Permanent University Fund Warrants a Second Look
With the announcement that the University of Texas would be departing the Big 12 for the SEC to take advantage of a lucrative TV payout, the state’s Permanent University Fund (PUF) has come into the spotlight. Many are unfamiliar with the fund, its purpose, and its value today, so below is an overview that should paint a clear picture for interested observers.
The PUF was established in the Texas Constitution in 1876 to create a funding mechanism for the state’s public universities through the value derived by public lands. Initially, the public lands set aside amounted to roughly one million acres. An additional one million acres were added in 1883, when West Texas lands deemed “too worthless to survey” were turned over to the state for PUF use.
Over time, the 2.1 million acres in West Texas that make up PUF lands today are far from “worthless”. In fact, they have generated lucrative money from mineral income (oil and gas, rentals, royalties, etc.) plus surface income (leasing the land for grazing wind farms, commercial vineyards, etc.).
The problem is this: all the money that is generated from this land in West Texas is sent exclusively to the University of Texas System and the Texas A&M University System as laid out in the Texas Constitution. The principal of the PUF is never spent but earned interest makes up what’s called the Available University Fund (AUF). This money is allocated to the UT System (two-thirds) and A&M System (one-third) on an annual basis.
As of June 2021, the value of the PUF exceeds $30 billion. For the academic year 2020-2021, 12% of UT-Austin’s $3 billion budget was accounted for by AUF funds. That comes out to $360 million. Furthermore, the UT System and A&M System can sell bonds secured by the AUF for construction and capital improvements, allowing them to access the lowest interest rates possible “to save the state money”.
The PUF is managed by a non-profit called the University of Texas/Texas A&M Investment Management Company (UTIMCO), with oversight provided by the UT System board of regents. UTIMCO was paid more than $25 million to manage the fund last year. In 2009, they came under scrutiny for providing more than $3 million in employee bonuses on the heels of the Great Recession. In other words, while the state of Texas and the nation were reeling from the greatest economic setback since the Great Depression, UTIMCO used public money generated from West Texas lands to give its CEO a $1 million bonus (plus more than $2 million for other employees).
The PUF has allowed the UT System ($32 billion) and A&M System ($13.6 billion) to amass the two largest public university endowments in the entire country. Meanwhile, as UT leaves for the SEC to collect what is anticipated to be a lucrative payout from the TV contract involved with the move, it potentially leaves the flagship university of West Texas without a home in major college athletics.
Perhaps it’s time to consider how much additional public assistance the UT System and A&M System really need. Is it really in the best interest for the state of Texas to have two university systems clearly treated advantageously when compared with the remaining university systems across the state? And will it be worth it for the state as a whole to leave West Texas stakeholders behind – the same West Texas that has provided UT and A&M such prosperity – so UT can cash a larger TV check for its college football program?
Proponents of the way the PUF is allocated today sometimes point to the Higher Education Fund (HEF) as a way that the state attempts to make higher education funding more equitable. There are two reasons why this line of thinking falls short. First, the HEF provides far less in total annual funding across more university systems than the PUF. Second, the Texas Constitution caps the HEF so that it cannot exceed a principal value of $2 billion while the PUF’s corpus is expected to approach $27 billion by 2023.
HEF dollars are greatly appreciated by institutions like the Texas Tech University System but do not amount to equal treatment when compared to in-state counterparts like UT and A&M.
The UT System website says the PUF “is one of our state’s most unique, important, and enduring competitive advantages.” This is true only to the extent that one believes “our state” consists of two university systems instead of seven. If the PUF were truly to benefit the entire state of Texas, other university systems across the state like Texas Tech, North Texas, Texas State, Houston, and Texas Woman’s would get a cut as well. Even more so, the financial assistance would be helpful after a secretive move that lacked transparency could potentially limit Texas Tech’s potential to find a long-term home in a major athletic conference.
It’s time to take a serious look at the fairness of higher education funding in the state of Texas. Is it for all of the Lone Star State, or only a select few?
The PUF was established in the Texas Constitution in 1876 to create a funding mechanism for the state’s public universities through the value derived by public lands. Initially, the public lands set aside amounted to roughly one million acres. An additional one million acres were added in 1883, when West Texas lands deemed “too worthless to survey” were turned over to the state for PUF use.
Over time, the 2.1 million acres in West Texas that make up PUF lands today are far from “worthless”. In fact, they have generated lucrative money from mineral income (oil and gas, rentals, royalties, etc.) plus surface income (leasing the land for grazing wind farms, commercial vineyards, etc.).
The problem is this: all the money that is generated from this land in West Texas is sent exclusively to the University of Texas System and the Texas A&M University System as laid out in the Texas Constitution. The principal of the PUF is never spent but earned interest makes up what’s called the Available University Fund (AUF). This money is allocated to the UT System (two-thirds) and A&M System (one-third) on an annual basis.
As of June 2021, the value of the PUF exceeds $30 billion. For the academic year 2020-2021, 12% of UT-Austin’s $3 billion budget was accounted for by AUF funds. That comes out to $360 million. Furthermore, the UT System and A&M System can sell bonds secured by the AUF for construction and capital improvements, allowing them to access the lowest interest rates possible “to save the state money”.
The PUF is managed by a non-profit called the University of Texas/Texas A&M Investment Management Company (UTIMCO), with oversight provided by the UT System board of regents. UTIMCO was paid more than $25 million to manage the fund last year. In 2009, they came under scrutiny for providing more than $3 million in employee bonuses on the heels of the Great Recession. In other words, while the state of Texas and the nation were reeling from the greatest economic setback since the Great Depression, UTIMCO used public money generated from West Texas lands to give its CEO a $1 million bonus (plus more than $2 million for other employees).
The PUF has allowed the UT System ($32 billion) and A&M System ($13.6 billion) to amass the two largest public university endowments in the entire country. Meanwhile, as UT leaves for the SEC to collect what is anticipated to be a lucrative payout from the TV contract involved with the move, it potentially leaves the flagship university of West Texas without a home in major college athletics.
Perhaps it’s time to consider how much additional public assistance the UT System and A&M System really need. Is it really in the best interest for the state of Texas to have two university systems clearly treated advantageously when compared with the remaining university systems across the state? And will it be worth it for the state as a whole to leave West Texas stakeholders behind – the same West Texas that has provided UT and A&M such prosperity – so UT can cash a larger TV check for its college football program?
Proponents of the way the PUF is allocated today sometimes point to the Higher Education Fund (HEF) as a way that the state attempts to make higher education funding more equitable. There are two reasons why this line of thinking falls short. First, the HEF provides far less in total annual funding across more university systems than the PUF. Second, the Texas Constitution caps the HEF so that it cannot exceed a principal value of $2 billion while the PUF’s corpus is expected to approach $27 billion by 2023.
HEF dollars are greatly appreciated by institutions like the Texas Tech University System but do not amount to equal treatment when compared to in-state counterparts like UT and A&M.
The UT System website says the PUF “is one of our state’s most unique, important, and enduring competitive advantages.” This is true only to the extent that one believes “our state” consists of two university systems instead of seven. If the PUF were truly to benefit the entire state of Texas, other university systems across the state like Texas Tech, North Texas, Texas State, Houston, and Texas Woman’s would get a cut as well. Even more so, the financial assistance would be helpful after a secretive move that lacked transparency could potentially limit Texas Tech’s potential to find a long-term home in a major athletic conference.
It’s time to take a serious look at the fairness of higher education funding in the state of Texas. Is it for all of the Lone Star State, or only a select few?
