Law Foundation

The trailer for Homo Erectus, a 2007 movie written, directed by and starring Adam Rifkin, lasts two and a half painful minutes and features a montage of women being clubbed over the head, one naked butt and a few cuts of men kissing, the last an unsophisticated reference to the first word in the film’s title.

Roderick Hart, dean of the College of Communications, confirms what the trailer implies: “It was a terrible film.”

But UT and UT students helped make the movie. Homo Erectus was produced by Burnt Orange Productions, LLC, a company owned by the UT Communication Foundation. The University cannot legally own a for-profit company, but the foundation successfully circumvents that rule because the Communication Foundation is an external nonprofit. Its stated mission is to support the University.

In reality, the Communication Foundation was established  in 2003 to pay for Homo Erectus and other films with both public and private money. Those films, in their defense, provided a learning experience for UT students interested in filmmaking, a handful of whom worked behind the scenes and on the set. Radio, Television and Film students worked on four films produced by Burnt Orange Productions between 2003 and 2007.

The films were meant as an educational exercise, with the possibility that they would additionally generate revenue. Ellen Wartella, dean of the College of Communication when the Communication Foundation was established, explained in an interview: “We were hoping to set up a film production program that our students would work on that would actually produce films. We hoped it would develop into a source of income to keep production going with in the department. It was a way of connecting our students and getting them money for productions and getting them shown in theaters.”

In the past year, other external foundations collecting private money to support this public University have come under close scrutiny as part of a larger power struggle for control and oversight between the UT System Board of Regents and the UT administration.

In 2011, Lawrence Sager, former dean of the University of Texas Law School, resigned under pressure after he received a $500,000 forgivable loan using funds from the School of Law Foundation, a fact revealed by an open records request filed by disgruntled faculty members. Because the School of Law Foundation and the Communication Foundation are external to the University, the money they contribute is subject to different rules than public funds that come from other sources: the Texas Legislature (13 percent of the 2012 UT-Austin budget), the Permanent University Fund (the UT-System endowment) and federal funding from the U.S. Government.

In a state rabid about access to public information and transparency of government, the foundations operate in the shadows. The rules governing the money’s distribution are inconsistent and vague. The University wants to keep the regents at bay, but at a public institution, even private funds must be dispersed in a manner that is transparent and clear. This lack of transparency was truly the most objectionable characteristic of the Communication Foundation, the tastefulness of clubbing women aside.

The University was unable to provide records of Burnt Orange Productions’ expenditures, but the foundation “registered consistent negative balance of more than $760,000 on its tax forms since filmmaking ended in 2007,” according to an April 29 article in The Daily Texan. It continues, “By writing off its losses, the foundation registered a positive balance on its 2012 tax return of $22,000, but how those funds will be spent and whether or not the organization has any potential as a vehicle for funding at the University of Texas remains to be seen.” 

Should Homo Erectus and a filmmaking company described as a “sinkhole” for private and public money be a part of the mission of higher education? Many students involved directly in the project say “yes,” because the foundation provided them with valuable learning experience. One student told the Texan, “The main long-term benefit I received was working with high quality material.”

But any money flowing touched by foundations linked to the University — even money aimed ostensibly at enhancing the student experience — should be subject to all the transparency requirements of a public university in Texas. The intentionally opaque structures of many external foundations, which blur the lines between public responsibility and private interest, demand attention. 

Correction: Because of a copy editing error, an earlier verision of this article incorrectly said Lawrence Sager, former dean of the University of Texas Law School, gave himself $500,000 forgivable loan using funds from the School of Law Foundation. Sager did not give himself, but received the forgivable loan.

Created solely to acquire the $33 million Suida-Manning Art Collection for the Blanton Museum of Art in 1998, the UT Fine Arts Foundation is paying off the remaining balance on the collection and is expected to transfer full ownership to the museum by 2016.

The UT Fine Arts Foundation is one of several nonprofits that manage gifts to the University. UT President William Powers Jr. appointed University administrators to lead the UT Fine Arts Foundation, but most external foundations, including the School of Law Foundation, are governed by an independent board. 

The independent boards often include University employees, but most are not appointed by the University. 

The University holds the collection through a lease agreement with the foundation, and it is housed and displayed at the Blanton Museum. The foundation is still paying off the collection in quarterly payments. UT pays the foundation every three months for a larger ownership of the collection, which the foundation uses toward the acquisition, according to Patricia Ohlendorf, the University’s vice president for legal affairs and president of the foundation.

