SENATE BILL REPORT

 

 

                                    SB 5221

 

 

BYSenators Saling, Bauer, Patterson, Rinehart, Smitherman, Bailey, Lee, West and Warnke

 

 

Establishing the advance college payment program.

 

 

Senate Committee on Higher Education

 

      Senate Hearing Date(s):January 25, 1989; February 6, 1989; February 21, 1989; February 28, 1989

 

Majority Report:  That Substitute Senate Bill No. 5221 be substituted therefor, and the substitute bill do pass.

      Signed by Senators Saling, Chairman; Patterson, Vice Chairman; Bauer, Cantu, Smitherman, Stratton, von Reichbauer.

 

      Senate Staff:Shawn Newman (786-7784)

                  March 2, 1989

 

 

Senate Committee on Ways & Means

 

      Senate Hearing Date(s):March 3, 1989; March 6, 1989

 

Majority Report:  That Substitute Senate Bill No. 5221 as recommended by Committee on Higher Education be substituted therefor, and the substitute bill do pass.

      Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Bailey, Bauer, Bluechel, Cantu, Gaspard, Hayner, Johnson, Lee, Matson, Moore, Owen, Saling, Smith, Talmadge, Warnke, Wojahn.

 

      Senate Staff:Linda Brownell (786-7715)

                  March 6, 1989

 

 

            AS REPORTED BY COMMITTEE ON WAYS & MEANS, MARCH 6, 1989

 

BACKGROUND:

 

Tuition costs at state colleges and universities have tripled over the last ten years making it more difficult for families and students to afford higher education.  Nationally, charges have risen 113 percent at public colleges and 152 percent at private colleges between 1977-78 and 1987-88.  These increases surpassed the rise in the Consumer Price Index, which was about 85 percent during the same ten-year period.  At both public and private schools, room and board costs have escalated at double the rate of inflation since 1980.  Concern has been raised that financial aid has not kept pace with these increased costs.

 

SUMMARY:

 

The advance college payment program is created to allow any person who is a state resident to contract for future undergraduate tuition, including mandatory fees, and/or room and board costs at state institutions of higher education.  Payments received from the sale of these contracts will be deposited with the State Treasurer in a trust fund.  The State Investment Board invests the fund while the Higher Education Coordinating Board administers the program.  The trust fund will be used to pay tuition and/or room and board, make refunds, transfer "settlement sums" to in-state private institutions and pay administrative costs.

 

Contracts cover a specific number of credit hours of tuition and mandatory fees (such as service and activities fees) and/or quarters or semesters of room and board costs but not more than what is required for a baccalaureate degree.  Contracts will also specify the number of credit hours a beneficiary may receive if he or she is not entitled to resident tuition rates at the time of admission.  Contracts apply to any state community college, college or university but do not guarantee admission, continued attendance or graduation.

 

A settlement sum, not to exceed what a beneficiary would have received under contract to attend a state institution, may be transferred to an in-state private college or university that he or she chooses to attend.  If the beneficiary dies, fails to get admitted to a state institution or decides, after reaching the age of majority, not to attend a state institution, a refund, not to exceed the highest tuition and/or room and board costs charged by the state institutions, may be paid.  The Higher Education Coordinating Board may approve substitutions for the original beneficiary.

 

Except for contracts which are terminated after graduation from a community college, there is no right to any refund or settlement sum if the student completes more than one-half of the credit hours required for a baccalaureate degree.  If contractual benefits have neither been used nor terminated after a number of years specified in the contract, all rights to the benefits will terminate and the assets will revert to the trust fund.

 

Each year the Higher Education Coordinating Board will prepare an accounting and evaluate the actuarial soundness of the fund.  If funds are insufficient, the board will adjust payments of subsequent purchases.  If there are insufficient numbers of new purchasers, the state may, if necessary, take action to ensure the actuarial soundness of the fund.

 

Before entering into any contracts, the Higher Education Coordinating Board, with the assistance of the State Investment Board, is required to solicit and make known the status of ruling requests from the Internal Revenue Service and the Security and Exchange Commission.

 

 

EFFECT OF PROPOSED SUBSTITUTE:

 

The state's obligation is expressly limited to the advance college payment program account.  The contracts do not constitute any guarantee, debt, liability, or pledge of the faith and credit of the state or any agency of the state beyond the funds in the account.  Express language is required in all contracts explaining that in the event the Higher Education Coordinating Board finds the program to be financially unsound, purchasers would only get their pro-rata share of available account assets.  The board will administer the program but may seek assistance from the State Investment Board, the State Treasurer, the State Actuary, the Office of Financial Management, private financial institutions and any other qualified party. The State Investment Board is no longer required to assist with IRS and SEC ruling requests. 

 

An "account" is established rather than a "fund."  The definition of "purchaser" has been expanded to include "any natural or artificial person, including any individual or incorporated group" and the definition of "beneficiary" has been changed to "any natural person who may be named or unnamed."  The requirement that beneficiaries must be state residents has been deleted.  Contracts would cover only tuition and not mandatory fees or room and board.  The Higher Education Coordinating Board is authorized to: limit program participation; offer different contract plans; purchase insurance; and contract out services, especially marketing, billing, record keeping and accounting.  "Settlement sum" has been eliminated and replaced by the term "refund."  Refunds shall not exceed the average tuition, rather than the highest tuition.  Contract benefits which have not been used within five years will be presumed abandoned under the Uniform Unclaimed Property Act, Chapter 63.29 RCW.

 

Before the Higher Education Coordinating Board can offer or sell any contracts, the program must be reviewed and approved by the Legislature.  In no event shall any contracts be offered or sold before June 30, 1990.  The Higher Education Coordinating Board is required to study the program and submit a report, including recommendations, to the Legislature by January 1, 1990.  Specific study items are enumerated and an appropriation is made to carry out the study.

 

Appropriation:    $45,000

 

Revenue:    none

 

Fiscal Note:      available

 

Senate Committee - Testified: HIGHER EDUCATION:  Stephanie Adams, Washington Student Lobby; Elizabeth Woody, Washington Student Lobby; Tim Kerr, Deputy State Treasurer; Michael Coan, Greater Seattle Chamber of Commerce; Dr. Joseph Olander, President, The Evergreen State College; Doug Chandler; John Klacik, Higher Education Coordinating Board

 

Senate Committee - Testified: WAYS & MEANS:  No one