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Has the scandal at Pennsylvania State University left a permanently weakened institution or just put an ugly gloss on a solid American university?

The university's halting -- and seemingly unlucky -- search for a new president frames that question.

An apparently top candidate to be the university’s next president had to drop out of the running – and eventually quit his job at a university in New York – after Penn State’s search firm found that he had been padding his salary without approval.

Moody’s Investors Service, meanwhile, revised Penn State’s financial outlook to positive, citing fundamentals that make the university a good bet despite the sexual abuse scandal that has embroiled the 24-campus university for two years.

As Penn State searches for a new president, candidates may be asking themselves which Penn State they see: one led in part by “the search committee that couldn’t shoot straight,” or a solid academic and financial entity with a long history and a bright future.

Penn State has been led since November 2011 by Interim President Rodney Erickson, a former provost who took the top job after Graham Spanier was forced out as president over the Jerry Sandusky sexual abuse scandal. Erickson is credited for trying to clean up the mess left by the scandal. Late last month, for instance, the university announced it had agreement with 26 of Sandusky's former victims, at a cost of about $60 million.

That question loomed last week after the search imploded because David Smith – who was reportedly “close” to being announced as the next Penn State president – was found to be receiving unapproved extra pay from outside companies at the State University of New York's Upstate Medical University. He later resigned his SUNY job. Just days before the news about Smith broke, Penn State's Board of Trustees "delayed indefinitely" a meeting of the full board set for Nov. 1 to discuss a "personnel decision," which was widely expected to be one at which the choice of a new president was announced.

The public embarrassment of the flameout of an apparently leading candidate troubled some Penn State observers; others were struck by what it said about Penn State's situation that someone like Smith was the leading candidate.

SUNY Upstate is a medical university with a budget of about $900 million, about one-fifth the size of Penn State's. Smith was previously chancellor of Texas Tech University, and had significant administrative experience in academic hospitals before that. But he had never run an institution of anywhere near Penn State's size or complexity, and was anything but a recognizable name in higher education.

“If you’re the kind of person qualified to be president of Penn State based on your past experiences, you’ve got other options,” said Donald Heller, the former head of Penn State’s Center for the Study of Higher Education and now dean of the education college at Michigan State University.

For instance, Ohio State University is looking for a president, as is the University of Michigan.

It's hard to imagine, Heller said, that someone like Smith would have stood a chance to lead Penn State before the sexual abuse scandal.

Heller and others said that despite Penn State's many long-term strengths, the total fallout of the Sandusky scandal may not yet be behind the university, and there remain “a lot of issues” with the Board of Trustees. The board is divided over, among other things, NCAA penalties leveled against Penn State in the wake of the scandal. That’s on top of the complex 24-campus university any Penn State president would have to deal with, even in the best of times.

The search process and the board's apparent divisions have left faculty worried.

"One thing is certain: there is plenty of confusion, concern and apprehension about the state of the presidential search,” said one Penn State faculty member who was granted anonymity in order to speak candidly. “On the one hand, it is a relief that the news of the corruption charges dropped before they made the announcement and sealed the deal on the candidate.”

The Penn State faculty member worried the university may have “already ‘burned through’ a number of potential candidates leading up to this fiasco.”

Stephen Joel Trachtenberg, the president emeritus of George Washington University, said he knew someone in the Penn State search pool and was not sure the outlook is at all bleak for Penn State.

“So, Penn State is the unluckiest university on the planet,” he said. “It’s the search committee that couldn’t shoot straight.”

But that doesn’t mean the university won’t find a good candidate.

“They may not need the same candidates they would have attracted five years ago. The world has moved on,” Trachtenberg said. “All universities have different sets of challenges, Penn State included.”

He said Penn State could go back and interview other choices in the pool. (Besides his duties at George Washington, Trachtenberg does consulting work for an executive search firm but is not involved in the Penn State search.)

Penn State, for its part, has refused to discuss the specifics of the search. A spokeswoman for Penn State said the university is “wading through 400 applications/potential candidates” and that the search firm, Isaacson, Miller, is “upbeat” about the search.

“Board members realize there is a limited pool of highly qualified candidates and we are competing with a great many other institutions for those candidates -- including a candidate's current institution that wants to keep their leader,” the spokeswoman, Lisa Powers, said in an email. “We are certain that Penn State's excellent reputation and worldwide impact is a major draw for the candidate we hope to land.”

The search, she said, will continue until the “best possible person” is selected and presented to the full board for a vote. The only deadline the board has set is summer 2014, when Erickson plans to retire.

James Ferrare, the managing principal at AGB Search, praised Erickson. But, he said, the university is going to need to take its time to find the right president and that candidates are going to have to take a look inside Penn State and decide what they see.

“Is it fraught with problems or is there hope, I think that’s the key question right now,” Ferrare said.

Ferrare said there is naturally going to be a smaller pool because presidents who want an institution that is humming along are going to pass on even looking at Penn State.

“On the other hand, you have folks – I’ll call them rebuilders – who see some clay that is yet unmolded and says, 'We can do something with this,' ” Ferrare said.

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