Permanent University Fund: Investing in the Future of Texas
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The Permanent University Fund (PUF) is a public endowment that provides financial support to institutions in The University of Texas and Texas A&M University systems. The PUF was established in 1876 by the Texas Constitution, and the income is derived from revenue generated by West Texas land provided by the state as a financial investment in higher education. Proceeds result from oil, gas, sulfur, and water royalties, rentals on mineral and grazing leases, and gains on investments. The concept for the PUF originated in the 1839 Congress of the Republic of Texas, when President Mirabeau B. Lamar set aside 50 leagues (221,420 acres) of land "for the establishment and endowment of two colleges or universities, hereafter to be organized." In 1858, the Texas Legislature passed an act establishing The University of Texas and enlarging the original endowment with $100,000 in United States bonds. The Texas Constitution of 1876 officially acknowledged the endowment fund and added 1 million acres located in a remote area of West Texas. In 1883, The University of Texas (UT) opened its doors, occupying temporary quarters in the old State Capitol building in Austin. To finance a stronger, more stable future for the University, the legislature provided a second grant of 1 million acres. The land was again located in West Texas, where the climate was unsuitable for agriculture and the property was of no commercial value at the time. The income it generated was primarily from modest grazing leases. Controversy has erupted several times over the appropriation and spending of money for The University of Texas and higher education in the state. Ashbel Smith, UT's first president, stated publicly in the 1880s that the University should be managed so as to be "wholly exempt from all political influence." Unfortunately, that has not always been the case. "Pa" Ferguson vs. UT 
One of the most outspoken opponents of The University of Texas was Governor James E. Ferguson (1914-1917), who believed that there was too much state spending on higher education while public schools were unable to provide the most basic needs for their students. In his Labor Day address of 1914, Ferguson said that he "wouldn't take a cent away from The University of Texas. I would give The University of Texas all I could, but we spend too much time on higher education and not enough on common education and the education of the masses." A year later he stated that "it is apparent to any fair-minded person that Texas is today suffering more from a want of under-education of the many than it is from a want of over-education of the few." There were other conflicts between Ferguson and the University. As governor, he believed he should be part of the social elite in Austin. Historian Lewis L. Gould observes in his book Progressives and Prohibitionists: Texas Democrats in the Wilson Era that the governor "apparently expected rapid inclusion in the activities of the capital city's upper crust, a circle where the University faculty had influence." When this didn't happen, Ferguson resented those who snubbed him. In 1915, after struggling over the University budget with Dr. William James Battle, UT's president, Governor Ferguson commented that a small group "absolutely ran the university," and the governor intended "to get them out before [he got] through." In Ferguson's second term the animosity grew stronger when the UT Board of Regents refused to remove faculty members whom the governor had found objectionable. When Ferguson saw he would not get his way, he vetoed nearly the entire state appropriation for the University. However, the veto controversy was soon overshadowed by the looming threat of his impeachment. Some elected officials felt that Ferguson was only looking out for his own political future, which included raising funds for a senatorial campaign, and not making appointments in the best interest of the University or the state. Others were uneasy about the fact that Ferguson would not disclose the source of a personal loan amounting to $156,600. The lack of disclosure ultimately led to his impeachment by the House and conviction by the Senate. Striking It Big 
