Texas Tomorrow Fund Up To $3B Short - KLTV.com - Tyler, Longview, Jacksonville |ETX News

02/16/07 - Austin, Texas

Texas Tomorrow Fund Up To $3B Short

The Texas Tomorrow Fund's prepaid college tuition program is severely underfunded and could be short as much as $3.3 billion to meet its obligations over the next two decades, Comptroller Susan Combs warned Thursday.

The projected shortfall is as much as five times as large as previously estimated and will leave the program unable to cover between $1.74 billion and $3.31 billion in tuition payments through 2029.

The 158,000 young Texans enrolled in the program are guaranteed a set tuition rate. So the shortfall would have to be made up by universities and in the state budget.

In a letter to Gov. Rick Perry and legislative leaders obtained by The Dallas Morning News, Ms. Combs offered a "sobering" evaluation of the program based on the results of a study by a group of outside experts who reviewed the financial integrity of the tuition fund at the request of the comptroller.

"While no one can accurately predict the future performance of the Plan with absolute certainty, I believe these estimates are sobering. To that end, I look forward to working with each of your offices on this important issue," Ms. Combs said in her letter.

The program was launched with much fanfare in 1996. But it was closed to newcomers in the summer of 2003 after the Legislature deregulated tuition at state colleges and universities to help cope with a $10 billion revenue shortfall that year.

Deregulation triggered a record surge in tuition rates, which have jumped more than 40 percent over the last four years at the state's 35 senior colleges and universities.

The deregulation law allowed college governing boards to set their own tuition levels for the first time, rather than having to adhere to statewide rates set by the Legislature.

The spiraling rates made it virtually impossible for the state board that oversees the Tomorrow Fund to set prices for new contracts, so it voted to keep the program shuttered in each of the past four years.

Just last month, though, the Texas Sunset Advisory Commission - made up of lawmakers and citizen appointees - suggested that the prepaid tuition plan could be reopened in a "tuition deregulated environment" if the Legislature approved certain changes to make it more financially sound.

The commission recommended that the Tomorrow Fund governing board consider reopening the program as early as December, but only if lawmakers approve several revisions in the law - including one provision that would allow more expensive institutions such as the University of Texas at Austin to add a surcharge above what the Tomorrow Fund would typically pay at most schools.

The comptroller's report will cast doubt on any recommendation to reopen the program, but one legislative aide said there is "still an opportunity to come up with a solution" if the right changes are approved.

"I am not sure we would have known the extent of the problem had she not taken the initiative to do an independent review," the aide said of Ms. Combs.

The Texas Tomorrow Fund program was created a decade ago to let Texans lock in the cost of tomorrow's college tuition and fees at today's prices for their children, either through installment payments or a lump sum. Parents could enroll their children at any age. Nearly 25,000 families jumped into the plan the last time it was open for enrollment in the first half of 2003 - just as the tuition deregulation bill passed the Legislature.

That year, parents could purchase a prepaid tuition contract for a newborn child - good for five years of tuition and fees at any four-year public university in Texas - for a lump sum of $17,460, or $152 a month.

With about $1.6 billion in assets, the program is one of the state's largest investment funds and has paid out more than $150 million in tuition and fees over the last four academic years.

Besides higher tuition and fees, college students and their parents are also facing widening gaps between the state's most expensive and more moderately priced universities. And some universities such as UT-Austin have different tuition rates for various programs and schools within the institution.

Such variations conflict with the current structure of the Tomorrow Fund, in which all parents who purchased a tuition contract until 2003 paid the same basic amount depending on the year they enrolled in the program.

"Tuition increases have fluctuated dramatically at different institutions," the sunset commission said in its report, citing the difficulty for the Tomorrow Fund to accurately price new contracts if the program reopens.

While tuition rose 21.8 percent at Texas Southern University and 12.7 percent at UT-Austin's business school, for example, rates increased only 1.3 percent at Texas A&M University in Kingsville.

Until the Legislature changes the law, tuition charges to the Tomorrow Fund program must be capped at the weighted average for all senior colleges and universities. In other words, the fund can pay tuition that is less than the average, but not more - leaving more expensive institutions to make up the difference out of their own funds.

The six largest universities in the state had to come up with $7 million in 2005 to make up the difference for students using the Tomorrow Fund, according to the report.

To remedy the problem, the sunset commission staff called for legislation that would eliminate the weighted average requirement for new prepaid tuition contracts. That would allow more expensive institutions to add a tuition surcharge above what the Tomorrow Fund pays for its students.

Story courtesy of the Associated Press.

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