My comments from the Penn State Board of Trustees Meeting, May 5, 2023
$157 million is added to Penn State’s debt. I had a lot to say.
The Penn State Board of Trustees met Friday, May 5th 2023 at the University Park Campus to vote on 14 agenda action items. Several of these action items have further details; you can read the published agenda and supporting materials that include details on each item.
As a service to alumni and the public who were unable to access or hear the live broadcast of the meeting, the following is an excerpt of the comments I prepared and the vote results for each agenda item. You can access the video of this meeting here, and it is also posted on my website, https://barryfenchak.com. I encourage you to watch it in its entirety.
The first six action items on the agenda were athletics-related capital construction projects. My comment:
“Funding for all of these projects are being presented as a combination of borrowing, and proposed philanthropy, not money in hand. It is no secret that Penn State lags well behind many of their BigTen cohorts—particularly Ohio State and Michigan—with regard to raising funds.
“Why is that?
“When I examine comparable projects undertaken by our competitors, and see how much more successful they are funding them via philanthropy, one difference stands out like a sore thumb.
“They raise the money first and then begin to dig. We, on the other hand, borrow money, build, and then try to raise philanthropic money.
“Raising funds is never easy. But contacting potential donors and telling them ‘We need to take on this project and we need your generous support to accomplish it’ is a different dynamic.
“This is opposed to the current Penn State way where we take on debt, build a facility, and when a potential donor asks ‘Why should I write you a check?’, we reply ‘Well, we built a facility, and need your money to pay off the mortgage.’
“This current Penn State way is not working. At all. There is no justifiable reason why we should lag so far behind our cohorts, and we will never catch up doing it that way. And it drains millions from our revenue.
“The second source of funding is borrowing.
“Each time we are asked to take on more athletics-related debt, we are told that the pro-forma sheet supports it. That means that the accountants are projecting that Penn State intercollegiate athletics will generate sufficient revenues to pay off the debt over the next 10, 20, or 30 years.
“We hope that happens, but over that many years we can never feel comfortable that our best guesses will come to fruition. Our athletics revenues are facing huge uncertainties, and all of that debt is guaranteed not by athletics revenue, but by Penn State University’s tuition revenue.
“If things don’t go according to plan, that revenue will be used to pay debts. And even in the best case scenario, those revenue dollars are no longer available to fund Penn State student-athletes.
“We, through our deliberate choices, always place Penn State at a disadvantage relative to our competitors. That needs to stop.
“And it can stop if we take a more reasoned and rational approach. I hope we do that. But I see no signs that fiscal responsibility and fiduciary duty are gaining ground.
“These are among the issues that are on my mind as we consider these projects, and impact my ability to support them while fulfilling my duty to act as a responsible fiduciary.”
Voting items: Proposed Project Approval – Greenberg Indoor Sports Center Training Table Renovation and Addition, University Park (Action Item 1)
Approval of $31.9 million Intercollegiate Athletics (ICA) spending, financed primarily via debt with $3 million from the Housing and Food Services budget, to improve the site to include training table, fitness, recovery and other services. This project is designed to benefit student-athletes in all sports.
Vote – Yea: 33 Nay: 0
Proposed Project Approval – Jeffrey Field Soccer Complex Renovation and Addition, University Park (Action Item 2)
Approval of $21.25 million Intercollegiate Athletics (ICA) spending, financed via debt, to build a new Penn State intercollegiate soccer facility.
My comment:
“I love the mission of this project. There is no sports venue at Penn State more in need of better game-day facilities than Men’s and Women’s Soccer. When I see this project on the list, my first reaction is ‘It’s about time’.
“I also think back to the Field Hockey stadium project which we approved last year. I supported that wholeheartedly. At the time I voted for the project I noted that this was the way such projects should be undertaken, the funds had been raised ahead of time, through philanthropy, and required only a relatively small portion to be underwritten by the University.
“That is the way to do it. And that is the way we should be doing this project. Despite expressing these concerns in earlier briefings, I have not seen any action towards emulating the Field Hockey stadium process.”
Vote – Yea: 32 Nay: 1 (Fenchak)
Proposed Project Approval – Indoor Practice Air Supported Structure, University Park (Action Item 3)
Approval of $9.8 million Intercollegiate Athletics (ICA) spending, financed via bond debt, to construct an air supported structure. The project scope will also include an artificial turf field, sports lighting, and surface parking.
