Alabama's troubled Prepaid Affordable College Tuition board met yesterday to discuss the health of the program, review investments, and discuss working with the Alabama Legislature to fix the program.
Immediately following the meeting, members of Save Alabama PACT met to plot strategy and hear from Lt. Governor Folsom, Treasurer Kay Ivey, and the three announced candidates for Treasurer: Jeremy Sherer (D), Charles Grimsley (D) no Web site yet , and George Wallace, Jr. (R).
Although the PACT board meeting was “packed” with TV and print reporters, most drifted away quickly after Lt. Governor Folsom addressed the Save Alabama PACT meeting. Lacking the deadlines (or dinner plans?) of traditional media, Mooncat and I stayed throughout the meeting and got excellent footage of the treasurer candidates and even got the chance to grill Cowgirl Kay Ivey on her lackluster performance managing the program.
News accounts in today's papers are rather, well, dry. Not to mention short.
Bob Lowry covered the meeting for the Huntsville Times and Stan Diel was there for the Birmingham News. (Note: I'm not criticizing the reporters who sat through the entire meeting, but rather the editors who don't give them enough space to adequately report what they saw.)
Want more? On the flip, we have video and turn a rather more acerbic eye on the proceedings, players, and decisions made.
Although they managed to make the 2+ hour meeting about as interesting as watching paint dry, a few moments did stand out:
1. Lt. Governor Folsom kneecapped Kay Ivey – with help from Attorney General Troy King. Remember our video of Cowgirl Kay resisting the Save Alabama PACT's lasso? The group as begged her (literally) for months to put Save Alabama PACT's Web site address on the “official” PACT Web site and include information about the group in regularly-scheduled mailings.
Ivey resisted because it violated Alabama state law – or at least IVEY's understanding of the law. It was a stand that won her the Left in Alabama official “Yellow Badge of Courage” award.
Without telling Ivey, Lt. Governor Folsom, asked Attorney General Troy King for an advisory opinion. He then pre-empted the the anouncement Ivey intended to make at the meeting by jumping ahead of the agenda to announce it himself.
It was a priceless moment:
2. The PACT Board hired a new actuary. Robert Crompton's contract wasn't renewed. Instead, the board hired an actuary from Buck Associates, which worked with the RSA to study PACT over the summer.
LIA regulars may remember that Mr. Crompton's name has been mentioned before here when we reported that he was hired in 2005. Crompton was one of three actuarial candidates interviewed by the board. Mr. Bill Reimert wasn't hired. Maybe this is why. From the minutes:
Mr. Reimert discussed information about his firm. He then called the Board's attention to his presentation concerning the current PACT trust fund deficit. He stated that he was concerned about the 9% rate of return assumption and discussed his thoughts on the future of prepaid programs in general. He discussed his belief that the programs were not viable without full faith and credit or some other backing.
When questioned pointedly about this matter at the Save Alabama PACT meeting yesterday, Kay Ivey dismissed Mr. Reimert's prescience (just as she did her 2006 opponent, Steve Seagrest's concerns AND PACT parent Dale Goode's 2004 plea that the PACT program guarantee benefits). Here's the video…
Mr. Crompton, in his final report yesterday, told the board that he expected the programs assets to be depleted in FY2016 if no new funding sources were identified. “The program has become a short-term program,” he stated.
3. Maybe graft and corruption is the solution. Without Legislative help, Crompton continued, PACT can only recover financially if it's able to realize a 20.65% annual return on its investments. Returns like that are usually only found in the lucrative loan shark and payday loan industries. Or maybe the PACT board can open its own casino…
4. Alabama PACT investment strategy: Buy HIGH, Sell low. The Callan Associates' (check out Have A Little Talk's discussion of that particular organization) representative finally recommended a new investment strategy!
Callan stubbornly advised the board for the past year and a half to “stay the course” and continue its approximately 70/30 stock and bond/cash investment. That strategy involved a rather unique approach to market timing: ride the market to the bottom, recover a bit of the loss, then SELL, SELL, SELL. But hey, Callan gets paid whether they make money or not.
5. Reports of PACT's demise are – we hope – exaggerated? On a 7-3 vote (photo of “yea” votes below) the board heeded Callan's warning that, since the “PACT program only has five years left” (WTF????), then the board should move to a strategy of “capital preservation.” About damn time, Callan!
In Callan's expert opinion, the stock market is as high as it's going to go and we can expect future losses. Now, this is the same outfit that advised the board in September 2008 to STAY in the market so they wouldn't lose money in the downturn. But now, selling at close to the bottom (exact quote): “shows financial stewardship.”
With only 3 dissenting votes, the PACT board swallowed that and decided to sell out – which, to some parents – effectively communicated that the board may really believe that the program is limping into the sunset. Ricky Jones and Willie Huff definitely voted against the strategy change and I believe the third “no” vote was Dr. Greg Fitch.
Mooncat's astute observation on this action……
It shouldn't be surprising that the PACT board always votes to go along with Callan's advice. After all, they're paying good money for it (lots of good money) and as long as they follow the advisor's recommendations their asses are covered. The program may tank, but they incur no liability in voting to take expert advice, even if it's obviously bad advice. This arrangement effectively passes the entire responsibility off from the board members to the advisors, but if the advisors are duds … they hope no one remembers who hired them.
6. Special PACT board task force appointed. The board authorized its “special task force” to meet on an as-needed basis and work with whomever will help to find a legislative funding solution.
This sounds like a good idea, except that, according to Ivey, the task force “will meet much more often than the board and report to the board.” But the task force is comprised of PACT board members only. Parents are once again shut out.
At the Save Alabama PACT meeting, I asked Lt. Governor Folsom if any of the task force meetings would be public, announced, open meetings. Unfortunately, he just danced the Kay Ivey sidestep with the “Sure they want to hear your ideas! They want everyone to help! We'll need all parents working hard!”
They should really set that to music and work up some choreography.
Will the task force actually allow parents to work with them? I'm not holding my breath – but you probably can't breathe too well in those smoke-filled backrooms anyway.
And that's the way it was, kids…. More posts and videos to come later with the discussions from the Alabama Treasurer candidates. This is getting too long and I have a lot of video to edit!