S-2410               _______________________________________________

 

                                         SUBSTITUTE SENATE BILL NO. 5221

                        _______________________________________________

 

State of Washington                               51st Legislature                              1989 Regular Session

 

By Senate Committee on Higher Education (originally sponsored by Senators Saling, Bauer, Patterson, Rinehart, Smitherman, Bailey, Lee, West and Warnke)

 

 

Read first time 3/1/89.

 

 


AN ACT Relating to the advance college payment program; amending RCW 28B.80.360; adding a new section to chapter 21.20 RCW; adding a new section to chapter 82.04 RCW; adding a new chapter to Title 28B RCW; creating new sections; and making an appropriation.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

 

          NEW SECTION.  Sec. 1.     The legislature finds that the cost of a college education has increased dramatically over the past ten years and is continuing to increase at such a rate that the opportunity for many of this state's citizens to achieve a higher education is being endangered.  The purposes of establishing the advance college payment program in this chapter are to:

          (1) Encourage education and the means of education, which are essential governmental functions of the state;

          (2) Maintain state institutions of higher education by helping to provide a stable financial base to these institutions;

          (3) Provide wide and affordable access to state institutions of higher education;

          (4) Encourage attendance at state institutions of higher education;

          (5) Provide students and their parents economic protection against rising tuition costs and to provide financing assistance for postsecondary education;

          (6) Help provide the benefits of higher education to the people of this state; and

          (7) Encourage elementary and secondary students in this state to achieve high standards of performance.

 

          NEW SECTION.  Sec. 2.     Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

          (1) "Account" means the advance college payment program account created in section 3 of this act.

          (2) "Contract" means an advance college payment contract entered into by the higher education coordinating board and a purchaser pursuant to this chapter to provide for the higher education of a qualified beneficiary.

          (3) "Purchaser" means any natural or artificial person, including any individual or incorporated group, who makes or is obligated to make advance college payments pursuant to an advance college payment contract.

          (4) "Qualified beneficiary" means any natural person who may be named or unnamed.

          (5) "State institution of higher education" means a state college or university described in Title 28B RCW or any two or four-year degree-granting institution established by the state after the effective date of this section that is designated by the state as a state institution of higher education for purposes of this chapter.

          (6) "Independent college or university" means a private, nonprofit educational institution with the main campus permanently situated in the state that is open to residents of the state, provides programs of education leading to at least the baccalaureate degree, and is accredited by the northwest association of schools and colleges and other institutions that are approved by the higher education coordinating board as meeting equivalent standards.

          (7) "Program" means the advance college payment program created in this chapter.

          (8) "Tuition costs" means those fees defined in RCW 28B.15.020.

          (9) "State postsecondary system" means the community colleges, the regional universities including The Evergreen State College, or the research universities, or a combination of these.

 

          NEW SECTION.  Sec. 3.     (1) There is created the advance college payment program account in the custody of the state treasurer.  The account shall be a discrete nontreasury account exempt from the provisions of chapter 43.79A RCW.  The account shall be credited with all investment income earned by the account.  Disbursements from the account are exempt from appropriations and the allotment provisions of chapter 43.88 RCW.  Moneys utilized for program administration are subject to the allotment and budgetary controls of chapter 43.88 RCW, but no appropriation is required for expenditures.

          (2) The account shall be self-sustaining and consist of payments received from purchasers of advance college payment contracts and funds received from other sources, public or private.  The assets of the account may be expended, upon order of the higher education coordinating board, for the purpose of making payments to state institutions of higher education on behalf of the qualified beneficiaries, making refunds, transfers, or direct payments upon the termination of an advance college payment contract, and paying the costs of administration and organization of the program.  The assets may be divided into separate accounts.  Regardless of allocations within the account, all moneys in the account may be commingled for investment with other funds subject to investment by the state investment board.

          (3)  The state investment board shall establish and implement the investment policy for the account.  All other policies regarding the account shall be established by the higher education coordinating board.  The higher education coordinating board shall deposit in the account all moneys received for the program.  Moneys in the account may be spent only for the purposes of the program as specified in this chapter.  Disbursements from the account shall be on authorization of the higher education coordinating board.