Vote – Yea: 33 Nay: 0
Proposed Project Approval – East Area Locker Room Renovation, University Park (Action Item 4)
Approval of $5.2 million Intercollegiate Athletics (ICA) spending, financed via debt, to renovate a first renovation that will include sports performance offices, a fuel station, athletic lounge, updated entry, and general circulation and flow improvements.
Vote – Yea: 33 Nay: 0
Proposed Project Approval – Lasch Renovation Phase 2 (Action Item 5)
Approval of $22 million Intercollegiate Athletics (ICA) spending, financed via debt, to renovate offices and meeting spaces on the second floor of the Lasch Building with a focus on functionality and efficiency. New offices will be created to accommodate staff who are currently sharing offices. Renovations also include an expansion of the building over the patio to create new event space.
My comment:
“This $22 Million renovation project at Lasch Building, the third renovation project in the last eight years, will bring the total renovation costs to $98 million since 2015.
“At the time the renovations began, an architectural study was completed. The building was deemed to be in good condition, without need for significant maintenance. Renovations were being considered to improve functionality (larger meeting rooms, more space for strength training, etc).
“In the Intercollegiate Athletics presentation for this latest renovation, three facilities at other D1 football programs were cited as examples of ‘what we were competing with’.
Those facilities were at Clemson University, Louisiana State University (LSU), and the University of Illinois. To give context:
The Clemson facility, constructed in 2016, was built from the ground up for $55 million, largely supported by philanthropic giving. It is approximately 40% larger than Lasch, and widely referred to as the Taj Mahal of college football facilities.
The LSU comparison highlighted a 2019 project that is similar to the recently completed phase of Lasch renovation, except that the LSU renovation had a much larger portion of new construction (approximately 25,000 sqft). This project cost $28 million and was financed entirely through philanthropy.
Illinois’ facility, a 2019 new build project of 110,000 sq ft was recently completed for $79 million and almost entirely financed by philanthropy.
“With this current proposal, Penn State is looking to spend $98 million on renovations over the last eight years to an existing, structurally sound building, as determined by Penn State’s own architects.”
Note: If you view the video of the meeting, you will hear a comment from another Trustee that “$58 million of the Lasch expenses were paid for through philanthropy”. In actuality:
Philanthropy received to date for this project is $0
Philanthropy received to date for the last Lasch renovation project ($48 million, approved in 2021) has been $9.6 million.
The Trustee might be citing a figure that includes projected (hoped for) philanthropic receipts.
Vote – Yea: 32 Nay: 1 (Fenchak)
Proposed Authorization to Expend Funds, Beaver Stadium Renovation, University Park (Action Item 6)
Approval of $70 million Intercollegiate Athletics (ICA) spending, financed via debt, for design costs, professional consultant expenses, acquisition of permits, stadium winterization costs, and related to Beaver Stadium renovation expenses.
My comment:
“We are, obviously, in the very early stages of this project. There will be many questions and issues to address as we move forward; from analyzing potential revenue streams, to prioritizing various stadium features, to discussing tangential benefits and drawbacks that might emerge.
“Step #1 is to determine which path we are going to pursue. Whether to engage in a complete new stadium build, or to take on extensive feature-changing renovations, or to update and maintain Beaver Stadium in its current scope-–these three options alone present significant challenges and opportunities.
“None of these options would be inexpensive. None of them would be options to accept or discard casually. I have no preconceived notion which option might be the best.
“To date, I have neither been presented with nor been permitted access to any information that would allow me to make a responsible fiduciary decision on which option we should pursue.
“Whether or not this $70 million expenditure is our tacit commitment to future formal approval of a $700 million renovation, it is far too impactful a decision to make without first exercising rigorous fiduciary scrutiny. And so I will vote nay.”
Vote – Yea: 32 Nay: 1 (Fenchak)
Proposed Project Approval, Hazardous Waste Management Facility, University Park
Approval of $12,525,000 Education and General Services spending, financed via $5 million in debt and $7.52 million drawn from University reserves, to replace three existing facilities into one central, compliant, and functional resource for the removal and handling of hazardous waste.
Vote – Yea: 33 Nay: 0
Proposed Approval – Five-Year Capital Plan (Action Item 7)
At issue here is the broad-strokes pro-forma for Penn State’s capital spending projects for the five-year period from 2024-2028. It estimates approximately $2.18 billion of capital expenditures, which would be down by approximately 20% from the current five-year plan.
