HARRISBURG -- Auditor General Jack Wagner continues to push to reduce the number of legislators on the board of the state's student loan agency, noting that spending abuses occurred under the lawmaker-dominated board.

Wagner's top lawyer says the IRS told him in a phone conversation that reducing legislators on the Pennsylvania Higher Education Assistance Agency's board wouldn't threaten the agency's tax-exempt status, which was the principal objection of PHEAA officials to Wagner's proposal.

In a letter obtained by the Tribune-Review, Robert Teplitz, chief counsel for the auditor general, said he spoke with Leonard Henzke, a lawyer who handles tax-exemption issues, on Aug. 28. Teplitz's letter to Henzke thanks him for his advice that "our department's proposed restructuring of the board of directors of the Pennsylvania Higher Education Assistance Agency would have 'absolutely no effect' on the tax exempt status."

An IRS spokesman said as a matter of policy agency officials won't comment on the content of letters it receives on tax-related inquiries.

Teplitz's letter, which was copied to PHEAA board members, says Henzke told him there was no need to seek a ruling because the answer is "so obvious."

Wagner last month proposed reducing the number of legislators on PHEAA's 20-member board from 16 to eight. The top finding in Wagner's recent audit was that PHEAA needs to be restructured to make the agency more open and accountable, and to restore public confidence.

The agency has been criticized since early last year when records were released under court order showing board members spent $768,000 on trips to lavish resorts from 2000 to 2005. Records showed board members used public money for pedicures, facials, culinary classes and falconry lessons.

The agency spent millions of dollars on bonuses for employees, promotional items and employee recognition days. Last month, Wagner revealed that six PHEAA employees entertained 14 clients at a "ultra-high end" steakhouse in Scottsdale, Ariz., running up a $5,300 tab in March 2006 and gave a $64,551 bonus to a Washington lobbyist.

In a response to Wagner's audit, James L. Preston, CEO of PHEAA, said the agency was concerned that reducing the legislators on the board would threaten the agency's "tax-exempt status, the loss of which could reduce PHEAA's ability to provide future public service programs."

"We were pleased," Wagner said Friday, "that the IRS agrees with our position that the tax-exempt status will not be jeopardized by reducing the number of legislators from 80 percent to 40 percent of board members."

Sen. Sean Logan, D-Plum, the vice chairman of PHEAA, said if the IRS writes that there is no problem, "I'm all for it. Reducing the number of legislators on the board is a reasonable thing to do."

But getting a statement from Wagner's lawyer rather than the IRS itself isn't good enough, he said, noting, "I don't have anything concrete from the IRS."

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