Proposition 17

In the spring of 1997, UT hired Texas-based firm John Doner and Associates, a political campaign and lobbying agency, to change the laws regarding investments of the Permanent University Fund (PUF). Legislation was written, known as Proposition 17, to loosen the investment restrictions of the fund. Many voters were unaware of this proposition, so John Doner had a grassroots campaign to 'inform' the voters. It worked: Proposition 17 was placed on the November 2, 1999 ballot and won by a convincing 61% to 39%.

The movement behind Proposition 17 was well financed through the Friends of University PAC, Texans for Proposition 17, and Proposition 17 for a Better Texas. The Friends of the University PAC is a political action committee consisting of what the name suggests- "friends" of UT. These include familiar names such as regents Rita Clements and Dub Riter, Frank Denius (the $4 million football practice facility is named after him), and former UT System Chancellor Hans Mark, along with plenty of others who've used the University as a source of personal income. Texans for Proposition 17 was the PAC for UT, and Proposition 17 for a Better Texas was the PAC for Texas A&M. Each were composed of the same women and men from the Friends of the University PAC, willing to put some money back into the system to make more. $302,742 was spent between the two Proposition 17-specific PAC's with another $74,500 coming from the Friends of the University.

I call people

Sometime in the fall of 1999 before the vote, University officials contacted the well-financed John Doner and Associates about creating a comprehensive database of voters likely to vote yes. With this database, John Doner called voters, persuaded them to vote yes, and encouraged them to get out and rock the vote.1 They claim to have called 75,000 voters in "just a few days" prior to election day in a grassroots campaign. They told these voters that by giving more authority to managing the PUF, they would be positively changing students' situations without imposing new fees. Ideally it sounds nice, but in actuality it cost the largest UTIMCO fund some money since the legislation merely eliminated governmental regulations of managing the fund. Governmental regulations were in place for more sustainable growth, but these increases were too small for UTIMCO managers who wanted to take control and invest in risky hedge funds. These hedge funds, such as Maverick Capital, were characterized as big moneymakers, but they underperformed while their managers such as Sam Wyly cashed in (see below).

The clearest impacts on the PUF from Proposition 17 were investment returns. Fiscal year 2000 proved successful like the rest of the stock market, then falling hard the next two years. UTIMCO managers have not shown the leadership they promised with the flexibility granted by Proposition 17, making the funds suffer and many questioning UTIMCO's legitimacy.

PUF Performance
click for a larger image

The reasons for the overall decrease in the PUF's value can be blamed on a number of reasons, but Proposition 17 clearly played a part in the decline of investment returns. The fund peaked around $8.6 billion during the summer of 2000, declining to $8.4 by the end of that fiscal year and to $7.7 by the end of the 2001 fiscal year. At the end of fiscal year 2002 the PUF was worth a little more than $6.7 billion, and it's still losing money.

Earlier in 1999, UTIMCO had a chairman named Tom Hicks. With Tom Loeffler at his side, Hicks invested around $550 million in companies run by his friends, making them rich while the funds suffered.2 Out of these crony firms and companies, the Maverick Capital Fund was declared one of the best performing UTIMCO investments- ever. However, it has earned little less than 12 percent since its inception in 1998 through the period ending June 31, 2003. This fund has not met expectations, and as shown many UTIMCO investments made under Hicks usually stay in the red or show only minimal gains.3 In 1999, the Houston Chronicle ran an expose detailing these relationships, resulting Hicks' resignation and a statement that he wouldn't run for another appointment to the Board of Regents. Months later, John Doner were on the ball, calling thousands of people that the PUF didn't need more oversight and accountability but more power and flexibility.