 A few House lawmakers are pushing to shift the
College Illinois
program from the Illinois Student Assistance Commission, or ISAC, to
state Comptroller Judy Barr Topinka's office after a series of
reports revealed the program's risky investment strategies.ISAC
is a state agency that oversees the state's 529 prepaid tuition
program. Prepaid plans allow investors to pay in advance the cost to
attend an in-state public college. That money is guaranteed to
increase in value at the same rate as college tuition, effectively
allowing parents to lock in current tuition rates.
State Rep. Jim Durkin, R-La Grange, said he hoped to restore
investors' confidence in the system.
"College Illinois is the worst-funded prepaid college program in
the country. ... ISAC has placed over-reliance in risky alternative
investment tools -- hedge funds, real estate and equities," said
Durkin, who also has invested in the program.
Lawmakers were spurred to action after a Crain's Chicago Business
report uncovered that fund managers had invested 47 percent of its
funds in alternative investments, such as stocks and bonds.
An audit released by Illinois Auditor General Bill Holland's
office that revealed improper management and a $338 million deficit
for the ISAC program only served to fuel lawmaker discontent.
"Reasonable people can't even disagree on this issue. That is so
outside of any responsible fiduciary investment policy, that that on
its surface calls for major fundamental change," said state Rep.
Chad Hays, R-Danville.
Investments made into the program are not guaranteed by the state
or the Federal Deposit Insurance Corp. However, under the law, the
governor must ask the Legislature to pay for any shortfalls that may
have incurred that year. Investor funds deposited into the program
are considered separate from state and public money.
ISAC spokesman John Samuels said investors should not be worried
because ISAC certifies its financial soundness to the governor every
year -- and 2011 is no different.
Gov. Pat Quinn, however, is looking to mend the situation. He
announced Thursday the appointment of Kym Hubbard and Miguel Del
Valle to the commission.
Hubbard is treasurer and chief investment officer at Ernst &
Young and will be taking over as chairwoman. Del Valle is a former
state senator and has served on the P-20 Education Council since
2009.
"Gov. Quinn is closely reviewing the membership of ISAC and will
continue to make changes to ensure that the commission manages
investments in a safe and prudent manner," Quinn spokesman Grant
Klinzman said.
The state Senate still must confirm the two appointments before
they can serve on the commission.
As of June 30, College Illinois was 31.4 percent underfunded. In
2009, the account was underfunded by 20.2 percent.
Samuels said the threat of a comptroller takeover won't affect
the way ISAC runs the program. ISAC doesn't plan to make any new
investments until its new commissioners are in place.
"We're just administrators of the program, and when the General
Assembly created the program 12 years ago, they housed it at ISAC.
The General Assembly can decide to place the program under whatever
agency or department they wish. That doesn't really affect what we
do or how we look at things," Samuels said.
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Topinka spokesman Brad Hahn said she's open to the idea but will
leave that decision up to the Legislature.
"The key thing here is that we are able to restore confidence in
the program. If Judy can assist in any way, she has offered the
comptroller's office to make that happen," Hahn said.
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.
The viability of prepaid tuition plans depends on the stock
market and state revenue. Stock markets directly affect the fund's
ability to make a return on investment, while less state income
means cuts to higher education and tuition inflation, Kantrowitz
said.
State Rep. William Davis, D-East Hazel Crest, said he understands
the fear investors and legislators alike have about the plan's
solvency, but he recommends that people wait out the storm before
jumping ship.
"Do we just remove it without giving it an opportunity to show
that fund managers and appropriate investors can turn it around? Or
do we give it to the comptroller's office? Why should we have any
confidence that the comptroller's office will be any better?" Davis
asked.
ISAC commissioners hire professional investment managers and
outside advisers to determine investments.
But even before any leadership changes, worried investors have
started pulling out of the fund. ISAC admits to seeing more contract
withdrawals but is awaiting final tallies in its next audit before
revealing numbers.
The House approved a resolution in April to conduct a special
audit of College Illinois to determine its financial soundness,
which could come as late as next year.
[Illinois
Statehouse News; By MELISSA LEU]
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