Updated Aug. 19, 12:40 p.m.:
Two members of the University of Texas System Board of Regents on Tuesday said they were "disappointed" with a Moody's Investors Service analysis that determined recent conflicts within the system — including a legislative censure of Regent Wallace Hall — were "credit negative."
"While we are disappointed that Moody’s Investors Service chose to portray last week’s censure of UT System Board of Regents member Wallace Hall as a 'credit negative' for the system, we strongly disagree with the characterization that governance struggles have hampered the board’s ability to implement key initiatives and that the UT System lacks a unified strategic direction," board chairman Paul Foster and board member Jeffery Hildebrand said in a joint statement.
Moody's expressed doubt about the system's ability to attract top-flight candidates for the presidency of the University of Texas at Austin, a position that will open up next year when the current president, Bill Powers, resigns.
"We are confident that we will find a distinguished and capable leader for this job, just as we were able to identify an internationally renowned leader and true American hero, Adm. William H. McRaven, as the sole finalist for the position of chancellor," Foster and Hildebrand said.
Moody's also warned that continued tensions between the board, the Legislature, and the flagship university could give would-be donors pause in the future.
"Philanthropy continues to be at an all-time high and this board’s investments in UT institutions, and UT-Austin specifically, are unprecedented," the regents said.
The declaration of recent events as "credit negative" does not affect the system's credit rating or outlook. The system currently boasts the highest possible rating from Moody's, as well as other credit rating agencies.
An analysis published on Monday by Moody's Investors Service, one of the country's top three credit rating agencies, warned that leadership issues at the University of Texas System are "credit negative."
The UT System currently holds a triple-A rating from Moody's — its highest — and is listed as having a stable outlook. The declaration of an event as "credit negative" does not affect the system's current rating or outlook. But while the system's financial strengths support its current rating, the report notes, "prolonged infighting and its effect on personnel and philanthropy would slowly diminish the system's competitive edge."
The most recent hiccup is last week's vote by the House Select Committee on Transparency in State Agency Operations to admonish and censure UT System Regent Wallace Hall for alleged misconduct in his dealings with the University of Texas at Austin administration. The regent denied any wrongdoing and issued a statement that the committee's findings were based "on distortions, untruths and intentional misrepresentations."
The analyst noted that the censure vote was merely the latest in a protracted governance battle at the system.
"The strained relationship among system board members, the system chancellor and the long-serving president of its flagship university creates reputational challenges that are likely to hamper the system's ability to attract and retain high-quality executives and faculty and deter some donors," the analyst wrote.
There are changes afoot at the system. UT System Chancellor Francisco Cigarroa will step down at the end of the year and be replaced by Admiral William H. McRaven, who is currently the commander of the U.S. Special Operations Command. UT-Austin President Bill Powers recently submitted his resignation, which will take effect in June 2015. The next governor will have the opportunity to replace up to three regents in February.
The current chairman of the board, Paul Foster, has said he believes the coming changes are positive.
However, the analyst warned that Hall's continued presence on the board may be a sticking point. "The state-university governance environment is not likely to improve given the board member's defense of his actions and the fact that his term does not expire until February 2017," she wrote.
The report from Moody's acknowledged that fundraising has held up at UT-Austin, which is nearing the end of a $3 billion capital campaign, but predicted that continued conflict could deter donors in the future. It also said the possibility of attracting top talent to the flagship's presidency "risks being thwarted by the current politically charged environment."
The system did not immediately respond to a request for comment.
In an interview with The Texas Tribune last week, Cigarroa said the notion that tensions between the system and its flagship have had a negative effect on faculty recruitment and retention was incorrect.
"We’ve taken a look at the data regarding recruitment and retention of our faculty, and this idea that we are losing faculty is entirely false," he said. "These conclusions that others are making are not based on facts."
Cigarroa also noted that the system has been particularly productive in recent years, launching a new university and medical school in South Texas as well as a new medical school in Austin, among other things.
Disclosure: The University of Texas at Austin is a corporate sponsor of The Texas Tribune. Paul Foster is a major donor to the Tribune. A complete list of Texas Tribune donors and sponsors can be viewed here.