Friday, August 7, 2009

My Brother's Children's Keeper

Barack Obama has repeatedly told us that we are our brother's keeper. Now the state of Texas is telling us that we are also our brother's children's keeper. According to the Chronicle, Texas taxpayers will soon be on the hook for $2.1 billion to pay for the college education of Texas children:
This is not a free education for them. Their parents and grandparents bought state-guaranteed prepaid college education plans between 1996 and 2003 known as the Texas Tomorrow Fund, later renamed the Texas Guaranteed Tuition Plan.

Now the fund is nearly broke, a victim of tuition deregulation at state universities and busts in the financial markets that were supposed to provide the investment returns to keep the fund solvent.

Comptroller Susan Combs, whose office administers the fund, said the plans are guaranteed by the full faith and credit of the state. So, no parent whose child has a college plan has to worry about it being honored.
This means that taxpayers will be asked forced to make up the difference. The fund was created in 1995 at the urging of then-Comptroller John Sharp, who is now a Democratic candidate for the U.S. Senate. While some lawmakers warned that the plan was a train wreck waiting to happen in 1995, Sharp blames Combs for the shortfall, even though her predecessor had cut off new enrollment in the plan in 2003. Combs formally closed the program when she took office in 2007.
Sharp said the original prepaid tuition program has financial problems because Combs closed it to new enrollment. Sharp said pensions and Social Security need new members to remain solvent over long periods.

Combs has correctly responded that this is nothing more than a Ponzi scheme. And as is generally the case in government sponsored Ponzi schemes, the masterminds are off to bigger and better things by the time the scheme falls apart. Putting Texas taxpayers on the hook for billions apparently isn't enough for Sharp, who is now seeking the power to do the same to taxpayers across the country.

But just to demonstrate that Washington doesn't hold a monopoly on repeating its mistakes, lawmakers started a new plan--the Texas Tuition Promise Fund--in 2007. Of course, when that plan goes belly up, and it will, its advocates will also point the finger at someone else. Lawmakers love to throw crumbs to voters in exchange for votes, and both ignore the fact that those crumbs will ultimately be supplied by taking a loaf of bread from taxpayers. To the credit of lawmakers the Texas Tuition Promise Fund is not backed by the state's credit--for now. But what will happen when this boondoggle goes broke?

The entire idea that we are our brother's keeper is founded on the idea that need supersedes rights, that the need of one person is a claim on the property and life of others. So when the Texas Tuition Promise Fund goes broke, the need of the subscribers will be the prevailing concern. And taxpayers will again be asked forced to make up the difference.

Lawmakers continue to make the same foolish mistakes because they believe that the failures result from poor implementation. They didn't charge enough, or the money was invested poorly, or some other nonsense is always offered as an excuse for failure. They never stop to consider whether their proposals are wrong in principle. And the Texas Tuition Promise Fund is wrong in principle.

The proper purpose of government is to protect our rights, not create investment programs for parents. Anyone who wants a "tuition promise fund" can set one up without the state being involved. It's called a savings account, and as far as I know every damn bank in Texas offers them. And if that isn't good enough there are other investment vehicles, such as mutual funds.

Someday we might have lawmakers who don't kiss the butt of every voter they can simply to get elected. But until that occurs, we will continue to witness that gross spectacle. And taxpayers will continue to be subjected to a different kind of probing in the same area of the body.

9 comments:

Rational Education said...

Brian,
Isn't the Texas fund similar to what every other state in the country put in place several years back for college tuition? They are probably all broke right now, whether the public in a particular state hears about their fund having gone bust just depends on how well the particular govt. has been able to hide and cook the accounting of the books.
I was myself looking into some of those plans as a way to save for my kids college tuition a few years back, looking at how college fees were inflating every year -I did not act on it, which is my only saving grace. Investment gurus all over the place had been advising on various state plans as a way to save on skyrocketing college fees -Howard Clark, nationally syndicated radio personality probably still has an entire area on his website enumerating the features of every state plan and complete with bells and whistles like star ratings, etc. One could buy into out of state plans -and lot of benefits were/are attached to these plans by govt. guns including tax-free status etc. The biggest incentive of course was the locking of fee rates -which parent would not go for that, especially looking at how higher moving college fees would make it impossible if one's kids are young enough, to send them to college when they are of age.
The biggest flaw in this plan was "guarantee" -anyone with a modicum of investment sense knows there are risks involved of losing one's money. In this case of course the "guarantee" was enforced by enslaving taxpayers to shoulder losses and take the risks. It is amazing that the SEC and US Attorney General has never raised a peep about fraudulent advertising of "guarantees" in every one of these dozens of state plans all over the country.
What was the recourse the investors had if they were misled? But then the government who is supposed to protect contracts is itself the defrauder in this case..who would ring the bell?
Jasmine
p.s. I apologize for not making the best case of explaining the point I was trying to make.

Rational Education said...

Brian,
here is a link to the Clark Howard website I referred to that may be of interest:
http://clarkhoward.com/liveweb/shownotes/category/1/34/281/380/#framesize_190

These are called 529 plans and I suspect that is what the two Texas plans are as well. They are much like bonds, i.e. guaranteed by govt. -(which is the same as slowly cooking the goose of every self respecting, earning,, supporting person -I try to avoid taxpayer, because the worst blows to come will be from inflation which as against a levied tax, which the average person can comprehend easily, how govt. inflates the currency is understood by few and so more pervasive and stealthy.)The far bigger part about these plans is the guaranteed tuition fees for when the child is ready to go to college -this would seem like a windfall lottery, the way fees have been ratcheting upwards. Of course the question not asked was how in the world were states going to guarantee fees at today's prices when they moved 200% and upwards -i.e. how would they pay for it? These are schemes too good to be true and we all know what the truth is about schemes that sound too good to be true...
but I am not sure I can blame parents for being tempted into these "guarantees" that were fraudulently advertised by the purveyor, i.e. state govts.
Jasmine

Brian Phillips said...

Jasmine,
I suspect that these Texas funds are 529 plans, though I couldn't find anything to confirm it. I agree that it is interesting that the SEC and everyone else makes a big stink about Madoff, Stanford, etc. and don't raise an eyebrow over these schemes.

The government can engage in a Ponzi scheme, or mislead citizens, or make colossal mistakes and not be held accountable. And they have the wallets of taxpayers to bail them out.

dayana said...

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


Margaret

http://grantsforeducation.info

Brian Phillips said...

Thanks Dayana.

Anonymous said...

I am just curious as to how Jasmine feels that she made a good decision by not enrolling in the old plan.

As the original blog post says, the plan has run into financial difficulties but the state plans to fund the difference.

While it may not be a good deal for us taxpayers, it will be a great deal for parents - provided the state keeps its word.

I agree with the basic premise of the post that states should more fully analyze the revenue characteristics of its programs or they run the risk of underfunding them.

Brian Phillips said...

I can't speak for Jasmine, but I would not want to take part in a program that steals from others for my alleged benefit.

The premise in my post was not properly funding these sham programs, but that the state should not be involved in them to begin with.

Brian said...

I've updated the Wikipedia entries for the TTF and the list of Ponzi schemes to reflect the status of the TTF. I'm personally sickened by what has apparently become a state-sanctioned ripoff. Thirteen years ago, I had no idea whether my children would graduate with scholarships, go out of state, or (God forbid) not make it to graduation age, so the idea of receiving my investment back in current tuition dollars is what made the deal for me.

Had I known back then what I know now, I would have never sunk $17,000+ into this con game.

BTW, I've modified the Wikipedia entries for TTF and the list of Ponzi schemes to reflect the new status of the TTF.

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