Inept management contributed to the big problems in a state program thousands of Illinois parents are depending on.
There are few things more disappointing than being forced to lock the barn door after the horse has been stolen. But at least in Illinois, taxpayers have gotten used to it.
So it's more with resignation than outrage that the latest news of costly mismanagement in an important state program has arrived — this time it's the Illinois prepaid tuition program.
State officials last summer ousted the program and investment managers who ran it. Naturally, many of them walked away with golden parachutes that ranged from $24,000 to $98,000 each. Now Auditor General William Holland reveals a number of deficiencies in how this important program was run before the change in management.
His report states that there were unrealistically high predictions of prospective gains in investment income, skyrocketing administrative costs (from $6 million in 2006 to $18 million in 2011) related to the hiring of investment managers, conflicts of interest between those hiring investment managers and the investment firms that were hired and unrealistically high forecasts of sales of new tuition contracts.
This kind of mismanagement has contributed to the serious problems the program faces. It is roughly 70 percent funded compared to 93 percent in 2007.
Former program manager Andrew Davis isn't commenting on the report's findings. But the new managers have accepted the report's recommendations on how to eliminate the problems that were uncovered.
The tuition program is not selling new subscriptions to parents trying to fund their children's college education, and it's not clear when or if it will resume. But thousands of Illinois parents face uncertainty because the unfunded liability of $1.8 billion is not backed by the state.
State backing was another problem the audit uncovered. Promotional materials distributed by the old regime falsely claimed that the program was guaranteed by the state, leading parents to believe that their children's tuition costs would be covered.
That is not true. If the program falls short of cash to cover tuition payments in the next 10 to 15 years, some parents and their children will be out of luck.
That's why it's so important that the prepaid tuition program be returned to good health.
The program always has been on thin ice. State legislators irresponsibly contended the program would guarantee future tuition costs without knowing what future tuition costs would be. In the last few years, cash-strapped universities have approved dramatic increases in tuition.
The state's other big mistake was relying on substantial gains in investment income no matter what the state of the economy. A brutal recession and lagging recovery have proved disastrous.
Suffice it to say, state officials face a big mess that's going to be difficult to fix — but at least they and taxpayers know why things are so bad.