Does a Texas university system's $25 million investment threshold apply system-wide or per campus?

Plain-English summary

Lee Jackson, chancellor of the University of North Texas System, asked the Attorney General how to read a single dollar threshold in the Education Code. Section 51.0031(c) says that if a governing board has at least $25 million in book value of endowment funds under its control, the board may invest those funds under the prudent-person standard, a more flexible standard than the default rules. The System's funds are held and managed at its separate campuses, and the question was whether the $25 million test is met by the System as a whole or has to be met campus by campus.

The opinion walked through how Texas higher education is organized. A university system is an association of public senior colleges or universities under one governing board. The UNT System's component institutions, the University of North Texas, the UNT Health Science Center at Fort Worth, UNT Dallas, and the UNT Dallas College of Law, do not have their own separate governing boards. Chapter 105 of the Education Code places the organization, control, and management of the whole System with a single board, and that board provides the policy direction for each institution under its management.

Reading the plain language of section 51.0031(c), which applies when a "governing board" has the required endowment under its control, the opinion concluded that the System's Board of Regents is that governing board. So the $25 million threshold is measured by the System considered in the aggregate, not by each campus. The practical result: if the System's Board controls at least $25 million in book value of endowment funds, it may invest them under the prudent-person standard, even funds held at a campus that on its own has not crossed $25 million. The opinion also noted, in a footnote, that the System had raised the Public Funds Investment Act but had not actually asked about it, and pointed to an earlier opinion that an endowment fund is not limited solely to PFIA-permitted investments.

Currency note

This opinion was issued in 2011. Subsequent statutory amendments, court decisions, or later Attorney General opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

The University of North Texas System and its Board of Regents (as the opinion held for them): The opinion told the System that its Board of Regents is the governing board for purposes of section 51.0031(c), and that the $25 million threshold is met or not met by the System as a whole. If the Board controlled at least $25 million in book-value endowment funds, it could invest under the prudent-person standard.

On funds held at a smaller campus (as the opinion described it): The opinion treated funds under the Board's control as eligible for prudent-person investment once the System in the aggregate met the threshold, even if the campus holding the funds had not individually reached $25 million.

On the Public Funds Investment Act (where the opinion declined): The opinion noted the System mentioned the PFIA but did not formally ask about it, so the opinion did not decide a PFIA question; it referred the System to an earlier opinion that an endowment fund is not restricted solely to PFIA-permitted investments.

Common questions

Is the $25 million investment threshold measured for the whole university system or for each campus?
According to the opinion, for the whole system. The System's Board of Regents is the governing board, so the threshold is measured by the System in the aggregate.

Can the board invest endowment funds held at a campus that has less than $25 million on its own?
Yes, under the opinion. Once the System as a whole meets the threshold, the Board may invest funds under its control under the prudent-person standard, including funds held at a smaller campus.

What is the prudent-person standard?
The opinion described it as the standard of care in Article VII, section 11b of the Texas Constitution: the judgment and care a prudent investor would use given the fund's purposes, terms, and circumstances, considering the whole portfolio rather than any single investment.

Did the opinion decide anything about the Public Funds Investment Act?
No. The opinion noted the System raised the PFIA but did not pose a specific question about it, so the opinion did not resolve a PFIA issue, pointing instead to a prior opinion on the subject.

Background and statutory framework

Education Code section 51.0031(c) lets a governing board that controls at least $25 million in book value of endowment funds invest under prudent-person standards. Tex. Educ. Code Ann. § 51.0031(c) (West 2006). The prudent-person standard is defined by reference to Article VII, section 11b of the Texas Constitution. Id. § 51.0031(d) (West 2006); Tex. Const. art. VII, § 11b. A university system is an association of public senior colleges or universities under a single governing board, id. § 61.003(10) (West Supp. 2010), and a "governing board" is the body charged with policy direction of such an institution, id. § 61.003(9) (West Supp. 2010); see also id. § 51.001 (West 2006). Chapter 105 places the organization, control, and management of the System with a single board, id. § 105.051 (West 2002); id. § 105.001 (West Supp. 2010), and a governing board provides policy direction for each institution under its management, id. § 51.352(b) (West 2006).

