In order to withstand weaker stock and bond yields, a former state treasurer suggested Tuesday a possible policy change for a $30 million pot of investments that helps with hundreds of student scholarships each year and several college endowments.
Administration Secretary Jeb Spaulding, who served as state treasurer from 2003 to 2010, said during a conference call that legislators might want to consider changing the trust fund’s payout structure.
Spaulding said when the state started the higher education trust fund there was $6 million in it. But now that the fund has reached $30 million, due in large part to estate tax surpluses, Spaulding suggested reducing the current 7 percent.
When the fund was created in 1999, the state included a provision that payouts could never cut into the principal. But if the payout percentage were changed, the state could pay out a new distribution total, even if there’s a low return on investment and a full distribution would affect the principal, according to members of the PreKingergarten-16 Council higher education subcommittee.
The idea is that because the fund is larger now, and if the subcommittee is comfortable with how the fund can perform over time, the group might not want to worry as much if one year’s payout temporarily cut into the principal.
Spaulding suggested he wasn’t necessarily endorsing the idea but was presenting it as an option for the subcommittee to consider. The change would require legislators to modify the statute.
Vermont Student Assistance Corp. President and CEO Don Vickers, a subcommittee member, said the idea had merit. He said after the meeting that the change could reduce volatility in the number of grants available for students.
The subcommittee discussed the issue by phone Tuesday, moving themselves closer to a decision next year about whether the fund should continue to pay out 7 percent each year.
For the last 12 years, the fund has generally paid out 7 percent annually through stock and bond returns. Despite that success, Deputy Treasurer Stephen Wisloski said simply giving out the return each year is what financial professionals call “bumping along the base.”
Five percent of the fund is automatically distributed each year between the University of Vermont, the Vermont State Colleges and the Vermont Student Assistance Corp., all for direct student financial assistance which cannot be offered in the form of loans. Two percent goes to UVM and the state colleges for endowments, which can support anything from building projects to additional scholarships.
But projections say for at least three years beginning in 2015, the fund’s endowment payout will be reduced. For the next five to seven years, forecasters expect returns will be closer to 4 percent each year.
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