Last winter, when Senate Majority Leader Rodney Tom called the state’s modest college-savings program “a Ponzi scheme,” I let it pass. Because … well, he’s an elected politician. I expect some level of demagoguery from them.
But now another has stepped up to this same bombastic mike, and it’s a surprising one: the president of the University of Washington, Michael Young.
Last week, during an interview Young did with The Atlantic magazine in front of 70 onlookers at a Seattle hotel, he affably called the 15-year-old GET program — in which 150,000 local families have invested more than $2 billion to save up for college — “a Ponzi scheme, essentially.”
The crowd chuckled.
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A Ponzi scheme is a criminal swindle, so maybe they were laughing in shock? In a Ponzi, the investment is an illusion; investors get paid returns with money from an ever-increasing supply of newer investors. If — when — the supply dwindles, the pyramid collapses.
Is that what’s going on with GET?
“No, GET is not like a Ponzi scheme, not at all,” said state Treasurer Jim McIntire, when I asked him about Young’s comment. “I would hope that what was going on here is that he misspoke.”
GET, or Guaranteed Education Tuition, is factually not like a Ponzi scheme, except in the most superficial ways. For starters, it’s an open book. Last month it got an “A” risk rating from the state actuary. It has $2.5 billion invested, in federal bonds and equity funds, that last year returned a healthy 16 percent.
It also isn’t relying on an increasing supply of investors. GET works by selling prepaid tuition “units” at a premium on today’s tuition prices, guaranteeing that when it’s time to cash in, 100 of the units will be worth a year of school at the most expensive state university.
It’s true that like with Social Security or some pensions, GET can get out of whack if its liabilities soar. That happened when the UW’s tuition was boosted by double-digit percentages year after year.
But the program fixed this the way private insurance does — by raising its premiums. It announced this publicly. If GET is a Ponzi scheme for relying on a mix of investments, new customers and premium adjustments, then so is the private insurance industry.
This reminds me of when GOP presidential candidate Rick Perry called Social Security a Ponzi scheme (even though it hasn’t missed a benefit payment in 74 years!) It’s not a rhetorical level I was expecting the top university official in our state to stoop to.
What’s the deal, President Young?
“It’s incendiary, I admit,” Young said when I called him. “But this can be a real go-along to get-along community. You have to be a little incendiary around here to get people’s attention.”
Young said the GET program, because it’s a defined-benefit plan (it pledges to pay no matter what happens to the investments), is a ticking time bomb. He compared it to Detroit going bankrupt in part due to its crippling defined-benefit pensions.
“It’s 100 percent predictable that this is going to go south,” Young said. “It might be fine now, but let’s have this conversation six years from now. It’s going to need an infusion of capital to prop it up.”
That’s not what the state actuary predicts. But I can’t say who’s right.
What’s rankling about all this is that GET is about the only college help in this state for the middle class. It’s no get-rich-quick scheme. What it is, essentially, is a tuition version of Social Security.
So as with Social Security, if there’s some problem, let’s fix it! Deriding it as a Ponzi scheme — falsely — seems only destructive to me.
“I’m pretty sure you wouldn’t be calling me to have this debate at all if I hadn’t called it a Ponzi scheme,” Young said.
Touché. He’s right about that. But I have my doubts the Rick Perry style of community engagement is going to play very well around here.
Danny Westneat’s column appears Wednesday and Sunday. Reach him at 206-464-2086 or firstname.lastname@example.org