The New Jersey Office of the State Comptroller concluded that New Jersey City University’s “improper budgeting” of federal COVID-19 relief funding led to a $14 million deficit one year later.
Acting Comptroller Kevin Walsh said his office found that NJCU had planned to use its $14 million in federal Higher Education Emergency Relief Fund allocation to pay for existing student scholarships, which, had NJCU done so, would likely have violated federal law.
Instead, Walsh said in his office’s report, released yesterday, that NJCU “began draining its cash reserves to fund the scholarship program in Fall 2021” and, he added, “there is no evidence that top administrators disclosed the budget shortfall … to the board (of trustees) until a new interim CFO was hired in April 2022.”
According to Walsh, it wasn’t until June 2022 that the interim CFO advised the board that “the year-end projection of a $480,000 surplus would likely turn into a nearly $14 million deficit,” prompting the board “with just 25.5 days of operating cash on hand” to declare a financial emergency.
“NJCU’s senior administrators’ conduct was remarkably irresponsible,” Walsh 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 chaos. Senior administrators fundamentally failed in their duties to protect NJCU.”
As examples of questionable actions taken by the university’s overseers, the report cited the board of trustees’ failing to have conducted annual written performance evaluations of former NJCU president Sue Henderson and the board’s sanctioning of a $288,000 “transitional sabbatical, a car, and a housing subsidy” in the wake of her resignation, just prior to the board’s declaration of NJCU’s financial emergency.
Asked for comment, the university issued a statement attributed to its outside counsel, Lowenstein Sandler LLP saying it was “pleased that the comptroller’s findings reinforce what the university has consistently maintained: No funds were misappropriated.”
Instead, the statement said, “The report makes clear that year-long budget issues, exacerbated by the pandemic and low student enrollment, were significant contributors to the university’s financial crisis.”
Moreover, the statement added, “The prior senior administrators whose conduct is discussed in the report are no longer employed at the university,” and the current leadership has taken steps to eliminate the deficit over the next two years. “The current leadership has implemented guardrails to ensure that such a crisis never occurs again,” the statement went on to say.
But the comptroller’s report, compiled over the past nine months, pointed out that NJCU’s fiscal woes began “long before the pandemic,” noting that between 2015 and 2021 NJCU’s “net position” fell from $104 million to $69 million “due to years of budget deficits.”
Higher revenues from tuition hikes, which increased on average 3% a year since 2011, failed to compensate for the university’s tuition discounts for needier students combined with enrollment declines the report said. Tuition accounts for 60% of the university’s operating revenues.
Also costly was NJCU’s borrowing to pay for real estate and capital costs. “For instance,” the report said, “interest paid on capital debt was $9.8 million in 2021, an increase of 78% from 2011.”
The report recommended that NJCU hire an independent financial monitor to ensure that future board members have the background necessary to oversee the school’s finances and undergo “formal training” in evaluating the university’s fiscal well-being.
NJCU spokesman Ira Thor declined comment on whether NJCU would implement the recommendations.
At the same time, Walsh said he’s advising the state legislature to investigate whether the existing oversight protocol “is enough to protect students” enrolled in all New Jersey public universities and colleges.
Meanwhile, NJCU, which has petitioned the governor and legislature for additional state funding, continues to await word on that front.
Thor said the university is proceeding on the assumption that classes will recommence for the fall session as usual.
“The board of trustees unequivocally supports the current administration under the leadership of interim president Andres 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,” said Thor.
“NJCU welcomes the state’s investment and partnership as well as its fiscal oversight of public higher education institutions as we moved forward,” he added.