Law School Foundation

As the attorney general investigates the University of Texas Law School Foundation, legislators and former Foundation trustees are continuing to hammer out the fine line between the University and the private institutions that support the 40 Acres.

In a 4-3 vote last month, the UT System Board of Regents decided to begin a new external review of the Foundation’s relationship to the University. In 2011, President William Powers Jr. asked Larry Sager, then dean of the School of Law, to resign after it was revealed Sager received a $500,000 forgivable loan as part of a program administered by the Foundation. Regent Wallace Hall claims Powers was aware of the loan, which Powers denies.

Powers, who was dean of the law school before becoming president, said in an interview with The Daily Texan that the Law School Foundation has historically maintained full transparency and has now corrected its failures to disclose information.

“It is important that the salaries and other benefits they are making decisions on are known to the University,” Powers said. “It was the case during my tenure at the law school, and they have since corrected themselves.”

A report on the foundation released after Sager resigned found the structure of the forgivable loan program to be “not appropriate.” The author of the report, System general counsel Barry Burgdorf, has since resigned, and a regent committee has recommended setting this report aside in the ongoing investigation.

Burgdorf declined a request for comment on the facts of his report or on the new investigation. Several legislators sent a letter to the regents that compared the start of a second investigation to a personal attack on Powers. After scrutiny from the Texas Legislature, the regents agreed to have the attorney general conduct the investigation instead of hiring an outside firm to conduct one.

The foundation was founded in 1952 and has provided faculty members loans for housing, deferred compensation and other forms of payment to attract and retain them at UT. Over the past 11 years, the foundation has provided $75 million to the law school and its faculty. The foundation is currently valued at $213 million with 596 endowments.

Shannon Ratliff, a former trustee of the foundation and a former UT System regent, said it is a “shame that the Foundation had been caught up in politics.”

“I wish I knew how the Law School Foundation had any bearing on the current debate over the direction of the University,” Ratliff said. “I can’t believe you could find so much fault with a foundation whose sole purpose is to give the law school additional resources to succeed.”

Ratliff said the foundation’s independence from legislative oversight will allow it to help the law school maintain a diverse student body if the U.S. Supreme Court rules against the University in the pending case Fisher v. Texas.

If the court decides against the University, a student’s race would likely no longer be allowed as a factor in admissions decisions. Ratliff said he believes the foundation would focus its student recruiting efforts on attracting students from underrepresented groups if that happens.

After a federal circuit court decision in 1996 banned the University from factoring race into admissions, Ratliff said the foundation focused its scholarship funding on underrepresented groups — something an internal fundraising unit would have been unable to do. The Supreme Court overturned the 1996 decision in Grutter v. Bollinger in 2003.

John Massey, president of the foundation, said it had “learned [its] lesson the hard way,” but would like to begin discussions with the attorney general’s office on providing similar forms of assistance for faculty that are appropriately disclosed to the University. Massey testified before a legislative committee focused on government transparency and has since declined requests for comment.

“We can use [forgivable loans] for someone just beginning his career, we can give some money that they can use right now, and that puts a kind of golden handcuffs on them because it’s forgiven over a period of time,” said Ward Farnsworth, current dean of the law school. “Those are advantages that a simple salary will not achieve.”

Farnsworth said assistance from the foundation has helped the school maintain higher faculty salaries and lower tuition for students than the state could afford on its own.

The University is already in discussions with the attorney general’s office to find a way to resolve 16 other outstanding loans made under the forgivable loan program without punishing law school faculty for receiving these loans, University spokesman Gary Susswein said. Susswein said the outstanding loans may be paid through the University payroll to the faculty members.

About $300,000 of Sager’s loan has been forgiven, although he still owes the foundation $200,000 plus interest. Of the $5.4 million paid out under the program, $3.27 million has been resolved. Other faculty loans were valued at less than Sager’s, but one was for $250,000, Massey said.

Related Headlines

Changes could be on the horizon for UT fundraising foundations

The UT Law Foundation Profile

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

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

Complying with requests from several Texas lawmakers, the UT System Board of Regents unanimously voted Thursday to release documents requested by legislators and allow the Texas Attorney General’s Office to conduct an investigation into the relationship between the UT School of Law and the Law School Foundation

The decisions came after several months of tension between the board, the Texas Legislature and UT President William Powers Jr. Regent Printice Gary acknowledged the tensions while speaking after the decisions were announced. 

“I think it is important we acknowledge that the reality of the controversy surrounding the Board of Regents and the Legislature has unfortunately and inadvertently cast a shadow on the University of Texas System,” Gary said. “Let’s remember that the Board of Regents is here to serve the System.”

Last week, board Chairman Gene Powell inquired to the attorney general’s office about the legality of withholding information after state Sen. Judith Zaffirini, D-Laredo, filed a broad open records request as a private citizen instead of in her capacity as a legislator. 

Though there is no specific deadline by which regents must respond to legislators’ open records requests, according to the Texas Public Information Act, governing bodies must handle all requests from private citizens in good faith and produce requested information “promptly.” If this cannot be done within 10 days, governmental bodies must recognize this in writing and set a date and hour when the records will be available. Alternatively, if there is a desire to withhold information, the governing body has 10 days to write to the attorney general asking for a decision.

