The dormant constitution Higher Education Fund (HEF) that would be converted to the National Research University Fund under the Tier One amendment was created as part of the Legislature’s continuing efforts to provide equitable funding for capital construction to schools that are not eligible for Permanent University Funds (PUF). Only the University of Texas at Austin, Texas A&M University and Texas A&M University Prairie View are eligible to draw PUF funds. Constitutional amendments in 1984 and 1993 created the Higher Education Assistance Fund (HEAF) to provide funding to non-PUF schools.
As part of HEAF, the Legislature appropriated money for the HEF endowment between 1996 and 2003. Its value today is just under $500 million. HEF was to grow by its appropriations and investment returns and was to stop receiving appropriations once it reached $2 billion. At that point, the HEAF schools were supposed to stop receiving funds from annual HEAF legislation appropriations and were to live off the interest and investment income from HEF. The HEAF schools did not want to depend solely on HEF endowment income because their appropriations would have been substantially reduced. (E.g. interest from the $2 billion HEF fund at a rate of 5% rate of return would be $100 million annually, but the annual appropriations are now approximately $26 million. The non-PUF schools would have had to take a dramatic cut in funds).
Consequently, the HEF funds, which were always destined for the non-PUF schools, are still being used for their original higher education purpose, but are now targeted for Tier One track schools for use for research.
See a full history at: http://www.thecb.state.tx.us