At Hearing, UT Law School Foundation Admits "Mistakes"

Updated March 13, 2:40 p.m.: The University of Texas System officials said they have been actively working with the select committee to provide information.

Dan Sharphorn, the system's associate vice chancellor and deputy general counsel, was on hand at Tuesday's hearing, but was not called upon by the committee members.

Updated March 12, 6:15 p.m.:

State Rep. Trey Martinez Fischer, D-San Antonio, a member of the select committee, said the hearing was missing an important component of the discussion regarding the forgivable loan issue: the University of Texas System.

He noted that the system has invested "lots of time, resources and human capital" into its investigation of the foundation and its relationship with UT-Austin, and that he wants to better understand the system's motivation.

Barry Burgdorf, the system's general counsel who authored the report on the matter, recently resigned. UT System Regent Brenda Pejovich is currently leading a task force focused on foundations affiliated with universities.

Martinez Fischer said he was still waiting to hear whom the system would provide to the committee as a source witness. When the system provides someone, he hopes the foundation and university representatives return.

"I want to have a dialogue," he said.

Until that's possible, he said, "there's no need to rush this; what is most important is that we get it right."

Martinez Fischer has also written letters to committee leaders Dan Flynn, R-Canton, and Rep. Carol Alvarado, D-Houston, as well as Pejovich expressing his desire to bring the system into the conversation. He is also waiting on a response to an open records request he made of the system.

After Tuesday's hearing, Flynn also shared his perspective on the matter. "I believe our state's institutions of higher learning should be held to a higher standard," he said in a statement. "As stewards of the taxpayer money, our state schools should be transparent in how they operate and compensate state employees, which include faculty members."

Original story:

John Massey, the board president of the University of Texas Law School Foundation, said Tuesday that the organization made "mistakes" in the operation of its now-defunct forgivable loan program. At a hearing of the House Select Committee on Transparency in State Operations, he assured lawmakers that the foundation had made the necessary adjustments to restore confidence in it.

"I think we've learned our lesson," Massey said. "And I think we've learned our lesson the hard way."

The foundation's forgivable loan program became the subject of scrutiny following the forced resignation of University of Texas School of Law Dean Larry Sager in late 2011, and the revelation that he had received a $500,000 forgivable loan through the program. A report issued by the University of Texas System in November 2012 concluded that the process used to secure Sager's loan created "an impression of self-dealing that cannot be condoned."

That report was not the final word. In the Texas House, the select committee is now looking into the issue, and at the UT System Board of Regents, a special task force has been formed to further investigate universities' relationships with such foundations.

At Tuesday's hearing, state Rep. Charles Perry, R-Lubbock, expressed some apprehension about the extent to which lawmakers should get involved in such foundations' structure.

"I don't think we have the jurisdiction or should go into how a foundation chooses to run its operations or what it chooses to fund," he said.

But he noted that the state does provide money for faculty salaries, and expressed concern that non-transparent mechanisms to supplement those salaries, such as the forgivable loan program, create a perception issue.

"Why not be straight up?" he asked. "Do the straight up thing instead of these back door hidden compensations where we lose all transparency and all faith and trust in what we do as a state government."

Massey said the foundation is working on designing a process for supporting the law school that is more along those lines, noting that the motives of the much-criticized loan program were "well-intentioned."

The existence of such a program to help recruit top talent otherwise beyond the institution's means is not unique. "This is not an uncommon or unorthodox practice," said Ward Farnsworth, the current dean of the law school.

But Farnsworth conceded that many such programs are at private schools, not public ones. "And the way we were going about it was not transparent," he said. 

Farnsworth said the problem with the forgivable loan program was that, by having money go directly from the foundation to employees, it kept large chunks of some faculty members' compensation hidden from public view.

He also explained to lawmakers that the foundation does not have any policy-making authority at the law school, and simply acts as a large donor — to the tune of more than $6 million per year. The foundation can also earmark donations for certain purposes.

Farnsworth said that going forward, all compensation paid to faculty members, including payments using donations from the foundation, will be routed through the university so that it is public information.

"Our mission, as I see it," he said, "is to create a first-rate law school without burdening the tuition-paying students."

Massey said about 20 of the initial forgivable loans are still outstanding, and that the foundation has been working on the best way to unwind them without punishing the recipients. "We have been in exhaustive conversations with the Attorney General's Office and we believe we're well down the road toward a solution," he said.