could get ugly. There are only a couple of weeks remaining in the legislative session. State Treasurer Kay Ivey, who chairs the PACT board, appointed a subcommittee of three board members to work with the legislature on the issue at the meeting yesterday. The subcommittee consists of herself, Lt. Governor Folsom, and Bradley Byrne, chancellor of the two-year college system. All are prospective candidates for governor.
Ivey has also made it clear that she wants the legislature to give the PACT board the authority to dissolve the program if conditions warrant. As Mooncat noted last night, that would put the board in a position to issue an ultimatum and force PACT contract holders to either accept whatever the board proposes, or see the program dissolved.
We are encouraging people to contact their legislators and tell them that the state must honor the contracts. My fear is that the legislature will pass bills in both houses, use that to lull participants into assuming that the program is saved, and then grant the board the authority to liquidate the program during conference.
Given the reporting I have seen so far, I don’t trust the media to give people any warnings if this happens. I am watching this as closely as I can. I am also checking the PACT website and the Secretary of State’s office daily for meeting notices. I don’t want the board to catch us off-guard with a last-minute “special called meeting.”
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Action!
Gonna have us a "call your legislator"day on this.
Also, we've unearthed a few documents we've not see yet, and sifting thru them now.
Located a reference to the PACT program as a way to "guarantee" payment of tution in the Lt. Governor's bio in an official state document as late as 2003. Among other things.
Speaking of PACT
To be honest, I haven't been following this closely, but perhaps now I will considering this story on Michigan's two pre-paid college funds was just printed in one the papers I read.
I'd like to find out how much of MET and MESP are invested, myself. Because, it sounds that it may simply be luck that they've gained.
But, we've always been at war with Eastasia...
Better Check it Out
There was an AP article reporting that a lot of states' plans were in trouble. It was published the first week of this month, I think.
I've been doing a lot of research over the past couple of days, and I'm getting ready to do several more posts over the next few days.
Here's a page with links that will give you an idea of how big this is. Kind of like an index of where we are with the issue. LOTS of info there, and I think we've still only scratched the surface.
This makes sense: the "plans" were something you paid into
and the plan managers 'invested' your payments to be able to pay the tuition in 5, 10, or 18 years.
Bad gamble all the way around.
We can admit that we’re killers … but we’re not going to kill today. That’s all it takes! ~ Captain James T. Kirk, Stardate 3193.0
1 John 4:18
Yes, bad all the way around
And here’s the thing. If this program had been presented from the very beginning as a glorified mutual fund, and the risks had been thoroughly discussed up front, I wouldn’t have quite as many problems with the situation as I do. But is clear to me that a lot of people thought they were using the program to prepay college tuition in installments. Here’s why:
1. For the first five years, the program contracts said that tuition was “guaranateed” to participants who paid in full. Then the word “guaranteed” was replaced with the word “provides.” It wasn’t until 2004 that a real disclaimer stating that the program wasn’t backed by the state was added to the contracts. All that time officials from the State Treasury were marketing this program as a pre-payment plan and encouraging community bankers to do the same.
2. The private firms who are currently managing the money were posted on the web the day AFTER the public hearing, after we’d already pieced them together. Firms who have handled the money in the past have not been fully disclosed, so we’re having to go through trade journals and look at hiring notices and RFPs to try and figure that out.
3. Current financial statements are posted online, but aside from a couple of exceptions, past financial statements are not. And according to the State Treasurer’s website, the way you get information that isn’t online is by filling out a form and submitting it by snail mail or in person. And paying 50 cents per page plus a $20 per hour research fee. Even though the relevant documents are probably sitting on a state-owned hard drive in PDF format.
4. Was this fund looted? Did the collapse of the derivatives trade take it down? Were there conflicts of interest between the official trustees and the firms they hired to do the work? We do not know. The reason we do not know is because we do not have enough transparency to draw informed conclusions. We do know that securities were being traded from mid-2007 forward. And we know that they were holding some MBSs. And that a significant portion of the program’s liabilities are in the form of “securities collateral.”
5. All we’ve been told is that the losses are the result of the stock market crash, and I am sure that is the case for a lot of the losses. This money was 72% invested in stocks, after all. But what about that other 28%. No one is talking about that. Not even the people trying to fix the program or the newspapers who are trying to be helpful by doing things like editorialize about the state’s “moral obligations.” Earlier this week, I sent a link to the work we’ve done so far to a LOT of politicians and news organizations, even though I didn’t think it would do much good. I did that because I wanted them to see how easy it is to ask good questions and to see that it is possible to pile up a lot of information about an issue like this in a very short amount of time.