Six years later, on May 28, 1923, oil was discovered on that uncommercial University land in Reagan County, West Texas, when the Santa Rita #1 oil rig produced its first gusher. The PUF was suddenly the beneficiary of a large, steady income, ensuring that The University of Texas would become one of the most highly endowed universities in the country. Oil revenues in 1925, for example, had grown to nearly $4 million and were increasing by $2,000 a day. The PUF was established as an endowment so that the principal would not be spent, only the interest generated from the sitting funds. The Texas Constitution restricted the use and investment of the fund to ensure that the PUF would continue to generate revenue well into the future. The spendable portion of the PUF is called the Available University Fund (AUF), the distributed investment income from the corpus. In September 1924, UT Regent Robert Story, at the behest of the other Regents, requested that the legislature place the proceeds from oil royalties directly into the spendable AUF. The 29th Texas Legislature granted Story's request by passing House Bill 246. However, three years later the Texas Supreme Court reversed that decision in State v. Hatcher by ruling that proceeds from the sale of oil from PUF land were not directly expendable. In 1930, the Board of Regents asked the legislature to authorize bond money for improvements to the University's physical plant. This money enabled the growth of the campus from wooden shacks to the Spanish Renaissance style that is seen on the original 40 Acres. This was the only time in the history of the PUF that part of the principal was spent. The legislature repealed the provision in 1932 to prevent overspending. Opening the Door for A&M Before the 1930s, Texas A&M University depended on budgeted appropriations from the state legislature for their capital improvements. In 1931, the legislature voted into law the provision that Texas A&M, as a constitutional branch of The University of Texas, would receive one-third of the AUF. (Texas A&M agreed to consider itself a branch of the main university solely for the purpose of gaining access to the PUF.) The inclusion of Texas A&M in the PUF upset many supporters of the University. Yet others saw that losing a portion of the fund to one school meant gaining a strong ally against losing more of the money to other schools. Financial Flexibility On January 1, 1943, the Dallas Morning News published an article on the endowment fund. The article stated that UT "would be far from 'rich,' even if all of the revenue from oil and gas were expendable." The article explained that "only the income from the permanent fund, invested in sound state and federal securities, may be spent," amounting to less than $1 million a year. By the late 1950s, the market value of the PUF exceeded $283,642,000 and provided investment income of more than $8,513,000 annually for distribution to the two universities. PUF administrators could only invest in government bonds and securities, which were considered the safest investment at the time because the stock market was thought to be too unsteady for long-term profit. But in 1957, the Regents allowed the universities to invest monies from the PUF principal in corporate stocks and bonds as well. A few months later, former State Senator Clint Small of Austin was quoted in the Dallas Morning News as saying that the fund administrators had made "an amazing record" of investments under the new policy. Regents planned to invest the money equally between private and government securities, believing that an equal distribution would bring both stability and high return to the PUF investments. Redistribution of Funds In 1972, Texas voters approved a Constitutional revision of the PUF, and during the legislative session of 1974 that redistribution of funds was the main topic for discussion. Controversy arose when State Representative Joe Pentony of Houston criticized UT Austin for a lack of minority enrollment and asserted that "the only fair thing" would be to redistribute the PUF earnings among all colleges and universities in the state. State Representative Sarah Weddington agreed that minority enrollment should increase, "but this calls for positive action. I don't think the answer to the problem is to do away with a high-class university." The question of reallocating the PUF's income persisted throughout the 1970s. 
