College fund's hole deepens
Legislature urged to act
07:36 AM CDT on Friday, June 29, 2007
By Terrence Stutz / The Dallas Morning News
AUSTIN – The Texas Tomorrow Fund's financial hole is getting deeper.
A special House committee was told Thursday that the cost of easing the projected deficit in the state's prepaid college tuition plan is growing because the Legislature failed to act on the problem in regular session this year.
Mark Hurley, a Dallas-based financial consultant who leads the state comptroller's advisory board on the fund, said the cost of keeping the program solvent will only increase as tuition rates continue to climb and the fund's investments fail to return the desired income to keep up.
"The options available to the Legislature are limited and unattractive," Mr. Hurley told the House Select Committee on Higher Education and Public Education Finance.
"You can appropriate the money now or you can appropriate much more money later," he said, adding that the state also could cut funding for colleges and universities, forcing them to make up the deficit.
If lawmakers had decided to shore up the Tomorrow Fund this year, it would have taken nearly $500 million, Mr. Hurley said. But the Legislature now won't be able to act until its next regular session, in 2009 – barring a special session.
Earlier this year, Mr. Hurley and the advisory board – made up of financial experts – warned that the prepaid tuition plan will have a deficit of $1.7 billion to $3.1 billion by 2029 if nothing is done.
That number hasn't changed, Mr. Hurley said, but the cost of fixing the fund will grow over time. In other words, the longer lawmakers wait, the bigger the cost.
"The ox is in the ditch, and there's a significant shortfall we have to deal with," said Rep. Dan Branch, the Dallas Republican who heads the legislative committee. "Our challenge will be to come up with legislative solutions to pull the ox out of the ditch."
Nearly 158,000 young Texans were enrolled in the program after it was started in 1996. But in 2003, it was closed to newcomers after the Legislature deregulated tuition at state colleges and universities – triggering an average 40 percent increase in tuition over the last four years.
Before Mr. Hurley testified, an administrator from the comptroller's office told the committee that an immediate infusion of $110 million would take care of the deficit and allow the program to meet its obligations through 2029.
"If you put $110 million in, that would solve all the problems," said Robert Wood, director of local government assistance and economic development at the comptroller's office.
But Mr. Hurley, president and chief executive of Fiduciary Network, sharply questioned that number, saying it is based on investment returns that are unlikely to occur and understated tuition increases.
Also testifying was state Comptroller Susan Combs, who said lawmakers should deal with the problem soon, whether through annual payments or a lump sum of several hundred million dollars.
If the Legislature decides to make smaller annual payments, she noted, the obligations of the fund can be met with appropriations of $53 million a year for the next 19 years – a total of just over $1 billion. Under a worst case scenario – with a poorly performing stock market – the annual payments might have to be $69 million, she added.
Lawmakers approved a scaled-back version of the Tomorrow Fund this year. Texas Tomorrow Fund IIwould again allow parents to purchase a future college education for their children at today's prices – though the costs would be considerably higher and the state would no longer guarantee the tuition contracts.
The new program is expected to open in fall 2008.