A group of private financial advisors is telling Comptroller Susan Combs that the Texas Tomorrow Fund's problems are worse than they look [1]. And they've looked bad since the Legislature deregulated college tuition.

The numbers get complicated, but the basic problem is simple: The prepaid college tuition program was set up when tuition was controlled by the state Legislature, which kept it artificially low. The state sold contracts to people, guaranteeing that no matter what happened, the state would cover tuition and required fees when the kids attached to those contracts hit college.

When tuition was deregulated and put in the hands of the universities, they immediately started making up ground lost hwen the Legislature was scrimping. Tuition went to market rates, and the tomorrow fund was stuck with a problem: Contracts were priced for the old, low tuition rates and the state is on the hook for the high rates.

There's a deficit. And now the questions focus on its size and what to do about it.

Now the numbers. The tomorrow fund's own report says it's got a $110 million deficit. That's the present value of the hole expected in the year 2029; the future value of that hole is $689 million. (Not a number jockey? That means that $110 million invested now would be worth $689 million in 2029, enough to cover the deficit.)

Combs' private advisors are telling her the future hole is bigger — somewhere between $1.74 billion and $3.31 billion. Guess which number got the headlines.

Those advisors said the board that runs the fund has been relying on rosy financial projections. "Our review found that the plan's current projected deficit of $689 million in 2029 understates the magnitude of the state's unfunded obligations and is based on overly optimistic and unsupportable assumptions," they wrote. They recommended keeping the program closed to new enrollments, as it has been since 2003.

In their optimistic scenario, the plan would run out of money from contract-buyers in 2018; everything after that would be picked up by taxpayers. That's the same year taxpayers take over in the pessimistic plan, but the hole they'd have to fill would be almost twice as big.

The advisors say proposals to reopen the plan don't address the deficit that's already in place — that's the $110 million — or the basic problem with trying to prepay unregulated tuition. "Because it is impossible to precisely predict how fast the cost of Texas college tuition will rise in the future, it is likewise impossible to correctly price the cost of entry to new participants. Consequently, reopening the plan increases the risk that its ultimate shortfall will mushroom in size."

One last warning from those folks: The problem will be worse if the Legislature waits to do something about the deficit than if it acts now.

Here's a correction for you: Never say Billion when you mean Million. We did it last week, when we mis-reported the tuition plan's deficit from its 2005 report. We should have said $107.7 million. A Billion apologies.