Well Endowed: A GUSHER OF OIL MONEY HAS MADE THE UNIVERSITY OF TEXAS ONE OF THE RICHEST INSTITUTIONS IN THE COUNTRY--AND PROVIDES A RARE WINDOW INTO HOW UNIVERSITIES WASTE THEIR ENDOWMENT SPENDING.

• Author: Satija, Neena

In November 2015, the man who led the operations to capture Saddam Hussein and kill Osama bin Laden stepped to the podium in a wood-paneled boardroom in Austin, Texas, to embark on a new and very different mission: launching a public university system into the highest level of prominence and respect.

Former four-star admiral and Navy SEAL Bill McRaven had been hired almost a year earlier, with great fanfare, to serve as chancellor of the University of Tex; as system, which oversees the University of Texas at Austin and thirteen other college campuses and medical schools. Now, addressing the UT board of regents, he was proposing nine "quantum leaps"--major initiatives that, he declared, "will make us the envy of every system in the nation."

Some of the "leaps" are things other public universities could only dream of doing, in an era of budget cutting. Ten million dollars for a "UT Network for National Security." Thirty-six million dollars (so far) to "develop a collaborative health care enterprise."

McRaven was able to secure that funding because of a mountain of money that few outside the UT system know much about, called the Permanent University Fund. The fund, derived from oil drilling in state-owned land in West Texas, is worth about $20 billion. Two-thirds belongs to the UT system, making up the majority of its $24 billion endowment and putting it in an exclusive club with wealthy private schools. The UT system has more endowment money per student than Georgetown.

And yet, just three months after his "quantum leaps" speech, McRaven once again found himself before the board of regents--this time asking for a tuition increase. "The fact is, we fall well below our peers in terms of national rankings," he said. To climb in the rankings, he argued, would require spending more money--money that would have to come from students.

How could McRaven propose a tuition hike when the system has a multibillion-dollar oil fund in its pocket? This question has only started brewing at the UT system, but members of the public, and lawmakers, have long been asking wealthy private schools pointed questions along the same lines. Massive endowments at places like Yale and Stanford add up to an enormous public subsidy. Donations are tax-deductible, and universities don't pay taxes on the investment income endowments generate. Meanwhile, they typically spend only a small percentage of the endowment per year. That has spurred suggestions that universities be forced to spend their endowments on affordability as a condition of those tax benefits.

Even Donald Trump, during the 2016 campaign, told a Pennsylvania crowd that he would "work with Congress on reforms to make sure that if universities want access to all of these special federal tax breaks, and tax dollars, paid for by you, that they are going to make good-faith efforts to reduce the cost of college and student debt, and to spend their endowments on their students rather than other things that don't matter."

The tax bills that the House and Senate passed in December finally took action, imposing a 1.4 percent tax on the largest endowments. (As this article went to press, the final bill was still being negotiated.) That move appears to be driven more by a growing Republican antipathy toward academia--the House version of the bill would have taxed the tuition waivers granted to graduate students--than by concerns about affordability. But universities haven't done themselves any favors by being extremely cagey about how they spend their endowments. When Congress asked dozens of schools to report on their spending in 2016, for instance, Harvard declined to say exactly how much of its $37 billion endowment is paid to the people who manage it. While most colleges did tell Congress what percentage of their annual endowment payout goes to financial aid, they generally didn't elaborate further--such as on the proportion of aid that's based on academic merit, which tends to benefit...