Letter to Kay Ivey, Chairman of PACT Board

Letter

Letter to Kay Ivey, Chairman of PACT Board

In a letter sent today to Treasurer Ivey and members of the PACT Board, Congressman Artur Davis detailed his significant concerns over the fiscal health of the Prepaid Affordable College Tuition Program and demanded that they take "all steps in their power to prevent college students from being forced out of school because of failures in a state run program."

Congressman Davis also reminded Treasurer Ivey and the PACT Board of their rosy marketing of the now-troubled program to Alabama families.

"While Alabama is not well poised to assume any new financial obligations, I hope the PACT Board and the state's leaders will remember that PACT has been advertised for years as a reward for prudently investing in a child's future," Congressman Davis said.

Davis continued, "It would be a cruel blow to parents and students to allow PACT to fail at a time when families are struggling more than ever to meet the demands of rising tuition."

Below is the full text of Congressman Davis' letter:

March 5, 2009

The Honorable Kay Ivey, Chairman
Mr. Willie Huff, Vice Chairman
Mr. Bradley Byrne
Dr. Gregory Fitch
The Honorable Jim Folsom, Jr.
Dr. Harold J. McGee
Mr. Tom Broughton
Mr. Russell Buffkin
Mr. Ricky Jones
Mr. W. Daniel Hughes, Jr.

Dear Secretary Ivey and Members of the Board:

I am writing to express my concerns, and my constituents' anxieties, about recent reports that our state's Prepaid Affordable College Tuition trust fund has lost almost half its value and may be unable to make tuition payments on a consistent basis. I address my concerns to the Board, as well as the State Treasurer, because the Board is charged with not only monitoring investments in the trust fund but diversifying those investments with a goal of minimizing loss. As a result, I view the Board and the Treasurer as responsible parties in issues related to the fund's past and future health.

As I understand PACT, the program has enabled parents and grandparents to make contributions to a state administered fund to cover the future costs of in state tuition at four year or two year colleges. These contributions have been invested by PACT in the stock market in the expectation that the return would offset rising tuition costs. It is also my understanding that although these contributions are not guaranteed or insured, and contributors run the risk that the PACT program might not contain adequate resources to make tuition payments when the beneficiary enters college, the program has been extensively advertised and promoted as a sound, responsible investment.

Based on news reports, it appears that the Board assumed an unrealistic rate of return on contributors' investments. This overly aggressive estimate, combined with the recent deterioration in the stock market, undermined the fund's goal of keeping pace with rising tuition costs. It also seems that the number of PACT participants enrolling in college has surged beyond the fund's expected capacity.

As a member of Congress, I am aware that there is no federal guarantee for the type of prepaid college plan that Alabama and other states have sought to sustain. Nor should there be, given that PACT is a fund created and administered by the state. Obviously, our universities have experienced deep cuts imposed by proration, and it is no surprise that the two leading systems in our state, the University of Alabama and Auburn University, have declared that they are unable to reduce or adjust tuition for PACT participants.

It is not my purpose to cast blame as to why contributors and beneficiaries of PACT were not given more timely notification of the fund's predicament, and I am not in a position to evaluate investment decisions by the state. I will let others question why the PACT Board did not follow other states in limiting the fund's exposure after the stock market started to decline. It is my belief, however, that the PACT Board and the Alabama Legislature should take all steps in their power to prevent college students from being forced out of school because of failures in a state run program.

One possibility would be to allow parents to opt out of the PACT program in exchange for receiving a one-time tax credit against the full or substantial value of their contribution to PACT. This scenario might relieve some of the stress on the program by eliminating some of its obligations and could provide a source of revenue to assist parents with meeting costs of college.

Other possibilities no doubt exist, including at least a partial guarantee of contracts for students actually enrolled in college today. While Alabama is not well poised to assume any new financial obligations, I hope the PACT Board and the state's leaders will remember that PACT has been advertised for years as a reward for prudently investing in a child's future. It has been touted as an example of personal responsibility that is preferable to relying on the government to meet the costs of an education.

It would be a cruel blow to parents and students to allow PACT to fail at a time when families are struggling more than ever to meet the demands of rising tuition. In some ways, it would be an even worse blow to tell them that their college dreams have to be deferred not because of their irresponsibility but because once again, their government failed to live up to its end of the bargain.

Thank you for your consideration of my thoughts.

Sincerely,

Congressman Artur Davis

Source