Wednesday, December 12, 2012

Penn State President Says Fallout From Sandusky = $83 Million

UNIVERSITY PARK -- Penn State's costs are adding up -- a $60 million fine from the NCAA, $21 million for legal and public relations expenses, and $2.5 million in severance owed to the dismissed university president.

Jim Strauss, who is on the faculty in Penn State's Eberly College of Science, wanted to know just how those costs from the Jerry Sandusky scandal fallout would be paid. So, he asked Penn State president Rodney Erickson at the university faculty senate meeting last week.

"I feel I am a stakeholder in this institution, and I don't understand how financially this is going to work," Mr. Strauss, a senior lecturer in biology, told Mr. Erickson.

No doubt, it's going to be expensive for Penn State, Mr. Erickson said to the 150 faculty senators in attendance.

"When we're all said and done with this, well, I'm sure we'll look back and say, 'If we hadn't used those funds for particular uses to deal with the fallout of the Sandusky crimes, we would've had enough money to renovate a couple of buildings, some laboratories,' " Mr. Erickson said.
A quick rundown, via Mr. Erickson:

The costs are more than $83 million, considering the fine, the severance to former president Graham Spanier, and the legal and PR costs.

To handle the biggest chunk -- the NCAA fine -- the university loaned the athletic department the $60 million, which will be paid back over 30 years. The athletic department also will pay interest on the loan with a "rather significant" interest rate, Mr. Erickson said. He did not say what the rate is.

As for other costs, Mr. Erickson said the university's insurance will pick up the legal costs of former university officials including Mr. Spanier, suspended athletic director Tim Curley, former senior vice president of business and finance Gary Schultz and Cynthia Baldwin. who was general counsel for the university during the grand jury investigation. Mr. Spanier, Mr. Curley and Mr. Schultz have been accused of covering up abuse allegations against Sandusky and have retained defense attorneys. Ms. Baldwin testified to the grand jury and has retained an attorney.

Mr. Erickson said Penn State will pay other costs out of reserve funds that were built up from interest that accrued from other internal loans the university has done over the years.

Going forward, legal costs appear to be the category most likely to grow. As more civil liability claims are filed against the university by those who were assaulted by Sandusky, the university, according to one attorney, may end up paying in excess of $100 million to resolve those claims.
In addition to the question about the costs, Mr. Erickson was asked how the recommendations from the investigation led by former FBI director Louis Freeh will be implemented.

Mr. Erickson, who was appointed university president in as a result of the scandal, said Penn State officials have used other universities as benchmarks for comparison on the recommendations. The process is not the equivalent of quickly marking off items on a punch list, he said.

The Freeh report made 119 recommendations, and the university announced last week that it had completed 61 of them. Mr. Erickson said a few of the recommendations, most of which are suggestions for adjusting reporting lines, do not make sense for the university to implement.

Sandusky, a former Penn State football team defensive coordinator, was convicted on 45 of the 48 counts of sex abuse and related assault, corruption and endangerment charges in June.

In October, he was sentenced to 60 years in prison, eligible for parole after no less than 30 years, meaning he would be 98.

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