Watson circumvented law to fund new medical school
This illustration shows State Senator Kirk Watson’s mug pasted on the facade of Dell Medical School. His photo is not actually on the building but he was a prime mover in getting money to fund the medical school. (Photo by Central Health. Illustration by Rebecca Melançon.)
Senator Kirk Watson said to have admitted Central Health didn’t have legal authority to fund medical education
Kirk Watson
A decade ago, then State Senator Kirk Watson, who’s now running for mayor of Austin, dreamed of a creating a new medical school in Austin. Critics say he achieved that goal by knowingly disregarding constitutional and statutory restrictions.
He denies those allegations.
In separate interviews, attorney Robert “Bob” Ozer and Mary Arnold told the Bulldog they met with Senator Watson during the 2011 legislative session to discuss his Senate Bill 821. They said the meeting was held not in Watson’s Capitol office but in his private law office at Brown McCarroll (before the firm in July 2013 merged with Husch Blackwell).
Mary Arnold
Watson, an attorney who served as Austin’s mayor 1997-2001, already knew Arnold from her long involvement in city government and politics. In 1994 she placed second running against incumbent Council Member Ronney Reynolds (the man who in 1997 Watson would defeat in the mayoral election). In fact, Watson supported Arnold in that campaign, and said so in my exclusive interview with him August 15, 1996, calling her “far better” than the other candidate.
Which brings us back to that 2011 meeting. Both Ozer and Arnold said that Watson ordered her not to take notes, as was her habit.
“I remember distinctly that Mary Arnold was asked not to take notes,” Ozer said. “The meeting did not move forward till she stopped taking notes and put her pencil or pen down.”
Arnold confirmed that.
“He (Watson) pointed his finger at me and said, ‘You can’t take notes in this meeting,’” she said. “That was very unusual for me. I think he did not want anything at that meeting recorded in any way. The sense I got from the meeting was the Legislature was not going to fund the medical school. The healthcare district had limitations on how its money should be used and education was not one of the purposes of Central Health’s money.”
Robert “Bob” Ozer
Ozer was even more emphatic: “In the course of the meeting, Watson said Central Health didn’t have statutory authority or constitutional authority to fund medical education. He made that very clear in that meeting.”
To address this, Watson’s Senate Bill 821 would have amended the Health and Safety Code to, in effect, authorize the Travis County Hospital District (Central Health) to make financial contributions to “a public institution or a charitable organization for the support of medical, dental, or clinical education, training, or research occurring within the district for the purpose of delivery of health care service to or for the district,” according to the bill’s text. In other words, to authorize Central Health to contribute money to the University of Texas at Austin for a new medical school.
In a statement of legislative intent published by the Senate Research Center, Watson wrote that Central Texas could face a shortage of physicians and nurses in coming years unless more resources were put toward addressing the gap: “Central Texas has a health care provider shortage that will worsen over the next decade, affecting the quality, cost, and accessibility of health care.”
The bill passed the Senate by a vote of 25-5, according to the Senate Journal of April 14, 2011. It also cleared the House’s County Affairs Committee without opposition and was sent to the Local and Consent Calendars Committee, which decides when non-controversial and unopposed bills are set for a floor vote. For reasons that are unclear, that’s where the bill died, according to the Legislature’s bill-tracking system, Texas Legislature Online.
Even if SB 821 had passed it would have been problematic, according to Ozer. “The bill failed. If it passed it would have created enormous constitutional problems….” In the Texas Constitution, Article 9, and in existing statutes, hospital districts are described as being established for the care of “needy inhabitants of the county.”
Asked to respond to Ozer’s claims, Watson said via email, “This is not new. Opponents of Dell Medical School have been saying this for a decade. I do not have the same memory of the meeting they do. Regardless, legal opinions, both before the election and since, have concluded that our community has the right and ability to fund the Dell Medical School. I’m proud of the role the medical school plays in our community. I shudder to imagine going through the Covid pandemic without it.”
However, Watson’s original statement of legislative intent for SB 821 in 2011 suggests that he knew that Central Health did not have legal authority to give money to third-party organizations such as Dell Medical School. In fact, he gave that as the very reason for the bill.
“Current law permits the (hospital) district to make a capital or other financial contribution to a charitable organization created by the district to provide regional administration and delivery of health care services to or for the district,” Watson wrote. “This authorization (i.e., SB 821) will allow the district to work with other organizations in the community to increase health care education in Central Texas, which will lead to the provision of health care services to the people of the district—part of the original purpose for creation of the district.”