The opinion construed the statute by its plain text, R.R. Comm'n of Tex. v. Tex. Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 628 (Tex. 2011); Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433, 437 (Tex. 2009), to hold that the System, not the individual campuses, is the entity that must meet the $25 million threshold.

Citations

Cases:

• R.R. Comm'n of Tex. v. Tex. Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 628 (Tex. 2011)
• Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433, 437 (Tex. 2009)

Statutes:

• Tex. Educ. Code Ann. § 51.0031(c) (West 2006)
• Tex. Educ. Code Ann. § 51.0031(d) (West 2006)
• Tex. Educ. Code Ann. § 61.003(10) (West Supp. 2010)
• Tex. Educ. Code Ann. § 61.003(9) (West Supp. 2010)
• Tex. Educ. Code Ann. § 51.001 (West 2006)
• Tex. Educ. Code Ann. § 105.051 (West 2002)
• Tex. Educ. Code Ann. § 51.352(b) (West 2006)
• Tex. Educ. Code Ann. § 105.001 (West Supp. 2010)
• Tex. Const. art. VII, § 11b

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0892
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2011/ga0892.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

October 28, 2011

Mr. Lee F. Jackson, Chancellor Opinion No. GA-0892
University of North Texas System
1901 Main Street Re: Whether the Board of Regents of the University
Dallas, Texas 75201 of North Texas System may invest funds under its
control that are held and managed by its component
systems (RQ-0974-GA)

Dear Chancellor Jackson:

You seek our opinion about the investment authority of the University of North Texas System (the "System") under subsection 51.0031(c) of the Education Code.[1] Subsection 51.0031(c) provides that "[i]f a governing board has under its control at least $25 million in book value of endowment funds, such governing board may invest all funds described in this section under prudent person standards."[2] TEX. EDUC. CODE ANN. § 51.0031(c) (West 2006).

You inform us that the System's governing board, the Board of Regents (the "Board"), has under its control funds that are held and managed at each of its component institutions. See Request Letter at 2; Brief at 1. You also tell us that the Board "has under its control at least $25 million in book value of endowment funds, both in the aggregate and at the University of North Texas and the University of North Texas Health Science Center at Fort Worth, individually." Brief at 1. With these facts you ask whether the Board may invest, under subsection 51.0031(c)'s prudent person standard, "funds under its control that are held and managed at another ... component institution that individually has not met the $25 million threshold; and ... funds under its control that are held and managed at the ... System level." Request Letter at 1; Brief at 2. The issue central to your questions is whether the $25 million threshold must be met by the System considered in the aggregate or by each of the component institutions.

As we consider your questions, it is helpful to provide some background information about university systems. A "university system" is an "association of one or more public senior colleges or universities, ... under the policy direction of a single governing board."[3] TEX. EDUC. CODE ANN. § 61.003(10) (West Supp. 2010). Pursuant to several definitions in chapter 61 of the Education Code pertaining to higher education, each of the System's component institutions is a "public senior college or university." See id. §§ 61.003(4) (defining "public senior college or university" to mean a "general academic teaching institution."), 61.003(3) (defining a "general academic teaching institution" by reference to specific colleges and universities but including "any other college, university, or institution so classified as provided in [chapter 61] or created and so classified, expressly or impliedly, by law"). As public senior colleges or universities associated within the System, none of the component institutions themselves have a separate governing board. Id. § 61.003(10). Thus, the governing board of the component institutions is the governing board of the System.

To address your questions, we consider the language of subsection 51.0031(c). We focus on the statute's text, "so as to give effect to the Legislature's intent as expressed in its plain language." R.R. Comm'n of Tex. v. Tex. Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 628 (Tex. 2011). "Where text is clear, text is determinative of that intent." Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433, 437 (Tex. 2009).