Powell’s move spurred intense criticism from several legislators and prompted a three-page statement from Zaffirini. In it, she said she had heard the chairman’s behavior compared to that of former President Richard Nixon during the Watergate scandal.

The board also reconsidered its March 20 vote to continue an external investigation of the relationship between the law school and its foundation. The investigation was criticized by legislators and individual regents themselves. Regents Steven Hicks and Robert Stillwell both referred to the external investigation as “beating a dead horse,” and Stillwell said the initial investigation, conducted by outgoing System general counsel Barry Burgdorf, was sufficient.

Powell maintained that the additional review of the Foundation is a necessary move but said he felt confident in the attorney general’s ability to conduct it.

“If I’d been here on the day of the [4-3] vote, I’d have been the 5th vote to continue the investigation,” Powell said.

In February, the Legislature relaunched the Joint Oversight Committee on Higher Education Governance, Excellence and Transparency for the purpose of investigating regents’ alleged micromanagement of the University.

Committee members expressed relief and skepticism Thursday about the regents’ decisions to disclose documents and allow the Attorney General to investigate the foundation. 

Zaffirini said she was glad regents took lawmakers’ suggestions regarding the investigation into the foundation.

“However, I do think it’s a waste of time and effort and waste of state resources, because it’s been investigated again and again,” Zaffirini said. “I’m expecting the same results from the Attorney General’s investigation.”

Committee Co-Chairman and State Rep. Dan Branch, R-Dallas, said he was pleased to see regents make both decisions and he expects regents to supply information requested by lawmakers within the next few days.

“To me, it’s two steps in the right direction,” Branch said.

State Sen. Kirk Watson, D-Austin, said the decision to disclose documents constituted the first step in ending conflict between regents, UT and the Legislature that has arisen during this legislative session.

“To be clear, this isn’t the end of this process, nor does it complete all of the board’s responsibilities to legislators and to Texans,” Watson said. “But, I do hope it’s a healthy, positive start.”

Hours after the board meeting, the Texas Senate approved a bill to limit powers of university boards of regents over individual institutions within university systems.

The bill, filed by state Sen. Kel Seliger, R-Amarillo, and Senate Higher Education Committee chairman, was filed in response to the UT System Board of Regents’ alleged micromanagement of UT, specifically President William Powers Jr.

The House of Representatives must now vote on the bill, which would limit regents from “interfering” in the daily operations of universities under systems’ purview. It would also prohibit regents who were appointed when the Legislature is not in session from voting until nominees have appeared before the Senate Nominations Committee.

Chairman Wm. Eugene “Gene” Powell (left) and Regent Robert L. Stillwell (right) hear various proposals, including one for the new engineering building, during a UT system board meeting in January. The board approved the potential use of tuition revenue bonds.

Photo Credit: Pearce Murphy | Daily Texan Staff

The UT System Board of Regents voted unanimously today to release all documents requested by state legislators via open records requests, rather than attempting to withhold them as chairman Gene Powell had inquired about this month. The Board also voted unanimously to ask the Texas attorney general to take over an external review of the relationship between the UT School of Law and the Law School Foundation.

Powell inquired about the legality of withholding information after state Sen. Judith Zaffirini, D-Laredo, filed a broad open records request as a private citizen instead of in her capacity as a legislator. Though there is no specific deadline by which legislator’s open records requests must be responded to, according to the Texas Public Information Act, governing bodies must handle all requests from private citizens in good faith and produce requested information “promptly.” If this cannot be done in 10 days, the governmental body must recognize this in writing and set a date and hour when the records will be available. Alternatively, if there is a desire to withhold information, the governing body has 10 days to write to the attorney general asking for a decision.

In a letter to Abbott, Powell said the information requests might be harmful to the System’s ability to do its job.

“These requests have proved potentially damaging to the ability of the System’s governing board to fulfill properly its statutory and fiduciary duties,” Powell said in the letter.

Powell’s move spurred intense criticism from several legislators and prompted a fiery three-page statement from Zaffirini in which she said she had heard Powell’s behavior compared to that of former President Richard Nixon during the Watergate scandal.

“While the specific regents and personnel involved in this response process have employed countless delay tactics to date, this one is not only the most innovative, but also the most outrageous,” Zaffirini said in the statement. “Perhaps [the Regents] do not understand the difference between ‘inconvenient’ and ‘confidential’...my only conclusion is that they have something to hide.”

Another issue at the center of today’s meeting was the board’s recent 4-3 vote to continue an external investigation of the relationship between the UT School of Law and the Law School foundation. The investigation, estimated to cost $500,000, was criticized by legislators as well as individual Regents themselves. Regents Steven Hicks and Robert Stillwell both referred to the external investigation as “beating a dead horse,” and Stillwell said the initial investigation, conducted by outgoing System general counsel Barry Burgdorf, was sufficient.

Regent Alex Cranberg defended the System’s decision and said he believed there were flaws in Burgdorf’s investigation.

