Candidate for OH gov. proposes costly, redundant college savings plan

By Maggie Thurber | for Ohio Watchdog

Cuyahoga County Executive Ed FitzGerald got an idea to open a savings account for every kindergartener in the county and give them $100 to start.

He wasn’t spending his own money, of course. He was using your tax dollars — $1.5 million per year.

The county council approved the plan, 8-3, and just recently appropriated the funds for the 2013-14 school year.

And since FitzGerald, a Democrat, is running for Ohio governor , it should come as no surprise he wants to expand the program statewide.

But Ohio already has a college savings program. The Ohio CollegeAdvantage 529 Savings Plan has been in place since 1989, and it’s one of the oldest in the nation.

In fact, Morningstar, Inc., an independent investment research firm, ranked Ohio’s plan as “one of the best college savings plans for 2012 and 2013.”

So why does Ohio need a new program?

Dave Greenspan, Cuyahoga County District 1 councilman, thinks many of the concerns he had with the county plan apply to statewide expansion.

As he learned during council discussions, the $2 million county cost includes $522,000 in administrative overhead — more than 25 percent — and he doesn’t believe a taxpayer would give to a charity with such a high administrative burden.

According to a memo provided to the county council, administrative costs include $75,400 in salary and benefits for a full-time staff person; $199,600 for program marketing, outreach, printing and mailing; and $125,000 for technology and contracting.

Greenspan, who voted against FitzGerald’s proposal, said he believes in the concept of promoting post-secondary education and the value of promoting financial literacy. “I just do not believe that setting up (accounts) using taxpayer money is going to do those things,” he added.

He thinks the county program was redundant.

“This has none of the benefits of a 529 plan,” Greenspan said. “There’s already a state-offered 529 plan. If the intent is to encourage families to save for post-secondary education, my position would be to promote the existing 529 plan.”

Let’s look at some of the differences.

The CollegeAdvantage 529 plan is an opt-in program, which means someone has to decide to start a 529 account for a child.

FitzGerald’s program in Cuyahoga County is an opt-out, which means the county will the start the account for every child and parents have to choose not to participate.

The 529 program is tax-deductible. Parents who establish a plan can deduct up to $2,000 per child per year from their Ohio income taxes. In fact, any state resident who contributes to the child’s account can claim the deduction. Plus, a bill pending in the Legislature would raise that amount to $10,000.

FitzGerald’s plan offers no such tax benefits, though anyone can contribute.

Withdrawals from the CollegeAdvantage fund are free from federal and state income taxes if used for allowable higher education expenses. That’s not so for FitzGerald’s program.

Under CollegeAdvantage, the person who opens the account owns it. But the county owns the accounts for Cuyahoga kids, though they are the named beneficiary of the funds.

The CollegeAdvantage plan has multiple earnings options, including stocks, bonds, and an age-based fund that changes to more conservative investments as the child gets closer to graduation. With FitzGerald’s plan, the only earnings on the savings account is interest paid by the bank.

The CollegeAdvantage plan allows funds to be used for non-educational purposes, but then it is subject to both Ohio and federal income taxes. If a Cuyahoga child doesn’t use the money in the account for eligible educational expenses the money is returned to the contributors, including the county.

FitzGerald’s plan requires $100 of tax dollars for each child. He estimated Cuyahoga County has about 10 percent of the state’s population. With county costs at $2 million,expanding the program statewide would cost $20 million.

And he thinks it can be funded without a tax increase.

But the bigger question is why a candidate for governor would want to spend an additional $20 million a year to add a new program that doesn’t come close to being as good as an existing one.

As Bruce Johnson, president of the Inter-University Council of Ohio, told Gongwer-Ohio, the 529 program “doesn’t have to be reinvented.”

You can reach Maggie Thurber via email at maggie@ohiowatchdog.org