Governor urges financial aid trust fund.

Byline: Greg Bolt The Register-Guard

SALEM - Gov. Ted Kulongoski got an A for effort Tuesday when he unveiled a new plan to help Oregon students pay the spiraling cost of college tuition, but even supporters called for changes before giving the plan a passing grade.

Making his first appearance before a legislative committee this session, Kulongoski told members of the Senate Revenue Committee that he wants to create a new endowment fund, the Access Scholarships for Education Trust, to provide need-based financial aid for Oregon high school graduates. It would also aid those who earn a GED or are home-schooled in the state.

Kulongoski said the ASET proposal is one of his centerpiece initiatives and is the only legislation he will testify for this session. He called it a chance to assemble a program after a session dominated by the dismantling of them because of falling state revenue.

"I come before you today to ask for your support in building something new," he said, "a trust fund that will open the doors of Oregon colleges and universities, both public and private nonprofit, to every student who earns a high school diploma, or its equivalent, in this state."

Money for the fund would come from interest earned on university tuition and fees deposited with the state and from a 5 percent slice of the capital gains taxes paid by individuals and corporations. Private schools also would be able to participate by donating money to the fund.

Only interest from the trust fund would be used. The fund would be established in the state constitution to ensure that it won't be raided to fill future budget holes.

That would require amendments to the constitution that would have to be approved by the voters. Money would then have to accrue to the new endowment account before generating enough interest to make a significant dent in financial aid needs.

Kulongoski called it a long-term approach that could eventually provide help to every Oregon student who needs a financial boost to attend college. But that would take an endowment of $2.5 billion, enough to produce $200 million to $250 million a year in interest income.

Mardi Saathoff, the governor's general counsel and higher education policy adviser, said interest on the tuition and fee deposits would generate about $2.5 million a year for the endowment fund, and that the capital gains tax revenue would be about $10 million a year.

Additional money would come from interest on the money appropriated by the Legislature to support community colleges and from donations made by private schools that choose to sign on to the program. Kulongoski also said the fund would be able to accept donations from businesses, private donors, foundations, the federal government and other sources.

The ASET fund would be overseen by the State Land Board, which consists of the governor, secretary of state and state treasurer. They could set rules for how grants are distributed or could assign that task to another group, such as the Oregon Student Assistance Commission.

Kulongoski acknowledged the new fund won't solve the problems created by the deep cuts to higher education operating budgets the past two years, but he said it's a necessary step toward ensuring access to a college diploma for Oregon students.

Some found fault with a number of the particulars of Kulongoski's proposal.

They cited a host of concerns, from using public funds to pay tuition at private religious colleges to diverting revenue out of the general fund that could be used for operational support.

Andrea Meyer, legislative director for the American Civil Liberties Union of Oregon, told the committee she believes the proposal would violate the state constitution's ban on using public money to support religious institutions.

She said the state was sued over a similar plan in 1981 that forced religious schools to pull out of the opportunity grant program.

Kulongoski defended the proposal to include religious and other private schools, saying the competition would be healthy for public colleges and would give students the benefit of choice.

Sen. Tony Corcoran, D-Cottage Grove, said that sounded a lot like a voucher system.

"You can call it whatever you want," Kulongoski replied. "To me, it's an opportunity."

Oregon University System Chancellor Richard Jarvis pledged to support the governor's effort but stopped short of endorsing the plan as proposed. The university system has proposed a separate bill that would take a main source of income for ASET - the interest earned on university tuition and fees while they're banked - for university operations.

At Tuesday's hearing, Jarvis strongly supported the idea of additional student aid to ensure the state's economic and civic future but did not specifically address the governor's proposal.

But he said any financial aid plan should offer a flat amount to all students based on average tuition at Oregon community colleges and public universities. That would prevent schools from inflating tuition knowing that students would get larger grants to cover the increase, he said.

The state already has a need-based financial aid program, the Oregon Opportunity Grant, that is itself in need of financial aid. Of the more than 18,000 students whose incomes were low enough to qualify for the grant last year, only 9,035 received one, because of limited funds.

Community colleges in particular expressed concern about the governor's plan and called for more support for the opportunity grant. They also

objected to limiting ASET grants to students with diplomas from Oregon high schools or GED programs.

Cam Preus-Braley, the state commissioner for community colleges, said that would shut out people who graduated elsewhere but have lived and paid taxes in the state for decades and find themselves in need of retraining.

CAPTION(S):

Oregon Gov. Ted Kulongoski testifies Tuesday before the Senate Revenue Committee in Salem on his proposal to create a long-term college funding program for needy Oregonians. Kulongoski said the program eventually could provide help to every student who needs a financial boost for college.