Proposed Amendment to Texas Constitution Would Create Endowments for Smaller Schools

A proposed Texas state constitutional amendment would allocate new endowment funds for midsize public colleges and universities in Texas to help them invest in research and other resources. Proposition 5, which voters can approve in November elections, would rename the state’s National Research University Fund the Texas University Fund and allocate $3.9 billion to create an endowment system to enhance the research capabilities of several public universities in Texas that are not part of the University of Texas or Texas A&M University systems.

The ballot measure would also allocate money to the new fund annually from the Texas Economic Stabilization Fund, oft referred to as the state’s “rainy day fund,” including up to $100 million in fiscal 2024. The new endowment would be managed by the Texas Treasury Safekeeping Trust Co., which manages about $125 billion in assets, according to its website, including the Texas Treasury Pool and 11 separate endowments.

The University of Texas and Texas A&M University systems are the largest research institutions in the state and get research funds from the state’s Permanent University Fund while also benefitting from endowments managed by The University of Texas/Texas A&M Investment Management Co. UTIMCO manages endowment and operating funds totaling $69.18 billion, as of September 30.

To qualify to receive funds from the new endowment, institutions must have spent at least $20 million on federal or private research in each of the preceding three years and must have awarded at least 45 doctoral degrees during the previous three years. The universities eligible to receive funds from the new endowment, which are awarded proportionally based on metrics similar to the qualifying standards, are the University of Houston, the University of North Texas (Denton), Texas State University (San Marcos) and Texas Tech University (Lubbock).

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The Texas Legislature already passed, with strong bipartisan support, a bill to implement the amendment, so the law will take effect if approved by voters. The law limits the total amount distributed from the fund annually to 7% of the average net market value of its investment assets. Of annual distributions, 75% would be distributed to the permanent endowment for education and research base funding, and the other 25% would be distributed based on money spent on research and doctoral degrees awarded that year.

The stated goal of the new endowment fund is to increase the rankings of other Texas public universities in rankings of colleges such as those released by the U.S. News and World Report and give them more resources with which to compete. According to a statement provided by the University of Houston, Texas ranks 23rd among U.S. states in terms of the proportion of students attending a public university. University of Houston officials hope this legislation can both increase state-wide enrollment and research output and reduce reliance on out-of-state students.

“The establishment of a $3.9 billion permanent endowment would ensure sustainable research funding for four universities that do not receive benefits from PUF, yet have the potential to be recognized among the nation’s top public universities: Texas Tech University, Texas State University, University of North Texas, and the University of Houston,” said Jason Smith, vice president of government and community relations at the University of Houston, in a statement.

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Cornell’s endowment fared well in fiscal 2023, with a return above most of its peers. The Cornell University Office of Investments announced a return of 3.6% for the period ending June 30, a $355 million increase in assets to $10 billion.

“The university concluded the fiscal year with a solid return relative to the environment,” Cornell Investment Office CIO Kenneth Miranda said in a statement. “We attribute this performance to our work since 2016 to diversify the university’s investment portfolio and strategies, reduce fees, and enhance liquidity and flexibility.”

Ivy League endowment returns were muted for fiscal 2023. While equities had strong returns, alternative investments like venture capital and private equity performed poorly. These endowments typically have larger allocations to alternatives.

Cornell’s endowment returns still shined compared with its peers, besting Harvard University (2.9%), Brown University (2.7%), Yale University (1.8%), Dartmouth College (1.6%), the University of Pennsylvania (1.3%) and Princeton University (-1.7%). Only Columbia University’s 4.7% return outperformed Cornell.

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According to the Cornell Investment Office, headwinds for Cornell’s endowment included inflation, geopolitical tensions and tightening monetary policy.

The 3.6% fiscal 2023 performance followed a 1.3% loss in fiscal 2022 and a historic high 41.9% gain in fiscal 2021.

“Our long-term orientation, sophisticated asset allocation and overall structure of the portfolio continue to build a successful long-term structure capable of withstanding unexpected changes in market conditions,” Miranda said.

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