Tuesday, September 9, 2003

Tuition prepay program is self-sufficient

Reserve fund will cover future deficits

By Joe Biesk
The Associated Press

FRANKFORT - If Kentucky's Affordable Prepaid Tuition program remains as is, it may have to dip into its reserve funds but would remain self-sufficient, program administrators said Monday.

The program - which allows enrollees to lock in future college tuition costs at current prices - would not need additional money from the state's general fund, Jo Carole Ellis, KAPT executive director, said.

Currently, the KAPT program is backed up by the state's unclaimed property fund. If the program remains as it is now, it should cover its own expenses, Ellis told a legislative subcommittee on post-secondary education.

"Right now we have more in the reserve than we have in actuarial deficit," Ellis said.

Right now, the KAPT program has more than 7,000 prepaid tuition accounts. The General Assembly, which created the plan in 2000, approved as part of the current state budget a moratorium on any new accounts. The moratorium expires at the end of June 2004.

If lawmakers tapped KAPT's reserve fund for other purposes, the first deficit would show around 2021, Ellis said. But if the reserve stayed in place, the money in it would be enough to cover costs, she said.

And if the program were to start accepting new accounts, it would still have enough money to cover itself, Ellis said.

For further insurance, the state could begin charging 5 to 10 percent premiums on new accounts, Ellis told the committee.

"The premiums are not a preferred option," Ellis said. "There are a lot of avenues available to us."

The program could have a $12.8 million actuarial deficit in 2021, said Steve Rowland, a financial consultant to the unclaimed property fund.

That could translate to about $13.7 million by 2021, while its reserves by that time are expected to be about $75 million, Rowland said.

"It never is at risk of running a deficit. The program is fiscally sound," Rowland said.

Joe McCormick, executive director of the Kentucky Higher Education Assistance Authority, said he thought the program would be "manageable" and not a problem if the reserve fund stays intact.

"What you do to manage the deficit is the key," McCormick said. "And that's where the reserve fund comes in, that's where the will of the legislature to protect that reserve to apply to those future deficits comes in. And if those things are in place, it's a manageable program."

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