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2009 September 7 - 12:00 am

Alabama Officials Plot Rescue of Sinking Tuition Plan

MONTGOMERY, Ala. (AP) — Alabama’s governor and several candidates for the job say the state government should rescue Alabama’s financially troubled prepaid college tuition plan. The question is how to pay for a lifeline that could cost as much as $1 billion.

The board overseeing Alabama’s Prepaid Affordable College Tuition Plan recently got updated financial news from its advisers. They said the plan’s assets have grown slightly in recent weeks to about $500 million, but there is no way the assets can grow fast enough to meet the program’s obligations to provide college tuition for 48,000 participants.

A separate study of the tuition plan by the Retirement Systems of Alabama says that if tuition keeps growing an average of 7.25 percent a year, then it will take between $642 million and $1 billion to cover the deficit. The difference depends on whether the state pays the money in as a lump sum or over several years.

Parents or grandparents paid fixed amounts into the program in anticipation that children would get four years of tuition at a state university when they finished high school. The state invested the money to earn interest to pay the tuition. But stock market losses and higher-than-expected tuition increases left the program in financial trouble.

Gov. Bob Riley, who can’t seek re-election, wants the state to find a way to make the participants whole.

“Governor Riley believes the state needs to honor its commitment to PACT families. Parents participated in PACT to ensure a better life for their children, and Governor Riley believes the state should live up to its end of the deal,” Riley’s spokesman, Todd Stacy, said.

Riley is leaving the financial answer to the Legislature, but says he will call a special legislative session if a consensus to fix PACT develops.

Lt. Gov. Jim Folsom Jr., who serves on the PACT board, said he and many legislators feel like the governor. “We’ll continue to work on it and try to craft a solution,” Folsom said during the meeting.

About 50 PACT participants attended the board meeting. After the meeting, four candidates for governor told them the state should stand behind the program financially.

Democratic Agriculture Commissioner Ron Sparks said he would do it by taxing gambling across the state. “I’m optimistic about it,” he told participants.

Democratic U.S. Rep. Artur Davis said Alabama has a legal and moral obligation to stand behind the program, but he didn’t outline a financial plan.

“I’m not here to give easy solutions today,” he said.

Former two-year college chancellor Bradley Byrne, a Republican, said the costs in the Retirement Systems study are too high. He said any solution should include the Legislature requiring Alabama colleges to freeze or limit their tuition increases for the plan’s participants. That would lower the state’s cost dramatically, he said.

Republican State Treasurer Kay Ivey, chairman of the PACT board, said she stands ready to work with legislators on a solution, but she said, “Right now, they are not looking to us for solutions.”

In the Legislature, there aren’t any easy answers either, said Sen. Hank Sanders, chairman of the Senate Finance and Taxation-Education Committee.

Sanders, a Democrat, said the money can’t come out of taxes set aside for public education because those taxes are shrinking. He said taxing gambling is an option.

“I’ve always thought gaming that goes on in this state ought to be regulated and taxed by the state,” he said.

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