LARAMIE, Wyo.—When the University of Wyoming needed an extra $10 million for renovations to its basketball arena last month, state legislators turned to an unlikely source: a federal fund for cleaning up abandoned coal mines.

The fund was set up to pay for things like sealing up old mine shafts and dealing with collapsed tunnels and abandoned surface mines. But, as allowed under law, the university plans to use the money to fix up its Arena-Auditorium, where its Cowboys play, providing an exterior face lift and rotating the...