Reform and Renewal, Quinn style
Friday, May 20, 2011 - Posted by Rich Miller
* Gov. Quinn tried to get out in front of a story yesterday by announcing a big shakeup at ISAC…
Gov. Pat Quinn [yesterday] shuffled the deck at the agency that oversees the state’s prepaid college tuition program by appointing two board members and dumping a longtime friend.
Out as chairman of the Illinois Student Assistance Commission is Don McNeil, a longtime friend and campaign contributor who roomed with Quinn back when they went to Georgetown University.
* From the governor’s press release…
May 19, 2011. Governor Pat Quinn today named Kym Hubbard and Miguel Del Valle to the Illinois Student Assistance Commission. Del Valle will serve as a member of the commission, and Hubbard will serve as its chair. Today’s actions come as the Governor works to bring a fresh approach to the board charged with increasing the affordability and accessibility of college in Illinois – one of Governor Quinn’s top priorities.
“Kym Hubbard and Miguel Del Valle both bring a fresh approach and a lifetime of public and private sector experience to this important board,” said Governor Quinn. “Access to higher education is a top priority of my administration, and I am confident that these appointments will help continue my mission of ensuring that college is affordable and accessible for Illinois’ students. I thank Don McNeil for his service and commitment to the people of Illinois.”
* Background…
The move to replace Mr. McNeil comes after a series of stories in Crain’s Chicago Business detailing financial woes at the prepaid tuition plan, which has the biggest funding shortfall of any such plan in the nation. Crain’s also reported that ISAC Executive Director Andrew Davis shifted nearly half the plan’s $1.1-billion investment portfolio into hedge funds, private equity and other “alternative” holdings considered riskier than garden-variety stocks and bonds. Mr. McNeil staunchly defended Mr. Davis’ strategy and supported a 10% raise for the executive director that was approved by the ISAC board earlier this year.
* Quinn announced the changes right before Rep. Jim Durkin’s press conference…
Rep. Jim Durkin (R-Western Springs) wants to move College Illinois from ISAC, saying he and other legislators “lost confidence” in the way ISAC handled the fund, which is currently under investigation by the state auditor.
College Illinois bills itself as offering Illinois parents a way to lock in today’s tuition prices for tomorrow’s college students, but the $1.25 billion fund is at least 31 percent underfunded. It’s unclear if the state will be able to pay tuition and fees for the 55,000 prepaid tuition contracts currently held by Illinois families.
Durkin said that “desperate calls from parents and grandparents” to state legislators about the fate of these contracts motivated him to try to move the agency to the comptroller’s office.
“I think it’s going to be tough but I want the issue out there,” he said of the likelihood the Illinois General Assembly will approve the move before breaking for the summer. “I want changes.”
* But even that might not be enough…
But not everyone believes a management change will be the panacea to the plan’s problems.
Mark Kantrowitz, publisher of FastWeb.com and FinAid.org, a scholarship matching service and free encyclopedic guide to student aid, said he wouldn’t feel more confident in one department over the other.
“You still have this government or quasi-government entity managing it. What’s key is how it’s managed, not who is managing it,” Kantrowitz said.
* Statehouse roundup…
* FOID names exemption bill heads to governor
* Chicago casino proposal gets boost from Emanuel and Quinn
* Fourth-grade reporters quiz Gov. Quinn
* Foreclosure limbo costing cities
* Cities furious with tax effects
* Luechtefeld: Cities won’t get zero
* Illinois Supreme Court blocks lawsuit on underage drinking
* IL may have sex offenders, others supply DNA
- 47th Ward - Friday, May 20, 11 @ 12:23 pm:
Interesting that Durkin would move the fund to the comptroller’s office. Wouldn’t the treasurer’s office be more appropriate?
- vole - Friday, May 20, 11 @ 12:30 pm:
The system always seemed to be somewhat of a ponzi scheme to me. Questions about the financial health of the system could reduce future enrollees that are vital to its continuity.
If the future is now uncertain, current enrollees should be questioning why some students like those attending the U of I receive higher payouts in tuition and fees than those attending other universities. (I am assuming this has not changed since my kids were in school.) When shortages are foreseen, shouldn’t the payouts be equal?
- Point O' Clarification - Friday, May 20, 11 @ 12:32 pm:
As defined by Northern Trust (a notoriously conservative organization) that is the Custodian of the funds assets, just over 25% of the trust funds are invested in Alternatives. Is it possible that the mud slingers have a major problem with their facts? If the facts aren’t right then what is the motivation?