“These transactions will be finalized in April 2016, at which time UT will own the full collection and the need for the Foundation will cease,” Ohlendorf said in an email.

The entire process required approval by the UT System Board of Regents. Unlike other external foundations, the UT Fine Arts Foundation no longer raises funds because it was not set up to continuously fundraise for the University. As a nonprofit, the foundation could legally accept gifts, though tax documents filed by the foundation show no new contributions in recent years. 

The Suida-Manning Art Collection is comprised of almost 250 European paintings, 400 drawings and 20 sculptures from the 1300s to the 1700s. Wilhelm Suida and his daughter Bertina Manning assembled the collection, and Manning’s daughter was essential in the acquisition of the collection for UT. Alessandra Manning Dolnier and her husband donated a part of the collection along with $5 million from four anonymous supporters, according to a 1999 Blanton press release.

The permanent exhibition displays 50 works of art in the Blanton Museum.

“[The collection] is used for teaching, research, display and special programming, all within the mission and public purposes of UT and the foundation,” Ohlendorf said.

Even though the foundation’s mission statement lists the College of Fine Arts as a benefactor, the college does not benefit from the foundation, fine arts Dean Doug Dempster said through a spokesperson. Dempster is the foundation’s vice president and secretary.

Blanton Museum spokeswoman Kathleen Stimpert said acquiring the collection was significant for the museum and the University.

“It brought to campus one of the nation’s preeminent collections of Renaissance and Baroque art, providing new opportunities for research and scholarship, and a chance for UT students, faculty and staff to engage with masterworks not available anywhere else in Austin.”

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Created solely to acquire the $33 million Suida-Manning Art Collection for the Blanton Museum of Art in 1998, the UT Fine Arts Foundation is paying off the remaining balance on the collection and is expected to transfer full ownership to the museum by 2016.

The UT Fine Arts Foundation is one of several nonprofits that manage gifts to the University. UT President William Powers Jr. appointed University administrators to lead the UT Fine Arts Foundation, but most external foundations, including the School of Law Foundation, are governed by an independent board. 

The independent boards often include University employees, but most are not appointed by the University. 

The University holds the collection through a lease agreement with the foundation, and it is housed and displayed at the Blanton Museum. The foundation is still paying off the collection in quarterly payments. UT pays the foundation every three months for a larger ownership of the collection, which the foundation uses toward the acquisition, according to Patricia Ohlendorf, the University’s vice president for legal affairs and president of the foundation.

“These transactions will be finalized in April 2016, at which time UT will own the full collection and the need for the Foundation will cease,” Ohlendorf said in an email.

The entire process required approval by the UT System Board of Regents. Unlike other external foundations, the UT Fine Arts Foundation no longer raises funds because it was not set up to continuously fundraise for the University. As a nonprofit, the foundation could legally accept gifts, though tax documents filed by the foundation show no new contributions in recent years. 

The Suida-Manning Art Collection is comprised of almost 250 European paintings, 400 drawings and 20 sculptures from the 1300s to the 1700s. Wilhelm Suida and his daughter Bertina Manning assembled the collection, and Manning’s daughter was essential in the acquisition of the collection for UT. Alessandra Manning Dolnier and her husband donated a part of the collection along with $5 million from four anonymous supporters, according to a 1999 Blanton press release.

The permanent exhibition displays 50 works of art in the Blanton Museum.

“[The collection] is used for teaching, research, display and special programming, all within the mission and public purposes of UT and the foundation,” Ohlendorf said.

Even though the foundation’s mission statement lists the College of Fine Arts as a benefactor, the college does not benefit from the foundation, fine arts Dean Doug Dempster said through a spokesperson. Dempster is the foundation’s vice president and secretary.

Blanton Museum spokeswoman Kathleen Stimpert said acquiring the collection was significant for the museum and the University.

“It brought to campus one of the nation’s preeminent collections of Renaissance and Baroque art, providing new opportunities for research and scholarship, and a chance for UT students, faculty and staff to engage with masterworks not available anywhere else in Austin.”

Texan In-Depth

UT President William Powers Jr. sits with Sarah and Ernest Butler in a 2008 photo after the couple's bequest of $55 million — the largest contribution to a public university's music school. The College of Fine Arts' School of Music was named in their honor (Photo courtesy of Christina Murrey).

Read the University External Foundations Profiles to learn more about the history and financial figures of each foundation.