By its terms, subsection 51.0031(c) applies when a "governing board" has under its control the requisite amount in book value of endowment funds. See TEX. EDUC. CODE ANN. § 51.0031(c) (West 2006). Chapter 51 itself does not define "governing board," but the applicable definitions from section 61.003 indicate that a "governing board" is the "body charged with policy direction of any ... public senior college or university." Id. § 61.003(9) (West Supp. 2010); see also id. § 51.001 (West 2006) (providing for applicability of subchapter A, chapter 51, by reference to entities defined in section 61.003, Education Code). As noted earlier, each of the System's component institutions are public senior colleges or universities associated under the control of a single governing board. See id. § 61.003(9)-(10) (West Supp. 2010). In addition, chapter 105 of the Education Code places the "organization, control, and management" of the System with a single board. See id. § 105.051 (West 2002). And chapter 105 expressly provides that the board's organization, control, and management encompasses each of the System's component institutions. See id. ch. 105 (West 2002 & Supp. 2010); see also id. § 51.352(b) (West 2006) (providing in the university system context that the "governing board of an institution of higher education shall provide the policy direction for each institution of higher education under its management and control").

For these reasons, the System's Board is a "governing board" within the scope of subsection 51.0031(c). Thus, the System considered in the aggregate, and not the component institutions, is the entity that must meet subsection 51.0031(c)'s $25 million threshold. We therefore conclude that if the System's Board has $25 million in book value of endowment funds under its control, it may invest as authorized by subsection 51.0031(c).[4]

SUMMARY

The University of North Texas System's Board of Regents is a governing board within the scope of subsection 51.0031(c), Education Code. Accordingly, the System considered in the aggregate, and not its component institutions, is the entity that must satisfy the subsection 51.0031(c) threshold. Therefore, if the System's Board has $25 million in book value of endowment funds under its control, it may invest as authorized by subsection 51.0031(c).

Very truly yours,

DANIEL T. HODGE
First Assistant Attorney General

DAVID J. SCHENCK
Deputy Attorney General for Legal Counsel

JASON BOATRIGHT
Chair, Opinion Committee

Charlotte M. Harper
Assistant Attorney General, Opinion Committee

[1] See Letter from Mr. Lee F. Jackson, Chancellor, and attached Brief from Nancy S. Footer, Vice Chancellor and General Counsel, University of North Texas System, to Honorable Greg Abbott, Attorney General of Texas at 1 (May 20, 2011), https://www.oag.state.tx.us/opin/index_rq.shtml ("Request Letter" and "Brief," respectively).

[2] The "prudent person standard" is the "standard of care described in Article VII, section 11b, of the Texas Constitution, and means that standard of judgment and care that prudent investors, exercising reasonable care, skill, and caution, would acquire or retain in light of the purposes, terms, distribution requirements, and other circumstances of the fund then prevailing, taking into consideration the investment of all the assets of the fund rather than a single investment." TEX. EDUC. CODE ANN. § 51.0031(d) (West 2006).

[3] Here, the System comprises the University of North Texas, the University of North Texas Health Science Center at Fort Worth, the University of North Texas at Dallas, and the University of North Texas at Dallas College of Law (collectively, "component institutions"). See TEX. EDUC. CODE ANN. § 105.001 (West Supp. 2010).

[4] In both your request letter and your brief, you raise the Public Funds Investment Act ("PFIA"). Request Letter at 2; Brief at 2. Yet, in your letter, you do not expressly seek our opinion about the applicability of the PFIA. Absent a specific question to address, we refer you to a recent opinion concluding that because of the PFIA's discretionary language and its cumulative nature the "governing board of an institution of higher education, exercising its authority to establish an endowment fund under Education Code section 51.0031(a), is not restricted solely to investments permitted under the PFIA when managing the endowment fund." Tex. Att'y Gen. Op. No. GA-0768 (2010) at 2-3. We see nothing that would suggest a different conclusion here.