Penn State Wrap Up

Eli has posted a couple of times on the situation that Penn State finds itself in as a consequence of covering up Jerry Sandusky's criminal behavior.  The documents dealing with this can be found at the PSU Vice Provost's web site.  

Middle States, PSU's accrediting agency has removed it's warning to Penn State and reaffirmed accreditation, but concern with financial liability remains.  Although the fiscal situation of the University is strong, the $60 million NCAA penalty, anticipated fines to be imposed by the Department of Education and the direct costs of dealing with the Sandusky mess (>$16 million to date)  are not zero, even for an institution with a billion dollar budget.

Those costs are not covered by insurance, the costs of covering civil penalties in law suits, well
in it's response to Middle States, Penn State anticipates 10-15 civil suits from Sandusky victims only one of which appears to have been filed to date (there are three additional suits pending).  Of course, the insurance company that has policies covering this is trying to get out of paying.  The Pennsylvania Manufacturers’ Association Insurance Company (PMA) is essentially saying they have no obligation to cover losses from Penn State's covering up for Sandusky and concealing his crimes.  This has the amusing title of an "Abuse or Molestation Exclusion".  The PMA and PSU are in at least two courts on this.

Penn State is funding the defense against criminal charges for the Director of Athletics and the former Senior Vice President for Finance and Business/Treasurer.  No mention is made of funding the defense of the former President, Grant Spanier.

Updates can be found at at http://progress.psu.edu/faqs. 

In addition to insurance Penn State has put together a pool of $51 million taken out of repayments of internal loans to the Penn State Milton S. Hershey Medical Center and the Athletic Department.  That tells you right away where the dollars are in a big university, but indeed, Penn State is worried

In the event of more dire circumstances, the University is prepared to make additional modifications in its overall financial plans going forward. Specifically, as University management designs and reviews the next five year capital plan (2014-2018) with the Board of Trustees, much flexibility will be programmed into the plan. For example, in acknowledgement of the need to provide up to $60 million of bridge funding for payment of the fine to the NCAA, a first draft of the new capital plan has already been reduced from $1.6 billion to $1.55 billion in scope (a 3.1% reduction). While this can and will result in some unfortunate reductions in deferred maintenance and other projects being requested by the self-supporting units of the University, there will be additional accommodations built into the plan which will allow for the University to deal with other unforeseen circumstances.

The US Department of Education has sent teams four times to investigate Clery Act violations (reporting of campus crime), but while

The investigation is continuing and the outcome is unknown. Fines and recommendations are likely. The University has received no information that it will lose Pell Grant or other Title IV student aid program funding as a result of these investigations.

which, of course, would be the real death penalty Eli referred to. 

That $60 million NCAA penalty

The fine stipulated by the NCAA Consent Decree is $60 million and the financial impact of the Big Ten sanction on bowl revenues is estimated to be approximately $13 million over four years (http://www.ncaa.com/content/penn-state-conclusions; additional information about the NCAA Consent Decree will be addressed later in this report, including information regarding the Athletic Integrity Agreement). Because internal Athletic Department reserves are currently insufficient to pay the full $60 million NCAA fine, the central University will issue up to five individual $12 million internal loans to the Athletic Department and charge debt service to the program over thirty years. As a result, long term financial modeling of the Athletic Department operation is being performed and re-budgeting is expected to occur within the restrictions imposed by the NCAA Consent Decree.

So not quite a bang, and not quite a whimper.