New Jersey university faces scrutiny amid financial emergency

New Jersey City University is facing state government scrutiny after a financial collapse that saw a dramatic reversal of fortunes with the institution reportedly going from a surplus from $108 million in 2013 to a $67 million deficit amid plans to expand NJCU’s campus.

Last week, Gov. Phil Murphy, a Democrat, called for an investigation into the university’s finances.

“These figures, if true, are deeply concerning and require an immediate and independent investigation to understand how the financial situation deteriorated so rapidly over an eight-year period,” Murphy wrote in a letter to the intervention of the state formally requesting an investigation.

Now it appears that state authorities are about to open such an investigation.

“We are going to look into what has happened at NJCU and follow the facts where they take us,” acting state comptroller Kevin Walsh wrote in part in an email to Inside Higher Ed. “If anyone has information related to this matter, please contact us through our website.”

The NJCU Board of Trustees recognized the request in a statement from board chairman Joseph F. Scott, who said “we welcome any further review of the university’s financial condition as we work collaboratively with our partners in government, labor and our student community , faculty and staff to move our institution onto solid ground and set it on the path to future sustainability.”

The Board of Trustees did not respond to a request for comment. But NJCU officials have dismissed the criticism — and the reports — arguing that critics misunderstand the university’s financial position, that reporters have exaggerated the reported surplus, and that enrollment problems and changes to rules national accounts are the real cause of the NJCU. financial problems

Now NJCU, a minority-serving institution that enrolls about 6,000 students, many of them low-income and first-generation, is in the crosshairs of state investigators as the fall semester approaches.

The financial collapse

NJCU went from a surplus to a major deficit in less than a decade under former president Sue Henderson, who resigned last month, earning a potential $1 million payout, according to faculty and local media of dollars in the midst of a financial emergency. , which has the Board of Trustees seeking a $10 million lifeline to keep the university afloat.

Faculty members have pointed to a series of alleged financial missteps by Henderson, largely related to ambitious expansion projects that have drained the university’s coffers and failed to pay off.

Under his leadership, NJCU built a new business school, expanded its campus at nearby Fort Monmouth, which a state official is now asking NJCU to transfer to another university — and aimed to expand the campus by building a new performing arts center and luxury apartments.

Prior to Henderson’s departure, employees noted: a Resolution of the University Senate critical of his leadership: many other factors, including “changes in the state’s contribution to the university budget; changes in student enrollment and retention; adjustments to guarantee pensions and other reasons.”

Enrollment and retention challenges have weakened NJCU’s finances, Francis Moran, professor of political science and president of NJCU’s University Senate, told Inside Higher Ed via email. According to university figures, NJCU went from an enrollment of 7,951 total students in fall 2019 to 5,841 students this fall, though officials say those numbers will likely increase before the semester begins.

“I think the main problem was that we are an enrollment-driven institution and we hit a bad cycle of declining enrollment just as we were embarking on some ambitious expansion plans,” Moran wrote. “COVID didn’t help any (other than the lifeline that federal funding provided in the short term; it killed enrollment at our feeder community colleges). Our retention rates haven’t been that strong either, and we were on this tape of constantly finding new students to fill the seats.”

University leaders argue that a number of factors, not poor leadership, have drained their finances. An NJCU spokesman points to declining state contributions, which fell from $26.1 million in 2015 to $21.5 million in 2020, with fluctuations along the way, and a drop in enrollment of more than 2,000 students during the COVID-19 pandemic, which it has not yet done. recovered from But the root cause of NJCU’s financial woes, officials say, is a change in accounting rules.

A statement provided by NJCU from First Tyron Advisors, a financial services firm retained by NJCU, argues that the university never had a surplus, but that its net position was positive at $108 million, and that recent reports have combined the concepts of surplus and net position.

A key issue, First Tryon Advisors said, is the adoption in 2015 of changes issued by the Governmental Accounting Standards Board, an organization that sets accounting and financial reporting guidelines for state and local governments and entities such as public colleges .

