DALLAS - The University of Texas System through the forward sale of oil and gas reserves will add $1 billion to the Permanent University Fund that backs bonds for UT and Texas A&M University campuses.
The plan, approved by the UT System board of regents, is supported by Texas Gov. Rick Perry and Lieut. Gov. David Dewhurst, as well as Land Commissioner Jerry Patterson. Patterson chairs the Board for Lease of University Lands, an obscure agency that manages oil and gas leases on PUF lands.
The addition of $1 billion to the $12 billion PUF is not expected to increase bond issuance significantly, since current indebtedness is only about half of the limit set under the state constitution. University debt is allowed to rise to 20% of the fund's market value.
However, the deal does allow the UT System to take advantage of currently high oil prices and low interest rates and would add $50 million per year to the annual payout to 18 campuses and six agencies in the UT and Texas A&M University systems supported by the PUF. The payout, known as the Available University Fund, is set at 5% of the PUF, and generally goes toward bond debt, construction and faculty salaries.
UT receives about two-thirds of the annual payouts from the PUF, with the A&M System receiving a third. For fiscal year 2007, distributions were about $415 million.
The Texas Constitution also authorizes the UT Board of Regents to issue bonds and notes secured by pledged revenues consisting of up to 50% of the money allocated annually to the board for UT Pan American and UT Brownsville.
Before the oil and gas sale is completed, UT officials must verify that the forward contract does not violate constitutional prohibitions on certain kinds of debt issuance by the state and that the earnings would be tax-exempt.
The University of Texas Investment Management Co. that manages system investments would have a chance to parlay the $1 billion into funds that would provide a reliable revenue stream, officials said.
The PUF, established by the Constitutional Convention of 1875, began with a million acres and added another million in 1883. Oil was discovered on the so-called "University Lands" in 1923, when the Santa Rita No. 1 hit a gusher in Reagan County. The pumping rig for Santa Rita No. 1 now sits on the UT campus in Austin.
Since then, the University Lands have produced billions of dollars in revenue for the UT and A&M systems through royalties, bonuses and rentals. The PUF's surface lands in the arid West Texas area are used primarily for grazing.
The Board for Lease of University Lands has complete authority over the leasing of oil and gas and includes the Texas Land Commissioner, two members of the board of regents of the University of Texas System, and one member of the Texas A & M University System board.
The PUF carries triple-A ratings from all three rating agencies.
The Texas Constitution also authorizes the UT Board of Regents to issue bonds and notes secured by pledged revenues consisting of up to 50% of the money allocated annually to the Board for UT Pan American and UT Brownsville.
