Isn't It Weird That...
Isn't it weird that the Republicans say they want to fund education first when they're proposing to cut funding for college tuition?
Isn't it weird that ... the Republican response to the impact of the Wall Street crash (and subsequent recession) on the state's Guaranteed Education Tuition (GET) program is to cut it?
Stay tuned for a long—and single-issue—installment of "Isn't it Weird That."
GET works like this: Parents buy vouchers valued at a percentage of current college tuition price (it's $172 a share today, which is one percent of the highest annual tuition cost, currently $11,782 at the UW). (The state invests the money in the stock market.)
Years later, when tuition costs are higher, your vouchers, tracking tuition, would be worth more. For example, if parents bought enough GET vouchers to cover 30 percent of tuition in 2013 and their kid starts college in 2031, they're still covered for 30 percent of tuition; the state pays the difference between the parents' original investment and the increased cost of the 30 percent.
The GOP concern: Today—that is, if everyone cashed out right now—there's only enough cash flow in the account to cover 79 percent of what the state would owe; that is, the state would be $631 million in the red. Obviously, not everyone is cashing out today, which is the beauty of the program; money is always coming in, expanding the investment pool, as the people who invetsted 18 years ago are cashing out.
However, the GOP does have a legitimate concern: The state actuary recommends that the account should always be able to cover 110 percent of its costs. So, here's another way to look at it: Over time, if everyone cashed out when their kids go to college, the state would end up paying $1.7 billlion—serious money.
In 2008, before the recession, GET was at 109 percent solvency. In '09, it slipped to 84.2 perecent and down and down to today's 79 percent.
But here's what's wrong with the GOP equation. The state actuary says there's only an 0.6 percent chance that the state will be left on the hook to make up the difference. Today's numbers—the $1.7 billion payout projection—are based on a snapshot of today, when the program is reeling from the recession.
The downward spiral of the '08 Wall Street crash and subsequent recession on GET worked like this:
GET's investments got hammered on the market, devaluing the stock and putting the state on the hook for a bigger differential in payout price to cover tuition. Meanwhile, the recession forced the state to cut its support for higher ed, which raised tuition costs, which raised the price of GET stock purchases for parents and for payouts by the state, which led to lower sales of GET stock (900,000 shares, down from two million), which strained the cash flow for payouts.
All of that bad news explains this: In 2008, before the recession, GET had funds amounting to 109 percent of its costs. In '09, it slipped to 84.2 percent; today, it's 79 percent.
It's a bummer that the GOP's response to the recession is to use it as an excuse to cut higher education, which offers the best solution to the recession, especially when their mantra this session is to fund education first. (Isn't it weird that the Republican's mantra this session is to fund education first, but they're going after GET first?)
Ousted senate majority leader Sen. Ed Murray (D-43, Seattle)—in his first public policy disagreement with his nemesis, new senate majority leader Sen. Rodney Tom (D-48, Medina)—blasted Tom today for this "unacceptable" strategy. (Tom, obviously, joined with the minority Republicans to give them a majority with him as leader.)
In a letter to Tom, Murray focused on the recession-era irony that part of the problem, like I said above, is that the state has cut funding for higher ed which has forced higher tuition.
Many people are talking about the "unfunded liability" that the program is creating for the state, but the reality is that the liability is only truly realized if we close the program today and cash out all units that have been purchased. According to the Actuary, if we continue the program as it is currently structured, there is only a 0.6% chance that the state would ever have to make contributions to the program from the General Fund.
It is important to note that risk analysis is based on the assumption that the state will continue to fund higher education on the backs of students and their families--with a 30/70 split between state support and tuition. If the state were to increase its share of higher education funding to a fairer split--say 40/60, the chances of needing a state contribution from the General Fund drop to 0.2% and the funded status of the program would immediately increase from 79% to 94%.
If we close the GET program today, we are guaranteeing the $630 million liability, while eliminating the program's incoming cash flow. Closing the GET program would also mean eliminating the state's only college savings tool and one of the only state programs aimed at helping middle class families send their kids to college. That is simply unacceptable.