The hearing that had been scheduled for April 27 was postponed. Not sure this will ever make it to court unless SB162 is later challenged.
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Save Alabama PACT Discussion Forum » Posts by KBinHoover
The hearing that had been scheduled for April 27 was postponed. Not sure this will ever make it to court unless SB162 is later challenged.
Riley did suggest a revision to avoid a potential tax issue. This has already cleared the Senate but will give the House another opportunity to filibuster. Expected to pass though, and probably by the same margin as last night.
They opposed the caps on the regional colleges, many of which are financially burdened historical black colleges. This is where the rubber is going to meet the road I'm afraid as I'm sure courts will be asked to rule on what could be seen as inequitable treatment between UA, AU, and the rst of the colleges.
Here's the revised SB 162 as changed by the committee and passed yesterday. In my opinion, this would be perfect if they changed one word - 'unseverable'. Basically, if anything in this bill is ruled unconstitutional then the entire bill is void. There really was no reason to have this in the bill and it was removed from the earlier version a couple of weeks ago by amendment. Not sure why they felt the need to put this back in here. Without it, PACT would be assured of at least getting the money from the Education Trust Fund even if all caps are later removed. With it, the whole thing could blow up and we will have to start entirely over.
Part of me wishes Riley would veto this and send it back to change that one word.
House and Senate have passed SB162. Hopefully it won't be shot down in courts by representatives of institutions w/ capped tuition. This ain't over, but we are now in the driver's seat for the first time in a while.
No, we don't have a new pope, but it seems we have reached a compromise. Still needs to be voted on by House and Senate, but seems very promising!
(Could Hubbert have enough clout to kill this?)
Actually, the PACT website does a decent job of providing updates on lawsuits. Here's some info on Green v Ivey. April 27 is when the courts may determine if a class exists.
Hopefully, w/in the next couple of days our legislators will take care of things and this suit, and others, will be dropped. We'll see.
Good thoughts kitty!
I'll suggest even a different slant. Most of our colleges and Universities have excess capacity for more students, and with the exception of some popular required courses, many classes are never full. The real incremental cost of having a PACT student attend a class is often ZERO. (Just a butt filling an otherwise empty desk.) On the other hand, not having that kid in class costs real tuition dollars, whether capped or uncapped. The truth of the matter is that by fighting a cap the Leaders of Secondary Education are probably cutting off their noses and ears to spite their faces. By quarreling over whether or not tuition could increase by 2.5% or some bigger number, they're bringing into play the possibility of losing 100%. Some kids just won't be able to attend at all if PACT is allowed to implode. It's naive to assume that everyone will simply pay their own way.
Not unexpectedly, Senate rejects House version of bill due to caps on tuition rates.
mc,
I know how you feel. Every year I pay a lot of taxes that go toward paying off debts from which I'll never reap any reward. Unfortunately, that's life.
Your facts are a little off as guarantees lasted for more than 3 years. Please see my earlier post on the topic of guarantees from both an actual and a legal view. And you can refer to links from this post to see what Alabama law said up until 2001.
I understand your opinion that some contracts were not guaranteed and perhaps shouldn't be paid at all. I suggest that this didn't occur until much later than you think (early 2000's) from a legal standpoint, and there is no bright line defining exactly what should be construed as a guarantee and what shouldn't because each & every year the Treasurer seemed to muddle w/ some aspect of the contract, brochure, or disclaimer, along w/ the aforementioned changes to the law. This tinkering to attempt to remove any thought of a guarantee is exactly the smoking gun that our courts will see as supporting an argument that guarantees must have existed or why the continued changes?
It could save some money to attempt to split the PACT owners into 2 groups - 1 w/ guarantees and 1 w/out, but I suggest that the overwhelming majority of contracts would fall into the former class as sales really dwindled down in the later years as the contracts that were sold were much more expensive, so that refunding these few but costly contracts would have little if any impact on the overall deficit.
Even though you didn't invest in PACT, as a taxpayer you should be furious w/ Ivey and the PACT Board. They remained overinvested in aggressive equities long into the market downturn, and then suddenly decided to move to fixed assets almost at the bottom of the cycle. They've totally missed the rebound which could have offset part of the deficit.
