Report Recommends Ending Law School Forgiveable Loans

By Casey Michel in 40 Acres on November 15, 2012 at 10:51 am | No Comments

A loan program aimed at recruiting and retaining top talent at the University of Texas Law School should end, according to a report from the UT System released Tuesday. The report, which was also reviewed by the state attorney general’s office, comes nearly one year after UT law professor Larry Sager, who had previously received a $500,000 forgivable loan from the UT Law School Foundation, was relieved of his duties as law dean.

While the foundation approved Sager’s loan, the report noted that the former dean did not use the proper channels of approval, “essentially awarding himself the forgivable loan,” according to the Daily Texan.

Sager’s methods of obtaining the loan did not meet the proper threshold of administrative approval, says Barry Burgdorf, UT System vice chancellor and general counsel, who penned the report.

“The idea of Dean Sager’s $500,000 forgivable personal loan was his,” wrote Burgdorf. “Obviously, this lack of transparency and accountability is unacceptable and, at a minimum, it creates an impression of self-dealing that cannot be condoned.”

The practice of awarding forgivable loans began in 2003, when UT president Bill Powers, who asked Sager to step down last December, served as dean of the law school. The financial service, according to the report, is “a highly effective and sensible recruiting and retention tool.” Powers never received any direct loans from the Law School Foundation, but he did receive a notable compensation package from the organization, according to the Texas Tribune.

Indeed, the report draws a direct contrast between the proper process with which Powers was awarded his compensation and how Sager obtained his $500,000. After being denied a pay raise in 2009 due to budget constraints, Sager approached Robert Grable, then president of the foundation. Grable and his fellow members on the foundation’s executive committee approved the amount but never notified University officials.

As Burgdorf noted, such a lack of communication—and attendant lack of transparency—creates numerous legal and ethical obstacles.

“Obviously, this lack of transparency and accountability is unacceptable and, at a minimum, it creates an impression of self-dealing that cannot be condoned,” Burgdorf wrote.

But according to Glenn Smith, Sager’s spokesman, the payment was not due to his employer’s oversight.

“Dean Sager had good reason to believe that the foundation had consulted with [Powers] before authorizing his deferred compensation agreement, and his clear understanding that the university knew and approved of the agreement was confirmed by the inclusion of the first year’s payout from that agreement in a compensation report by the university to the UT System,” Smith said in an email.

Smith also denied the assertion that Sager had self-authorized the payment, as Daniel Hodge, the state’s first assistant attorney general, had noted in his office’s review.

Issues surrounding the legality and barriers pertaining to the Law School Foundation will be discussed Thursday at a closed-door Board of Regents meeting in Tyler. While Burgdorf recommended that current loans, which extend three years, be allowed to continue, Hodge demurred.

“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,” Hodge wrote.

Tags: barry burgdorf, Larry Sager, law, ut law school foundation