Recent public battles over lack of oversight in the University of Texas Law Foundation threaten to bring substantial changes to a complex mechanism of private fundraising developed over several decades that has successfully raised billions of dollars alongside internal fundraising efforts.

As early as next month, an advisory task force led by UT System Regents will present guidelines for a uniform structure and record-keeping procedures for all external foundations to avoid situations where UT employees receive direct benefits from external sources without administrative oversight. University fundraising is divided among internal development operations and a handful of external foundations set up as non-profits with independent governing boards.

External foundations raise their own funds and contribute to the University but have limited involvement or oversight by UT administrators.

College, school and unit specific endowments total $3.1 billion, according to development office numbers. The total net assets of the actively fund raising external foundations total $341.9 million, according to IRS documents.

In an email to The Daily Texan, Regent Alex Cranberg said the task force’s review and report will help prevent oversight problems similar to those encountered with the School of Law Foundation.

The regents commissioned the task force following a report by Barry Burgdorf, System vice chancellor and general counsel, on the relationship between the School of Law and the School of Law Foundation — one of the external foundations affiliated with the University. In 2011, Lawrence Sager, then dean of the University of Texas Law school, was asked to resign by President William Powers Jr. after receiving a forgivable $500,000 loan from the UT Law Foundation without administrative oversight. Fallout from the foundation’s loan program resulted in Burgdorf’s report, but in a contentious vote that drew criticism from state lawmakers, the regents decided to pay for another external investigation specific to the Law School Foundation. Burgdorf resigned amid the contentions, and declined requests for comment.

The regents agreed to let the Texas attorney general’s office handle the investigation after pressure from lawmakers, and Cranberg said that scrutiny is distracting from the purpose of the committee’s review.

“The context in which individual foundation oversight efforts have been made is in fact being overlooked,” Cranberg said. “This context is the demonstrated potential abuse of private foundations that are affiliated with public institutions not just at UT, and not just in Texas.”

Cranberg said the lack of clarity on the relationship between external foundations and the University can leave donors misinformed.

“Another issue is that many donors do not realize that they are giving money not to the University of Texas, or to a publicly accountable charity, but rather to a private foundation which is not subject to the same oversight or guidelines,” Cranberg said. “Sometimes donors prefer the greater flexibility that private foundations have, but this preference should be fully informed by disclosure of the options and trade-offs associated with giving to a private versus a public entity.”

Cranberg has a history of identifying flaws between foundations and the institutions they serve. He was involved in identifying “abusive practices” within an external foundation that serves three institutions during his time on the board of Metro State College in Denver regarding the sale of two building below market value.

Cranberg also said the work of private foundations and their contributions is important and of “unquestionable integrity.”

Shannon Ratliff, former law foundation trustee and former UT System regent, said he hopes the law foundation will maintain its independence from the University.

“It would be a shame if there was any sort of pressure to try to terminate the foundation or try to control it, because the one advantage of the foundation has been that it’s not an arm of the state,” Ratliff said. “It has always been to the University’s advantage for well-intentioned people to be able to act independently.”

The task force is also expected to recommend guidelines for the locations of external foundation offices and foundation employees. UT administrators serve as directors or serve on the board of some external foundations and some foundations also share employees with the University, including professors and administrative support.

In the event of a court case, some foundations, although they are separate nonprofits, can be deemed branches of a university if they share office space, employees, public funds or state legal services, Washington attorney Thomas Arden Roha said. The laws that govern foundations vary from state to state, Roha said.

He said arguments over the independence and possible mishandling of foundations tied to state universities are not common, but are not unheard of. Roha wrote a paper in 2000 at the request of the Governing Boards of Universities and Colleges that listed general guidelines for foundations.

“It doesn’t get a lot of press from state universities, the press, or donors because most foundations are well run,” Roha said. “But where problems arise there can be litigation. Court cases can be filed.”

Burgdorf’s report, which was set aside by the Board of Regents, recommended the UT Law Foundation separate itself from the University by moving to its own location and not sharing staff.

But taking those steps wouldn’t necessarily mean the UT Law Foundation is safe from legal repercussions.

“As a general rule, I would say the law is not clear cut. You have to examine each relationship between the state, University and its foundation independently,” Roha said.

The formation of foundations at UT grew from a need to supplement declining state support. State funding currently makes up 13 percent of the University’s operating budget compared to 47 percent of the budget in 1983.

