Comptroller’s report on NJCU faults previous administration for financial emergency

Facing severe financial pressures from years of budget shortfalls in the spring of 2021, senior administrators at New Jersey City University presented a budget for Fiscal Year 2022 to the school’s board of trustees that called for using nearly $14 million in federal COVID-19 funds from the Higher Education Emergency Relief Fund to pay for existing institutional student scholarships.

The budget was approved — even though this was not an allowable use of the HEERF funds.

NJCU’s financial situation only got worse.

Knowing that it would be illegal to use these HEERF funds for such a purpose, the school’s then-leaders (including then-President Sue Henderson) instead began draining its cash reserves to fund the scholarship program in fall 2021.

The result: A budget that was projected to have a $480,000 surplus turned into one with a $14 million deficit, leading the school to declare a financial emergency.

This was among the findings of a damning report from the New Jersey Office of the State Comptroller, released Thursday morning.

Acting State Comptroller Kevin Walsh did not pull any punches when discussing the report.

“NJCU’s senior administrators’ conduct was remarkably irresponsible,” he said. “They prepared a budget based on a risky and incorrect assumption, then failed to change course for 10 months, which thrust the university into crisis.

“Senior administrators fundamentally failed in their duties to protect NJCU.”

The school’s current administration, led by interim President Andrés Acebo, was not implicated in any way. Acebo, who was named interim president of NJCU in January, has worked with the school’s numerous unions to reduce its $22 million deficit by approximately 50%, or close to $11 million.

The report, based on interviews and a review of more than 50,000 pages of documents, found that NJCU’s former administrators (including then-Chief Financial Officer Jim White) were aware that using federal COVID-19 relief funding from the HEERF to fund the existing institutional scholarship program likely violated federal law.

Additionally, OSC’s investigation found that the former CFO, on at least three occasions, advised the administration that the HEERF funds could not be used to pay for institutional scholarship expenses. Despite these warnings, no action was taken to correct the budget or inform the board of the serious budgetary issues, the report said.

Nevertheless, rather than presenting a budget that reflected the university’s actual financial position, the report said senior administrators proposed this use to the board without informing the board of serious potential risks. And, in the coming months, the former NJCU administrators continued to represent to the board that the existing institutional scholarship program would be funded using HEERF funds.

The administration’s failure to disclose the information to the board and to develop a plan to address the budget gap they created resulted in a sudden declaration of financial emergency. In June 2022, interim CFO Ben Durant presented information to the board of trustees that NJCU possessed just 25.5 days of operating cash on hand.

In the report, the OSC recommends that NJCU institute changes related to budgeting and the accountability of the administration to the board of trustees. OSC also recommends that NJCU appoint an independent financial monitor with expertise in overseeing the finances of a public institution of higher education.

NJCU’s outside counsel, Matthew Boxer of Lowenstein Sandler, said the following after the report was released:

“NJCU is pleased that the comptroller’s findings reinforce what the university has consistently maintained — no funds were misappropriated. The report makes clear that years-long budget issues, exacerbated by the pandemic and low student enrollment, were significant contributors to the university’s financial crisis.

“The prior senior administrators whose conduct is discussed in the report are no longer employed at the university, and it was the immediate action by current university leadership upon learning of the financial crisis that decreased the budget deficit of $22 million by approximately 50%.

“The interim president’s partnership with the unions at the university was critical in decreasing the deficit. With the cooperation of NJCU faculty and staff, the university has implemented additional reductions to eliminate the deficit over the next two years, and current leadership has implemented guardrails to ensure that such a crisis never occurs again.

“The board of trustees unequivocally supports the current administration under the leadership of interim President Andrés Acebo and appreciates the care and commitment that Gov. Phil Murphy, Secretary of Higher Education Brian Bridges and the State Comptroller’s Office have demonstrated, both before and during the investigation, to NJCU and to higher education in our state.

“NJCU welcomes the state’s investment and partnership, as well as its fiscal oversight of public higher education institutions as we move forward.”

The importance of NJCU’s role of educating members of underserved communities in the state — and the financial challenges that come with it — are immense.

NJCU serves the most racially and ethnically diverse student population of any public four-year institution in the state — and is New Jersey’s longest-standing minority- and Hispanic-serving public university. Consider:

• Hispanic students make up 18% of all New Jersey college students, but 45% at NJCU;
• Black students make up 12% of all New Jersey college students, but 20% at NJCU;
• The majority of NJCU’s students also identify as first-generation.

According to NJCU, the median household annual income of its students is $42,000 — the lowest of New Jersey’s four-year public colleges by a considerable margin. In fact, the next closest peer institutions to NJCU in this metric are Kean University and William Paterson University, at $76,300 and $84,600, respectively.

OSC’s investigation found that, long before the pandemic, NJCU was on shaky financial footing.

In 2015, the university had a net position — which includes its assets and liabilities — of $104 million; by 2021, that plummeted to $69 million due to years of budget deficits. OSC found that, as student enrollment began declining in 2016, NJCU started spending heavily in an unsuccessful effort to attract more students.

NJCU began offering more tuition discounts to attract students. NJCU also raised tuition rates by an average of 3% every year since 2011, but net tuition revenue only increased $1 million, due to the increase in student tuition discounts. Tuition comprises, on average, 60% of NJCU’s operating revenues. In all, student enrollment declined from 8,328 in 2011 to 6,918 in 2021.

OSC also found NJCU’s real estate and capital expenses were financed, in part, with bonds that added to its debts. For instance, interest paid on capital debt was $9.8 million in 2021, an increase of 78% from 2011. The number of undergraduate minor programs offered at NJCU also jumped from six in 2011 to 50 in 2020, but an NJCU consultant’s review found 71% of the students were enrolled in just 15 of those programs.

Walsh said he hopes the report will help NJCU as well as all of higher ed in the state.

“When a public institution fails, we owe it to residents to find out what went wrong, hold people accountable and identify ways to prevent problems in the future,” he said. “We share this report with the belief that transparency and accountability, coupled with improvements in how the administration and Board function, will better serve NJCU students.”