UT System Regents Revise Distribution Policy of the Permanent University Fund

Resulting revenue increase to support expanding faculty, advancing academic excellence

EDINBURG – The distribution rate for The Permanent University Fund (PUF) for fiscal year 2009 was increased from 4.75 percent to 5.0 percent by the Board of Regents of The University of Texas System following a review of the current distribution policy. 

The action, taken today (Feb. 7) at a meeting of the Board, does not represent a permanent change in the payout percentage.  Instead, it provides guidance to the Board as it conducts its annual review of the distribution policy of the PUF. 

The move to increase the payout this year was prompted by several years of impressive investment returns and reflects the Board’s philosophy of providing UT institutions with additional financial assistance when it determines such resources are available. 

“Given the unprecedented increase in revenues from operations on the West Texas lands due to increasing energy prices, the realization of five years of outstanding returns from investments managed by UTIMCO, and our shared understanding that UT System institutions require additional funds to advance academic excellence, the Board feels now is the time to increase the distribution rate of the PUF,” Regents’ Chairman H. Scott Caven, Jr., said.

 “While the Board’s decision today will result in additional revenue for UT campuses in the near term, it is important to note that our action today does not represent a permanent increase in the distribution rate, but rather calls for a more comprehensive annual review of the distribution policy by the Board of Regents as part of our continuing fiduciary obligation to grow the fund while protecting it from inflation so that it may continue to benefit future generations of students,” Caven said. 

The increase in the payout rate to 5.0 percent is expected to yield an additional $27 million for FY 2009.

In making the motion to establish the revised distribution policy and formula for the PUF, Caven directed that the new revenue resulting from the increase in the payout be directed toward expanding the UT System’s faculty recruitment and retention efforts.  The portion of the increase directed to excellence funding at UT Austin will be used to expand the faculty and provide other services to students.

“The UT System and its institutions remain committed to providing an affordable and quality education for its students,” UT System Chancellor Mark G. Yudof said.  “As a very large portion of our endowment is restricted for specific purposes and cannot be used to mitigate increases in operational expenses typically funded from tuition and fee revenues, the Board’s decision to increase the payout in the short term will help our campuses meet strategic goals such as growing and retaining faculty and infrastructure needs.”

The Texas Constitution of 1876 established the PUF through the appropriation of land grants previously designated to The University of Texas, as well as an additional 1 million acres.  Another state grant of 1 million acres was made in 1883.  PUF lands, which today consist of more than 2.1 million acres located primarily in West Texas, are managed by the UT System under direction of the Board of Regents.  The lands are managed to produce two income streams: one from oil, gas and mineral interests, and the other from surface interests, such as grazing. 

The state constitution restricts the income stream from the PUF to be used for the payment of principal and interest on bonds for capital construction at eligible UT System and Texas A&M University System institutions.  Any residual distributions after payment of the debt service on the bonds are used to fund academic excellence programs at UT Austin, Texas A&M University and Prairie View A&M University, as well as oversight responsibilities at the UT System administration.

The Constitution directs the UT System Board of Regents to establish a distribution policy that provides stable, inflation-adjusted distributions to the Available University Fund (AUF) and preserves the real value of PUF investments over the long term.  The last time the Board adjusted the distribution policy was in 2001 when it increased the payout percentage from 4.50 percent to 4.75 percent.

About The University of Texas System
Serving the educational and health care needs of Texans for more than 125 years, the UT System is one of the nation's largest higher education systems with 15 campuses – including nine academic and six health institutions – and has an annual operating budget of $10.7 billion (FY 2008) including $2.3 billion in research funded by federal, state, local and private sources. Student enrollment exceeded 190,000 in the 2006 academic year. The UT System confers more than one-third of the state's undergraduate degrees and educates nearly three-fourths of the state's health care professionals annually. With more than 80,000 employees, the UT System is one of the largest employers in the state.