From the House Research Organization Focus Report on the Proposed Amendments
Background
Texas Constitution, Art. 7, sec. 17 authorizes two higher education funds to provide capital support for Texas public institutions of higher education that are not eligible to receive proceeds from the Permanent University Fund (PUF), the endowment that supports capital spending at certain institutions of the University of Texas and the Texas A&M systems. One of the funds, the Permanent Higher Education Fund (PHEF), was established by the Legislature starting in 1995 under the authority of Art. 7, sec. 17(i) and was intended eventually to become a permanent endowment to support non-PUF institutions. From 1996 to 2001, the PHEF endowment received appropriations of about $50 million per year. In fiscal 2002, the $50 million appropriation was reduced, and the Legislature has made no appropriations to the PHEF endowment since 2003. The estimated current value of the corpus is about $500 million.
While the non-PUF institutions have not yet benefited from the PHEF endowment, since 1985 they have received capital spending support through annual appropriations required by Art. 7, sec. 17, known as the Higher Education Fund (HEF). The HEF consists of general revenue fund appropriations of no less than $100 million per year, and each of the non-PUF institutions receives at least a minimum annual allocation amount set by statute. Institutions may use their allocations to acquire land, construct and equip buildings or other permanent improvements, repair or rehabilitate buildings, or purchase capital equipment, library books, and library materials. They also may use their allocations to pay debt service on HEF-backed bonds. For fiscal 2010-11, the Legislature appropriated $525 million for the HEF allocations.
The Constitution requires that investment income of the PHEF endowment be credited back to the fund until the fund balance reaches $2 billion. As with the PUF, the corpus of the PHEF cannot be spent. When the fund balance reaches $2 billion, 90 percent of the income generated by the endowment will be distributed annually to the non-PUF institutions and will replace the constitutionally guaranteed HEF general-revenue allocations.
Texas has three tier-one research universities, also called flagship universities — the University of Texas at Austin and Texas A&M University, both public, state-supported institutions, and Rice University, a private institution. “Tier one” is used to describe the status associated with high-performing research universities. Some attributes of these institutions include membership in the American Association of Universities; at least $100 million in federal research grants annually; the size of endowments; the quality of the faculty and the number of faculty with membership in one of the national academies; the number of faculty awards; the number of doctorates awarded; and selective admissions.
The Texas Higher Education Coordinating Board classifies research universities in two categories: research universities and emerging research universities. The public institutions designated as emerging research universities in Texas are:
- Texas Tech University,
- the University of Texas at Arlington,
- the University of Texas at Dallas,
- the University of Texas at El Paso,
- the University of Texas at San Antonio,
- the University of Houston, and
- the University of North Texas.
Proposition 4 would amend Texas Constitution, Art. 7 by adding sec. 20 to establish the National Research University Fund (NRUF) for the stated purpose of providing a dedicated, independent, and equitable source of funding to enable emerging research universities in this state to achieve national prominence as major research universities. The balance of the Permanent Higher Education Fund (PHEF) endowment would be transferred to the credit of the NRUF as of January 1, 2010, and the constitutional authorization for the PHEF endowment would be repealed. The NRUF would consist of money transferred or deposited to the fund and any interest or other return on investment assets of the fund. The Legislature could dedicate state revenue to the fund.
Eligibility criteria for receiving distributions from the fund would be established by the Legislature. Eligible state universities could use distributions from the fund only for the support and maintenance of educational and general activities that promoted increased research capacity at the university. Eligible institutions that received distributions in a two-year budget period (fiscal biennium) would remain eligible in subsequent budget periods. The University of Texas at Austin and Texas A&M University would not be eligible to receive money from the fund.
The Legislature would administer the fund, which would be invested in the manner and according to standards for investment of the Permanent University Fund. The portion of the total return on investment assets of the fund that would be available for appropriation in a two-year budget period would be the portion necessary to provide, as nearly as practicable, a stable and predictable stream of annual distributions to eligible state universities and to maintain the purchasing power of the investment assets of the fund.
Every two-year budget period, the Legislature would be required to allocate or provide for the allocation of funds to eligible state universities. The money would be allocated based on an equitable formula established by the Legislature or an agency designated by the Legislature. The Legislature would have to review and adjust the formula at the end of each two-year budget period.
In each two-year budget period, the Legislature could appropriate all or a portion of the total return on all investment assets of the NRUF for the purposes of the fund. The Legislature could not increase distributions from the fund if the purchasing power of investment assets for any rolling 10-year period were not preserved. The amount appropriated from the fund in any fiscal year would be capped at 7 percent of the investment assets’ average net fair market value. Until the fund had been invested long enough to determine the purchasing power over a 10-year period, the Legislature could authorize another means of preserving the purchasing power of the fund.
