UT Law School Foundation under state scrutiny
UT Law School Foundation comes under state scrutiny, no allegations of criminal wrongdoing
AUSTIN, Texas (AP) — The nonprofit University of Texas Law School Foundation has been a vital supporter of the state's premier law school since 1952, supplementing faculty pay to help recruit and retain top talent, underwriting student scholarships and even chipping in wine for fundraising receptions.
Thanks to generous donors, the foundation has amassed stocks, bonds and other assets totaling $213 million. It has contributed $75 million to the School of Law in the past 11 years, helping it compete with other leading law schools around the nation for faculty members.
Now, controversy involving the flow of some funds from the foundation to law professors has focused attention on the otherwise low-profile organization.
The Austin American-Statesman (http://bit.ly/15BGiij ) reports state Attorney General Greg Abbott's office is investigating the relationship between the foundation and the school, and the school's use of funds provided by the foundation.
No one has suggested that crimes have been committed. The foundation's funds come from donations, not tax dollars. And the attorney general's investigation seems aimed mainly at questions of propriety, transparency and accuracy.
Nonetheless, the politically charged matter has put something of a shadow over the foundation, the school and the UT System Board of Regents. What's more, the matter figures into long-simmering tensions involving the university, the regents and the Legislature.
Central to the investigation by Abbott's office is a program under which the foundation provided forgivable personal loans to some professors on the law dean's recommendation. The program, which began when UT President Bill Powers was dean of the School of Law, was deemed inappropriate for a public university by a UT System report released last year after a $500,000 forgivable loan to Powers' successor as dean, Larry Sager, came to light. Sager received the loan at a time when salaries for deans and vice presidents were frozen.
The report by Barry Burgdorf, the system's vice chancellor and general counsel, recommended that no compensation flow directly from the foundation to faculty members, even though that practice broke no laws. His report said funds should pass first to the Law School and then to faculty members, assuring full transparency and accounting. The state attorney general's office and an internal review by the Law School Foundation endorsed that conclusion.
"I think we've learned our lesson the hard way," John Massey, president of the foundation, testified last month at a legislative hearing. "We've been in deep communications with the attorney general's office. And all I can say is we've committed to never do it again."
The foundation exists solely to support the Law School, said Wales Madden Jr., an Amarillo lawyer and former UT regent who has served on the foundation's board of trustees for about 50 years. The board has included some of the state's "most renowned and politically powerful lawyers" over the years, as the foundation's online video puts it.
The 37 voting board members listed on the foundation website include Joseph Jamail, a prominent lawyer in Houston; Joe Long, a philanthropist and lawyer in Austin; Wallace Jefferson, chief justice of the Texas Supreme Court; and Rodney Ellis, a state senator from Houston.
The organization has used various tools, including stipends and mortgage assistance, to supplement faculty pay over the years as recommended by a succession of deans, starting with Page Keeton in the 1950s. Forgivable loans offered the advantage of serving as "golden handcuffs," a financial incentive to remain on the faculty, said Ward Farnsworth, the current dean of the Law School.
Here's how such arrangements work: A professor gets the full amount of the loan up front. A portion is forgiven — meaning it does not have to be paid back — each year he or she remains on the faculty.
In some cases, a slightly different structure was used: A professor got a loan from the foundation as well as a deferred compensation agreement. A portion of the deferred compensation is doled out each year the professor remains on the faculty and is used to pay back the loan.
"It's a common recruiting tool," especially among private law schools, said Farnsworth, who was hired after Sager was forced to step down as dean.
The forgivable program has been discontinued. Of $5.5 million in loans that were made, $3.5 million has been forgiven, according to Massey. The foundation has about $2 million in remaining obligations to about 15 faculty members. Officials hope to dissolve those outstanding agreements and assign the compensation to the school so that every dollar received by a faculty member comes from the university through its payroll system, Farnsworth said.
As for Sager, who is still on the faculty, his forgivable loan agreement was contingent on his remaining as dean, said Del Williams, secretary of the foundation's board and a lawyer in Dallas. As a result, $300,000 of the $500,000 loan was forgiven, but he owes the foundation $200,000 plus interest, Williams said.
Glenn Smith, a spokesman for Sager, didn't dispute the figures and said Sager would pay what he owes.
"Under the terms of Larry Sager's deferred compensation package, as stipulated by the foundation and formally communicated to the university, payments to him ended with his deanship, and he will owe the foundation the balance of his outstanding loan," Smith said.
The attorney general's office wound up investigating the Law School and the foundation because of long-running tension involving the UT regents, Powers and the Legislature.
UT regents, some of whom felt Burgdorf's report wasn't thorough enough, initially voted to set it aside and commission an external review. One of the regents on the losing end of the 4-3 vote last month charged that the purpose of more investigation seemed to be to oust Powers, a view also held by many lawmakers who hold the UT president in high regard. Lawmakers also argued that the matter had been adequately investigated by Burgdorf and that any further review should be done by the attorney general to save the cost of an external investigation.
Lawmakers' irritation turned to outrage when the chairman of the regents, Gene Powell, asked Abbott this month for permission to withhold confidential UT System and board records — including those related to Law School matters — from a special House-Senate panel investigating governance of the Austin campus. The regents subsequently reversed course, voting 9-0 to turn over the disputed records and to ask Abbott to conduct the review.
UT Regent Alex Cranberg told the American-Statesman last week that he thought Burgdorf's report should have included transcripts of interviews conducted with university and foundation officials. Another shortcoming, Cranberg said, was that no interviews were conducted with faculty members, whose open-records request brought Sager's loan to light in December 2011. Some faculty members were upset to learn not only about his loan but also that some of their colleagues had received six-figure loans.
Cranberg also contended that Burgdorf's report wasn't precisely clear about how much high-level university officials, including Powers and Steven Leslie, the executive vice president and provost, knew about the forgivable loan program in general, and Sager's loan in particular.
As for why more investigation is warranted even though the forgivable loan program has been discontinued, Cranberg said: "Just because the people who didn't tell us it was broken are now telling us 'It's fixed' doesn't mean we know what was broken or whether it's been fixed."
Another regent, Wallace Hall Jr., who has examined some 40 file boxes of open-records materials from the Austin campus, told the Texas Tribune this month that he does not accept an assertion in Burgdorf's report that there is no evidence anyone at the foundation or Law School concealed the forgivable loan program. Hall did not respond to a request from the Statesman for comment.
Burgdorf, who has submitted his resignation under pressure and whose last day at the UT System will be May 3, said, "I am not going to get into a tit for tat with individual regents about the report."
One record that the attorney general's office is likely to examine is a June 2009 email to Powers from Mary Knight, UT's associate vice president and budget director. She listed the university's 10 highest-paid employees aside from Powers, including Sager, whose pay included "deferred compensation" of $100,000 a year for five years.
"No mention is made of a forgivable personal loan," Burgdorf wrote in his report. "The $100,000 listed as deferred compensation was that year's loan forgiveness. Thus, while President Powers may have had constructive notice of that amount of deferred compensation, the Top 10 report did not itself give him or his office any notice of the $500,000 forgivable personal loan Dean Sager had obtained."
Information from: Austin American-Statesman, http://www.statesman.com
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