          (4) Any investments made by the state investment board shall be made with the exercise of that degree of judgment and care, under circumstances then prevailing, which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation but for investment, considering the probable safety of their capital as well as the probable income to be derived.

          (5) The higher education coordinating board may seek the assistance of the state investment board, the state treasurer, the state actuary, the office of financial management, private financial institutions and any other qualified party with experience in the areas of accounting, actuary, risk management, or investment management to assist with preparing an accounting of the program, and ensuring the fiscal soundness of the account.  The state investment board, the state treasurer, the state actuary, and the office of financial management shall fully cooperate with the higher education coordinating board in matters relating to the account in order to ensure its solvency and ability to meet outstanding commitments.

 

          NEW SECTION.  Sec. 4.     (1) The higher education coordinating board may enter into a contract with a purchaser for the advance payment of tuition costs for a qualified beneficiary to attend a state institution of higher education to which the qualified beneficiary is admitted without further tuition cost to the qualified beneficiary:  PROVIDED, That all contractual conditions have been met and sufficient funds are available in the account.

          (2) An advance college payment contract shall set forth the following:

          (a) The amount of the payment or payments required from the purchaser on behalf of the qualified beneficiary;

          (b) The terms and conditions for making the payment, including the dates upon which the payment or portions of the payment shall be due;

          (c) Provisions for late payment charges, withdrawal penalties, and default remedies;

          (d) The name and age of the qualified beneficiary under the contract.  The purchaser, with the approval of and on conditions determined by the higher education coordinating board, may subsequently substitute another person for the qualified beneficiary originally named or designate an unnamed beneficiary;

          (e) The number of credit hours of tuition costs covered by the contract;

          (f) The state postsecondary system toward which the contracted credit hours will be applied;

          (g) The name of the person entitled to terminate the contract, who, as provided by the contract, may be the purchaser, the qualified beneficiary, a person acting on behalf of the purchaser or qualified beneficiary, or any combination of these persons;

          (h) The conditions under which the contract may be terminated and the amount of the refund, if any, to which the person terminating the contract, the purchaser, or designated qualified beneficiary shall be entitled upon termination;

          (i) The assumption of a conditional or limited contractual obligation by the higher education coordinating board to the qualified beneficiary to provide for a specified number of credit hours of undergraduate instruction at a state institution of higher education to which the beneficiary is admitted:  PROVIDED, That the state's obligation is conditioned upon the availability of funds in the account and the terms and conditions of the contract.  The number of credit hours contracted for shall not exceed the average number of credit hours required for the granting of the degree that corresponds to the plan purchased on behalf of the qualified beneficiary.  The advance college payment contract shall provide for the number of credit hours of tuition costs that a qualified beneficiary may receive under the contract if the qualified beneficiary is not entitled to resident tuition rates;

          (j) A statement that advance college payment contracts are payable only from the account created by this chapter.  The contracts do not constitute any guarantee, debt, liability, or pledge of the faith and credit of the state of Washington or any agency of the state beyond the funds in the account.  The higher education coordinating board will pay the contracted-for tuition only if funds are available in the account and under the terms and conditions of the contract;

          (k) A statement that if the higher education coordinating board determines the program to be financially unsound, the available assets of the account shall be immediately distributed on a prorated basis among the then existing contracts.  These shares shall be applied, at the option of the person to whom the refund is payable or would be payable under the contract upon termination of the contract, either towards the purposes of the contract for a qualified beneficiary or disbursed to the person to whom the refund is payable or would be payable under the contract upon termination of the contract.

          (l) The period of time during which the qualified beneficiary may receive benefits under the contract; and

          (m) Other terms, conditions, and provisions the higher education coordinating board considers to be necessary or appropriate.

          (3) An advance college payment contract shall provide that: (a) The account shall provide for the qualified beneficiary to attend a community college in this state before entering a state college or university if the beneficiary chooses; and (b) the contract may be terminated pursuant to section 5 of this act after completion of the requirements for a degree at the community college in this state or before entering a state college or university.

          (4) If the contract has not been terminated or the qualified beneficiary's rights under the contract have not been exercised within five years after tuition benefits first become payable, the deposit and any interest shall be presumed abandoned under the uniform unclaimed property act, chapter 63.29 RCW, and retained by the account and the rights of the qualified beneficiary, the purchaser, or the agent of either shall be considered terminated.

