George on the Lege, Part 8 – Public Higher Education

imageWith budget cuts of between $1.2 and $2 billion (9-15%) looming for the 2012-2013 fiscal biennium, Texas public institutions of higher education confront the same task as public primary and secondary schools: educating more students with less state aid. But unlike public schools, whose percentage of state funding has increased dramatically in the wake of school finance litigation and as a result of mandatory property tax rate compression, the state’s share of funding for higher education has been in decline for decades. The University of Texas at Austin, for example, receives only about 14% of its total funding from the state, and the average for all public colleges and universities is about one-third. The rest is made up from student tuition and fee revenue, federal funds,  and other institutional revenue sources. If current funding trends continue, in the foreseeable future state control of public higher education may well not be accompanied by state funding of public higher education.

In some ways, however, this situation is nothing new. The two major land grant universities, Texas A&M University (1876) and the University of Texas (1883), opened their doors without the benefit of general revenue appropriations for maintenance and operations (the first general revenue appropriation for universities did not occur until 1889). They were funded instead from the sale of state lands originally set aside by the Republic of Texas in 1839, part of the proceeds from federal bonds issued to the state in connection with the 1850 compromise that settled Texas’ claims against the federal government for part of New Mexico, and the state’s share of federal land sales in Colorado to finance the Morrill Land-Grant College Act of 1862 for agricultural and mechanical institutions. In 1856 the Texas Legislature established the initial Permanent University Fund (PUF) for a future University of Texas, which after the Civil War was endowed with one million acres of public land and another million acres of land in West Texas in 1883. At the time it was dedicated to the PUF, this land was good only for leasing to ranchers for grazing; by 1900 it had yielded a whopping $40,000 in annual income. Hardly enough for the “university of the first class” envisioned by the Texas Constitution when voters confirmed the creation of the PUF in 1876.

Everything changed in 1923, when the Santa Rita oil well in Reagan County came in on university land. By 1925 profits from Santa Rita and other wells were reinvested in the PUF at the rate of $2,000 per day. Subsequent oil and gas development in the Permian Basin and adjacent areas of West Texas swelled the PUF into one of the largest university endowments in the world, with a market value of nearly $300 million by the late 1950s, $3.5 billion by 1990, and more than $10.7 billion today. So much money rolled into the PUF that the 1931 Legislature divided the income between the University of Texas and Texas A&M University on a 2-1 basis. Income distributions from the PUF remain exclusively dedicated to these institutions through the Available University Fund (AUF), though in 1984 voters adopted a constitutional amendment to allow other member institutions of the UT and TAMU systems to issue bonds backed by the PUF. In 2010 and 2011, for example, the UT Board of Regents approved total distributions from the PUF to the AUF of more than $500 million each year to UT-Austin and Texas A&M. In addition to funding from the PUF and AUF, UT and TAMU receive general revenue appropriations for instructional costs.

There are four other university systems in Texas that do not benefit from the PUF: the University of Houston, Texas State, Texas Tech, and University of North Texas. In 1984 voters approved a constitutional amendment establishing a parallel fund, the Higher Education Assistance Fund, with a dedicated annual appropriation of $100 million. By a two-thirds vote the Legislature may increase this amount and in fact appropriated more than $500 million to the HEAF for the current 2010-2011 biennium. This funding is allocated by formula among the eligible systems, as well as freestanding public universities and the Texas State Technical College system, for capital projects (purchase of land; construction, renovation, or repair of buildings; acquisition of library materials or capital equipment).  In addition, fifty community college districts, created by local voters, levy property taxes to finance capital projects and receive state aid for some instructional and faculty and staff insurance costs. Forty independent colleges and universities (including large ones such as Baylor, Southern Methodist, Texas Christian, and Rice University) indirectly receive state appropriations through the Tuition Equalization Grant program, and the only independent medical school in the state, Baylor College of Medicine, receives a direct state appropriation each biennium.

In 1965,  Governor John Connally created The Texas Higher Education Coordinating Board to bring some uniformity to this unwieldy and decentralized constellation of institutions. Composed of nine members appointed by the Governor, the Coordinating Board is charged with approving new campuses, degree and graduate programs, establishing the formulas for state funding of instructional costs, and ensuring transferability between programs and institutions. In practice, however, the Texas Legislature has frequently appropriated or overridden the Coordinating Board’s authority by creating new institutions, specific programs for specific campuses, and providing funding for “special” items sought by individual lawmakers, institutions, and communities. As a result, the political tug-of-war between the Governor, who appoints both the members of the Coordinating Board and the regents of the university systems, the Legislature, and the individual institutions for limited resources is a regular feature of the legislative budget process every two years.

As previously indicated, about one-third of state funding for higher education is provided by the state through dedicated and general revenue funding. General revenue appropriations for higher education, however, have remained stagnant for decades, partly for the reason that higher education is a purely discretionary function for the legislature; it is neither mandated by federal law nor by the Texas Constitution. For example, following twenty years of rapid expansion in the number of campuses and student enrollments between 1965 and 1985, the ten years between 1984-85 and 1994-95 biennia witnessed a dramatic decline in general revenue spending for higher education as a percentage of general revenue from 18.4% to 12.2%, while during the same period real per student expenditures fell by 16%.

There has been little recovery since then. For the 2004-2005 biennium (following the recession of 2002-2003), public higher education received about 12.7% of available general revenue, but it was distributed across a student population of 1.1 million, about 300,000 more students than in 1995. In the 2010-2011 budget, total expenditures recovered somewhat to 14% of general revenue, but this modest increase was spread across 200,000 additional students than five years before. When the bottom dropped out of the economy in the fall and winter of 2008-2009, the legislative leadership ordered higher education institutions to cut that funding a further 5%. With only two weeks remaining in the current legislative session, even under the most optimistic scenario adopted by the Senate budget plan, higher education’s share of general revenue will drop to 11%–the lowest point in half a century.

Sources:

Bracco, Kathy Reeves, “State Structures for the Governance of Higher Education: Texas

Case Study Summary,” California Higher Education Policy Center, San Jose, Spring

1997

Legislative Budget Board, Fiscal Size-Up, 1994-1995 Biennium and 2004-2005 Biennium

Texas Higher Education Coordinating Board, Texas Higher Education Data, http://www.txhighereddata.org/

Texas State Historical Association, The Handbook of Texas Online, http://www.tshaonline.org/handbook/online/articles/khp02 (accessed May 11, 2011); http://www.tshaonline.org/handbook/online/articles/kct08 (accessed May 11, 2011); http://www.tshaonline.org/handbook/online/articles/kcu09 (accessed May 11, 2011)

Recommended Reading:

Haigh, Berte and Millicent Seay Huff, Land, Oil, and Education (1986)

See also, The Texas Tribune: Higher Ed

Previous installments of George on the Lege

Part 7: Medicaid
Part 6: Betting on Gam(bl)ing
Part 5:2 School Finance, 1991-the present
Part 5:1 School Finance, 1949-1991
Part 4: Concealed Weapons
Part 3: Redistricting
Part 2: Cutting Spending
Part 1: Budget Crises, Today and Yesterday

Posted May 15. 2011