- Anonymous - Friday, May 20, 11 @ 12:56 pm:
So Durkin wants to move the fund to Topinka’s office? Wasn’t Judy the one that brought in Oppenheimer, the firm that led to all of the problems that they tried to hang around Alexi’s neck?
- sorry, rich - Friday, May 20, 11 @ 12:59 pm:
You’re not getting out ahead of the story when several stories already have been published. They should have done an immediate internal investigation when the first query came in, figured out what was really going on, and then taken appropriate action before the first Crain’s story came out in March.
- Pat Robertson - Friday, May 20, 11 @ 1:13 pm:
This isn’t Quinn’s recent reform and renewal style — he didn’t announce more furlough days for anyone.
- Rich Miller - Friday, May 20, 11 @ 1:14 pm:
===You’re not getting out ahead of the story===
The “story” was Durkin’s presser.
- sorry, rich - Friday, May 20, 11 @ 1:22 pm:
I get it. But it would have been smarter to do this months ago — then it looks like you’re being responsive and responsible, and it’s not as obvious as the “do it on the day of” move — which makes the whole thing look pr-related, instead of inspired by the principles of good government. Not to mention — at least one commenter suggests that the stories are not entirely correct. Push back instead of rolling over, that’s what Mom always told me. (My mother is Becky Carroll.)
- jerry 101 - Friday, May 20, 11 @ 1:27 pm:
this is the big problem with relying on actuarial reports for financial data. Those actuarial projections all rely on certain assumptions. Should those assumptions turn out to be wrong (for example, when investment returns post go massively negative for a year or two; or when colleges and universities jack tuition rates up a lot faster than the actuaries expect), then you end up with a big “underfunding”. It’s all on paper though. If the state started funding Colleges and Universities at a rate that is consistent with the funding levels that existed during the 90’s, then tuition rate hikes would fall off quite a bit, and if the economy recovered, then investment gains would gain steam.
By now the actuary may be expecting a low rate of return, and high tuition hikes, and (if the above were to come to pass), we could pretty easily end up with College Illinois being heavily OVERFUNDED.
Then the newspapers would have a whole other field day - what are all these parents to do since they paid so much extra into College Illinois? Isn’t it unfair that they’re getting shafted on the returns?!
And its the same thing with pensions. You have a number that’s based on certain assumptions and are projected out for 10, 20, 30 years. A lot can change over time. That’s why TRS was, what?, 25% funded back in the 50’s (per a recent story Rich posted), but is now a little over 50% funded. Of course, people are still panicking over the funding level.
Actuarial projections are only an estimate, based upon assumptions that are deemed reasonable by…someone (usually other actuaries). And estimates can be waaaaay off. Especially 20 year estimates.
- Anonymous - Friday, May 20, 11 @ 1:28 pm:
“If the future is now uncertain, current enrollees should be questioning why some students like those attending the U of I receive higher payouts in tuition and fees than those attending other universities. (I am assuming this has not changed since my kids were in school.) When shortages are foreseen, shouldn’t the payouts be equal? ”
UI tuition is higher. CI pays the actual tuition amount of the Illinois public.
- jerry 101 - Friday, May 20, 11 @ 1:34 pm:
“If the future is now uncertain[…]”
The future’s always uncertain. In 10 years, who knows, maybe College Illinois will be 125% funded…
Or maybe there won’t be a College Illinois. Maybe in 10 years, there won’t even be a College in Illinois…or an Illinois. The future’s always uncertain. The likelihood is that CI will be solvent for as long as need be, unless the state decides to discontinue it, because the Leg isn’t going to want to deal with irate parents who don’t get the benefits they thought they were promised.
- Statewide - Friday, May 20, 11 @ 1:37 pm:
Regarding College Illinois, a few details from their website Q&A which I seldom see in media reports, especially the “will within five years enroll” terms:
“Although the taxing power of the State is not pledged to make payments under a program contract, under the Illinois law that set up the program, the Governor of Illinois is required to request funding from the Illinois legislature sufficient to pay all program benefits during any year in which there is a current funding shortfall.
“In the event the Commission, with the concurrence of the Governor, determines the program to be financially infeasible, the Commission may discontinue, prospectively, the operation of the program. Any beneficiary who has been accepted by and is enrolled or will within five years enroll at an eligible college shall be entitled to exercise the complete benefits specified in the College Illinois! prepaid tuition contract. All other contract holders shall receive an appropriate refund of all contributions and accrued interest up to the time that the program is discontinued.”