It should also be noted that the people Watson accuses of opposing the medical school did not oppose establishing a medical school—but they strongly opposed, in the absence of statutory authority, using local property taxes to do so.
Restrictions bypassed with ballot measure
Despite knowing there was no legitimate way to use Central Health’s property taxes to fund a medical school, Watson pushed to make that happen by seeking voter approval for a local ballot measure in the November 2012 general election.
In an August 6, 2012, letter to the 10-in-10 Organizing Committee that he had appointed to help build support, Senator Watson wrote, “I believe Travis County voters should be given the opportunity to support a medical school, a new teaching hospital, health clinics across our community, prevention and wellness programs, primary and specialty care services, behavioral and mental health care, and efforts to obtain matching federal health care funds by voting to raise Central Health’s tax rate by 5 cents.
“And I think the time for that opportunity should be this November.”
The letter noted “the UT System has committed to the effort, with the Board of Regents’ dramatic, historic and unanimous vote to commit tens of millions of dollars a year for the medical school in Austin. That vote will ensure the medical school receives at least $25 million a year from the UT System, along with $40 million over the next eight years to help launch it.”
The letter stated that an investment of $35 million a year was needed “to move forward and achieve this community dream.”
That’s because the motion the regents approved May 3, 2012, was contingent on two things: (1) Seton Healthcare Family’s continuation of support for graduate medical education residency programs and (2) “the availability of reliable and continuing funding of $35 million annually from local community sources for the direct support of a medical school at UT Austin.”
Getting that $35 million a year in local funds depended on winning voter approval of Proposition 1 on November 6, 2012. Prop 1 was placed on the ballot by Central Health’s Board of Managers.
The senator needed to convince the voting public to get behind his initiative. To that end, Watson’s lengthy commentary (nine pages when printed out) was published in the Austin American-Statesman September 1, 2012, titled “A 10-year vision for a healthier Austin.”
The article stated, “The 10-in-10 goals include a medical school affiliated with the University of Texas,” and provided a long list of other perceived benefits, both medical and economic, that would result from voter approval.
The ballot language for Proposition 1 said, “Approving the ad valorem tax rate of $0.129 per $100 valuation in Central Health, also known as Travis County Healthcare District, for the 2013 tax year, a rate that exceeds the ad valorem tax rate most recently adopted by the district by $0.05 per $100 valuation; funds will be used for improved healthcare in Travis County, including support for a new medical school consistent with the mission of Central Health, (emphasis added) a site for a new teaching hospital, trauma services, specialty medicine such as cancer care, community-wide health clinics, training for physicians, nurses and other healthcare professionals, primary care, behavioral and mental health care, prevention and wellness programs, and/or to obtain federal matching funds for healthcare services.”
Proposition 1 netted 187,021 votes for 54.72 percent of the 341,774 cast on the measure, according to the Travis County Election Results recorded by Travis County Clerk.
Affiliation Agreement requires $35 million payments
With voter approval secured, legal papers were drawn by Watson’s law firm, acting as co-counsel for Central Health with the Travis County Attorney’s Office, to formalize the requirement for Central Health to provide UT with $35 million a year for the medical school. The Affiliation Agreement executed July 10, 2014, among Central Health, its nonprofit subsidiary Community Care Collaborative, and the University requires Central Health to make those annual payments. It requires nothing from the University in return.
Larry Wallace
Lawyers from the Travis County Attorney’s Office, who act as Central Health’s general counsel, presumably reviewed the Affiliation Agreement. The Board of Managers approved it. The senior Central Health official at the time, Executive Vice President Larry Wallace, signed the agreement. All either knew or should have known they were funding startup costs for a new medical school—not funding healthcare services for the poor. The Board of Managers voted to approve the agreement July 2, 2014, according to a statement on Central Health’s website.
The end result
Since being established through voter approval in 2004, Central Health has collected $2 billion-plus from Travis County property taxpayers and transferred $280 million of it to the University of Texas for UT Dell Medical School. Over the initial 25-year term of an Affiliation Agreement executed in 2014, payments of $35 million a year are scheduled to continue for 25 years for a total of $875 million. In addition, the agreement will automatically renew for additional 25-year terms unless either party provides notice at least a year before a term ends.