“The reference to the decrease in net position is also being discussed without proper context, as the [] article does not provide commentary on the implementation of GASB 68, a new pension-related accounting standard that was required beginning in 2015,” reads part of NJCU’s statement. “NJCU’s net position is currently negative ( $61 million), but only due to GASB 68. NJCU’s net position would have been $84 million without the 2015 change in accounting standards.”

The statement adds that attributing this decline to leadership “is completely inaccurate.”

Ben Durant, NJCU’s newly hired chief financial officer, added, “In the year it was implemented, GASB 68 had a negative impact of $115 million on NJCU’s net position. This was a change in the reporting requirements and not an actual decrease in net position. In all practical respects, nothing had changed. The accounting rules simply required NJCU to show a liability that they were not previously required to do. In the most recent fiscal year, the GASB 68 adjustment had a negative impact of $145 million on the net position.”

When the GASB’s guidance was first issued in 2012, to take effect in fiscal year 2015, then-GASB Chairman Robert H. Attmore said the new accounting standards “would provide a more faithful” of obligations such as liabilities and pension costs. At the time, Attmore, now retired, said: “Among other improvements, net pension liabilities will be reported on the balance sheet, giving citizens and other users of these financial reports a clearer picture of the size and nature of current financial obligations. and former employees.”

What follows

Caught in a financial emergency, NJCU has adopted a 90-day interim budget from July 1 to September 30. That budget, according to university spokeswoman Ira Thor, “provides funding only for those fixed, mandatory or other costs that are necessary to operate the campus, giving campus leadership time to develop a comprehensive annual budget (to replace the provisional budget) which will incorporate a comprehensive rights sizing plan for long-term sustainability.”

NJCU focuses on five key areas to achieve long-term financial sustainability: enrollment and revenue generation; cost reduction in the short, intermediate and long term; sale of large assets; review your academic offer; and administrative efficiency, Thor said by email.

“Specific strategies are currently being developed in each area by cross-collaborative and critical priority teams,” he wrote. “A detailed sizing plan will be presented with the annual budget, which will replace the current provisional budget and is expected to be adopted at the end of September.”

Durant said the university has identified $12 million in cuts.

“Some of these reductions (including layoffs, pay cuts and vacancy freezes), however, are short-term budget reduction measures enacted to contain costs while we develop a more comprehensive entitlement sizing plan to align the size of our institution with the current. level of our enrollment,” Durant said in a statement from NJCU. “But rectification takes time. It cannot be done haphazardly or in a way that visibly erodes the quality of services expected of students. As such, we are asking for an infusion of stabilization funds from the state to give us the clue we need to develop and implement a comprehensive and comprehensive plan for long-term sustainability.”

In the meantime, the university will await a decision on its request for a $10 million lifeline.

According to Moran, details on financial viability efforts “have been scarce, but the general vision is that we’re going to be leaner and get back to our core mission of serving our community here. There’s also talk of offloading some of the real estate . We took on and stopped projects that were planned. But the bottom line is that we have to recruit students and keep them in the seats.”

Moran added that the new administration has been more open with the details in recent days.

Where is the Supervision?

NJCU faculty members have been sounding the alarm for months. In September they voted censure in Henderson, who resigned in June, for financial mismanagement and the lack of shared governance. They noted at the time that NJCU’s financial position has collapsed under his leadership. The NJCU Board of Trustees responded to the vote of no confidence by affirming its support for Henderson.

While the NJCU Board of Trustees noted in a statement that it “believes[s] deep in transparency and openness” members have avoided discussing NJCU’s financial problems with the press.

But what exactly is the role of trustees in protecting a university from financial collapse?

Larry Ladd, senior consultant at AGB Consulting, noted that while fiscal management is not the board’s responsibility, they are tasked with ensuring that institutions are financially sustainable.

“They are not responsible for financial management, but they are responsible for making sure that assets are used appropriately and that there is a sustainable financial model,” Ladd said. “They are responsible for protecting the heritage of the institution over time. That doesn’t mean they run the day-to-day, they hire a president to do that. But the questions have to be asked to comfort that institution. is financially responsible in decision-making.”

Ladd said boards must be willing to understand the risks of bold expansion plans, as well as ask about deficits and how university officials will work through them.


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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!