UT Law's Forgivable Loans to Faculty "Not Appropriate"

The process Larry Sager, the University of Texas School of Law's former dean, used to secure a $500,000 forgivable loan for himself was not transparent, created "an impression of self-dealing that cannot be condoned," and should be permanently suspended, according to a University of Texas System report released Tuesday. 

The report, written by UT System Vice Chancellor and General Counsel Barry Burgdorf, examines the forgivable loan program the University of Texas Law School Foundation used to supplement some professor's salaries — including the money Sager received at his own suggestion. 

The revelation of the loan played a key role in UT-Austin President Bill Powers' decision to ask Sager to step down from his post last December. It also prompted the UT System board of regents to further investigate the relationship between the law school and the foundation, a separate organization that supports the school financially with a current endowment of about $111 million. The foundation halted the loans in the wake of Sager's departure. 

Regarding the process by which Sager received the funds, his spokesman Glenn Smith said, "It was done in accordance with the law and with the foundation's historical practices."

According to the report, the practice of the foundation providing forgivable loans to faculty members — largely at the dean's discretion — actually began in 2003, when Powers was dean of the law school.

Though Powers himself never received a forgivable loan, he did receive a significant deferred compensation package from the foundation, which was approved in 2001 by then-UT President Larry Faulkner and other university and system officials. In 2006, the system's board of regents approved a one-time lump sum payout from the foundation to satisfy the arrangement.

Burgdorf's report draws a sharp contrast between that process and the one by which Sager received his forgivable loan. After Sager's request for a raise from UT-Austin was denied in 2009 due to budget constraints, he broached the subject of receiving a $500,000 forgivable loan over dinner with Robert Grable, the foundation's then-president. Grable took the idea to the foundation's executive committee and the amount was approved, but it appears that university administrators were never made aware of the extra compensation.

Smith said Sager did not deliberately try to avoid oversight in the process. "Dean Sager had good reason to believe that the foundation had consulted with President Powers," he said, noting that the first year's payout of $100,000 appears on an internal university document included in Burgdorf's report.

Sager was not the only beneficiary of the forgivable loans. Under his tenure, the program had expanded, becoming the primary tool to sweeten compensation packages in order to lure top faculty to the law school. Sager had risen to the deanship during a time when the institution was losing a number of top faculty members. The report notes that the forgivable loan program, which preceded Sager, "is a highly effective and sensible recruiting and retention tool."

But the process for approving and reporting such loans was flawed, the report says, and granted too much power to the dean. While the foundation's leaders assumed that all necessary internal communications were occurring, Burgdorf wrote that "the heavy balance of the evidence indicated that Dean Sager essentially acted alone and never consulted or sought input from the UT-Austin Central Administration and never reported this element of faculty compensation to anyone internally or externally."

While Burgdorf's report did not find evidence of any illegal activities, he noted that the arrangement between the school and the foundation drifts into some murky legal waters, largely stemming from a lack of boundaries between the two entities.

The foundation, which has conducted its own review in the aftermath of Sager's resignation, has recommended steps to improve its record-keeping and distance itself from the law school, including looking into off-campus office space. It will also amend its procedures so that no funds can be released to compensate a dean without written authorization from its full board and university administrators.

Burgdorf endorsed these proposals. But he also recommended that the foundation no longer make any payments directly to faculty, and instead provide support via restricted gifts to the law school. 

While Burgdorf recommended allowing outstanding forgivable loans to run their course, Attorney General Greg Abbott's office, which reviewed the report, disagreed. 

"Given our conclusion that the foundation's forgivable loan program is legally problematic, it is difficult to also conclude that such an arrangement should nonetheless be allowed to continue years into the future," Daniel Hodge, the first assistant attorney general, wrote in a letter to UT System Board of Regents Chairman Gene Powell. 

Smith took issue with an assertion in Hodge's letter that Sager "authorized financial benefits for himself," since the foundation's executive committee ultimately approved the proposed compensation. Smith said the statement should be "immediately and publicly withdrawn." 

Legal questions and recommendations raised by the report, as well as the review by the attorney general's office, will be discussed during executive session during the board of regents' meeting in Tyler on Nov. 15.

Texas Tribune donors or members may be quoted or mentioned in our stories, or may be the subject of them. For a complete list of contributors, click here.