Nevada's prepaid tuition program designed to allow families to purchase four years of college for youngsters is $4.6 million short because of the collapse of the stock market and unexpected tuition and fee hikes by the University of Nevada system.
Chief Deputy Treasurer John Adkins told the Ways and Means Committee on Monday the program lost money on its investments last year but that the real culprit was the tuition and fee hikes.
Because of falling estate tax revenues and budget restrictions, the university system raised tuition and class fees a total of nearly 15 percent this past year. Adkins said the prepaid tuition program planned on increases half that large.
"If tuition had remained the same, we would have been fine, would have been able to absorb the loss on the stocks," he said.
There are about 8,400 enrolled in the program. Their parents or other family members pay an amount depending on the child's age and the state invests the money until the student is ready to go to college. At that point, the student is guaranteed tuition and fees to cover four years of college at one of Nevada's universities. If he or she goes out of state, they receive the amount of money it would have taken to pay for four years of school in Nevada.
Because the program is in financial trouble, the cost of a prepaid tuition program will increase more than 25 percent in the coming year.
Several members of the committee questioned the operation of the program, saying it doesn't seem to have been well thought out. Assemblyman Bob Beers, R-Las Vegas, described the amount the program would have to pay out for each student as "a moving target."
"It seems to me your unfunded liability is going to get worse and worse," he said.
Assemblyman David Goldwater, D-Las Vegas, said the state was guaranteeing payments it can't accurately predict.
He said that he sees no reason for a $375,000 annual budget to market the prepaid tuition and Millennium Scholarship programs. He said putting that money into the prepaid tuition fund would essentially pay off the $4.6 million deficit, and he intends to make that amendment to the program's budget.
The discussion of the prepaid tuition program was followed by the treasurer's report on proposed changes to the Millennium Scholarship program, which guarantees all Nevada high school graduates with a B average or better $2,500 a year for four years of college.
Without changes, that program will begin to run out of money by 2006, forcing reductions in the benefits. To extend the program, Adkins told lawmakers, the treasurer's office is proposing that the minimum grade-point average be raised from 3.0 to 3.1 next year and to 3.25 after that.
But Adkins said cutbacks in the program won't be necessary if lawmakers agree to "securitize" tobacco settlement payments funding it.
Securitizing the tobacco money means selling the rights to collect the money to an investment company, which would give the state a lump payment it could invest.
Opponents say securitization means giving away half the total $1 billion the state has coming in tobacco settlement money.