I'm sorry your financial planner steered you away from PACT. I also could have invested my money elsewhere, but nowhere else could I find a guarantee from the State of Alabama. There are a lot of lawyers in our legislature. While they haven't yet agreed on the funding method, their unanimous votes should tell you and others that they have reviewed the matter and know that these guarantees are real. Fighting this will only cost you, and me, more tax dollars.
Because I'm a broken record, I'll take this opportunity to reiterate that the Trust Fund has more than enough money to cure this problem w/out any direct impact to taxpayers.
KB
Yep - see my post from last February on this lawsuit
As I said then, any legislator or anyone who has read the prior law knows that a lawsuit would just be an expensive loss for the State of Alabama.
I get so sick of hearing people say that there were no guarantees. The original contracts said PACT was guaranteed, the original brochures even described how it was guaranteed, there were no disclaimers, and the law stated that this was a debt of the state. How much clearer could it get? Oh yeah, all of the PACT founders are now on public record saying that they too thought it was guaranteed.
but one bill includes the 2.5% cap and the other does not. Here's what the committee should do (assuming the Senate rejects the version w/ the cap):
1) Pass the bill giving the $236M to PACT and include the 2.5% cap but beginning in 2011.
2) Also pass HB775 (where the Trust Fund makes up any deficit) but add a clause that would remove the 2.5% cap. HB775 (or whatever the committee calls their version) will require a vote in November.
This would effectively allow voters to choose a tuition cap or Trust Fund solution. Either way, PACT is funded and expensive lawsuits are avoided. And, legislators are heroes for funding PACT and allowing the public to determine how. University leaders would undoubtedly come out in huge favor of the Trust Fund solution to void the cap.
What absolutely cannot happen is to have this legislative session end w/out getting the $236M into PACT. This would be a travesty and kick off the expensive class action lawsuits.
Plan B was, is, and will be our court system. The legislators know that expensive lawsuits are coming if they don't get this done NOW. And, I suspect that our University and AEA leaders will support any proposal w/out caps (like HB775) and attempt to help get votes from non-PACT owners from their various support groups.
Did HB775 get modified yesterday.The news report said "The state government would cover any shortfall." Is this true? If so this is fantastic.
Yes, it would have to be voted on, but there's no reason for our Universities to oppose this, and in fact they should endorse it because it guarantees the students will be coming and that they would receiv full tuition.
Bentley is proposing a new bill - HB775 - which would borrow from the AL Trust Fund to shore up any deficits in PACT. This is almost what we need.
The problem is the concept of borrowing. It requires funds to later be returned. If PACT had any potential future revenue to repay the Trust then no actuarial deficit would exist in the first place. As is, his bill is a huge waste of time. But, with one small change, it would be perfect. Simply replace the word "borrow" w/ the word "take".
While the bill w/ tuition caps would solve the PACT problem, it is heavily opposed and in serious jeopardy of not passing. Little's version of the bill would also move the $236M to PACT, which is not quite enough, but could then be subsidized w/ Bentley's proposed bill if the word "borrow" were to be changed. This would result in total payments of around $200M or so from the Trust Fund over the next 15 or 20 years. That's peanuts to this $3.3B Trust that has averaged growing by $200M/yr.
If Bentley wants to propose a constitutional amendment, do this: 1) Guarantee all PACT tuition payments; 2) move the existing PACT funds including the $236M (if we get it) to the ATF; 3) let the ATF board manage the funds as deemed appropriate; and 4) pay any deficits from the ATF.
Or don't do it. The courts will later mandate it anyway, and the ATF is the state's only source of savings, and continues to grow w/ future oil and gas royalties pouring in.
Obviously Gogue is anti-tuition cap, but he does support getting the $236M to PACT. I hope our legislators at least get this amount moved over. At a minimum this will buy time to consider more options* while our courts mandate guarantees to be paid.
