Let’s Talk about the Washington Pledge Scholarship Proposal

Since before the legislative session began, we’ve been talking about the Governor’s Higher Education Funding Task Force, and its proposal to increase the sustainability and accountability of our state’s four-year public higher education system. The proposal, which you can read here, is multi-faceted, but I like to summarize it as an approach to creating a “Triple A higher education system”: accessible, accountable & affordable. The accessibility (linking state support and tuition) and accountability (implementing the Complete to Compete metrics and a performance incentive fund) pieces are fairly straightforward, but the affordability piece is new and therefore harder to understand.

The Prosperity Blog is all about helping you to understand new and unfamiliar economic development related activities, so once again we’re here for you. Let’s talk about that affordability part of the proposal: the creation of the Washington Pledge Scholarship.

  1. A new endowment program should be created with a goal of raising $1 billion by the end of this decade as a legacy that will help future generations of Washington students attend college. This scholarship will provide much needed help for low- to middle-income Washington students at our public two- and four-year colleges and universities.
  2. In working through the details to create this fund, consideration should be given to enabling donations to target specific programs or students, potentially with a special priority for students who want to pursue STEM degrees.
  3. Private donations from both individuals and business will fund the endowment.
  4. The endowment should accept individual donations and should be set up as a nonprofit to qualify for federal tax deductions.
  5. The endowment should also accept contributions from the business community. The State should establish a credit equal to 50 percent of the amount donated to be applied against the Business and Occupation tax and public utilities tax that could be earned under the new program.

So, those are the main details. Relatively clear, right? Just like an endowment at an individual university, this would be a large account that generates interest, which would then be disbursed in the form of financial aid. It would supplement existing state and federal financial aid, helping to:

  • meet unmet need of lower-income folks (people who apply for financial aid, but can’t get any because it’s all used up),
  • meet the needs of middle-income folks (who aren’t eligible for a lot of current aid funding), and
  • help those kids who meet certain criteria (like underserved kids or aspiring engineers).

The resistance to this idea in the legislature seems to be that business tax credit part. Let’s say business, not individuals, contributed the entire $1 billion. Well then, in the words of one legislator I talked to, “isn’t the state really the one contributing half of that money?” (b/c of the 50% tax credit). And “isn’t that going to take $500 million out of an already strained budget away from other programs in need?”Plus “what about all the money that it will take out of future budgets.

Let’s take those in order. It won’t really be half the money, assuming that individuals contribute a significant portion of the $1 billion. And it won’t be money from a strained budget: the Task Force proposal includes the stipulation that the tax credit “not be claimed until state sales, use and Business & Occupation tax collections exceed FY 2008 collections by 10 percent and would not be available earlier than January 1, 2014.”Finally, the fund caps at $1 billion, so there’s no ongoing expenditure by the state once it’s full.

But probably the biggest argument in favor of the state matching those business contributions is the ongoing return on investment. Let’s say that $1 billion gets 10% return (The rate of return for the state’s retirement Commingled Trust Fund (CTF) ended fiscal year 2010 at 13.2%.) That’s $100 million toward more kids going to college. In 2010, the State Need Grant program distributed $212 million, so we’re talking close to a 50% increase in funding per year. In perpetuity. Compared to other state investments, this has a very good ROI.

At the end of the day, the essential point is that you’ve got to have all of the “Triple As” to be successful. You can’t increase access without money to pay for those extra student slots, which in today’s economy means higher tuition. But you can’t raise tuition and get that increase in access unless you also keep things affordable, through increased financial aid. And you’re not going to get the outcomes from all of those investments unless keep things accountable, setting measurable and enforceable performance metrics. They go together like peas in a pod. Which means that you need a way to find new money for increased student aid, which is hard to do. Hence, the Washington Pledge Scholarship to do the other parts of the Task Force proposal.

Any questions?

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One Response to Let’s Talk about the Washington Pledge Scholarship Proposal

  1. Lew McMurran says:

    Eric, thanks for shedding light on this topic. There has been too much angst over this facet of the legislation. It obviously needs scrutiny as part of any legislation does. But this is a solid step forward in attempting to get more financial resources into higher education.

    Let’s also not overlook the other good parts of HB 1666/SB 5717 as well. Such as accountability and performance measures, specific degree targets, tuition flexibility with a funding “floor” and transfer improvements. Thanks for PP’s leadership on this.

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