By Bill Britt
Alabama Political Reporter
On Tuesday discussion of HB603 was heard in the House Ways and Means Education committee to determine a fix to the Alabama PACT settlement.
In Mid-March the Alabama Supreme Court overturned the settlement of the class action lawsuit brought by PACT owners because of wording in the original statute that prevents benefit changes.
Representatives Jay Love (R-Montgomery) and Mary Sue McClurkin (R-Indian Springs) introduced the bill in an attempt to change Alabama law so that the PACT class action settlement could by reinstated.
Love who serves as Chair of the House Ways and Means Education committee told the committee members that the substitute bill would address the concerns of the Supreme Court and allow the settlement to go forward.
“The PACT trustees and many of the parents I have spoken with want to ratify the settlement,” said Love.
One of the main contentions was that the original appropriations said it would, “…Make the PACT plan 100 percent funded.”
Love said this was never the intention of the Legislative body and that portion had to be stricken from the substitute to meet the courts requirements.
House Minority Leader Rep. Graig Ford (D-Gadsden) said after the committee meeting,
“The Republican Supermajority has once again turned their backs on Alabama’s families. Senator Bedford and I offered a solution that would fully fund the PACT program, but the Republican leadership chose to sponsor a bill that changes the law and allows them to back out of the state’s obligation to the PACT families. If the Republican Supermajority worked half as hard to keep the state’s promises as they do to break the state’s promises, we wouldn’t have a PACT problem.”
Love said that he had worked closely with the State Treasurer, The Governor’s office, the AG’s office and the House and Senate leadership on the PACT bill.
Alabama State Treasurer Young Boozer III spoke before the committee and said that he believed the substitute legislation identified and corrected all the problems that the court had cited.
The substitute bill’s amended and repealed sections are retroactive back to 2010 which was one of the court problems according to Boozer.
Boozer said, that the court had said the settlement could not be adverse to the enactment of the Legislature and that is one main reasons for the substitute.
HB603 passed out of committee on Tuesday primarily on party lines with nine to five in favor.
Love said he hopes to have the bill before the full Senate by Thursday of this week.
The PACT (Prepaid Affordable College Tuition) Program was a Section 529 pre-paid college tuition program run by the Alabama Treasurer’s office. “Section 529 of the Internal Revenue Code of 1986 authorizes states to create two types of college savings programs, prepaid tuition plans and college savings plans. As college costs climbed faster than the global economy was growing in the 2000s the PACT board invested the funds in riskier and riskier investments. When the Great Recession hit in 2008 a large portion of the principal was lost in those risky investments.
Critics of the PACT Program argue that the Program was just another risky investment vehicle like mutual funds, hedge funds, or wealth management accounts and that the parents were simply speculating in the equities market like so many other investors and that they should have known that there was a possibility that they might have losses.
In 2010 the state informed the parents that they might not be able to honor the contracts. The parents then filed a class action lawsuit arguing that they had purchased “Prepaid Affordable College Tuition” as the PACT program is titled and were not investors in some sort of failed mutual fund. The state settled with the PACT parents out of court; but that agreement was thrown out by the court bringing this issue up again.