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State of Texas has failed to eliminate the vestiges of its former de jure racially dual system of public higher education, a system that segregated blacks and whites.” In the next few months the governing boards of colleges and unversities devised plans to remedy the problem. The legislature appropriated $23.3 million beyond the normal operating expenses for Prairie View and Texas Southern \($32 million of the $62 million remore of PUF to Prairie View than to their Aggie school. On June 10 Gov. Bill Clements proposed his plan: To enroll an additional 2,955 black and 3,872 Hispanic students by 1986. 0 To improve physical facilities at Prairie View and Texas Southern over the next three years \(price: $77 mil0 To identify college-bound minority students in high school and improve their retention rates once in college 0 To increase the number of minority’ faculty and members of governing boards. Clements claims that funding for these proposals will come in 1983, during the 68th legislature. Already Delco has gone to Washington to protest the plan, pointing specifically to actions this legislative session. She explains that the $20 million Excellence Fund did not receive money and describes the whittling away of a scholarship fund \(65% for minority stuHouse and ended up at $500,000. While labeling Clements’ plan a “repeat of Mark White’s proposals without the commitment to Excellence Funding.” Delco admits that the Reagan Department of Education will “try to bend over backwards to accept Clements’ plan.” She talks of going to the NACCP Legal Defense Fund for help. What Happened? Well, in the regular session, there they were. No money in the kitty for 17 colleges and universities. What to do. What to do. The Council of Presidents agrees that “reducing” the ten-cent ad valorem tax to three cents will be just fine. Most everyone is happy. Sen. Pete Snelson, Midland, introduces the bill in the Senate, Rep. Don Rains of San Marcos in the House. Clayton picks up the proposal. Simultaneously, tuition increases are proposed to finance the fund. Tom Keel, staff director for the interim study committee, later admits that tuition increases are “a quick and easy solution” and that there is “no logical reason” for the percentage increases suggested. However, 100% undergraduate and graduate, 800% medical, and 625% dental school tuition increases just happen to generate enough to finance construction for the 17 colleges and universities. Then Clements, after initially supporting a three-cent ad valorem, threatens to defeat it. \(He cannot veto a constituresourcefulness, as well as his resources, legislators look for another revenue source. Peveto proposes a 4% sales tax on purchases charged to credit card comanies. This promises to generate $45 million enough to fill half the Higher Education Fund \(affectionately called Peveto suggests an 0.5% increase in the severance tax, which would generate enough money to fill the $2 billion HEEF, the tax then reverting to the Austin Based on the recommendations of its investment advisory committee, the UT board of regents selects stocks and bonds to buy with PUF funds. The advisory committee, appointed by the board, includes Gene Bishop, chairman of the board of Mercantile National Bank, Dallas; Harold Hartley, executive vice president for finance, Southwestern Life Insurance, Dallas; Thomas McDade, vice chairman of the board, Texas Commerce Bancshares, Houston; Dee Osborne, chairman of the board, Cullen Savings Association, Houston; and Orson Clay, president and chief executive officer, American National Insurance Company, Galveston. The investment advisory counsel is Duff and Phelps, Inc., of Chicago. Every day, bonds mature, and money comes in from University lands. That money is invested by the UT System investments and trust office in short-term notes. Currently, the UT System has invested in J. C. Penney, Ford Motor Credit Card, and Sears Roebuck. One System investment administrator estimates that “about $200 million” will be invested in short-term notes this year. Besides short-term notes, AUF money is invested in U.S. treasury bonds, U.S. government agency bonds, corporate bonds \(AT&T, Baltimore Gas and ElecCoca-Cola, Dow Chemical, Exxon, Ford, GE, Gulf Oil, convertible debentures, convertible preferred stock, and FHA mortgages. As present 4.6% level. On the House floor the proposal is soundly defeated. Hobby proposes that funds be taken from the Permanent School Fund, which like PUF is bursting with additional oil and gas revenue. “Texas has a really unique opportunity that I don’t think we’re grasping,” Hobby asserts. Arguing for the establishment of permanent funds for “academic excellence,” he wants the state to attract scholars fleeing to the South from Northeastern schools. The House passes a bill with no funding provision. The Senate passes Hobby’s plan after Snelson urges senators to vote for the bill so matters can be resolved in conference committee. No settlement is reached. The session ends. What to do. What to do. Clements avoids the higher education financing issue in his call for the special session while putting the abolition of the stipulated in the Texas Constitution, no more than one percent of PUF can be invested in one corporation, and UT cannot own more than 5% of the voting stock in a corporation. But having a large sum of money and a pool of knowledgeable investment managers does not guarantee substantial returns. In fact, allowing for inflation, the overall PUF rate of return of 7.5% means the University is losing money in “real dollars,” and if UT cashed in on all its holdings now, it would lose $100 million. Of the PUF endowment, 65% is in bonds and 35% in stocks bonds are a “safer” investment, yet often provide small returns. The most substantial reason for PUF’s loss in real dollars is that UT is holding a lot of old government bonds which are not making much revenue at all and which have not yet expired. An article in the May 4, 1981, Barron’s attributes PUF’s investment problems to pressure from the Texas legislature to spend rather than invest the interest and dividend income. Walter Cabot, who heads Harvard’s endowment management team, explains that universities’ desire for immediate income is the major cause of bad pefformance for endowment funds. He recommends that only 5% of the market value of an endowment be spent. UT spends 20% of the book value \(currently an even higher And you thought the University of Texas was conservative. A.J. THE TEXAS OBSERVER 7 Playing the Market with PUF