Penn State is expected to assume up to $700 million in debt to finance renovations at Beaver Stadium, a hefty price tag that is raising eyebrows at a time when the university is imposing significant budget cuts and offering employee buyouts.
The university has clarified that the athletics department, which operates on a self-sustaining budget, will cover the debt and interest from the renovation process. The university has assured that student tuition and taxpayer funds will not be used for the project.
However, it is likely that Penn State University will shoulder the debt rather than the athletics department. An expert explained to Spotlight PA that this approach is common for universities and helps institutions like Penn State secure better financing terms.
Typically, Penn State leverages its status as a public university with a large student population to secure bonds and back debt, as indicated by a review of bond documents. For instance, last year, Penn State issued $204 million in bonds, partly to finance “replacements to and renovations of Beaver Stadium,” although it was stated that athletics would repay the bonds.
Penn State declined to provide an official for an interview on this matter. A university spokesperson said in an email that the university’s support for the project “demonstrates a commitment to enhancing the student-athlete experience and, as a land-grant university, to elevating Beaver Stadium’s role in boosting local and state economies.”
Christopher Collins, vice president and senior municipal credit analyst at Moody’s Ratings, informed Spotlight PA that while universities could have specific departments take on debt — potentially increasing accountability — issuing bonds through the entire university reduces financing costs. A university generally has a better credit rating and a broader repayment base than a specific department, said Collins, who has analyzed Penn State’s credit rating.
Some trustees have raised concerns about what would happen if Penn State defaults on the debt. The athletic department reported a profit of $126,000 on a $202 million budget for fiscal year 2023.
Jay Paterno, an alumni-elected trustee, expressed concerns to the Wall Street Journal, stating, “It’s challenging to predict 30 months, even 30 weeks, let alone 30 years. You don’t want to be the most leveraged university in this new world.”
Penn State considered risk factors for the project and “mitigation plans are in place that have zero impact on tuition dollars or state funding,” a university spokesperson told Spotlight PA. The university did not provide further details on these mitigation plans but mentioned that they involve “finding other revenue sources and reducing expenses.”
“Even if we temporarily had to let athletics borrow [from the university], we would do it with non-tuition, non-state education dollars,” Sara Thorndike, Penn State senior vice president for finance and business, told the Wall Street Journal.
Penn State has not yet issued the bonds, according to the Municipal Securities Rulemaking Board, and the bond documents would outline how the debt would be repaid in the event of a default.
Despite the administration’s budget cuts, Penn State’s financial position remains strong, Collins said. The university holds an “Aa1” rating, the second-highest possible, indicating a very low likelihood of default, he added.
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