This story is from Texas Monthly’s archives. We have left it as it was originally published, without updating, to maintain a clear historical record. Read more here about our archive digitization project.
The greatest land empire in Texas is the province not of the King Ranch (825,000 acres) nor of the Temple timber companies (1.1 million acres) nor of the lesser-known but larger Texas Pacific Land Trust (1.2 million acres). It belongs to the University of Texas. In nineteen West Texas counties, from the last limestone outcroppings of the Edwards Plateau to the outskirts of El Paso, are 2.1 million acres that constitute the birthright of the university.
This vast territory is the progenitor of the Permanent University Fund, also known as PUF, which consists of income from the land. Do not be fooled by the airy acronym: PUF is so substantial that its assets today are worth more than $2 billion. That makes UT the richest public university in the country. But PUF is far more than just an endowment fund. It lies behind so much of UT’s tumultuous and controversy-filled past—the vision of its founders, the pretensions of its boosters, the frustrations of its critics, the envy of its rivals, the tragedy of its gap between potential and performance, its deep and continuing involvement in politics, its love affair with oil. In short, PUF is UT’s soul.
The reverence reserved for PUF at UT is evident in Austin, where a ceramic replica of a gushing oil well decorates the old business building, and in the brine-scarred oil fields west of Big Lake, where oil was first discovered on university lands. Just off U.S. 67 is a white stone monument erected by the university. This is not your usual historical marker; the familiar tone of official neutrality is utterly absent. “Cognizance of what took place here,” the plaque reads, “compels one to be amazed at the great goodness of providence [and] the wisdom of early Texans in setting aside land for the development of the educational system of the state.”
But more credit is due to providence than to wisdom. In 1839 Texas reserved fifty leagues of public domain (221,000 acres) in good farming country northeast of Dallas to endow a state university. In 1861 it sold everything to pay for the Civil War. Later the state constitution of 1876 reinstated the idea of a land-based endowment for what was described as “a university of the first class.” But as so often has been the case at UT, the vision was soon compromised. The state reneged on three million acres of farmland and gave UT two million acres of desert. After forty years, the total amount in PUF was less than $1 million. Then Santa Rita No. 1 came in, and in a single year PUF grew by 445 per cent.
Since Texas A&M is technically a branch of UT, the Aggies also have a claim on PUF. Before oil, though, A&M wanted no part of it. After oil, A&M changed its tune. The truce let UT keep control of PUF but cut A&M in for a third of the minerals. The split inspired the original Aggie joke:
Q.—Why did UT get two thirds and A&M only one third?
A.—A&M got first choice.
The Aggies were only the beginning of UT’s troubles over PUF. In the forties, oil barons lured to regenthood by the prospect of commanding an oil empire plunged the university into academic chaos. In the fifties, pinchpenny legislatures used oil money as an excuse to slash UT’s appropriations. Oil had helped make a mockery of the university of the first class. But the mystique survived. After a drive led by one of UT’s most prominent self-critics, Walter Prescott Webb, the original Santa Rita rig was installed on the UT campus.
Before 1959, the interest from PUF (the principal is untouchable) was used primarily for construction. That year UT set aside $1 million to start an “excellence fund.” But the fund, now $34 million, grew more rapidly than the excellence. In the seventies, just when UT got serious about academics, PUF was imperiled because the construction fund for other public colleges ran out of money. They wanted to share in PUF, but if a constitutional amendment is adopted in November, they’ll have to settle for a new construction fund of their own.
Since 1973 PUF has trebled. Even after building a swim center, a basketball arena, and a concert hall, UT has plenty left over. Today much of the oil money goes for high tech, looking to the time when Texas—and UT—will have to make do without oil. Meanwhile, in the bleak emptiness near Andrews and Crane and Big Lake, the wells are still pumping, every six seconds, ten times a minute, and with every rotation PUF moves further past two billion and closer to three.
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?