Is it time to take the “State” out of Penn State?

One of the questions that was presented to me by several alumni during Saturday’s “Meet n’ Greet” was the question of Penn State’s future — in the face of declining state support, can we remain state-related, or should we instead be pursuing privatization?

This is a pretty complicated question, and this post will likely be one of my longest.  But let me offer a quick executive summary:  even though some would say the Cornell model provides an easy answer, it does not.  This issue is intertwined with continued state funding and the decision has deep implications for our Commonwealth campuses.  If we’re going to keep the campuses, and sustain our Mission, our current model as a “state related” organization should not be dismissed too easily in favor of privatization.  If I haven’t lost you yet, keep reading . . .

Understanding the Problem

Privatization of a Land Grant institution like Penn State is not without precedent.  Cornell University, the Land Grant institution for the state of New York, is a private institution that operates in partnership with the state of New York.

As a practical matter, that arrangement is based on the fact that four of Cornell University’s Colleges:  the NY State College of Veterinary Medicine, the NY State College of Labor Relations, the NY State College of Life Sciences, and the NY State College of Human Ecology.  – are statutory colleges operated by Cornell under the State University of NY system.  Cornell is essentially authorized to operate those colleges as delegates of the SUNY Board.

But this complex structure led to questions as to whether Cornell’s statutory colleges (not the whole of the Cornell system) was a state entity or a private institution.  There was no question of its private charter, but what about in its contracts with the state?   In 2005, then Attorney General of the State of NY Elliot Spitzer issued a legal opinion declaring that, while the University received state funding, statutory colleges should be considered private organizations, not state operations for purposes of contracting with the state.  The opinion was based on both the law and historic precedent.  In one precedent used in the opinion,  the Court of Appeals acknowledged in 1999 the unique nature of Cornell’s statutory colleges, noting its “hybrid statutory character,” further describing it as “public in some respects, private in others.”

The result of this complexity?  If you thought Penn State’s 32 Trustees is cumbersome, get ready . . . Cornell’s Board has 64 voting members, plus four “ex officio” members with voting privileges, including the President of the University, the Governor of New York, the President of the State Senate and the Speaker of the State House.  Sounds familiar, but sort of worse.

So if you were thinking Cornell University had figured out some magical, simple structure to operate a Land Grant College as a private institution, that’s probably optimistic thinking.

There may be other models that warrant investigation, but even if we can get the structure figured out, there are other practical problems.  As a private organization, with presumably zero direct subsidy from the state, would we continue to operate the Commonwealth campus system as we do today?  Does any other private research institution have the same network of campuses across their state?  (Not that I’m aware of.)

The other practical problem?  How do you separate the hundreds of millions of dollars across Penn State’s history that WAS provided by the State to build facilities, maintain our programs or acquire the property on which those facilities were built?  No, not all of our land and facilities can be traced to public funds.  Some of them can be traced to restricted endowments from generous donors who provided very specific instruction on how these endowments would be used.  If privatization resulted in the closing of campuses which were built with some restricted funds, what exactly do we do with the endowment?  If we close and sell the facilities, what do we do with the proceeds of those sales?  These aren’t just interesting theoretical questions . . . these questions are potentially the ingredients for years . . . no, decades . . . of complicated legal and financial challenges.

I am a fan of the Commonwealth system and I believe we have an obligation to sustain it.  I attended University Park, but I know from my many discussions with parents and families that these campus environments provide an important alternative to University Park and make a Penn State education more accessible across our state, particularly for students from middle and lower income families.  The average family income for students at our campuses is significantly lower than that at University Park.  If we really mean what we say – that we want to make good on our Land Grant promise to keep an education accessible for all regardless of financial need — then I think we need to acknowledge the important role the campus system plays in fulfilling that promise.

I don’t know whether privatization is a good answer or a bad one, but I do know it’s not a simple one.  It warrants thoughtful exploration and we need to ensure we don’t rush into anything.  I also don’t know — because I don’t have the information necessary to make the judgement — whether all of the campuses are viable as continuing components of our system.  If they’re not fulfilling our mission in a way that extends a Penn State education and increases accessibility — if they’re losing money and making it more costly to provide a Penn State education, even if students in some communities would have to travel further without them — then I believe we need to evaluate their continued viability.  I also believe strongly that without continued state funding, more of our campuses would be at risk for failing any viability test we might apply.  Viability isn’t only about funding, it’s about reach of our Mission – but without “margin,” there is no Mission.  In other words, even non profit institutions like Penn State can’t lose money without impacting their ability to provide the services they promise.

So what will it take?

First, we need clarity from the State on their intentions.  Are they committed?  As you may have read in my last post, I think they should be — there’s more at stake than the price of Penn State tuition. In my view, funding of our state system of higher education and investments in education generally are critical components of the Commonwealth’s economic vitality.  The best solution to ensure the continued viability is recognition from the State of the important role the campus system plays not just for Penn State, but for the State of Pennsylvania — recognition accompanied by sufficient funding.

Secondly, let’s really understand what we’re getting into.  Many people are advocating privatization because they want the state out of Penn State’s business.  But I don’t think that’s likely to ever happen.  We’re the namesake of our Commonwealth, and most sensible elected officials won’t be eager to disconnect from our future.  Even without a direct state subsidy, we provide healthcare at the Hershey Medical Center, Agricultural extension across the state, research centers that are integral to our state’s future.  Our campuses drive economic impact in every community they serve.  Privatization alone, even if possible, won’t take the “state” out of Penn State.

In the end, this decision is really about the financial viability of our current system.  So the third step is to look carefully at our Mission: where are we hitting the mark?  Where are we missing it? In my previous role as Chair of a Nonprofit undergoing transformational change, we had to close programs that were losing money because sustaining them was simply impossible.  These were good programs doing good work, but we couldn’t afford them without jeopardizing the rest of our services.  Ultimately, we were able to transition those programs to other organizations — had we not, I doubt our doors would have remained open to the thousands of others who need us.

We need a fully funded Penn State, with focused programs that provide educational and research outcomes that make a difference and provide a social return on our investment.  We need committed alumni and continued engagement with the philanthropic community.  With these pieces in place, I believe we can ensure a Penn State education is accessible to all without regard to financial need.  But I don’t believe anyone should be putting a stake in the ground and declaring privatization as our way forward until we’ve thoughtfully explored the question and fully understand the implications of our strategy.

Next up?  Understanding that governance is evolution, not revolution.