TThe board of the Alabama Prepaid Affordable College Tuition Program met for the first time this month under newly elected Alabama Treasurer John McMillan, who says the once-troubled program is on a much better financial footing than it was a decade ago.
“We actually just had a report from our auditors and investment managers and everything was very positive,” McMillan said in a recent interview. “It’s extremely encouraging, and it looks like [Alabama PACT] has a sound financial basis and is moving forward.”
From 1989 through 2008, more than 76,251 families in Alabama bought PACT contracts, which allowed them to pay at their own pace toward credits for their children’s college tuition and other expenses. By paying years in advance, families were hoping to avoid tuition hikes in the future.
To date, the program has paid out more than $1 billion in benefits to those families for their children’s college education and will continue to serve more than 16,000 active accounts through the year 2032.
However, only a decade ago, the PACT program came close to collapsing entirely after steep losses in the stock market and a steady stream of tuition increases left the program with hundreds of millions of dollars less than it was obligated to pay out to contract holders.
While Gov. Kay Ivey was state treasurer at the time, most observers have said the problems the PACT program ran into were most likely inevitable because how it was initially set up.
“You had a lot of money invested in a market that can turn volatile, no limit on tuition increases and a fairly broad program that included not only tuition, but books, supplies and fees,” former state senator and PACT board member Trip Pittman said. “Even before I was in elected office, I always said it was too good to be true. Certainly, as it developed, that proved to be the case.”
As it stands today, the PACT program has the funding needed to pay out the benefits it owes to its remaining contract holders, though new contracts haven’t been sold since 2008. According to a recent actuarial report, PACT was funded at 123.6 percent as of Jan. 1 — meaning its assets currently exceed its remaining liabilities.
According to Assistant Treasurer Daria Story, McMillan’s office and most of the board focus on conservative investment strategies to ensure PACT’s assets are sufficiently protected to ensure it can meet its liabilities. As of 2019, the market value of those assets is estimated to be more than $105 million.
“The role of the board is to keep the investments safe and maintain liquidity in order to pay it out to contract holders as needed,” Story said. “Given the age of the program, we focus on very conservative, very safe investments, but with that, you also don’t get as much yield.”
The stability PACT enjoys today, however, wouldn’t have been possible without some drastic intervention by the state of Alabama. A lawsuit filed by dozens of program enrollees also resulted in payouts being capped at the equivalent of in-state tuition rates in the fall of 2010.
Contract holders have been left to make up the difference since then, though the PACT board has been able to add to the value of those benefits four times between 2015 and 2018 with increases of 3 percent, 6 percent, 8 percent and 7 percent, respectively.
In 2012, the Legislature moved to allow the PACT board to negotiate with contract holders to keep the program solvent through an amendment Pittman sponsored in the Senate.
In 2015, lawmakers agreed to allocate $548 million for PACT payments from the Education Trust Fund budget spread out over 12 years. It will receive $61.5 million this year alone, and Story said the program today “truly does depend” on those dollars.
In addition to his history with the PACT program in the Legislature, Pittman also served on its board of directors for a number of years. However, records indicate his attendance at regular quarterly and specially called PACT board meetings was sparse.
Pittman rotated off the board of directors when he left the Senate this year, but according to published meeting minutes, he hadn’t attended any PACT board meetings since at least 2015, as far back as minutes posted to the Alabama Department of Treasury’s website go.
It’s worth noting that some absences weren’t uncommon among other board members, and Rep. Bill Poole, R-District 63, missed as many meetings as Pittman did during that same period. Re-elected in 2018, Poole is still listed as an active member of the Alabama PACT board.
Asked about his spotty attendance, Pittman acknowledged he should have attended more meetings while serving in the unpaid position. He said serving in other leadership roles in Montgomery and working in his Baldwin County district kept his schedule full, though.
“I know we went a couple of times when it was important, but when you’re in session or back home when you’re not in session, there’s plenty for a legislator to do,” Pittman said. “As far as that’s concerned, I would plead guilty, but I’d also say we were always in contact, making sure the program was kept solvent and meeting the obligation it has to contract holders.”
At least one local contract holder raised concerns about Pittman’s absence from those meetings because the board’s bylaws say its membership should reflect, among other things, the “geographic diversity” of the state. Aside from Pittman, the only board member from anywhere south of Montgomery over the past three years was from Samson.
However, with McMillan’s election, the person overseeing the entire program will now have strong ties to coastal Alabama. Born and raised in Stockton, McMillan served on the Baldwin County Commission and was twice elected state representative in the 1970s.
Yet, McMillan told Lagniappe he didn’t think geographic location has any bearing at all on the work the board does. He said he’s more concerned with the number of PACT purchasers sitting on the board because of the potential for conflict of interest. Currently, the bylaws only require there be one PACT holder on the board of directors.
“I personally think there might be a few too many people on there that are PACT contract holders,” McMillan said. “I know that might not be popular with some of the board, but there is the potential there to be inclined to look at the personal impact versus the overall program.”
Alabama PACT Program: Dec. 31, 2018, Quarterly Valuation
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