Legislators address Millennium Scholarship shortfall

CARSON CITY -- Legislators couldn't agree Thursday on how to cover a $4.2 million shortfall in the Millennium Scholarship fund that will occur next year.

Based on comments during an Interim Finance Committee meeting, students who qualify for the $10,000 scholarship may be shorted by about $500 during the spring semester unless legislators can come up with a solution in coming months or early in the 2011 legislative session.

Karen Duddlesten, a senior deputy state treasurer, said the law allows the treasurer's office to reduce the scholarship grants proportionately if the state does not have money to make full payments.

About 21,000 students now receive the scholarships under a program that costs about $26 million a year, and 8,000 of the recent high school graduates are expected to quality this fall.

The fund is short largely because of decisions made during the special legislative session in February to take unclaimed property funds that had been used to partly pay for the scholarship program. This money instead will be sent to the state general fund to help cover an $800 million state shortfall.

The primary source of funds for the program, however, has been the money Nevada receives from the tobacco industry to cover costs it incurs for smoking-related illnesses. Because of the decline in smoking, however, the money from the tobacco industry settlement declined precipitously this spring.

Legislative leaders during the special session assured students and fellow legislators that the Millennium Scholarship program was solvent through 2014. The treasurer's office contended it was not notified of the drop in tobacco money until after the special session.

At the Thursday meeting, treasurer's office officials said they recently placed $10 million from an unexpected increase in unclaimed property funds in the general fund.

Steve George, deputy chief of staff, said the office considered using $5 million of that money to cover the coming Millennium Scholarship shortfall, but were told by lawyers that was not legally possible.

Brenda Erdoes, the legislative counsel, said legislation passed at the special permission does not permit the transfer of unclaimed property funds now to the Millennium Scholarship program.

"There is a shortfall and it is our fault," responded Sen. Bob Coffin, D-Las Vegas. "We can make it up, but it has to be at a full legislative session (next February). The IFC can't do it."

Senate Majority Leader Steven Horsford, D-Las Vegas, said after the meeting that Coffin was wrong. He said no one knew at the time of the special session that there would be a drop in tobacco funds.

He said he will call another meeting within a couple of week to look at all options for bailing out the Millennium Scholarship program , "so those students and their families who are expecting scholarships will get them."

Horsford suggested during the meeting that the Legislature use $2.8 million in a College Savings Plan endowment to cover part of the shortfall.

But Senate Minority Leader Bill Raggio, R-Reno, objected, contending it would be a "violation of a trust."

Parents contribute money to the college savings program that is invested by the state and made available when their children enter college.

Duddlesten, however, said the money in the endowment funds comes from fees paid to the state by the firms that actually invest college savings funds. Erdoes said state law allows the endowment funds to be used for assisting Nevadans in obtaining college educations.

The board of the College Savings Plan earlier rejected giving more than $200,000 to the Millennium Scholarship program.

Coffin, however, agreed with Raggio that taking the endowment funds would violate a trust. He said using the endowment funds to make up a shortfall in an entirely different college program made him nervous.

The treasurer's office has estimated the Millennium Scholarship program could fall $13 million short by 2013 unless legislators find ways to increase funding or limit the scholarships.

Students now must have at least a 3.25 grade-point average and pass all core subjects and all sections of the Nevada high school proficiency exam to qualify.

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.