The House operating budget proposal would freeze resident undergraduate tuition, and the various editions of the proposal have provided various amounts of state funds to support institutions that would potentially be losing increased tuition revenues. The table below shows how the proposals offered yesterday compare to the House-passed version.

2P2SHB 1106 would provide additional state support related to the tuition freeze for one year of the biennium, while PSHB 2269 (the increased revenues bill) would provide the support for the second year. The new proposal would also no longer provide additional funding for the state need grant.

Meanwhile, in the Senate, ESSB 5954 would reduce resident undergraduate tuition, as we noted in College Affordability, Two Ways. (Also see this blog post.) And state Sen. Barbara Bailey has an op-ed in the Seattle Times arguing for a tuition reduction.

Reducing tuition would seem to be a good thing — everyone laments the high cost of a college education these days. But there is a hitch.

Because a tuition decrease would reduce the value of Guaranteed Education Tuition (GET) plans, the bill attempts to hold current investors harmless. This could be done by requiring a sort of stock split. (For background on GET and how ESSB 5954 deals with it, see this report and this report.)

When people invest in GET, they are betting that tuition will continue to increase. This was a very good bet early in the life of the program, but it has gotten less so more recently, as the gap between the purchase price and the value of units has grown (as a steep rise in tuition has increased political demand for downward adjustments to tuition going forward). If tuition is now reduced, the bet looks even worse. The state guarantees that 100 GET units bought today will buy one year of tuition at Washington’s most expensive school whenever the student is ready. But it does not guarantee that the value of the investment will always go up.

The Seattle Times had a good overview of the issue last month, which sets up an apparent difference of opinion between the state actuary and state treasurer. The actuary argues that by reducing tuition, the health of the GET program is strengthened — today it is 106 percent funded, and that would increase under the bill. On the other hand, the Times quotes the treasurer, James McIntire: “The program, the statutes, the contract — everything about that program was designed around tuition going up.” McIntire wrote a letter to legislators outlining his “deep concerns” with the idea, including that

maintaining actuarial soundness and taking into account potential liabilities will be next to impossible if the [GET] Committee has to take into account that the legislature may step in at any time and retroactively adjust the rates set by the Committee.

If legislators decide to reduce tuition and hold GET investors harmless, technical issues will need to be resolved (and taxpayers will foot the bill for both). But another solution would be to reduce tuition and forgo the stock split. GET investors’ units would still cover tuition, and taxpayers would not have to pay for the stock split on top of the tuition reduction.