          (5) The higher education coordinating board may offer various types of contracts to purchasers, at different levels of expense to the purchaser and with various payment structures.

          (6) The higher education coordinating board may limit the number of participants in the program.

          (7) The higher education coordinating board may procure insurance against any loss in connection with the property, assets, and activities of the account, program, or the higher education coordinating board.

          (8) Contracts offered by the higher education coordinating board may allow the purchaser to direct the refund to the independent college or university of the purchaser's choice on behalf of the qualified beneficiary, should the qualified beneficiary choose to attend an independent college or university.  The refund shall not exceed the average amount of tuition which would have been received for the state postsecondary system contracted for had the qualified beneficiary attended a state institution of higher education.

 

          NEW SECTION.  Sec. 5.     (1) An advance college payment contract shall not be terminated unless:

          (a) The qualified beneficiary dies;

          (b) The qualified beneficiary is not admitted to a state institution of higher education after making proper application;

          (c) The qualified beneficiary or purchaser certifies to the higher education coordinating board, after attaining the age of majority, that he or she has decided not to attend a state institution of higher education and requests, in writing, that the advance college payment contract be terminated; or

          (d) Special conditions adopted by the higher education coordinating board have been met.

          (2) The right to receive a refund shall not be authorized under the contract if the qualified beneficiary has completed more than one-half of the credit hours required by the state institution of higher education for awarding the degree that corresponds to the plan purchased on behalf of the qualified beneficiary.  This provision shall not affect the termination and refund rights of a graduate of a community college who also prepaid tuition at a state college or university.

 

          NEW SECTION.  Sec. 6.     An advance college payment contract may provide for a refund upon termination of the contract.

          (1) The amount of a refund shall not exceed the average tuition for the state postsecondary system contracted for on the date of termination for the credit hours or quarters or semesters covered by the contract.

          (2) The amount of a refund shall be reduced by the amount transferred to a community college on behalf of a qualified beneficiary when the contract is terminated as provided in section 4(3) of this act and by the amount transferred to a state college or university on behalf of a qualified beneficiary.

          (3) The right to receive a refund shall not be authorized under a contract if the qualified beneficiary has completed more than one-half of the credit hours required by the state institution of higher education for awarding a baccalaureate degree.  This provision shall not affect the termination and refund rights of a graduate of a community college who also prepaid tuition at a state college or university.

 

          NEW SECTION.  Sec. 7.     The higher education coordinating board shall annually evaluate or cause to be evaluated the actuarial soundness of the account and the program.  This shall include an annual report setting forth in appropriate detail an accounting of the fund and a description of the financial condition of the program at the close of each fiscal year.  The higher education coordinating board shall also transmit a copy of the report to the governor, the senate, the house of representatives, and the state investment board.  The higher education coordinating board shall make the report available to contract purchasers.  The account shall be subject to annual audits by the office of the state auditor.

 

          NEW SECTION.  Sec. 8.     (1) The program shall be administered in a manner reasonably designed to be actuarially sound so that the assets of the account will be sufficient to defray the obligations of the account.

          (2) In the accounting of the program made pursuant to section 7 of this act, the higher education coordinating board shall annually evaluate or cause to be evaluated the actuarial soundness of the account.

          (3) In the event that the higher education coordinating board determines the program to be financially unsound, the available assets of the account shall be immediately prorated among the then existing contracts, and these shares shall be applied, at the option of the person to whom the refund is payable or would be payable under the contract upon termination of the contract, either towards the purposes of the contract for a qualified beneficiary or disbursed to the person to whom the refund is payable or would be payable under the contract upon termination of the contract.

          (4) Before the higher education coordinating board enters into advance college payment contracts with purchasers, it shall solicit answers to appropriate ruling requests from the internal revenue service regarding the tax status of the value received under the contract to the purchaser or qualified beneficiary. No contracts may be entered into without the higher education coordinating board making known the status of the request.

          (5) Before the higher education coordinating board enters into advance college payment contracts with purchasers, it shall solicit answers to appropriate ruling requests from the securities and exchange commission regarding the application of federal security laws to the account.  No contracts may be entered into without the higher education coordinating board making known the status of the request.

