A new state actuary report released Thursday said there is a less than 1 percent chance Washington's prepaid-tuition program would not be able to meet its financial obligations over the next 50 years, and changes proposed by the Legislature could create a less solvent alternative.
A new state actuary report released Thursday said there is a less than 1 percent chance Washington’s prepaid-tuition program would not be able to meet its financial obligations over the next 50 years, and changes proposed by the Legislature could create a less solvent alternative.
If the current Guaranteed Education Program did have trouble meeting its obligations, the state would have to come up with as much as $4.6 billion to cover the shortfall, according to the solvency analysis.
But in a hearing Thursday morning before the House Ways and Means Committee, State Actuary Matthew Smith emphasized the chance of insolvency is relatively low.
“Based on this analysis, the program does look sound under current terms,” Smith said, but added, “It isn’t without risk.”
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Senate Majority Leader Lisa Brown and Minority Leader Mike Hewitt have proposed a bill that would establish new limits on the program that might make it less attractive to potential buyers. Brown said the changes would aid its long-term viability, while making the GET program only slightly less generous.
Thursday’s actuary report said Brown and Hewitt’s proposal, which would effectively create a new GET 2, would have a lower possibility of insolvency — 0.4 percent for GET 2 versus 0.7 percent for the current GET over the next 50 years — unless the new program attracts many fewer participants.
Opponents of the bill say the new GET is likely to attract fewer participants because investment returns will not be as good. If that happens, the chance of potential state contribution to the program would increase dramatically. Smith’s analysis said if annual purchases of prepaid-tuition units are cut in half, then the state could face a financial obligation up to $15.9 billion.
In an email, state Rep. Reuven Carlyle, D-Seattle, said the actuary’s report was a “crystal clear message to legislators and the public: The current GET program is actuarially sound and strong for the long term … the analysis shows that we do not need to close GET 1 and open GET II but rather to continually refine the price/benefit level.”
Carlyle is sponsoring a comprehensive higher-education overhaul measure, HB 1795, that would give the actuary a role in providing regular reports analyzing the financial soundness of the GET program.
As the GET program now stands, 100 prepaid units will buy a year of tuition and state-mandated fees at the state’s two most expensive public universities — the University of Washington or Washington State University — whenever they are used in the future.
Substitute Senate Bill 5749 would decrease the value of GET units considerably for people who buy into the program starting next August. For new investors, 100 units would be worth the average of tuition at all of the state institutions of higher education, weighted by the number of enrolled undergrad students, and would cover some but not all student fees.
Brown, D-Spokane, said the changes would aid its long-term viability, while making the program only slightly less generous.
“I know that sometimes a small problem can turn into a large problem,” Brown said a few weeks ago before the new actuary report was available. “Having some tightening up on the program actually makes it stronger over the long-term.”
The GET committee adjusts the enrollment price each year to keep up with increases in tuition and the ups and downs of the stock market. People enrolled in the program have until April 30 to buy units at the current price of $117. The current enrollment period ended Thursday.
A task force is developing some changes to the current program to keep it as financial tight as possible, said Larry Lee, GET Deputy Director, in testifying to the Ways and Means Committee on Thursday. Among those ideas were more frequent rate adjustments and a bigger reserve fund.
Lee said Substitute Senate Bill 5749 would make it harder for the GET committee to set its rates and payout values in an accurate and timely manner.
Seattle Times staff reporter Katherine Long contributed
to this report.