* I tried not to bring up the Trust Fund again, and I thought I could do it but just couldn't, so I've edited my original message just in case any of our legislators are lurking. The best, and perhaps only, option to fully fund PACT before costly lawsuits start to arise is to tap the Trust Fund. Certainly if $1B is available for infrastructure (as proposed by one of your peers) then some of this could first be allcoated to PACT to fund existing legal obligations before road paving begins. Or, if you don't want to directly tap the existing funds, then you could divert future O&G royalties to PACT until funded. That harms no one. Thanks for your attention, and good luck.
I know that Save Alabama PACT doesn't want to take a stand on how to fund PACT, and I know that I sound like a broken record saying "tap the Trust Fund", but dadgummit the money is there now and it may not be available later if it's used to pave roads.
After this legislative session ends, I don't want to hear any politician say "sorry but we tried". Try harder. A huge stone is still unturned.
I hate politics. And I detest politicians who talk out both sides of their mouths. Our legislators are setting up the future of PACT to be determined by whether or not our Universities will agree on capping tuitions, and trying to convince you, me, and the general public that this is the only way to fix PACT's legally binding debt.
Meanwhile, those same legislators are moving toward a vote on tapping the Alabama Trust Fund to pay for non-legally binding improvements to our roads. I'm all for fixing potholes, but why not pay off past promises before making any new ones!?! How come the same money that PACT has been told it couldn't "raid" is now there in abundance ($1B!) to pay for new ideas?
We can wear green shirts, mail postcards, and celebrate moral victories all we want, but at the end of the day the only thing that matters is whether or not PACT tuition is paid, and currently the only topic on the table for discussion includes a tuition cap that every University leader is opposed to. The conversation we should be having is to supplement the $235M that seems to already be available and uncontested for PACT with whatever else is necessary from the Trust Fund assuming tuition caps aren't acceptable, and then and only then use whatever is left from the $1B to fix our roads.
Otherwise, these roads will be paved by our kids who are working instead of going to school.
I don't want decisions on my kids' futures to be made by these people.
Here's the agenda for tomorrow's meeting at 12:30 in Montgomery.
To the extent your tuition is already fully funded by scholarship, your contract allows you to ask Auburn to refund the PACT tuition money to you. If I were in your shoes I would probably take the refund instead of transfering to your other daughter for a few reasons.
1) As you note, until our legislators or courts act there is a risk that PACT won't later pay some or all of the 2015+ tuition payments.
2) As opposed to canceling a contract and only getting a refund of contributions plus a little interest, you will get paid full current tuition over the next 4 years. (Your risk is that you will have to reinvest this to keep up w/ any tuition increases over the subsequent 5 years.)
3) Once you transfer the PACT, it is permanant. What if for some reason your daughter loses her scholarship? Is it fully guaranteed for 4 years w/out any contingencies? Going the refund route will keep tuition money flowing in from PACT in case later needed for your first daughter.
One other thing that you might check on is taxes. I have no idea if amounts refunded in excess of your earlier contributions to PACT would be considered taxable gains to you or your daughter. If taxable, you might try to figure out if there is a legal way to roll this into a 529 plan for continued tax-deferred growth.
Of course, this is your decision, and I don't think you actually have to make any decision until just before your daughter enrolls. You should go ahead and check w/ the PACT office as to the latest date you could request a transfer because if you cross this point then the decision is moot.
Congratulations on your scholarship, and good luck!
Alabama's enrollment is about 28,000 and Auburn's is 23,000. Per last Fall's Actuarial Report (p B-1) there were 6,675 PACT students at UA for the 08/09 year, and 5,840 at AU, so each is about 25% of the total student population. PACT tuition paid at UA that year was $19.3M and at AU was $18.0M, so total annual tuition at each school was somewhere around $75M.
If either school wanted to raise tuition by 7.5% then a 2.5% cap would cost them 5%, or just under $1M/yr, which is approximately 1.3% of current total tuition. The amount of lost tuition would increase each time tuition is increased as the differential would be based on the prior tuition amount which already had a gap.
This doesn't seem miniscule to me, and I doubt it does to the leaders of our Universities either. This is not to say that I hope that they don't accept the proposed cap, but rather to show why I wish our legislators wouldn't put all their eggs in this one basket.