- Yellow Dog Democrat - Friday, May 20, 11 @ 2:08 pm:
=== this is the big problem with relying on actuarial reports for financial data. ===
No, this is the problem with appointing your college roommate to chair the board that oversees a state agency.
I don’t think McNeil did anything wrong, but someone should have foreseen that IF anything went wrong at ISAC, there was going to be a scandal, and they should have told Quinn this appointment was a bad idea.
- Howard - Friday, May 20, 11 @ 2:42 pm:
Will Miguel Del Valle be paid? If so, will this boost his pension?
- Anonymous - Friday, May 20, 11 @ 3:02 pm:
ISAC Commissioners are not paid.
- Anonymous - Friday, May 20, 11 @ 3:04 pm:
Actually, I’m suprised they removed McNeil and not Andy Davis. Maybe that is yet to come.
- wordslinger - Friday, May 20, 11 @ 3:15 pm:
–Crain’s also reported that ISAC Executive Director Andrew Davis shifted nearly half the plan’s $1.1-billion investment portfolio into hedge funds, private equity and other “alternative” holdings considered riskier than garden-variety stocks and bonds.–
Half? Governments shouldn’t be chasing it like that. Promise less, deliver more.
–“Although the taxing power of the State is not pledged to make payments under a program contract, under the Illinois law that set up the program, the Governor of Illinois is required to request funding from the Illinois legislature sufficient to pay all program benefits during any year in which there is a current funding shortfall.–
That’s the equivalent of a “moral obligation bond,” with is neither truly moral nor an obligation.
It was invented by the biggest bigfoot muni counsel of all time, John Mitchell (yes, that one), to help his buddy Rocky build, build and build some more after he ran up against New York state Constitutional debt limits.
There’s going to be a GA had-pressed to say no if those funds can’t cover the nut.
- 47th Ward - Friday, May 20, 11 @ 3:24 pm:
===if those funds can’t cover the nut===
For the pre-paid tuition plans, don’t you think the GA will just tell the publics to eat the difference? I think that’s a more likely scenario than the state coming in to make the investors whole.
Maybe they should let the public universities manage the funds since they’ll probably be on the hook for any shortfalls anyway.
- siriusly - Friday, May 20, 11 @ 3:32 pm:
YDD
Quinn did not appoint McNeil. Blago did, Blago brought him in to fire the previous Exec Larry Matejka who wasn’t taking orders very well. It looks like the new Chair may have the same dubious task on her plate . . .
- point O'clarification - Friday, May 20, 11 @ 3:45 pm:
While there is much discussion here and elsewhere about the “what if the fund can’t pay situations” it is worth noting two things: First the fund currently pays out about 75 million a year in benefits and with $1.15 Billion in assets currently, it is easy to see why the plan has never missed a timely full payment of tuition benefits.
Secondly the MAP program that is supposed to pay tuition benefits on behalf of low-income students is funded at half the current need by the GA and the comptroller is routinely five to six months late in payment.
Now why is it that Rep Durkin wants to take the plan that works from the agency that makes it work and turn it over to the agency that is in charge of slow paying for the State???
- 42nd warder - Friday, May 20, 11 @ 4:05 pm:
what is really going on with Rep Durkin to blow this much smoke. Come on really can he have no understanding of the capital markets. isn’t he a lawyer? they should have an I.Q. exam for legislators to allow them to present Bills. it would limit all the crazy nonsense ones
- point O'clarification - Friday, May 20, 11 @ 4:32 pm:
Rich it is getting late on a Friday even if it is May, so this will be my last post tonight, If Rep Durkin is so eager to ease the minds of the contract holders in College Illinois Prepaid Tuition
maybe he ought mention to them that this FY 2011 is headed towards being the single best year (from an actuarial standpoint) in the funds 12 years history. Tuition inflation as announced by U of I is 6.9 against the plans 8.5 assumption which leads to a significant POSITIVE variance to plan.
Investment returns now 16.6% against an actuarial assumption of 8.75% leads to a POSITIVE variance.
Could it be that the Good Rep’s hurry is based on the fact that the plan is about to heal itself unaided by his financial re-engineering? While I can understand his disappointment at the problem fixing itself I am not sure I sympathize.