The Texas ad valorem tax was a state property tax that funded capital improvements at institutions of higher education that could not constitutionally participate in the PUF. In 1979, when the ad valorem tax was reduced from 10 cents per $100 valuation down to .0001 cent per $100 valuation, the severe reduction caused many legislators to again question why more schools were not able to participate in the PUF. During a special legislative session in 1981, the topic of abolishing the tax drew differing opinions. The Governor of Texas, Bill Clements (R), stated "that under no circumstances" would he revive the tax, and that the schools should request money for building projects from the general revenue budget. Billy Clayton, Speaker of the Texas House, who supported the abolition of the ad valorem tax, suggested that the PUF be redistributed to include and assist all state colleges and universities. The conflict spread in January 1982, when the University of Houston System President Ed Bishop complained that UT and A&M students were receiving a better education due to more accessible state funding. Bishop advocated the exertion of "political muscle" by pressuring elected officials, so that the University of Houston would not be forced to operate as a second-class university. Midwestern State University in Wichita Falls had already filed a lawsuit to seek restoration of the ad valorem tax or an alternative means of funding. Voters simplified that choice when they voted to abolish the ad valorem tax during the November 1982 election. To accommodate the smaller institutions outside the PUF, one proposal suggested a geographic system that would divide the state into four regions in order to avoid duplication of programs within the respective region, thereby reducing the school budgets and the necessary appropriations from the legislature. "Allocation of the PUF should be placed into the hands of the Texas College and University System Coordinating Board to 'keep it out of the political arena,'" responded Lauro Cavazos, president of Texas Tech University and an opponent of the geographic regional system. He opposed the idea for fear of legislative preferential treatment to those areas that are more densely populated. Not until 1984 did a provision of the Texas Constitution provide a solution to the PUF dilemma. Voters expanded the number of schools that were eligible to receive funding, including all the schools within the UT and A&M systems. The election also saw the approval of Proposition 2, which created the Higher Education Assistance Fund (HEAF)--long-term funding for 26 senior institutions of higher education that did not benefit from the PUF. The HEAF dedicated $100 million a year to finance the construction needs of those 26 schools. The only drawback was that neither the PUF nor the HEAF could be used for faculty or staff salaries. The universities that receive money from these funds still rely heavily on state appropriations from the legislature for salaries and other day-to-day operations. In 1988, the Board of Regents eliminated any restrictions on investment strategies and broadened the use of the funds. By the 1990s, PUF money could be spent on instruction, research equipment, library acquisition, scholarships, recruitment, and student services (counseling and career services), as well as on capital improvements. At the beginning of that decade the PUF stood at $3,541,314,800 and generated $266,119,000 for the AUF. In the summer of 1991, the Texas House of Representatives passed a budget that cut the higher education appropriations drastically, by roughly one-fourth of UT's and A&M's budgets. This posed a significant problem to both institutions because available PUF funds had already been stretched by the introduction of 13 other institutions, and royalties from oil and gas operations on PUF lands had begun to decline steadily during the oil bust of the 1980s. Royalties dropped from $262 million in 1981 to $57 million in 1995. Expanding Investment Options By 1996, the PUF had evolved from a fund based primarily on land and petroleum to a securities-based investment fund. In response to that change, the UT System Board of Regents created The University of Texas Investment Management Company (UTIMCO), a non-profit private investment corporation charged with managing the PUF and other university-related assets. UTIMCO has utilized experienced external investment professionals to increase the flexibility of the investments, to respond quickly to emerging markets and technological innovation, and to apply the latest, most effective management principles in the industry. 
Recently the PUF endowment increased from a value of $8.13 billion in 1999 to $10 billion in 2000. UT officials attributed the increase to a 16.5 percent return on UTIMCO's investments. The PUF is second only to Harvard's endowment in higher education. The chief difference, of course, is that the PUF funds 15 universities with significantly larger student bodies. Whereas the PUF was once the chief source of income for The University of Texas at Austin, today its revenues account for less than 10 percent of UT's annual budget. In 1999, Texas voters passed another constitutional amendment, Proposition 17, which further expanded the investment options available to UTIMCO. Simply stated, Proposition 17 allows more of the capital gains from the PUF to be transferred to the AUF. Unfortunately, the legislature anticipated the passage of the proposition and appropriated less money for both The University of Texas and the Texas A&M systems during the legislative session of 1999. This has put more pressure on both institutions to increase sponsored research and private donations. Since its creation in the 1839 Congress of the Republic of Texas, the original University land grant has developed from a modest investment of 50 leagues of land into a professionally managed $10 billion endowment fund. Despite a century of investment restrictions, political wrangling, and a major redistribution of the monies, the Permanent University Fund continues to grow and to serve two multi-campus systems that are world-renowned for their educational quality and dynamic research. As far-sighted as poet-politician Mirabeau B. Lamar was in his vision for a highly educated Texas, he could not have imagined where his planning would lead. Lourenda Block
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