“We used to say that philanthropy was the icing on the cake, but I think now that it’s really more of the gas that drives the engine at a world class institution,” said Julie Hooper, associate vice president for development — the University’s internal fundraising unit.

Each year the University’s colleges and departments receive $343 million in payouts from more than $3.1 billion that has been endowed to the University, Hooper said. She said these endowments help fund scholarships and academic chairs that increase the University’s ability to recruit top faculty and students.

Within the Office of Development a team is assigned to monitoring endowment creation, administration and compliance of both internal and external endowments.

Martha King, executive director of development, said her office oversees 5,237 endowments, including approximately 250 held by the Law Foundation. The McCombs School of Business Foundation and Lyndon Baines Johnson Foundation also have endowments that are monitored by the office, King said.

She said external foundations write their own agreements with donors.

The endowments also allow UT to develop academic programs that rank among the best in the nation, Hooper said.

The Jackson School of Geosciences has the largest endowment of any school at UT, with $432 million and ranked ninth among other earth science schools in the 2010 U.S. News and World Report Rankings.

Some schools at UT are ranked highly despite their smaller endowments. The School of Social Work is ranked seventh nationally, although its $13 million endowment is the third smallest at UT.

The process of networking with the University’s 460,000 living alumni and other potential non-alumni donors requires an army of volunteers in addition to development staff, Hooper said. Each college has its own team of volunteers, most taking the form of advisory councils. These councils, which vary in size from a couple of dozen board members to more than 100, have different roles in the development of UT. 

At the Cockrell School of Engineering, the Engineering Foundation Advisory Board consists of volunteer members responsible for securing most of the school’s endowment and for plans to build a new school, according to assistant dean Jeff Halton. 

“It’s an interesting process where you are able to have people say you need the building, help design the building for the purposes which they want it designed and then give money to make it happen or  ask other people for money to make it happen,” Halton said.

With this 60 year old fundraising model, Halton estimates the Engineering Foundation Advisory Board has raised 75 percent of the  engineering school’s total endowment.

The Cockrell School of Engineering decided earlier in March to discontinue the name “Engineering Foundation Advisory Board” in its near future to avoid confusion, Halton said. The Cockrell School of Engineering is one of the few schools that still has the term “foundation” in the name of its advisory board.

There has been a shift in advisory boards formerly known as foundations to disassociate themselves with that moniker. Halton said the need to distinguish the internal fundraising units from external foundations caused the change. 

The college is late to dropping the “foundation” name according to  Kathleen Aaronson, development director for the  College of Liberal Arts.

“We haven’t been called a foundation in several years,” Aaronson said. “Most schools haven’t.”

The internal fundraising unit for the Jackson School of Geosciences has kept the name The Geology Foundation.

The foundation precedes the Jackson School of Geosciences. The internal foundation, made up by administrators, alumni and geology experts, was created in 1953 to support the former Department of Geology founded in 1888.

The volunteer councils meet biannually, but work with development throughout the year, in most cases to help raise funds, said Michael Oldham, chairman of the School of Nursing Advisory Board.

“You contact the people that you know and know of and encourage them to give,” Oldham said. “Each school has really ramped up and improved the ranks of the development officers. Development officers can call us and say, ‘we’re going to have lunch with an alum, would you come with us?’”

Although the most generous contributors often receive recognition in the naming of campus facilities, small donations make up the bulk of giving, Hooper said.

“We’ve had 48 gifts from individuals more than $5 million, and we’ve had 950,000 gifts in the range of $1,000 or less,” Hooper said. “That’s how these campaigns work. There’s a small number of very, very large gifts and there’s a large number of small gifts. We need both.”

Related Headlines

New investigations of UT Law School Foundation and forgivable loans begin

University External Foundations Profiles

Foundation brings in extra revenue to McCombs

LBJ Foundation contributes to school, library

Communication foundation inactive after years of not turning profit

Foundation to transfer full ownership of Suida-Manning collection

In tense meeting, Board of Regents votes to commission external audit of UT Law School Foundation

Update - Reaction from President William Powers Jr. after the Board of Regents' decision: 

"Any implication that what occurred today is [about] not being transparent or forthcoming with information to the System or perhaps to the Regents is simply false.  If that was an implication I think that’s the most important thing to dispel... Executive session is not open and I’m not at liberty to talk about that. But I will say that, again, any impression that there were facts that we were not forthcoming with is simply not true... The Burgdorf report looked into this. The Attorney General looked into this. The audit committee is now auditing. That’s still in progress. We have cooperated and been forthcoming with information at every stage.”