I've argued here before to take money from the Alabama Trust Fund. Currently, the principal in the fund is sitting and growing as more O&G money comes in each year. Only the earned interest is earmarked. Seems like either future O&G royalties could be diverted to fund PACT (which technically wouldn't even be tapping the Trust Fund), or current ATF principal could be removed and later replaced by future royalties. Either way, interest cash flow would be uninterrupted, no taxpayers would pay a hard earned dime, tuition caps wouldn't have to be considered, and all PACT contracts would be honored.
Great find!!
I'll give credit where credit is due - Ivey has done a very good job of providing info at the PACT website, and has done so w/out regard to whether or not it paints her or her team in a positive light.
I've been hard on Ivey but mostly with regard to her political dancing around the issues and her proposed solution, and partly due to the Board's aggressive investment policies that finally sunk the ship. All of the issues surrounding guarantees and disclosures were inherited by her from prior Treasurers. But, it would have served her well to have taken the time to better understand the chronology of statutory and contractual changes before leaping to the conclusion that nothing has ever been guaranteed. I blame the PACT lawyer more than her - he should never have let her go down this road w/out a proper and thorough review.
I've just read the 4th lawsuit filed on 1/6/10. Wow. I had heard that the laws governing PACT were substantially changed earlier this decade, but had never before been able to read the prior law. I seriously doubt that many of our legislators know what the prior law said, and I bet that until this lawsuit was filed Ivey et al did not know either.
Anyone who purchased a PACT contract prior to 5/9/01 should read this lawsuit.
Everyone who has any doubt that tuition was guaranteed by law should read this lawsuit.
Pay close attention to items 27-31 on pages 7-8.
Kudos to these attorneys for filing a lawsuit that is relevant, worthy of current consideration, and immediately enforceable by the courts. The courts can and should mandate tuition payment, and then the legislature can seek a funding solution without having people wearing green t-shirts always lurking around the corner, watching, and voting. I also encourage anyone reading this to forward a link to their representative.
Additional note - The plaintiff and attorney in this lawsuit is actually the same as w/ Lawsuit #1 filed last March but withdrawn soon thereafter. I suspect it was withdrawn as there was nothing actionable for a court to rule on in that lawsuit since all tuition has been paid. This lawsuit is very different as it cites the differences in interpretation of the law and how that currently impacts the decision to stay w/ PACT or to cancel that the board has forced on all of us to make right now. I suspect that these attorneys would not have re-filed this time w/out feeling strongly that this will be worthy of a court ruling as to whether tuition was guaranteed, at least with respect to the Class A plaintiffs.
Scott - Good question. Every Alabama citizen has a right to know what was promised by our state.
Here's the 1991 PACT Contract. Please read Section III - Contract Benefits.
The PACT program guarantees payment of undergradute instate tuition ...
The language including the word "guarantee" was included through 1994. After this, the language was changed to
The PACT program provides payment of undergraduate instate tuition ...
From a legal standpoint, there is absolutely no difference in contractually promising that you will do something, and contractually guaranteeing that you will do something. A contractual promise, made in exchange for money, is a legally binding guarantee. The word "guarantee" itself adds nothing from a legal standpoint. Every contract issued by PACT includes a legal guarantee because that's simply what a contract is.
One more thing - this was included in the marketing brochure:
Q. How is PACT guaranteed?
A. PACT is guaranteed through a prudent investment strategy and program safeguards. The Wallace-Folsom Prepaid College Tuition trust fund has many safeguards to insure financial viability.
Oh yeah, the cover of that brochure says "PACT - A partnership between the State of Alabama and its citizens." Every program document was signed by the State Treasurer and delivered stamped by the state seal. There absolutely was a guarantee made by our state and its Treasurer. If the legislature fights or delays action here, they will be spending our tax dollars on legal fees, and will lose anyway. There's simply no reason to delay action here.
If the money is truly no longer needed by Forever Wild as argued here, then let's divert that $10M/yr toward the state's legal obligation to fund PACT.
Any argument that the Trust Fund can't support Alabama's legal obligations should begin w/ a review of current funding of non-legal obligations. I don't know any taxpayers that would care if this $10M/yr was redirected.
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