 

          NEW SECTION.  Sec. 9.     State institutions of higher education, purchasers, qualified beneficiaries, and the higher education coordinating board may enforce this chapter and any contract entered pursuant to this chapter in the superior court for Thurston county.

 

          NEW SECTION.  Sec. 10.    The assets of the account shall be preserved, invested, and expended solely pursuant to and for the purposes set forth in this chapter and shall not be loaned or otherwise transferred or used by the state for any other purpose.  This section shall not be construed to prohibit the account from investing in, by purchase or otherwise, bonds, notes, or other obligations of the state, an agency of the state, or an instrumentality of the state.

 

          NEW SECTION.  Sec. 11.    Advance college payment contracts issued under this chapter shall only be paid from the account and shall not otherwise constitute any guarantee, debt, liability, or pledge of the faith and credit of the state or any state agency.  The account is intended to be self-sustaining.  Advance college payment contracts issued under this chapter shall not directly, indirectly, or contingently obligate the state or any state agency to levy or to pledge any form of taxation whatever or to make any appropriation for their payment.

 

          NEW SECTION.  Sec. 12.    Nothing in this chapter or in an advance college payment contract entered into pursuant to this chapter shall be construed as a promise or guarantee by the higher education coordinating board or the state that a person will be admitted to a state institution of higher education, will be allowed to continue to attend a state institution of higher education after having been admitted, will be guaranteed resident tuition rates, or will be graduated from a state institution of higher education.

 

          NEW SECTION.  Sec. 13.    An advance college payment contract shall be exempt from chapter 21.20 RCW.  An advance college payment contract may not be sold or otherwise transferred by the purchaser or qualified beneficiary without the prior approval of the higher education coordinating board.

 

          NEW SECTION.  Sec. 14.    The higher education coordinating board may contract for necessary goods and services, employ necessary personnel, and engage the services of private consultants, actuaries, managers, legal counsel, trustee services firms, and auditors for administrative or technical assistance.  The higher education coordinating board is encouraged to solicit proposals for program services, including marketing, billing, recordkeeping, accounting, and any other service deemed necessary or proper by the higher education coordinating board.  The higher education coordinating board may take into consideration relevant prior experience in selecting a contractor.

 

          NEW SECTION.  Sec. 15.    The higher education coordinating board shall establish other policies, procedures, and criteria to implement and  administer the program.

 

        Sec. 16.  Section 7, chapter 370, Laws of 1985 as amended by section 20, chapter 136, Laws of 1986 and RCW 28B.80.360 are each amended to read as follows:

          The higher education coordinating board shall perform the following administrative responsibilities:

          (1) Administer the programs set forth in the following statutes:  Chapter 28A.58 RCW (Washington scholars); chapter 28B.04 RCW (displaced homemakers); chapter 28B.85 RCW (degree-granting institutions); chapter 28B.-- RCW (sections 1 through 15 of this act) (advance college payment program); RCW 28B.10.210 through 28B.10.220 (blind students subsidy); RCW 28B.10.800 through 28B.10.824 (student financial aid program); chapter 28B.12 RCW (work study); RCW 28B.15.067 through 28B.15.076 (educational costs for establishing tuition and fees); RCW 28B.15.543 (tuition waivers for Washington scholars); RCW 28B.15.760 through 28B.15.766 (math and science loans); RCW 28B.80.150 through 28B.80.170 (student exchange compact); RCW 28B.80.240 (student aid programs); and RCW 28B.80.210 (federal programs).

          (2) Study the delegation of the administration of the following:  RCW 28B.65.040 through 28B.65.060 (high-technology board); chapter 28B.85 RCW (degree-granting institutions); RCW 28B.80.150 through 28B.80.170 (student exchange compact programs); RCW 28B.80.200 (state commission for federal law purposes); RCW 28B.80.210 (enumerated federal programs); RCW 28B.80.230 (receipt of federal funds); RCW 28B.80.240 (student financial aid programs); RCW 28A.58.824 through 28A.58.830 (Washington scholars); RCW 28B.15.543 (Washington scholars); RCW 28B.04.020 through 28B.04.110 (displaced homemakers); RCW 28B.10.215 and 28B.10.220 (blind students); RCW 28B.10.790, 28B.10.792, and 28B.10.802 through 28B.10.844 (student financial aid); RCW 28B.12.040 through 28B.12.070 (student work study); RCW 28B.15.100 (reciprocity agreement); RCW 28B.15.730 through 28B.15.736 (Oregon reciprocity); RCW 28B.15.750 through 28B.15.754 (Idaho reciprocity); RCW 28B.15.756 and 28B.15.758 (British Columbia reciprocity); and RCW 28B.15.760 through 28B.15.764 (math/science loans).  The higher education coordinating board shall report the results of its study and recommendations to the legislature.

