Texas may overtake Harvard endowment – at big cost

The University of Texas system is headed towards amassing the world’s largest academic endowment without apologising for growing it from billions of dollars in annual fossil fuel production.

UT owns more than 2 million acres in the oil-rich Permian Basin of western Texas, fuelling a $43 billion (£37 billion) endowment that is second only to Harvard University’s $53 billion fortune.

Yet while Harvard and other leading US universities are taking steps towards divesting from fossil fuels amid the overwhelming evidence of the great environmental harm they cause, Texas is staying the course.

Leaders of the UT system declined to discuss the possibility of reducing their oil industry reliance, and instead argued that the windfalls they receive are actually quite small on a per-student basis.

The UT system has 13 institutions and 243,000 students, meaning that its endowment value per student ranks only 135th in the nation, system officials said.

“In terms of sheer dollars, the UT system endowment is among the largest in the nation,” the UT leadership said in a statement. “But that’s not the case when capturing the number of students and institutions served.”

Environmental advocates expressed disappointment, seeing oil profits as running deeply counter to the public-service mission of universities. Yet they also acknowledged the need for strategic patience in countering entrenched political and economic forces in states such as Texas and Alaska that have grown deeply reliant on exploiting low-cost natural resources.

“It is a tricky one, and it’s a unique situation,” Georges Dyer, executive director of the Intentional Endowments Network, said of Texas.

Mr Dyer’s network has more than 200 members representing endowments and other institutional investors – nearly half from higher education – collectively sharing ideas for using their wealth to promote an equitable economy. None of its university-affiliated members are from Texas, the US state with by far the nation’s highest level of oil production.

That persistence on oil by Texas and its public universities represents a mistaken trade-off, given the urgent worldwide need to reduce fossil fuel production, said Ted Hamilton, a co-founder and staff attorney at the Climate Defense Project, a provider of legal assistance to student-led campus divestment campaigns.

“Waiting to do so, by citing short-term benefits to students, only exacerbates the problem and postpones a difficult decision,” Mr Hamilton said.

His group scored one of its biggest wins last September when Harvard relented to a student-led campaign that it assisted, and announced that the university’s endowment would end direct investments in fossil fuel companies and phase out indirect investments.

Harvard’s shift is credited with helping other university endowments take similar steps. At the same time, Harvard is suspected of falling short of full abandonment of fossil fuel investments, because it did not call its action “divestment” and it has left some unanswered questions about how it defines the investments it will still allow.

Either way, Harvard’s commitment, and the slumping US stock market, is seen as giving the University of Texas an opening to push past Harvard in total endowment value. That global leadership, however, comes with a price: Harvard’s massive bank account has made it a frequent target for critics, in academia and beyond, as a showpiece example of elite universities not sharing their wealth with current or potential students – especially those of limited means.

Texas may already be feeling that stepped-up tier of pressure. In 2017 the US Congress imposed a 1.4 per cent excise tax on net investment income at private colleges with holdings worth at least $500,000 per student. A new Republican-led bill pending in Congress aims to expand that levy by requiring wealthy colleges and universities – including public institutions – to subsidise student tuition on a sliding scale. At the top level of that plan, those institutions with endowments exceeding $10 billion would be required to cover 75 per cent of fees.

The oil wealth among Texas universities dates to the 19th century, when the state provided institutions with large tracts of land intended for cattle and sheep grazing. The modest value of the land then skyrocketed in the 1920s with the discovery of oil. That output – now amounting to more than $2 billion a year – is managed by an entity known as the Permanent University Fund, with two-thirds of the proceeds going to the UT system and one-third going to the Texas A&M University system. They together enrol nearly 350,000 students.

The lands owned by the university systems are assessed by experts as having strong potential for use in generating solar and wind power, and UT officials have held out the possibility of moving in that direction. Yet they have declined to say when or how fast they might do that.

Mr Dyer said he understood the difficulty of abandoning the immediate profits of drilling for oil and gas, “given the financial constraints that all higher education institutions face and the importance of education”.

“It’s really tempting to fully leverage it,” he said. At the same time, he offered the hope that UT officials were “thinking about ways to make the hard decisions of how they can leave some of those assets in the ground – because at the end of the day, that’s what we’re going to need to do globally”.

paul.basken@timeshighereducation.com