thumb|300px|Santa Rita No. 1 rig, used in the discovery of the Big Lake Oil Field in 1923.

The Permanent University Fund (PUF) is a sovereign wealth fund created by the State of Texas to fund public higher education within the state. A portion of the returns from the PUF are annually directed towards the Available University Fund (AUF), which distributes the funds according to provisions set forth by the 1876 Texas Constitution, subsequent constitutional amendments, and the board of regents of the Texas A&M University System and University of Texas System. The PUF provides extra funds, above monies from tax revenues, to the UT System and the Texas A&M System which collectively have approximately 50 percent of state public university students. The PUF does not provide any funding to other public Universities in the State of Texas.

History

The Permanent University Fund was established by the 1876 Constitution of the State of Texas. Initially, its assets included one-tenth of University of Texas at Austin lands bordering the railroads (UT Austin was granted in West Texas as compensation) as well as additional. In addition, the 1876 Constitution organized the University of Texas System, under which governance of Texas A&M University and UT Austin was placed. The original Constitution provided for preference in PUF investment in Texas and U.S. bonds. Initially, the little revenue PUF earned from its lands were from grazing leases.

The terms of the annexation of the Republic of Texas in 1845 meant that Texas kept its public lands. In 1901, the Texas Legislature authorized UT Austin to "sell, lease and otherwise control" oil and mineral rights for PUF land. The March 10, 1926, Texas Supreme Court case State ex rel Attorney General, v. Hatcher, decided against State Treasurer W. Gregory Hatcher, who refused to comply with Attorney General Dan Moody's demands that oil rights revenue be placed into the PUF rather than the AUF. The Texas Supreme Court concluded that the 1876 Constitution directed subterranean revenue to be "corpus of the estate" rather than UT Austin disposable income.

Assets

thumb|right|PUF fiduciary assets, 1993-2008

According to Olien and Olien, the original one million acres was "much less desirable land in arid western Texas...it had no timber, was too arid for small farming, and had no special mineral resources that anyone was aware of." The land was located in Crockett, Irion, Pecos, Reagan, Schleicher, Terrell, and Upton counties. In 1883, additional land was added in Andrews, Crane, Culberson, and Winkler counties, which "was no more desirable than that granted in 1876, but there was at least twice as much of it." The Big Lake oil discovery, within the Permian Basin, revised the value of the land, and ensured a richly endowed university system.

In 1900, the Permanent University Fund earned approximately $40,000, mostly from grazing leases; by 1925, income had increased to $2,000 per day (about $700,000 per year), and by 1943 was just under $1 million per year. Grazing leases and other surface rights income are distributed to the AUF.

As of December 2008 figures, the PUF holds approximately $8.8 billion in investments and of land located in 21 counties, mostly in West Texas. Each year, five percent of the PUF's value is transferred to the AUF, which then distributes the money. The PUF exclusively serves institutions in the University of Texas System, which receives two-thirds of its proceeds, and the Texas A&M System, which receives the remaining one-third. At one time, the PUF was the chief source of income for The University of Texas at Austin, but today its revenues account for less than twenty percent of the university's annual budgets. Of the 2007-08 year's $1 billion core academic budget of UT Austin, the AUF's funding accounted for $143 million. The PUF's fiduciary assets are managed by the University of Texas/Texas A&M Investment Management Company (UTIMCO), a nonprofit group formed to manage various assets of the UT and Texas A&M Systems and governed by a volunteer board of directors. The board is composed of three members of the UT System board of regents, four members selected by the UT System board of regents, and two members selected by the Texas A&M University System board of regents. Of these, at least three of the members appointed by the UT System regents and one appointed by the Texas A&M System regents must be investment professionals. Additionally, the UT System chancellor is normally one of that system's seven representatives on the UTIMCO board. In addition, UTIMCO has a chief executive officer and chief investment officer appointed by the board and a president appointed by the CEO and board; all employees of UTIMCO except the nine-member board of directors receive a salary and are eligible for annual bonuses.

In February 2009, UTIMCO drew criticism from the state's legislative and executive branches for awarding bonuses to employees despite the 2008 financial crisis. Robert Rowling, chairman of UTIMCO and vice chairman of the UT Austin board of regents, insisted that the bonuses he authorized were for the fiscal year ending 31 July 2008, in which the PUF net fiduciary assets decreased by 3.26%, or $383 million, as compared to nearly 14% for the Dow Jones Industrial Average. The chairman of the board of regents defended Rowling, stating that the contracts obligated bonus payment and the large amounts, $1.05 million for the UTIMCO CEO and $2.3 million for other employees combined, were fairly inflexible. Perry's spokeswoman attacked the contracts, stating, "The compensation structure ought to incorporate the health of the fund, whereby incentives are not immediately paid out if the fund is in the red."

Other Texas public universities—notably all institutions in the University of Houston System, the University of North Texas System, the Texas State System, the Texas Tech System, and some UT System and Texas A&M System institutions—are prohibited by law from sharing the income from this endowment, but in 1984 a second fund was created to one day serve those schools: the Higher Education Fund (also known as the Higher Education Assistance Fund), a much smaller fund. Addition of the other university systems or individual institutions to the Permanent University Fund would require an amendment to the Texas Constitution or a two-thirds vote in the legislature.

A recently added institution to the list of allowed institutions is the University of Texas Rio Grande Valley, which was founded in 2013 with the merger of the University of Texas–Pan American and University of Texas at Brownsville and began full operation in 2015. The predecessor schools were not eligible for PUF allocations, but the law that created UTRGV made the new institution PUF-eligible, and was passed by the required two-thirds vote of both legislative chambers.

The most recently added institution is Stephen F. Austin State University (SFA), which joined the UT System starting with the 2023–24 academic year. The law that added SFA to the UT System specified that it would become PUF-eligible upon joining the system. The measure was passed unanimously by both legislative chambers, and was signed into law on May 10, 2023.

{|class="wikitable"

|+ Permanent University Fund Institutions

|-

! colspan="2" | University of Texas System || colspan="2" | Texas A&M University System

|-

| University of Texas at Arlington || University of Texas Health Science Center at Houston || Texas A&M University || Texas A&M AgriLife Extension Service

|-

| University of Texas at Austin || University of Texas Health Science Center at San Antonio || Prairie View A&M University || Texas A&M AgriLife Research

|-

| University of Texas at Dallas || University of Texas Institute of Texan Cultures at San Antonio || Tarleton State University || Texas A&M Engineering Extension Service

|-

| University of Texas at El Paso || University of Texas M. D. Anderson Cancer Center || Texas A&M University at Galveston || Texas A&M Forest Service

|-

| University of Texas of the Permian Basin || University of Texas Medical Branch || Texas A&M Health Science Center || Texas A&M Transportation Institute

|-

| University of Texas at San Antonio || University of Texas Southwestern Medical Center || Texas A&M University System Administration ||

|-

| University of Texas at Tyler || University of Texas Rio Grande Valley || ||

|-

| University of Texas System Administration || Stephen F. Austin State University || ||

|-

| colspan="4" align="center"| source: Texas Constitution, Article 7, Section 7.18(a) and Section 7.18(b)

|}

See also

  • Sovereign wealth fund
  • List of U.S. colleges and universities by endowment
  • The Government Pension Fund of Norway
  • Alaska Permanent Fund
  • Earmark (finance)
  • Permanent School Fund

References

  • Hechinger, John. "When $26 Billion Isn't Enough." The Wall Street Journal. December 17, 2005.
  • "PUF Distribution details" The University of Texas System.
  • "From the Oil Field to the Classroom (Infographic)" Texas Exes