My comment:
As we move through the five year time frame, alterations are likely to occur on a case by case basis and I will be evaluating each project as it arises. I advocated for, and will continue to advocate for, greater emphasis on deferred maintenance spending over new project spending, and greater emphasis on evaluating projects total costs to insure we are meeting our core missions in the most efficient manner.
Vote – Yea: 33 Nay: 0
9) Consideration of Proposed Interim Maintenance and Operating Budget for the University for the Fiscal Year Beginning July 1, 2023 (Action Item 8)
While it is titled as a Budget, the Proposed Interim Operating Budget is a ledger of expected revenues (in very broad strokes) for the coming fiscal year. Revenue projections are restatements of last year’s revenue, with no discussion of how those projected revenues will be spent.
Vote – Yea: 33 Nay: 0
Proposed Extension of Remaining Borrowing Authority of Current Capital Plan. (Action Item 9)
Penn State fiscal year ends June 30th. This motion allows the previously approved borrowing authority, that was approved for the fiscal year, to be utilized through the end of the calendar year. Any previously unused or unexercised authority would be permitted to be exercised from July 1 through December 31 2023.
Vote – Yea: 33 Nay: 0
There were five votes required for appointments to various Penn State related boards, including the Board of Trustees. In order, the appointments were:
Approval of Proposed Appointment/Reappointment of Directors for the Penn State Health Board of Directors
Approval of the appointments of Neeli Bendapudi, Keith E. Masser, Timothy P. Brown, Barry K. Robinson,Peter M. Carlino, Sara F. Thorndike,Mark H. Dambly, Peter G. Tombros,David M. Kleppinger ,Steven B. Wagman, and Tony G. Farah, M.D to the Penn State Health Board of Directors
Vote – Yea: 33 Nay: 0
Approval of Proposed Appointment/Reappointment of Directors to the Penn State Milton S. Hershey Medical Center Board of Directors
Approval of the appointments of Kenneth Wood, chief medical director and Dennis P. Brenckle and Tom Lenkevich to the Penn State Milton S Hershey Medical Center Board of Directors
Vote – Yea: 33 Nay: 0
Election of Student Trustee
While this is titled as an election, it is the approval of the selection to the Penn State Board of Trustees. In 2014 the Penn State Board of Trustees created additional appointed positions to the Board, increasing its size to 38. The Student Trustee position is a member of the student body selected by a sub-committee of the Board of Trustees. That student, Kevin Schuyler, Eberly College of Science was then proffered to the full Board for approval.
Vote – Yea: 33 Nay: 0
Election of Trustees Representing Business and Industry
While this is titled an election, members of the Board’s Business and Industry contingent are placed on the Board through appointment. In this case, two individuals were selected by a sub-committee of the Board of Trustees to fill two vacated Business & Industry positions. The two individuals proffered by the subcommittee were Robert Beard, and Karen Quintos.
Vote – Yea: 33 Nay: 0
Election of At-Large Trustee
While this is titled an election, At-Large members are placed on the Board through appointment. In this case, the term of current Trustee (and current Board Chairman) Matt Schuyler had run its course. A sub-committee of the Board proffered Matt Schuyler for re-appointment to a new term as an At-Large Trustee.
My comment:
“As I have expressed in the past, I am concerned with the proliferation of appointed Trustee positions since 2015. It is not supportive of best practices in university governance. Due to those concerns, I believe it would be fiduciarily irresponsible of me to vote to approve.”
Vote – Yea: 32 Nay: 1 (Fenchak)
As a member of the Penn State Board of Trustees, I will from time to time be made aware of certain confidential information. I will also engage with Trustees and administrators in private, off-the-record conversations, with the expectation of privacy on both parties. I take these expectations seriously, as they are required in order to catalyze important discussions.
As a fiduciary, it is also important that I engage in conversations with all stakeholders of the University. Stakeholders like you. Discussions will involve publicly available information and issues before the Board, as well as my personal thoughts, concerns, and ideas. I also will continue to solicit your thoughts, concerns, and ideas, and plan to engage in meaningful conversations with you on those topics. I hope that you will continue to share your concerns and ideas with me.
You can contact me via my website, barryfenchak.com.