“[The investigation] was so inadequate that I have heard complaints of it being a cover up,” Cranberg wrote in an email to the Texas Tribune.

Legislators also criticized the vote: In a letter signed by 18 state senators and sent to Powell, the senators asked the board to seek the attorney general’s assistance if regents insisted on continuing what the senators called “an unnecessary probe.”

Powell maintained that the additional review of the Foundation is a necessary move, but said he felt confident in the attorney general’s ability to conduct it.

"If I'd been here on the day of the [4-3] vote, I'd have been the 5th vote to continue the investigation,” Powell said.

Regents will meet to discuss Law School Foundation, direct Powers not to delete emails

The UT System Board of Regents will hold a special meeting on Wednesday to discuss and possibly take action on issues regarding the relationship between the UT School of Law and the Law School foundation. The board will also discuss “the financial management and use” by UT of funds to support the law school and relevant legal issues after hearing a recommendation from the Audit, Compliance, and Management Review Committee. 

In December 2011, President William Powers Jr. asked Larry Sager, former dean of the School of Law, to step down from his position after an open records request from law school faculty revealed he obtained $500,000 in forgivable personal loans from the UT Law School Foundation. 

Barry Burgdorf, the UT System vice chancellor and general counsel who resigned earlier this month, authored the System’s report on the incident. The report found the lack of transparency in the forgivable personal loan program meant it “suffer[ed] infirmities that make it inappropriate for a public university in Texas.”

Last week, Pedro Reyes, executive vice chancellor for academic affairs, emailed Powers directing him not to delete emails of any time from electronic devices or computers in or accessed by the Office of the President over the course of the pending audit review of the Law School Foundation. The email also directed the offices of the provost, executive vice president for business affairs and vice president for legal affairs not to delete emails, and mentioned Sager, assistant dean Kimberly Biar, and Glenn Woelfel, senior financial analyst for the law school.

Powers’ spokesman Gary Susswein described this move as “unusual.”

The UT System Board of Regents announced an advisory task force on relationships between UT institutions and UT-affiliated foundations in response to a report deeming the procedure of obtaining a forgivable personal loan through the Law School Foundation inappropriate for the University.

During the regents’ regular meeting Thursday, Board Chairman Gene Powell said the advisory task force will look into the best practices regarding relationships with foundations that regularly contribute to UT.

“This review was a necessary step to assure that requests from universities to these groups are consistent to the best practices,” Powell said.

Last year, Larry Sager, former dean of the School of Law, stepped down from his position at the request of UT President William Powers Jr. after it was found he obtained a $500,000 forgivable personal loan from the Law School Foundation, a nonprofit organization not operated by the University that helps support law professors’ salaries, without approval from central administration.

The UT System report, released Tuesday and written by Barry Burgdorf, UT System vice chancellor and general counsel, looked into the relationship between the foundation and the University following Sager’s resignation.

In the report, Burgdorf wrote that Sager’s ability to recommend and negotiate the personal loan for himself created an impression of self-dealing that the System does not condone.

Sager approached former foundation president Robert Grable in 2009 and proposed the loan over dinner after Steve Leslie, executive provost and vice president, denied Sager a salary increase because of a tight budget, according to the report. Leslie oversees compensation of University deans.

According to the report, Powers said he did not discuss the personal loan with Sager either.

After discussing the report in executive session, Powell said the task force will create a central structure for relationships with UT-affiliated foundations and establish record-keeping procedures and provisions to assure that UT employees are not receiving direct benefits from external sources.

The task force is also expected to recommend locations and staffing for foundation offices. The Law School Foundation is currently housed on campus.

“This will go a long way to establish the best management practices to help support these entities that have supported UT System institutions for so long,” Powell said.

The forgivable personal loan program is currently suspended.

Sager’s spokesperson Glenn Smith said conflicts with Sager’s personal loan could have been avoided if the procedures the task force will recommend had already existed.

“Historical practices were followed by Dean Sager and other faculty,” Smith said. “Whatever new procedures will be put in place will be followed as well.”

Stephen Susman, a member of the Law School Foundation’s board of trustees, said he supports the creation of the task force. Any official procedures for salary approval that might be implemented through the task force will help avoid situations like the one Sager was put in, Susman said.

“This wasn’t Sager’s fault,” Susman said. “The University did not have a procedure in place. The notion that they would expect Sager to get approval for his own contract is stupid.”

Susman said the foundation was aware Sager was negotiating his own loan, and executive committee members assumed he had the authority to do so.

Susman was not on the foundation’s board of trustees when Sager was awarded the forgivable personal loan.

In a statement to The Daily Texan, UT President Powers said he welcomes the recommendations set forth by the report released by the System.

“The report released by the UT System recognizes the foundation’s vital role in maintaining a nationally ranked law school,” Powers said. “The report also offers some important recommendations to modernize and bring more transparency to the relationship between UT and the foundation.”

Regents Robert Stillwell and Brenda Pejovich will head the task force, and a representative from the Office of the Attorney General will provide advice. UT institution presidents will also participate in establishing recommendations that will be presented to the regents for approval in 180 days.

Printed on Friday, November 16, 2012 as: UT, affiliates' relation to be assessed