10-28-99-11.14 - Resolution - 10/28/1999RESOLUTION NO. 10-28-99-11.14
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF COLLEGE STATION, TEXAS,
SUPPORTING PROPOSITION 17, AN AMENDMENT TO THE TEXAS CONSTITUTION,
RELATING TO THE INVESTMENT OF THE PERMANENT UNIVERSITY FUND AND THE
DISTRIBUTION FROM THE PERMANENT UNIVERSITY FUND TO THE AVAILABLE
UNIVERSITY FUND AND PROVIDING AN EFFECTIVE DATE.
WHEREAS, The $7 billion Permanent University Fund (PUF)) was established by Art. 7 sec. 10 of the
Texas Constitution to provide perpetual support for the University of Texas (UT) and Texas A&M
University Systems from the state's land and mineral wealth: and
WHEREAS, Art. 7 sec 18 requires that the dividends, interest, and other income from the PUF less
administrative expenses, be distributed to the Available University Fund (ALLY) but prohibits distribution of
the PUF principal and both unrealized and realized capital gains; and
WHEREAS, the institutions supported by the PUF includes Texas A&M University; and
WHEREAS, Under Art. 7 sec 1 lb of the Constitution, the UT System board of regents currently invests
PUF assets using the standard of how "persons of ordinary prudence, discretion, and intelligence,"
exercising the judgement and care under then-existing circumstances, would acquire and retain assets for
their own account, not for speculation but for permanent disposition of their funds and considering
probable income as well as the probable safety of their capital; and
WHEREAS, Proposition 17 (I-UR 58 by Junell/Ratlift) to revise the Permanent University Fund
distribution and investment would amend the Texas Constitution to allow the UT System board of regents
to determine annual PUF distributions to the AUF based on the total return on all PUF investments,
including a limited portion of capital gains; and
WHEREAS, Proposition 17 would require the board to make distributions from the PUT to the AUF in a
manner that would:
Cover no less than the amount needed to pay the amount due on bonds and notes
pledged against the PUF's earnings;
Preserve the purchasing power of the PUF for any 10-year period;
Provide the AUF with a stable and predictable stream of the average net fair market value
of the PUF investment assets, except as needed to pay the amount due on existing bonds
and notes.
WHEREAS, a temporary provision, expiring January 1, 2030, would require that distributions from the
PUF to the AUF not impair any obligation created by the issuance of bonds and notes before January 1,
2000; and
WHEREAS, Proposition 17 also would allow the UT System board of regents in managing PUF assets to
invest under a broadened "prudent investor" standard that would allow investments that a prudent investor
exercising reasonable care, skill, and caution would acquire or retain, taking into consideration the
investment of all assets of the fund rather than a single investment; and
WHEREAS, Proposition 17 would update the distribution and investment policies under the PUF and
AUF operate and it would provide more flexibility for fund managers by granting broader investment
authority to enhance PUF assets; and
WHEREAS, PUF eligible institutions within the UT and Texas A&M University Systems (including
Texas A&M University) are at a serious disadvantage in their ability to meet their capital needs and the
system will face a serious problem of deferred maintenance in coming years; and
WHEREAS, Proposition 17 would provide new funds for higher education with no increase in taxes; and
WHEREAS, financial strategists say many higher education institutions including Harvard, Yale, the
Massachusetts Institute of Technology, Baylor University, and the University of California, use the total-
return strategy for endowment fund investments; and
WHEREAS, the Office of the State Auditor in a 1996 report warned that constitutional restrictions on the
use of capital gains and ordinary investment income could impair fund management and further
suggested that "constitutional amendment eliminating those restrictions would provide more flexibility in
attempting to maximize long-term growth in both corpus and the distributions from those funds."
NOW THEREFORE, THE CITY OF COLLEGE STATION HEREBY RESOLVES;
Section 1. All of the recitals contained in the preamble hereof are found to be true and are adopted as the
finding of this City Council.
Section 2. That the City Council of the City of College Station supports the proposition to amend the
Texas Constitution to (1) allow the annual distributions from the Permanent University Fund (PUF) to
the Available University Fund (AUF) to be based on the total return on all PUF assets, including capital
gains, rather than only dividends, interest and other income; and (2) to authorize the board of regents of
the University of Texas System to determine the amount of the annual distribution to the AUF within
certain limitations; and (3) to allow the PUF assets to be managed and invested using the standard that a
"prudent investor" would exercise.
Section 3. This resolution shall be effective from and after its date of passage.
PASSED AND APPROVED by the City Council of the City of College Station, Texas, on this 28th day
of OCTOBER ., 1999.
~City Secretary
APPROVED AS TO FORM:
H~arvey Car~, Jr., Ci~tt~
CITY OF COLLEGE STATION, TEXAS
Lynn l~Icllhaney, Mayor /