'A report to Gov. Rick Perry about higher education found some disturbing trends.

The Governor's Business Council, a group of Texas business leaders that advise the governor, report that 25 to 34 year olds in Texas were less educated than the two preceding generations. And minorities, whose populations are increasing fastest, were getting the fewest degrees.

Among several recommendations in the report, the business leaders said Texas should emphasize both teaching undergraduates, especially minorities and those with low incomes, and increasing research capabilities.

The report stops short of specifically outlining how the state should realign universities but calls for reorganization where there is population growth and focusing on regional economic needs.

Texas has not handled the challenge of building top-tier universities well, said University of Texas System Chancellor Mark Yudof.

While Texas has two so-called flagship universities -- typically those with more than $100 million in federal research grants, selective admissions, low student-faculty ratios and competitive salaries -- California has eight such public institutions.

"We're a bit behind," Yudof said.

The seven universities hoping to move that number up for Texas are the University of Texas at El Paso, UT San Antonio, UT Dallas, UT Arlington, Texas Tech University ["[At] Texas Tech University, four in every 10 dollars of the school's annual debt service goes to repay loans taken out to build or rehab sports facilities. The loan payments have made Tech's football program one of the most expensive in the country, according to NCAA figures. Last year the athletic department ran a multi-million-dollar deficit, which wiped out its reserve fund."], the University of Houston and the University of North Texas.

The schools are striving for more research dollars and building their academic offerings.

But achieving top-tier status will require more investment from the state so that the schools can hire more faculty, increase salaries and purchase equipment.

"Some would hope there could be a funding mechanism that could elevate more flagships into tier-one status," Texas Tech University regent Rick Francis said. "But that is going to elicit jealousies."

Legislators, he said, often have trouble supporting additional funding for a university in an area other than their own.

They "like to bring home the goodies so to speak," Francis said.

That makes it difficult to find consensus on which universities get the financial boost to achieve top-tier status.

If and when legislators decide to invest in creating more top-tier universities, UTEP President Diana Natalicio said her campus is prepared to take on the challenge.

The research budget at UTEP has increased from about $7 million in 1990 to $45.7 million in 2006.

The number of doctoral programs at UTEP has grown from two in the 1990s to 14 today.

By 2015, Natalicio said she expects that lagging graduation rates at the school will improve and that the research budget will grow to $100 million.

"We're ready to go now," she said.

Yudof said UTEP is a strong competitor for top-tier status and having the new Texas Tech University medical school in El Paso helps.

But, he said, the school also must figure out how to maintain its mission of educating a largely low-income Hispanic population with many first-generation college students while increasing its quality and selectivity.

For any of the top-tier competitors, he said, change won't happen quickly even with an infusion of state dollars. Texas, he said, would be fortunate to create two to four such schools in the next 10 to 20 years.

"If you want to hold the bar that high, you have to be realistic about how much it's going to cost and how long it's going to take to get there," he said.

State Sen. Judith Zaffirini, D-Laredo, leads the Senate Subcommittee on Higher Education.

Legislators, she said, have seemingly little appetite to take on the controversial subject of higher education reorganization.

Those who want to bring to their communities the prestige and economic development that top-tier universities generate should pressure their local lawmakers for more investment in all of the state's institutions and in student financial aid, she said.

Texas, Zaffirini said, cannot have great higher education without both quality undergraduate education and world-class research.

"We have to do both," she said. "That's what excellence is all about."'