UT now has the second largest endowment in the country. What does that mean?

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Photo Credit: Alexandra Vanderhider | Daily Texan Staff

Last month, The Daily Texan reported that the UT system now has the country’s second largest endowment at $31 billion. 

As the second wealthiest university system in the country, it’s easy to wonder why we still pay for transcripts, why we haven’t seen dorm renovations and why tuition rose last year. 

The University is actually pretty transparent about where their money comes from and where that large sum of money goes. But few students understand the complexities of this system. 

 

What is the endowment?

The Texas endowment dates back to 1876. At the time, the state set aside more than 1 million acres of Texas land to aid the development of the UT and Texas A&M University systems. The land generates revenue through leases of oil, gas and surface rights.

With the help of the discovery of oil and advancements in withdrawing it, the value of the fund drastically increased. Ten years ago, the fund was around $11 billion. Last year, that sum was $19.5 billion. Today, it’s second only to Harvard.

The distribution of this endowment is pretty straightforward. A sum of money is gifted to the University and then placed into a pooled fund for investing. Only the earnings are put toward the endowment’s purpose to better the University, and with time, the gift keeps giving. UT’s endowments provide long-term and reliable funding for the UT System.

 

Where does the endowment money go? 

The majority of UT System’s endowment is separated into two funds — the Permanent University Fund and the Long Term Fund. The remaining funds are divided into the Permanent Health Fund, the General Endowment Fund and Separately Invested Funds. The revenue generated from selling the land’s oil and gas flows directly into the Permanent University Fund and is then distributed to UT and A&M institutions across the state at a rate set by the UT System Board of Regents. Historically, 5 percent of the PUF is distributed to these universities each year. The Long Term Fund, on the other hand, is specific to the UT system and consists of 13,600 privately-raised endowments established by donors. 

The Texas Constitution actually stipulates how the Permanent University Fund is spent. It can be used for relieving debts from capital or construction projects at UT or A&M institutions, as operational funding for UT Austin, A&M College Station, A&M Prairie View or UT system expenses and initiatives. 

Donors determine exactly how the Long Term Fund is spent. 

The University of Texas Investment Management Company then manages the endowment funds coming from the Permanent University Fund, the Permanent Health Fund, the Long Term Fund, the General Endowment Fund and the Separately Invested Funds. The company then invests these funds in various stocks and bonds.

 

Where else does UT get funding?

UT receives funding from a variety of sources, ranging from research grants to athletics to gifts and, yes, tuition. A lot of UT’s funding comes from public sources, comprising 24 percent of UT’s total funding. Twelve percent of that money comes from endowments.

Tuition comprises 22 percent of UT’s funding, the second greatest source of income. The rest of the funding comes from smaller sources: 18 percent comes from grants and contracts, 16 percent comes from self-supporting units such as athletics, and 9 percent comes from gifts.

An additional 5 percent comes from “enhanced academic experience” such as UT’s Executive MBA program and Study Abroad. Three percent comes from indirect costs associated with sponsored projects, while a final 3 percent comes from “other funding,” including intellectual property fees and income carried over from previous years.

Endowments are an influential part of funding the University, and that money isn’t wasted. Fifty-one percent of UT’s money is spent on funding salary and benefits for its faculty and staff. 

Ten percent of UT’s budget then goes to financial aid and scholarships, 12 percent to academics and research development, 13 percent to operating expenses and 14 percent to self supporting units such as housing and facilities. 

 

Why does this matter? 

UT’s endowment is not without criticism. Many faculty and students have condemned the University’s endowment for its connection to oil and gas, particularly fracking. As the climate crisis intensifies, the seemingly eco-conscious UT has come under fire for refusing to limit oil and gas royalties or curb drilling on University land. Demands to cut ties with fossil fuel leave the administration in a tough position, given the benefits of this funding for the school. 

How the University is funded, despite transparency on the administration’s part, remains murky to most students. 

Funding is an inherently unapproachable subject for many students. But understanding how UT gets its money is the first step toward figuring out if this reflects our values as a university.

For many on campus, the environmental impact of fossil fuels outweighs any potential advantage of economic security for the school. For others, the benefits of a well-funded education make the environmental consequences worthwhile. 

Student advocacy can make a difference in how the school comports itself, especially on topics as important as this one. But we can’t advocate for change if we don’t understand the system.