 

          NEW SECTION.  Sec. 17.  A new section is added to chapter 21.20 RCW to read as follows:

          Advance college payments under chapter 28B.-- RCW (sections 1 through 15 of this act) are exempt from this chapter.

 

          NEW SECTION.  Sec. 18.  A new section is added to chapter 82.04 RCW to read as follows:

          This chapter shall not apply to the advance college payment program created in chapter 28B.-- RCW (sections 1 through 15 of this act).

 

          NEW SECTION.  Sec. 19.    Sections 1 through 15 of this act shall constitute a new chapter in Title 28B RCW.

 

          NEW SECTION.  Sec. 20.    This act shall be liberally construed to effectuate the legislative intent, the purposes of this act, and as complete and independent authority for the performance of each and every act and thing authorized in this act, and all powers granted in this act shall be broadly interpreted to effectuate such intent and purposes and not as to limitation of powers.

 

          NEW SECTION.  Sec. 21.    If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

 

          NEW SECTION.  Sec. 22.    Before the higher education coordinating board can offer or sell any advance college payment contracts, the program must be reviewed and approved by the legislature.  In no event shall any advance college payment contract be offered or sold before June 30, 1990.

 

          NEW SECTION.  Sec. 23.    The higher education coordinating board shall study the proposed advance college payment program and submit a report, including recommendations, to the legislature by January 1, 1990.  This study shall include, but not be limited to:

          (1) An examination of potential income tax and unrelated business income tax consequences of establishing a program;

          (2) Consideration of the impact of federal and state securities, insurance, and annuity laws on the sale of prepaid tuition contracts;

          (3) An examination of the state constitutional issues raised by the establishment of a prepaid tuition program, including limitations on state debt and prohibitions on gifts and loans of the state's credit;

          (4)  A review of state and federal financial aid policies and a determination of how such a program would impact present financial aid programs and how the plan matches the state's present and projected needs;

          (5) An examination of the effect such a program would have on tuition, enrollment, residency, and admission policies;

          (6) An actuarial analysis examining program risks and potential yields, computed over at least an eighteen-year horizon.  This should include consideration of investment policy and participation rates necessary for maintaining an actuarially sound program;

          (7) An examination of alternative approaches to saving for college, including bonds, investment, and insurance programs, along with the ability of private sector financial institutions and others to provide such a program.  This shall include an examination of whether or not private investment opportunities will do as well or better for purchasers as state programs and consideration of state restrictions on commercial activities;

          (8) Consideration of who should bear the risk and pay the difference if tuition costs increase faster than interest earnings or interest earnings are lower than expected and cannot cover tuition.  This shall include an examination of how purchasers can be protected from investment shortfalls and the means by which the state can reduce its liability and risk in case the program proves to be actuarially unsound;

          (9) A determination of how much it would cost to start up and maintain an adequate program, including but not limited to staff, equipment, travel, and advertising needs;

          (10) Consideration of whether the plans should cover more than undergraduate tuition costs, such as room and board, mandatory fees, graduate tuition, books, materials, and fees.  This shall include consideration of potential state tax incentives and whether the program should be limited to full-time or include part-time attendance;

          (11) An examination of ways to involve independent institutions in the program; and

          (12) An examination of the portability of benefits across state lines, including the effect on reciprocity and other agreements.

 

          NEW SECTION.  Sec. 24.    The sum of forty-five thousand dollars, or as much thereof as may be necessary, is appropriated from the general fund for the biennium ending June 30, 1991, to the higher education coordinating board to carry out the purposes of section 23 of this act.