The ballot proposal reads: “The constitutional amendment establishing the national research university fund to enable emerging research universities in this state to achieve national prominence as major research universities and transferring the balance of the higher education fund to the national research university fund.”
Supporters Say
Proposition 4 and its enabling legislation, HB 51 by Branch, would establish a pathway for emerging research universities in Texas to achieve nationally recognized, tier-one status. The proposed amendment would establish a fund that would be a dedicated, long-term source of funding for eligible institutions. It would transfer the long-dormant permanent HEF endowment to a National Research University Fund for the purpose of boosting state-supported research universities to national prominence. It would not affect nor diminish the yearly distribution of general revenue allocations that provide capital spending support for the non-PUF institutions.
The need for a highly educated workforce in Texas cannot be overstated, and Proposition 4 would be a new effort in pursuing that goal. Tier-one universities, generally defined as those that annually commit more than $100 million to research, are critical in keeping the state in the forefront of research as competition increases for talent, ideas, and economic development. If Texas is to achieve a globally competitive workforce, it must make dramatic gains in the education of its population. Tier-one universities are one of the best ways to develop a highly skilled workforce, especially in the sciences, engineering, and professional fields critical to economic success.
Texas trails other states in the number of tier-one research universities. California has nine tier-one universities, and New York has seven. Lack of major research and development infrastructure is costing Texas billions of dollars every year in lost opportunities to attract research funding.
Texas has a population of more than 24 million and only three tier-one institutions: UT Austin and Texas A&M University, which are public, and Rice University, which is private. It is no surprise that the state’s top-notch public institutions have more applicants than they can admit. Texas is losing more than 10,000 high school graduates a year to doctoral-granting universities in other states. At the same time, the state is recruiting only 4,000 students per year from other states, resulting in a net loss of 6,000 students a year. The presence of additional tier-one universities would expand the educational opportunities available to Texas students and keep more of them in the state.
A principal reason the University of Texas at Austin and Texas A&M University have reached the level of tier-one status is long-term, sustained funding from the Permanent University Fund. Proposition 4 proposes to tap the unused funds in the inactive PHEF endowment because two-year appropriations alone cannot create a tier-one university. Having dedicated, guaranteed funding would allow emerging research institutions to achieve tier-one status, which would allow them to attract and retain top talent while generating important research.
The eligibility criteria set by statute for receiving distributions from the fund should be stringent because Texas universities striving for tier-one status would be competing not only with each other, but nationally. Currently, none of the seven universities designated as emerging research institutions meets the eligibility requirements, which would set high goals for which they would have to strive to attain tier-one status.
Opponents say
While the goal of adding new top-tier state universities is laudable, in this time of economic downturn and fiscal restraint Texas should focus more of its limited resources, including the funds in the PHEF endowment, on those institutions that are the closest to attaining tier-one status. Because of the urgency of developing more nationally competitive research universities, it would make more sense to target those emerging research institutions farthest along the path to attaining national tier-one status rather than spread too thinly funding for all seven institutions designated as emerging research universities.
Other opponents say
The funding criteria in the enabling legislation could be too difficult for some institutions — especially historically underfunded institutions and those that primarily serve minorities — to achieve. Some institutions would start at a disadvantage because they have not been granting doctoral degrees as long as others, and the eligibility criteria would perpetuate this disadvantage. The number of doctoral degrees required should be lower or the populations served should be taken into account. Targeting areas of population growth, especially the border region, would make more sense if the state were serious about serving high-growth, underserved areas.
Notes
HB 51 by Branch, the enabling legislation enacted by the 81st Legislature during its 2009 regular session and signed by the governor, would establish eligibility criteria for institutions to receive distributions from the National Research University Fund. This provision would take effect only if voters approve Proposition 4. The bill stipulates that money could not be distributed from the NRUF before the two-year state budget period beginning September 1, 2011. An institution would have to meet specific criteria, including being designated as an emerging research university, and would have to spend $45 million in restricted research funds for two consecutive years. Institutions also would have to meet four of six criteria:
- an endowment of at least $400 million
- designation as a member of the Association of Research Libraries or its equivalent
- the awarding of at least 200 doctor of philosophy degrees in each of the two previous years
- top-flight faculty, based on professional achievement and recognition, including membership in national academies
- high-achieving freshmen for two years
- high-quality graduate level programs, based on the number of graduate level programs, admission standards for those programs, and level of institutional support for graduate students
HJR 14 includes two unrelated propositions proposing two different constitutional amendments. HJR 14 originally proposed only a change in eminent domain authority (Proposition 11), but was amended late in the 2009 regular session to add the provisions of Proposition 4, which would convert the corpus of the Permanent Higher Education Fund endowment into a new National Research University Fund.
