What is the Opportunity Fund?
It is a proposed fund that will be constitutionally protected, like the Common School Fund, and will be invested to help improve the access and affordability of higher education and job training for Oregon students.
Why is this important?
Studies show that more jobs will require advanced training and degrees in the future, but the obstacles to obtaining that education are growing. Oregon ranks 47th among states when it comes to state assistance for higher education. At the same time, the Oregon Legislature has been steadily shrinking the state’s share of university costs. That means more of the cost is being shifted to families, but with anemic state assistance. Only 2 of 10 eligible students that apply today receive an Oregon opporunity grant, and it is worth just $2,000 a year.
What is the long-term benefit of the Opportunity Fund?
For Oregon to compete in the new global economy, we need a world-class workforce. In addition, Oregonians with higher education will earn more and will be less likely to access public services such as subsidized healthcare or the criminal justice system.
How does it work? Where will the money for the new Opportunity Fund come from?
Oregon has a long-term program in which it borrows money for certain purposes and then repays the money with the general fund. That includes construction of prisons, university buildings, seismic upgrades and transportation facilities. The Opportunity Fund would be an additional purpose for this borrowing authority.
Why is higher education getting so expensive? What is happening today?
The cost to students of a college education in Oregon is rising rapidly. From 2004-05 to 2011-12, OUS tuition and fees rose 50%, while per-capita income in Oregon increased only 20%. That means OUS tuition has increased two and a half times faster than per capita income in Oregon over the six-year period. Although the underlying per-student costs to institutions remain relatively stable, students feel the pinch as a greater share of those costs are shifted their way. The amount of assistance per eligible Oregon student has declined at an annualized rate of 5% over the last seven years.
Oregon’s student assistance efforts have lagged the national average by 20%, and Oregon students who attend OUS or Oregon community colleges pay 18% more in tuition and fees than the U.S. average.
One result is that student debt is soaring for those students that do attend. The average student borrower graduating from an Oregon four-year college in 2010 had almost $24,000 in debt, 21% more than five years ago.
How is the Opportunity Initiative different than the state issuing debt to finance a new educational facility or building?
With the Opportunity Fund, the state will be borrowing to establish a permanent, appreciating asset that will grow in value over time. Construction of education and public safety facilities, while important to the state’s overall economic vitality, are depreciating assets that lose value over time. In all of these cases, state bonds are repaid from the general fund. The money to repay the bonds would not come from the Opportunity Fund itself.
Why will the money be invested?
When money is invested in a diversified portfolio, it grows in value over time – which means that the state will have more money to fund student aid and job training. Oregon has several multi-billion portfolios that have been managed successfully by the Oregon Investment Council for many decades. For example, the state pension fund has averaged more than 8 percent returns annually over the past 30 years.
How much will be invested in the Opportunity Fund?
That depends on the legislature and voters. The Treasurer expects to ask for an initial $100 million commitment to start the Fund, which could be through bonds or through deposits over time. Additional deposits could be sought in the future.
Will the Opportunity Fund repay the bonds?
No. All the money to repay debt on Opportunity Fund bonds will come from the general fund – just as all general fund-backed debt is repaid today. The Opportunity Fund will be a new, dedicated fund that is invested for long-term returns, and is expected to grow over time, like the Common School Fund.
How much of the Opportunity Fund will be dedicated to new opportunity grants each year?
The plan is for 5 percent of the fund to be used for scholarships, which means that the fund will continue to grow in most years. However, the percentage of the fund that is used for scholarships may be temporarily adjusted if the fund experiences a significant loss. That will help to ensure the fund is never depleted and is a permanent asset for future Oregonians.,
Will the Opportunity Fund affect the state’s bond rating?
No. The money to repay the bonds will be a small portion of the existing general fund bonding capacity that can be dedicated to debt payments, while keeping Oregon under its prudent debt limit.
What sort of financial projections are built into the estimates?
We were conservative, and estimated that the investment performance of the Opportunity Fund will be less than the long-term averages assumed for existing state investment portfolios.
What happens if there is poor investment performance of the fund?
Markets go up and down, and the financial modeling predicts that the fund won’t just grow at a steady rate. When there are inevitable market downturns, then the amount of opportunity grants may need to be adjusted. The Common School Fund also uses this same kind of adjustment to maintain stable returns for Oregon’s K-12 school system. Over time, the fund will continue to give Oregonians a competitive asset that will help today’s students, and also future generations as well.
What is the risk to taxpayers from borrowing to create the Opportunity Fund?
It is the same risk that Oregon taxpayers have today with every other general fund-guaranteed bond project, like buildings. The State will be responsible for repaying the bonds. The State Treasury, as always, will ensure that the total level of state bond payments remains below the prudent threshold of 5%of general fund revenues. That will help keep Oregon’s credit rating strong.
What will happen to the debt payments in a negative market?
The general fund will continue to make the debt service payments. Think of it like a mortgage on your house. You still need to pay for your house. The general fund will pay for the debt service on the Opportunity Fund, just like it will continue to pay for the debt payments on community college and university buildings.
What happens if we do nothing, and don’t create an Opportunity Fund?
Oregon’s economic future will become bleaker without a highly trained workforce. Wages will be lower, and there will be more demand for public services.
How big will the Opportunity Fund be in 30 years, 50 years or 100 years?
It is impossible to say. The fund will grow over time based on several factors, including how much money is deposited and how well the investments perform. However, it will be a permanent fund of the State and will provide value to Oregonians for generations, from the first year and long after the bonds are fully repaid.
What happens now?
Voters will decide in November 2014 whether to modify the state constitution to create a dedicated and protected Opportunity Fund, and to allow a new use for state-backed debt to create it.
Which agency will manage the program?
There are several existing agencies that may be suited to administer the program, including the Oregon Student Assistance Commission, the Higher Education Coordinating Commission, and the Oregon Education Investment Board. The State Treasury will not administer the program.
Is this using bond proceeds to pay for operating costs?
No. These bond proceeds would create a capital asset: a permanent fund in the form of a Student Opportunity Fund. To ensure that the fund is permanent (and not raided for operating costs) the fund would be constitutionally-locked. Only the earnings (and not the corpus) would be drawn upon.
Why use State resources? Isn’t this just a personal finance problem for students?
A highly-trained workforce is a net positive for the State’s economy and can help save costs of other public services. This plan applies not only to college-bound students, but to apprenticeship programs and vocational training as well. Studies have shown that states with better-trained workforces have a more robust, diversified, and healthy economy.
What if I have more questions?
We’ll be happy to answer! Please call the State Treasury Capitol office at 503-378-4329 or email us at Oregon.Treasurer@state.or.us