State College, PA - Centre County - Central Pennsylvania - Home of Penn State University

Time for Penn State to Cut Ties With the State Appropriation?

by on March 01, 2016 6:00 AM
State College, PA

A Penn State spokesperson offered a response to this column: Funding Cannot Be Easily Replaced, Severing State Ties Dangerous.

Here we are in the dead of winter in Happy Valley and wouldn't you know it, I'm confused again.

Not about the weather that can't seem to decide between single-digit wind chills and 60-degree balminess.

No, I'm confused about all the fuss and dire predictions and wailing and general gnashing of teeth -- metaphorically speaking of course -- regarding Penn State's appropriation from the Commonwealth.

Years ago I had my first insight into education versus government funding when I was in a meeting with Dr. Rudy Crew while he was the chancellor of New York City public schools, the nation's largest public school district. A group of people we were with wondered what they could do to help improve the schools and he quickly replied he did not need any more government money.

I immediately liked the man. The point being that the money New York schools received from governmental bodies had strings attached -- lots of them -- and getting more was simply not worth dealing with the strings when there were other pressing issues.

For those not used to dealing with government money, or grants for that matter, the strings attached can be difficult at best.

Grants normally require lots of legwork up front applying for them, and then follow-up legwork justifying, accounting for, and demonstrating what you did with the money. As Happy Valley is home to one of the nation's large research universities, I know I am preaching to the choir locally for all those who are on a never-ending quest for grant money.

Government money generally takes grant money to the stringiest of levels. It's not uncommon for organizations that do not have the mechanisms in place to deal with the ample strings to wonder if the cost of accounting for the money is greater than the money itself. And sometimes they are right.

Lately there has been much conversation about the state budget impasse and what that means for Penn State. Primarily it of course means no state government money. Zero. Not a great number in the income column.

And with no income from the state we hear the dire pronouncements from Penn State administrators outlining the necessary steps being taken to conserve money.

But this routine, with slight variations, happens every year. Penn State asks for money. Penn State is appropriated money. It's not close to enough money. The budget is delayed so Penn State doesn't get money anyway. Penn State finally gets money but it is less than they wanted. Year after year.

I've spoken with people in Harrisburg who said there's no motivation to give Penn State more money. Because if they do, Penn State will just come back the next year asking for more.

What I'm wondering in all this is... whether it's worth it? If Penn State might not be better off in the long run just saying to the Commonwealth, "You know, why don't you just keep the money? You obviously have better things to do with it and we'll probably be better off without any state involvement." Both sides would part ways and eliminate a lot of headaches for everyone. Not to mention the university could stop being an "instrumentality of the Commonwealth" and finally file for non-profit status like almost every other college in the country.

But is that even financially possible? How much money are we talking about and what would the university need to do to survive without any state funding whatsoever? Obviously if they had to make across-the-board salary cuts, lose an entire department, or close the library this idea would be a non-starter.

Luckily the university is very transparent with its financial records so we have access to the information that helps answer these questions.

According to the university's audited financial statements for the fiscal year ended June 30, 2015, their operating expenses totaled $4,902,341,000. That's $4.9 billion.

For that same fiscal year the university's operating revenues were $5,293,400,000. $5.3 billion. That's $391 million more than their expenses.

The Commonwealth of Pennsylvania's appropriation to Penn State during that fiscal year was $278 million. Normally this would be considered a significant sum of money and not something you could just do without.

Except... could Penn State have done without it? If Penn State had received nothing -- zero dollars -- from Pennsylvania last fiscal year, it appears they still would have brought in $100 million more than they spent. And they would have done so in every year since 2011.

For the current fiscal year (2015-2016) Penn State's total operating budget is again $4.9 billion. Actually $4,884,675,000 -- a $17 million reduction from the previous year. Since tuition didn't go down and enrollment increased, we can expect that total income likely won't change drastically from last year either.

Which brings me back to my confusion over whether all the time, energy, and effort attached to the state appropriation is worth it for the university, the state officials and the legislators. Maybe all sides can declare a truce and go their separate ways? The Commonwealth's largest university by budget has been doing it for 100 years longer than Penn State and seems to get along fine without an appropriation. Who knows, maybe it would be the dawn of a new era at good ole Penn State!

John Hook is the president of The Hook Group, a local management consulting firm, and active in several nonprofit organizations. Previously John spent 25 years in executive, management and marketing positions with regional and national firms. John lives in Ferguson Township with his wife Jackie and their two children.
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