Massachusetts Gov. Deval Patrick is looking to the state's $50.6 billion Pension Reserves Investment Management Board to help prop up the state's stressed student loan program.
Mr. Patrick on Aug. 6 asked the pension fund to buy $50 million of a $425 million bond sale that the Massachusetts Educational Finance Authority is planning this month. The authority announced in late July that it would not be able to provide student loans this year without the bond sale because of the tumultuous capital markets.
The governor is committed to seeing that families can send their kids to college at an affordable cost, said Cyndi Roy, spokeswoman for the governor, in a telephone interview. One way to do that is through these MEFA loans. These (bonds issued by the MEFA) are typically a safe investment for investors.
But state Treasurer Tim Cahill, who chairs the PRIM board, came out against the governor's proposal, saying the investment would fail to meet the board's criteria of earning a market rate of return on all investments.
PRIM has a fiduciary responsibility to pensioners to invest their money in assets that earn a yield that is determined by the market, Mr. Cahill said in a letter to state lawmakers. The pension system has a statutory mandate to achieve an 8.25% rate of return, and recent market conditions have made it difficult to achieve that goal.
Instead, Mr. Cahill suggested the Legislature extend a line of credit to MEFA, with the state guaranteeing it would pay back the bonds. A similar action was taken earlier this year when the Legislature approved an $800 million guarantee for the Massachusetts Turnpike Authority. The Legislature has already wrapped up its formal session for the year, so Mr. Cahill is urging lawmakers to return for a special session to approve the guarantee. Jennifer Byrd