State Treasurer McCord defends Endowment Act

By Jim Boyle | Oct 27, 2014

With the plan to settle out of court disrupted by a Commonwealth Court judge's order to

argue the legitimacy of the entire consent decree issued by the NCAA and accepted by Penn State in the wake of the Jerry Sandusky scandal, the athletic organization's federal suit continues to challenge the legality of state legislation that requires money from the hefty fine against the school be spent on state programs.

State Treasurer Rob McCord filed a brief in federal court last week, defending the constitutionality of the state Endowment Act. The law requires the $60 million in penalties that Penn State University is paying in the wake of the Sandusky case to be spent within Pennsylvania, and it designates the state treasurer as custodian of the funds.

The NCAA asked the United States District Court for the Middle District of Pennsylvania to find the act unconstitutional under the Commerce Clause, the Takings Clause and the Contracts Clause of the U.S. Constitution.

In his brief, McCord refutes those arguments and affirms the right of the Pennsylvania General Assembly to prioritize the use of public funds for the benefit of state residents.

"Clearly, the NCAA has raised these challenges in federal court with hopes of undermining prior state court decisions upholding the act's constitutionality," McCord said. "I believe Commonwealth Court got it right, and there is sound legal basis for the money to be spent on child abuse treatment and prevention programs within Pennsylvania."

The brief notes that Penn State is a creation of the state Legislature and receives substantial state financial support through the appropriation of public funds by the General Assembly each year.

It goes on to argue, in part, that the Endowment Act:

  • Does not violate the Commerce Clause because states are permitted to appropriate funds for use within their borders – and because the act does not discriminate against non-Pennsylvania businesses that wish to offer child abuse treatment and prevention programs; it merely requires that the services be provided to state residents.

  • Does not violate the Takings Clause because it does not alter the purpose of the money, which was designated for child abuse programs under the Consent Decree reached between Penn State and the NCAA in 2012. The act simply makes the treasurer the custodian of those funds until they are spent for the designated purpose. Further, the NCAA would suffer no economic harm if the funds are spent in accordance with the Endowment Act.

  • Does not violate the Contracts Clause because it does not substantially alter or impair the Consent Decree, which contains 16 other provisions that are not affected by the act – nor does it alter the amount or purpose of the fine money; it merely designates where the money is to be spent, a matter which the Consent Decree does not specify.

In addition, McCord points out in his brief that serious doubt exists about whether the NCAA possessed the authority to enter into the consent decree with Penn State, and whether it violated its own bylaws in the process. A question also exists as to whether Penn State entered into the agreement under duress.

Those questions are subject to review in a separate Commonwealth Court case scheduled to go to trial before Judge Anne Covey in January. McCord further argues that even if the consent decree is eventually deemed enforceable, the Endowment Act would still govern the disbursement of the fine money.

The penalties the NCAA imposed on Penn State and the subsequent court cases resulted from the school’s handling of allegations against Sandusky, who was convicted on multiple counts of child sexual abuse.

After the dismissal of the auditor general and the governor from the case, McCord is left as one of only two public officials defending the constitutionality of the Pennsylvania law in federal court. Mark Zimmer, chairman of the Pennsylvania Commission on Crime and Delinquency, is the other remaining defendant in the U.S. District court case.

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