Original story

After an uncharacteristcally heated meeting, the UT System Board of Regents voted Tuesday to continue the investigation of the UT School of Law Foundation’s relationship with the University, including an additional external review at the recommendation of the board's Audit, Compliance and Management Review Committee. The vote passed with a narrow 4-3 margin.

The specially called meeting — held during a period of escalating tension between the regents, the Texas Legislature and President William Powers Jr. — featured several moments of conflict.

The Audit, Compliance and Management Review Committee formerly recommended an external review of the use and management by UT-Austin of funds provided by the foundation to supplement the committee’s investigation.

During the tense meeting, several regents said they were concerned with the use of taxpayers’ money on an additional review. Regent Steven Hicks referred to the $500,000 price tag of an conducting an additional investigation as “beating a dead horse.” Hicks said the System has steered toward a board-driven entity in recent months, and that he did not approve of this shift.

“There have been times in the last two years where not only I have not been proud, I’ve been somewhat ashamed of being a UT regent, and that’s a real travesty to me,” he said.

Regent Wallace Hall defended the committee’s recommendation because he said the System continues to receive documents that were not included in an initial open records request he made recently. The open records request was far-reaching, requesting boxes of University documents over the course of the last 18 months.

In 2011, Powers asked Larry Sager, former dean of the School of Law, to resign after concerns arose regarding the foundation’s forgivable loan program. Though Sager received $500,000 through the program, Powers has said he was not aware of the loan at the time it was made. This assertion was contradicted at the meeting, when Hall said he had discovered evidence that Powers was aware of the forgivable loan and had chosen not to address the matter. Powers denied to reporters that he had been anything less than transparent in his dealings with the regents.

The program was used as a tool to recruit and retain top law faculty from across the country to UT by offering them forgivable loans if the faculty members agreed to stay for a certain number of years. The foundation and its program are funded by UT alumni and other donors. 

 
The Regents' audit committee also recommended setting aside a previous report on the foundation’s relationship with the University released last November.

System vice chancellor and general counsel Barry Burgdorf, who announced his resignation earlier this month, wrote the report, which concluded that the forgivable loan program was conducted in a manner that was “not appropriate.” The report laid out the history of the forgivable personal loan program, which began in 2003 while UT-Austin President Bill Powers served as law school dean. The program was then expanded under Sager.

In the report, Burgdorf recommended permanently ending the program and awarding compensation to faculty through restricts gifts rather than direct payouts during hiring.

At a House hearing on transparency in state operations last week, foundation board president John Massey said the foundation was in the process of phasing out the forgivable loan program and finding new incentive programs to help attract top faculty to the University.

The System created a task force to look into the incident last year and was supposed to provide their results later this spring.

Earlier this week, Pedro Reyes, executive vice chancellor for academic affairs at the UT System, directed Powers to not delete any emails from electronic devices in or accessed by the Office of the President over the course of the audit review of the Law School Foundation.

Regents Hall, Alex Cranberg, Paul Foster and Brenda Pejovich voted in the majority to continue the investigation with an external review, while regents Hicks, James Dannenbaum, and Robert Stillwell voting against continuing the review process.

Cranberg said the external review would provide a more comprehensive view of the events that led toward lapses in governance that have been fixed. Stillwell said he was happy with Burgdorf’s report, which was also reviewed by the staff of the Office of the Attorney General.

Tensions surrounding the Board of Regents have escalated in recent months. In February, after a meeting at which Powers was intensely questioned by the board, Lt. Gov. David Dewhurst and House Speaker Joe Straus relaunched the Joint Oversight Committee on Higher Education Governance Excellence, and Transparency. At the committee’s first meeting yesterday, members requested information from the system required to investigate allegations the board was “micromanaging” UT administration.

The Texas Legislature also recently passed three resolutions honoring Powers. At the ceremony following the resolutions, Dewhurst became emotional, telling Powers “we are lucky to have you.”

I believe in reform, and I know that Bill Powers believes in reform,” Dewhurst said. “That’s why I’m particularly troubled when I see UT regents go around this man. I see them trying to micromanage the system.”

Dewhurst also referred to what he called “character assassination” plots launched against Powers and his family.

In a statement, board chairman Gene Powell said these allegations “surely had to be the result of misinformation and were either incorrect or inaccurate.” Powell, regent Printice Gary and student regent Ashley Purgason were not present at Wednesday's meeting.