The road to private status runs right over the governor

Published March 24, 2012

Penn State Board of Trustees Chairwoman Karen Peetz made some some odd comments to the university Faculty Senate recently. She said trustees are looking toward Cornell University for guidance in how best to become a private university.

That puzzled me, because, as a nonprofit corporation registered in the Commonwealth of Pennsylvania, I always thought of Penn State as a private entity. Even though it gets about 10 percent of its annual revenues from state tax dollars, and the governor gets to appoint a handful of people to the Board of Trustees, I’ve consistently written about Penn State’s private status, and why it should remain that way.

Karen’s comments prompted me to better understand the strange relationship between Penn State and the Commonwealth of Pennsylvania. I concluded that Penn State is a private organization. But at the same time, it’s also a public organization.

Confusing, I know.

So what did Karen mean when she said the trustees are looking at Cornell as a model they can use to privatize Penn State? They haven’t explained their master plan just yet, but I have a theory about what it might be. And it’s all about kicking the governor and his staff off the Board of Trustees.

This explanation might get a bit painful. You already know a lot of it. But stick with me. It’ll be worth it.

Early history

What exactly makes Penn State a “public” university, besides its name? Nothing in particular, except a lot of little things.

When Penn State was established in 1885, it wasn’t easy to create a corporation. State legislatures tightly controlled the approval process of such entities, and in Pennsylvania, that meant a law had to be passed in order to create a corporation. The first attempt at creating Penn State was in 1854, when, at the urging of The Pennsylvania Agricultural Society, the legislature chartered a corporation called “The Farmers High School of Pennsylvania.” Its first board of trustees consisted of the presidents of county agricultural societies, and the president and vice president of the state agricultural society.

There was no funding committment from the Commonwealth. Instead, the agricultural society pledged up to $10,000 each year.

But they had trouble getting the school off the ground, in part due to the unweildy size of the Board of Trustees, which had 50 – 60 members. A year later, they asked the legislature to kill the old charter and approve a new one, with a 13-member board of trustees, including four permanent members: the governor, the secretary of the Commonwealth, the president of the state agriculture society and the school’s principal.

This time it worked, and a year later, the trustees chose a location for the high school. But with little money to build buildings, etc, the trustees turned to the legislature to make what would be the first of annual appropriation requests from Penn State to the General Assembly.

When you read that the General Assembly “chartered” Penn State, that doesn’t mean the state created it or owned it. “Chartering” in 1855 was simply the approval process of creating a corporation. Today, of course, that process is much easier.

But in 1863, Penn State’s relationship with the Commonwealth solidified when the legislature designated Penn State as the state’s land-grant college. That designation meant Pennsylvania accepted the terms of the Morrill Act, which gave a ton of land to each state in exchange for their legislatures’ committment to “provide … not less than one college.”

States were allowed to sell some of the land, but it had to be invested low-risk bonds, whose interest had to be used to pay for operating expenses. If the investments ever lost money, the states had to pay back the difference.

Though Penn State’s governing body remained independent from the Commonwealth, the Morrill Act established a “symbiotic relationship” between Penn State and Pennsylvania, the university’s former attorneys wrote in 1999. In the beginning, Penn State depended on Pennsylvania for certain financial operations, and Pennsylvania depended on Penn State to educate its citizens.

Modern implications

Now take off your overalls, spit out that piece of straw, and fast forward to today, where the law is a bit more interesting, and applicable to the news of the week.

In the 1960s and 1970s, Pennsylvania saw the rise of “state related” universities. Any school can apply to become state related, but they had to agree to certain terms.

First, they must agree to provide academic programs “at low tuitions.” “Low” isn’t further defined.

Second, they have to change their governance structure, giving governor and state secretary of education a permanent seat at the table. Also, a third of the state-related trustees (minus the governor, secretary and school president) have to be appointed by the governor.

And finally, state-related schools have to offer different tuition for Pennsylvania residents and non-residents. Seventy percent of their their student bodies are also supposed to comprise Pennsylvania residents.

Three colleges decided to apply for  state-related status, which was granted by the General Assembly. Temple University became state-related in 1965; Pitt in 1966; and Lincoln University in 1972.

But what about Penn State? As far as I can tell, Penn State never applied to become State Related, and the legislature never officially approved Penn State’s  “state-related status.” But its corporate charter appears to be a model for those of its three sister schools. And it has been referred to in General Assembly bills as being “state related” since at least 1978. So Penn State is state related. Probably.

Enough with the history lesson. What does this mean?

Plenty of Penn Staters are angry at Gov. Corbett for voting to fire Joe Paterno, among other reasons. They want him gone. But there’s a problem: state law requires the governor to be a trustee of state-related schools, as well as appoint several other trustees. If you’re a Corbett hater, that’s a big problem. It won’t happen without changing the law.

Unless, of course, you don’t want to be state related anymore.

So how does Penn State dump its state-related status? I’m no legal expert, but I’m assuming Penn State can simply change its charter to exclude the governor, which would  disqualify it for state-related status. This is at odds with some legal experts I’ve listened to recently, who insist that only the legislature can make that change. But they haven’t explained why, and I don’t see any reason to back up that claim.

But dumping its state-related status will cause Penn State to lose hundreds of millions of dollars in annual funding, right? Won’t that cause tuition to skyrocket?

One would have to imagine some kind of funding repercussion. But remember: Penn State is still a Land Grant school that the Pennsylvania General Assembly committed to “provide” way back in 1863. That commitment would still apply today. Plus, imagine the backlash when tuition suddenly spiked by 30 percent. No legislator would want to be blamed for that.

So even if Penn State were to become truly private, annual state appropriations could continue.

But why look toward Cornell on how to ditch the close ties to the Commonwealth? Cornell is also land grant college, and on the surface looks nearly identical to Penn State. Wikipedia sums it up as “a private land-grant university, receiving annual funding from the State of New York for certain educational missions.” And like Penn State, it’s a nonprofit governed by a board consisting of both privately and publicly appointed trustees.

In the end, a Cornell-looking Penn State probably wouldn’t be much different from what Penn State looks like today. The biggest change would be in the composition of its board of trustees. State funding might decline, but that’s already happening rapidly under Gov. Corbett, and probably isn’t a reason to stick with the Commonwealth in the long run.

The talk of privatization is all about getting rid of Corbett and his appointees. It’s time for a healthy discussion of this idea.


Here are some additional questions I have that I wasn’t able to answer. If you have have answers, please e-mail me.

1. When did “state related” status first become law in Pennsylvania?

2. When was Penn State first designated as a state-related school? Did it ever apply for that status?

3. Does a state government have the authority to change a private corporation’s charter today?

4. Does would a state-related, state-owned or state-aided university dump that designation?

5. What was the purpose of adding the governor to Penn State’s first board of trustees?