[B]URLINGTON — Gov. Peter Shumlin joined leaders in business and higher education Tuesday to tout the benefits of universal child savings accounts for higher education.
Shumlin’s budget would pay for every child in the state to have $250 in such an account at birth, or $500 for low-income children. The governor cited research showing that even modest savings accounts can triple the likelihood low-income youth will attend college.
Vermont has one of the highest high school graduation rates in the country, but it’s near the bottom when it comes to the number of high school graduates who go on to postsecondary education, Shumlin said.
The state is projected to have 10,000 new job openings through growth and attrition by 2022 that require at least a postsecondary certificate, but according to census figures only 45 percent of adults in the state have a postsecondary degree, the administration said in a news release.
The governor would pay for the savings accounts, and another program aimed at increasing access to postsecondary education, by doubling the state’s fee on mutual funds.
Doubling the fee would raise $13.2 million, far more than the $2.25 million required for the childhood savings accounts and the $2 million required for a program called Step Up that looks to re-engage underemployed young people with community college.
The remaining $9 million would go into the general fund, Shumlin said, and could help the state close its budget gap. Resistance to other portions of the governor’s proposed budget has reopened that gap into a possibly $22 million hole, according to figures from the House speaker’s office.
That makes the mutual fund fee an attractive option to raise money. Thus far no one from the financial industry has come forward in opposition to the fee hike, according to lawmakers who have sought testimony on the issue.
“It’s not very often that you hear a chamber of commerce supporting an increase in taxes or an increase in fees. It’s kind of genetically against our DNA,” said Tom Torti, president of the Lake Champlain Regional Chamber of Commerce.
Increasing the mutual fund fee is a rare exception, Torti said. College debt is a significant barrier to young people buying homes and contributing to Vermont’s economy. Raising a fee in order to meaningfully reduce that burden is enough to overcome his aversion in this case, Torti said.
The major companies offering mutual funds are registered in all 50 states to make their products available nationwide, officials said. Many states charge a fee on mutual funds, which is paid by all the fund’s shareholders.
The state fees are worked into expense ratios spread across all the shareholders in a mutual fund. That means the vast majority of people paying for the fee increase won’t be Vermonters, which may further its appeal as a revenue option for state lawmakers.
Vermont’s current fee on mutual funds is $600. Even doubled to $1,200, it is still well below the $2,500 fee in Massachusetts, according to Shumlin administration officials.
In a statement, House Speaker Shap Smith, D-Morrisville, said he was surprised to learn Vermont’s fee was so much less than fees in other New England states. Bringing Vermont into alignment with its neighbors is a sensible move, he added.
Shumlin said Tuesday he was open to raising the fee even more than proposed in his budget.
“We have to be reasonable, but even the rate that I proposed is half the rate that Massachusetts has,” Shumlin said, though he cautioned the fee won’t fix the state’s entire budget challenge.
Win Smith, owner of Sugarbush Resort in Warren, was among the business leaders who joined Shumlin on Tuesday to laud his proposal for universal child savings accounts.
Smith, who spent 28 years working at Merrill Lynch, said that if Vermont increases its fees by too much, it could hurt the performance of mutual funds or convince companies managing the funds not to register in Vermont.
“This is reasonable,” Smith said of the governor’s proposal to double the fees. “You have to make sure it doesn’t become unreasonable,” he added, without addressing where that line might be.
Rep. Janet Ancel, D-Calais, chair of the House Ways and Means Committee, said she’s had informal discussions about raising the fee beyond $1,200 but no one has come forward with a “substantive” proposal to do so.
“I think it would still be acceptable within the New England states. I don’t know whether it would feel like too big of a jump,” Ancel said.
Sen. Tim Ashe, D/P-Chittenden, chair of the Senate Finance Committee, said he too is open to increasing the fee. “Updating the fee amount seems appropriate since it, for some reason, hasn’t been on the normal fee schedule,” Ashe said.
Typically, all fees are reviewed every three years, Ashe said, but the mutual fund fee wasn’t among those scrutinized during the last round of reviews.
Universal child savings accounts
When lawmakers passed a bill last year creating the Vermont Universal Children’s Higher Education Savings Account Program, it was expected to be paid for using philanthropic donations.
So far the only confirmed donation is $25,000 from Subaru of New England. That’s not enough to pay for the $2.25 million program, and Shumlin said providing a dedicated revenue source the state can afford makes sense.
The child savings accounts would be managed by the Vermont Student Assistance Corp. through its college savings plan, known as a 529 plan for its section in the tax code, according to John Pelletier, director of the Center for Financial Literacy at Champlain College.
Pelletier is a member of an advisory committee the Legislature created to guide the program. Unlike with other 529 savings plans the money could go only toward postsecondary education, he said.
Depending on how the investment is managed, the $250 or $500 initially placed in the account could reasonably be expected to double or triple during the 18 years before a young person would attempt to use it, he said. There is also a remote possibility that a stock market crash could wipe out the account, Pelletier acknowledged.
If a young person did not use the money in the account by age 29, it would be returned into the larger program fund. That clock would stop if the young person serves in the military, meaning that three years of military service would extend the individual account’s life by three years.
(Editor’s note: Reporter Elizabeth Hewitt contributed to this story.)
