Increase in UT System funds allows for tuition offset plan

Alex Wilts

Recent increases in oil production in West Texas have also increased the amount of money available to the UT System, according to Scott Kelley, the System’s executive vice chancellor for business affairs.

From June 2013 to June 2014, the market value of the Permanent University Fund, or PUF, increased 19.4 percent — from $14.4 billion to $17.2 billion — according to reports from The University of Texas Investment Management Company, the organization that invests money for the UT System.

“Our revenues and the values of our assets in West Texas have grown substantially in recent years to allow for a larger endowment,” Chairman Paul Foster said after an August meeting of the Board of Regents.

PUF is an endowment containing 2.1 million acres in West Texas that was created to benefit UT and Texas A&M University systems. The proceeds from the sale of oil, gas, sulfur and water royalties are invested in the form of stocks, bonds and equity interest to establish the Available University Fund, or AUF. Two-thirds of these funds go toward the UT System and one-third goes to the Texas A&M system.

Kelley said horizontal drilling, a new oil drilling technique used to expose more surface area of oil bearing rock, can explain the increase in the value of the PUF on oil lands that were once thought to be in decline.

“Probably 20 years ago it was thought that the Permian Basin in West Texas was a mature [oil] field, and its best days were really behind it,” Kelley said. “The new technology — horizontal drilling and the ability to extract oil and gas from some of the shale that’s out there — has just created a whole new wave of production. We will probably have $1.2 billion dollars in revenue this year coming into the PUF from University lands, whereas four years ago it was maybe $200 million.”

Citing the fund’s growth, the regents decided not to increase in-state undergraduate tuition in May and approved an offset plan for the lack of increases in August. As UT-Austin is the only System institution that is legally able to directly use the AUF for academic operations, the System allocated $28.2 million in recurring revenue from the fund to the University.

“UT-Austin is very fortunate to be a beneficiary of the Permanent University Fund, especially when the fund is on such solid footing,” University spokesman Gary Susswein said in an email. “Recurring funding from the PUF and other sources is vital to our efforts to become the best public research university in the country.” 

Under the offset plan, the System decided to cover costs and activities traditionally undertaken by the other eight institutions.

In August, the growth in PUF also allowed the regents to approve an increase in PUF endowment distribution to AUF for the 2014 fiscal year, bringing the rate up to 7 percent. With the decision, academic institutions in the System will present proposals to Chancellor Francisco Cigarroa illustrating how they intend to use the additional funds.

Kelley said the policy distribution rate is 4.75 percent but can be raised higher in response to financial returns that exceed their benchmark over a three-year period.     

“With the increase in what’s happening in West Texas and with a look at the oil and gas assets, there was a determination by the board over the last couple of years to increase that distribution, not necessarily permanently, but on a one-time, year-to-year basis to 5.5 percent,” Kelley said.