Moody's Gives One of Pennsylvania's TAP 529 Plans an A3 Rating

    HARRISBURG, Pa., Nov. 15 /PRNewswire/ -- In its first-ever rating of a
 state's 529 college savings plan, Moody's Investors Service has assigned the
 Guaranteed Savings Plan (GSP) option of Pennsylvania's Tuition Account Program
 (TAP 529) an investment grade rating of A3.  According to Moody's, one of the
 world's most respected sources for credit ratings, research and risk analysis,
 "obligations rated 'A' are considered upper medium grade and are subject to
 low credit risk."
     State Treasurer Robert P. Casey, Jr., who took the unprecedented step of
 hiring Moody's earlier this year to conduct a comprehensive review of the TAP
 529 Guaranteed Savings Plan, said today that the A3 rating is "good news for
 Pennsylvania families."
     "Now we know that the 50,000 families saving for college through the
 Guaranteed Savings Plan have an A-rated investment," Casey said at a news
 conference in Harrisburg.  "I hope that the low credit risk associated with
 the Plan's A3 rating will encourage many new families to join the TAP
 program."
     Casey urged the General Assembly to consider enhancing the Guaranteed
 Savings Plan to give current and prospective TAP families an additional layer
 of certainty.  He also unveiled a new website, http://www.TAPfacts.com, to
 provide straightforward information about the Moody's rating and online access
 to a new financial calculator for GSP account owners.
     Pennsylvania's Guaranteed Savings Plan, one of two TAP 529 options, rests
 on the expectation that contributions made to TAP accounts will grow at a rate
 that keeps pace with tuition inflation at selected "tuition levels."  Tuition
 levels vary depending on the types of schools for which families choose to
 save -- from community colleges to Ivy League schools.  Since the GSP began in
 1993, the Treasury Department has made more than 54,000 payments for over
 14,000 college students.
     Moody's said its A3 rating is based on an analysis of the strengths and
 challenges of the GSP, considering both the assets of the Plan itself and the
 sponsorship of the Plan by the Commonwealth of Pennsylvania.  The rating
 reflects Moody's assessment of the likelihood that GSP account owners will
 receive the full tuition inflation value of their accounts when their children
 are ready to go to college.
     "The rating addresses the combined credit quality of the TAP Guaranteed
 Savings Plan Fund's assets underlying the tuition-inflated liabilities and
 Moody's view of the likelihood and degree to which the Commonwealth of
 Pennsylvania might offer financial assistance to the program in the event that
 the Fund does not generate an adequate return," Moody's said in a news release
 issued today.
     "Today's positive rating of the Guaranteed Savings Plan reflects Moody's
 expectation that the Plan will continue to attract new investors and that the
 Commonwealth will honor the guarantee implicit in the Plan and explicit in its
 name," Casey said.
     In its news release, Moody's noted that, "while the obligation to the Plan
 beneficiaries does not represent an explicit or binding guarantee by the
 Commonwealth, there is an implied support structure based on legislative and
 executive branch backing of the program and the strategic importance of the
 GSP to education finance in the Commonwealth."
     According to the most recent actuarial report, as of June 30, 2005, the
 GSP fund had a value of $985 million and an actuarial deficit of $44 million.
 This means that if no new contributions are made to the GSP -- and based on a
 variety of assumptions -- the estimated cost of guaranteeing the contributions
 already made exceed the projected future value of the fund by $44 million.
 The speculative nature of this actuarial deficit, as well as its size,
 prompted Casey to hire Moody's to do this thorough, independent rating of the
 Guaranteed Savings Plan.
     While Moody's said it was able to independently replicate the analysis
 that produced this $44 million actuarial deficit, Moody's went beyond the
 actuary's model and evaluated tens of thousands of possibilities.  Moody's
 then factored in the Commonwealth's positive support for TAP, as well as
 Pennsylvania's General Obligation municipal bond rating of Aa2.
     This so-called "joint-default analysis" takes into consideration when an
 obligation, such as TAP, benefits from external support, but that support
 falls short of an iron-clad guarantee.  In giving TAP an A3 rating, Moody's
 weighed the Commonwealth's incentive to support TAP if it faces a budgetary
 shortfall over the next 25 years.
     "In Moody's view, the likelihood of efforts by the State to support the
 Plan in a time of crisis causes the credit quality of the GSP and its
 obligations to be higher than that of the TAP GSP when evaluated on a stand-
 alone basis," said Moody's news release.
     "While Moody's acknowledges that there is no moral or legal obligation for
 the Commonwealth to infuse capital into the GSP Fund, the A3 rating reflects
 an implicit promise based on strong, bipartisan expressions of support from
 Governor Ed Rendell, Senate President Pro Tempore Bob Jubelirer,
 Representative Elinor Taylor, and other members of the General Assembly, many
 of whom actively promote this high profile program to their constituents,"
 Casey said.
     Moody's considered several factors in its rating process, including: the
 "horse race" between TAP's investment performance and tuition inflation over
 the next 25 years; the asset allocation of TAP investments; the impact of
 premiums on the TAP Fund; the dynamic management of TAP by the State
 Treasurer; and the strength derived from the Commonwealth's sponsorship of
 TAP.
 
     Future challenges
     In conferring the A3 rating, Moody's also mentioned several issues that
 could negatively impact TAP, including:  continued uncertainty with regard to
 high tuition inflation at Pennsylvania colleges and universities, declining
 state appropriations for higher education as a percentage of university
 budgets, and the possibility that the federal income tax exemption will not be
 made permanent (making state-sponsored 529 programs less attractive
 investments).
     "Moody's view is that the Plan faces structural challenges given the
 sweeping nature of its tuition inflation objective," Moody's news release
 said.  "Moody's notes that the persistent volatility of higher education
 prices in Pennsylvania creates challenges for asset allocation that must
 produce returns that keep pace with inflation in order to provide future
 payouts."
     Although the General Assembly gives statutory authority to the State
 Treasurer to administer the TAP program, as Moody's noted in its news release,
 "the General Assembly is the policy maker as it relates to the GSP."
     "Over a decade ago, the General Assembly demonstrated the Commonwealth's
 commitment to helping Pennsylvania families save for college by creating the
 TAP program," Casey said.  "I urge the General Assembly to now consider
 enhancing the Guaranteed Savings Plan to secure this commitment for decades to
 come."
 
     New website for TAP 529 investors
     In an effort to make sure that families saving for college always have
 access to the most accurate, up-to-date information about the TAP 529 program
 and the Moody's rating, Casey has launched a new, interactive website called
 http://www.TAPfacts.com.  The site includes details about the two savings
 options available through TAP 529, a link to the Moody's rating press release,
 frequently asked questions with straightforward answers, and a new financial
 calculator that lets GSP account owners obtain the current values of their
 accounts and, for the first time, calculate projected values based on
 different variables they select.
     The A3 rating applies only to the TAP 529 Guaranteed Savings Plan.
 Moody's did not analyze Pennsylvania's TAP 529 Investment Plan, in which
 accounts grow based on market performance of investments.
     For more information, log on to http://www.TAPfacts.com.
 
 

SOURCE  Pennsylvania Department of the Treasury