At its February 25, 2004 meeting, the Alabama PACT board learned that the program was funded at 92.7% and had an actuarial deficit of $51.8 million. The board "discussed the need to regain a fully funded status."
At the PACT board's August 25, 2004 meeting, Alabama Commission on Higher Education director, Dr. Mike Malone, gave the board what turned out to be a prescient warning:
Dr. Malone briefly discussed the reauthorization of the Higher Education Act and his expectation of massive unfunded mandates. He expressed concern about the affordability of higher education, stating that federal initiatives such as this would only exacerbate the problem.
While it's good to know that the PACT board was on top of the problem - at least a little bit - their two-fold attempt to solve the problem by making riskier and riskier investments and embarking on an aggressive marketing campaign wasn't, in retrospect, the best solution.
The marketing campaign, in particular, seems more than a little deceptive. At almost every board meeting from 2004 on, the board discussed the need for more contracts and higher investment returns. They grew increasingly nervous about poor performance by investment managers, even getting rebuked in 2005 by a Callan representative who told them they couldn't "can't just fire managers every six months"
But instead of approaching the Legislature or other state leades about the problem, the board kept quiet - publicly at least. Treasurer Kay Ivey scoffed when her Democratic opponent criticized the PACT program as poorly-run and underfunded. The board brushed off a request from PACT parent, Dale Goode, at the May 14, 2004 meeting to guarantee benefits, telling him that the board "was very conscientious about the program and believed that benefits would be paid..."
Why the public silence? Maybe it had something to do with the $100,000 marketing campaign the board was using to sell more contracts. If parents and grandparents thought the program was unsound, who would join? The board discussed the need to sell more contracts to keep the program afloat and worried about the effect of declining sales.
The new marketing campaign launched in 2007 (page 16) included a new tag line: "Prepay A Child's Tuition." Prepaid? There's that pesky word again....
We're going to have a number of posts about the March 24 Alabama PACT Board meeting, including quite a bit of video, and this diary functions as a signpost to direct everyone to that information. The videos will be embedded here in the same order that the events ocurred on Tuesday, along with a link to any other post where the video was used so you can find more context and reader reactions.
We'll be updating the mothership often as new information becomes available. If you're just starting out, our initial report of the PACT Board meeting may give a helpful overview.
Updated: With video of the Ford/Morrow press conference on their PACT legislation.
The outcome of the 3/24 PACT Board meeting wasn't exactly awful, but it wasn't good either. The process was eminently predictable and went something like this:
Put several dry, lengthy, financial reports up early and spend a lot of time on them.
Put forward only two options for dealing with the current financial situation, the first of which is so obviously impossible it is voted down immediately.
Resolve to pursue the remaining, less bad, option without significant discussion of anything else.
It's a classic way to get what you want out of a meeting and that's the way it went in Montgomery. Yes, Treasurer Kay Ivey failed to get the authority to dissolve the PACT program at some future time "if conditions warrant" but she hand-picked a three person committee to work with the Legislature on the funding issue: herself, Lt. Gov. Jim Folsom and Two Year College Chancellor Bradley Byrne. Notice how all the prospective gubernatorial candidates on the Board ended up on that committee? Anyway, if PACT participants aren't vigilant, Ivey's authority to dissolve the program at a future date will end up stuck in a dark corner of some bill or approved at another Board meeting. If that happens, the parents and grandparents will no longer have any leverage -- it will be "take the crumbs you're offered or we'll dissolve the program." Of course, dissolving PACT and simply refunding the initial investment is grossly unfair to the folks who bought PACTs a long time ago -- they get principle only with no interest -- and offers a big windfall to those who bought in the last 2 or 3 years -- who would get all their money back at a time when almost any other investment would have been a loser.
I am concerned that when 48,000 Alabama students and their families were waiting for a solution, the PACT Board’s actions were limited to three things: they hired lawyers for themselves; they appointed a committee; and they put a band-aid on a festering problem. Left unaddressed was the question of whether the Board accepts a moral obligation to the parents and students who contributed to PACT, and whether any explanation can be provided for how a fund advertised as a prudent, conservative investment is apparently the only fund in the country in jeopardy of collapse.
Indeed, the Board was careful to avoid any hint of a moral obligation to honor the original committment of "guaranteed prepaid tuition" and they did not even discuss the issue of an independent audit, even though at one point Byrne questioned the "draft" nature of the audit presented, reminding the firm they were expected to advise the Board of problems, not wait for the Board to demand changes to their report. In the end, no new PACT enrollees will be accepted for some undefined future period, a scholarship fund will be immediately diverted to help meet the immediate PACT obligations and the bigger problem was booted across the street to the Alabama Legislature. Lt. Governor Jim Folsom, Jr. assured the audience that he would not rest until the issue was resolved, but as the only Board member with a legislative role he's bound to realize they just dumped the monkey onto his back, although at least Ivey wasn't allowed to propose specific legislation.
On a more positive note, a couple of Alabama State Representatives proposed a financial solution for the PACT program less than half an hour after the Board meeting adjourned. Referring to PACT as Alabama's version of the AIG mess, Representatives Craig Ford (D, HD-23) and Johnny Mack Morrow (D, HD-18) acted as a committee of two to address the PACT problem and introducing HB748 to provide short term funding for PACT, and HB747, to make appropriations from the Alabama Trust Fund to PACT for the next five years, hopefully long enough to give the equity market time to recover. Ford and Morrow have since been joined by a slew of other co-sponsors in the House. When I asked this afternoon, Morrow expressed confidence that members of the Senate would also come forward to sponsor the bill.
These men have produced a plan and put it out for all to see. You may not like where the funding comes from -- a point open for discussion -- but their plan acknowledges that the state made a committment and the public trust will suffer if they break it. And most important of all, they got off the dime and proposed a real solution -- considerably more than the PACT Board has managed to do.
Note: There will be video of several key moments from the Board meeting -- later, but definitely not tonight.
The Alabama PACT board (the entire board this time!) met at the State Capitol building in Montgomery this morning to determine the fate of Alabama's prepaid college tuition program - and the students enrolled in it.
They were greeted by a full house of concerned contract holders intent on holding the PACT board to the "guarantees" made in the PACT contracts.
Mooncat and I attended the meeting and are now blogging from the Left in Alabama Montgomery headquarters.... aka Panera Bread, home of free wifi!
For the time being, the board plans to continue the PACT program, and voted on several steps to take to secure the program's viability.
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But instead of approaching the Legislature or other state leades about the problem, the board kept quiet - publicly at least. Treasurer Kay Ivey scoffed when her Democratic opponent criticized the PACT program as poorly-run and underfunded. The board brushed off a request from PACT parent, Dale Goode, at the May 14, 2004 meeting to guarantee benefits, telling him that the board "was very conscientious about the program and believed that benefits would be paid..." 
On a more positive note, a couple of Alabama State Representatives proposed a financial solution for the PACT program less than half an hour after the Board meeting adjourned. Referring to PACT as Alabama's version of the AIG mess, Representatives 
