Ted Little's Bill to save PACT Passes

April 21, 2010

 Ted Little's Bill to Save PACT Passes

Completely Funds Troubled Program

MONTGOMERY – The Alabama Legislature today passed legislation that will save the state's financially troubled Alabama Prepaid Affordable College Tuition (PACT) program run by the Alabama State Treasurer's office.

“I want to thank our legislative staff who helped me find a funding solution that fulfills the commitment of the PACT program without impacting our education budgets at all,” said Sen. Ted Little of Auburn, the bill's sponsor.  “We also avoided millions of dollars in the cost of potential lawsuits over this program, a huge savings for taxpayers. 

“The program is now 100 percent funded and will meet the needs of every student enrolled in PACT until the program ends long into the future.  At the same time, we have found a unique way of funding this program, one that will not divert any tax dollars from existing educational programs, and that is a very important point of this bill.”

Once state bonds are fully paid, the debt service payments are reduced.  Little's plan takes the money that once paid debt service and uses it to finance PACT contracts.

The legislation invests $236 million over the next eight years into the PACT program.  By 2027, the PACT program will receive a total of $548 from the savings on the debt service. 

The bill caps increases that public institutions can charge the PACT plan for mandatory fees or tuition per credit hours to 2.5 percent a year, except the University of Alabama and Auburn University.  Little's legislation also creates a 15-member board of directors and requires members must be experts in the field of investments or finances. 

“This problem got dumped into our laps but I am glad to say that we have solved it.  This will help a lot of kids get through college, and that is important to those families and to this state,” he said.  “We are also going to make sure that financial experts are in charge of this program.”

The program, started in the early 1990s, was supposed to do what its name promises: investors like parents or grandparents pay a set amount into the program, and the program agrees to pay the future college tuition costs of the beneficiary; in other words, a prepaid tuition program.  The PACT program entered into a contract with their participants.   Through this program, thousands of Alabama's finest students have already attended college. 

But in March of last year the Alabama Treasurer's Office informed the existing 48,000 PACT participants it did not have the money to meet all of its future tuition obligations.  The Treasurer's Office blamed the shortfall on the collapse on the stock market, a crash that caused the Alabama program to lose a staggering 48 percent of its investments.  The fund has gained since then, but still does not have the assets needed to fulfill all contracts.