By law, Central Health may only use its resources to provide healthcare services for Travis County residents earning no more than 200 percent of the Federal Poverty Level. For a single person that’s $27,180. For a family of four it’s $55,500.
If Dell Medical School is not providing healthcare services for this population and is instead using Central Health’s funding for other purposes, then it may constitute an unlawful gift of public funds. Which is what The Austin Bulldog’s investigative report documented.
Central Health’s Board of Managers for years has been asking Dell Medical School to document the services it provides to indigent residents of Travis County, to no avail.
University documents published online plainly state that the Dell Medical School has no intention of providing healthcare services to low-income patients in return for these funds. The Glossary of Terms within the University of Texas at Austin’s Operating Budget for the Fiscal Year ending August 31, 2022, classifies the money received from Central Health as “nonoperating.” This is defined as “Funding received from state or local governments for which no exchange of goods or services is perceived to have occurred (including) funding for the U.T. Austin Medical School provided by the local healthcare district.” (Emphasis added.)
It’s Robin Hood in reverse. Money that by law may only be used to provide healthcare services for indigent residents of Travis County is being given to one of the richest universities in the country. The UT System has a reported endowment of $30.9 billion, second only to Harvard’s.
Lawsuit could halt payments
A lawsuit filed in 2017 seeks to stop Central Health from spending money on anything not related to furnishing medical aid and hospital care to indigent and financially needy persons residing in Travis County or any purpose not statutorily authorized in Chapter 61 of the Texas Health and Safety Code. (Birch et al v. Travis County Healthcare District dba Central Health et al, Cause No. D-1-GN-17-005824.)
Fred Lewis
Fred Lewis, one of the attorneys who represents plaintiffs in the lawsuit, told the Bulldog that the taking of depositions has been going slowly but he anticipates that process should be finished by the end of this year. He expects the next step to be that both sides will file dispositive motions. “Instead of going to trial, these motions to end the lawsuit will result in a decision for them or us,” he said.
Lewis said, “The Texas Constitution is clear in stating that a hospital district must spend its money on healthcare services for the poor. The statutory attempt to allow Central Health to fund a medical school was defeated. No Attorney General’s opinion was ever asked for to say it was legal. And no other medical school receives money from a hospital district without providing care for poor people. Then they took this to voters with ambiguous ballot language.
“The bottom line is I consider the people who pushed for Central Health funding for a medical school played fast and loose with the law and the facts.”
Trust indicators: Ken Martin has been doing investigative reporting in the three-county Austin metro area since 1981. His aggressive reporting twice garnered first-place national awards for investigative reporting. Both of those projects resulted in successful criminal prosecutions. His 2011 investigation of the Austin City Council’s open meetings violations triggered a 20-month investigation by the Travis County attorney. That investigation resulted in the mayor and council members signing deferred prosecution agreements to avoid being charged, tried, and if convicted serving one to six months in jail and forfeiting their elective offices. He’s been investigating and reporting on Central Health since 2018. See more on Ken on the About page.
Related documents:
Affiliation Agreement, The University of Texas at Austin, Central Health, and Community Care Collaborative, July 10, 2014 (49 pages)
Interview with Kirk Watson, August 15, 1996 (46 pages)
Kirk Watson’s commentary, “A 10-year vision for a healthier Austin,” published in the Austin American-Statesman September 1, 2012 (9 pages)
Motion approved by UT Board of Regents to fund a medical school at UT Austin, May 3, 2012 (1 page)
Plaintiffs’ Original Petition, Birch et al v Travis County Healthcare District, October 18, 2017 (7 pages)
Plaintiffs’ First Amended Original Petition, Birch et al v Travis County Healthcare District, March 21, 2022 (10 pages)
Senate Bill 821, relating to the authority of the Travis County Healthcare District, February 21, 2011 (2 pages)
Texas Constitution Article 9, Counties (14 pages)
Related Bulldog coverage:
Commissioners order Central Health performance audit, again, October 3, 2022
Central Health’s quest for Medical School accountability blocked by 2014 agreement, August 5, 2022
Commissioners opt for tougher Central Health audit, August 3, 2022
Central Health critics ramp up pressure ahead of vote on audit, July 25, 2022
Central Health’s $35 million payments to Dell Medical School an unlawful ‘gift of public funds’ that exceed statutory authority, June 30, 2022
Lawsuit challenges Central Health spending, October 18, 2017
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