Failure at the top: Report explores NJCU’s financial crisis

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Describing New Jersey City University’s budgeting as improper, the New Jersey Office of the State Comptroller released a long-awaited report May 18 detailing what factors led to the school’s financial crisis.

The investigation, initiated at the request of Gov. Phil Murphy last August, included the review of more than 50,000 pages of documents, including internal emails, and nearly 30 interviews with current and former board members, staff and faculty. It came in the wake of NJCU’s declaration of a financial emergency in June 2022, which cited a lack of funding and declining enrollment.

Investigators found that NJCU was in a precarious financial state in spring 2021 because of that declining enrollment, coupled with steady and dramatic increases in university spending. Nearly a year before declaring the financial emergency, investigators say top administrators prepared a budget showing a surplus, even though they knew it contained a likely unlawful allocation of federal COVID-19 funds.

In June 2021, NJCU’s senior administrators submitted, and the board of trustees approved, a Fiscal Year 2022 budget that called for using nearly $14 million in pandemic dollars from the Higher Education Emergency Relief Fund (HEERF) to pay for existing institutional student scholarships. The review found that the school’s top administrators were warned that using the HEERF funds for an existing scholarship program would likely violate federal law, including at least three emails sent by then-CFO Jim White to leadership.

“Nevertheless, rather than presenting a budget that reflected the university’s actual financial position, the senior administrators proposed this use to the board without informing the board of serious potential risks,” the report said. “The board adopted the proposed budget.”

Ultimately, the COVID-19 funds were not spent on this unlawful purpose. Instead, NJCU began draining cash reserves to fund the scholarship program in fall 2021. Investigators say there is no evidence that top administrators disclosed the budget shortfall of nearly 8% percent until April 2022 when a new interim chief financial officer, Ben Durant, was hired.

Last June, the board was officially informed by Durant that the budget’s year-end projection of a $480,000 surplus would likely turn into a nearly $14 million deficit.

With just 25.5 days of operating cash on hand, the board declared the financial emergency June 27, 2022.

“NJCU’s senior administrators’ conduct was remarkably irresponsible. 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,” said acting State Comptroller Kevin Walsh. “Senior administrators fundamentally failed in their duties to protect NJCU.”

Pre-pandemic problems

The investigation revealed that NJCU’s finances were on shaky ground well before the pandemic as student enrollment began declining in 2016, leading to more spending by the school to attract more students.

OSC also found that NJCU’s real estate and capital expenses were financed, in part, with bonds that added to its debts, as well as a dramatic jump in the number of undergraduate minor programs offered, despite low enrollment in many of them.

Other notable findings pertained to the board of trustees, which failed to exercise proper oversight over the administration, had itself received insufficient training, and was unsuccessful in appreciating its fiduciary responsibilities by not conducting annual written performance evaluations of former President Sue Henderson, according to the report.

Additionally, without exploring the causes of the financial crisis, the board of trustees permitted Henderson to resign immediately in June 2022 just before declaring the financial emergency. Her separation benefits included a $288,000 “transitional sabbatical,” a car, and a housing subsidy.

“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,” said Walsh. “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.”

In response to the OSC report, NJCU’s outside counsel, Matthew Boxer – a former state comptroller himself – of Lowenstein Sandler LLP, issued a statement on behalf of the University’s board of trustees.

Boxer said NJCU is pleased that the findings reinforce what the school has maintained—that 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 of $22 million by approximately 50%,” said Boxer.

NJBIZ has reported about NJCU’s efforts to right its budgets woes, including those steps mentioned by Boxer, which are being spearheaded by Andres Acebo, the 37-year-old appointed as interim president of the school in January. NJBIZ profiled and chatted with him earlier this year.

“The interim president’s partnership with the unions at the university was critical in decreasing the deficit,” said Boxer. “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.”

Looking ahead

Boxer says that the board unequivocally supports the current administration, under Acebo’s leadership, and noted the support and commitment from Gov. Phil Murphy, Secretary of Higher Education Brian Bridges and the OSC, both before and during the investigation.

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

Walsh held a press briefing with reporters Thursday, where he discussed the report, noting several other recommendations his office has for NJCU, including:

• Conduct an independent review of the board of trustees to ensure the right people are involved.
• Institute a formal training program for the board of trustees.
• A legislative evaluation of whether the existing oversight authority of the secretary of higher education is adequate, and whether existing reporting and other requirements adequately protect the students and institutions.

“As enrollment continues to decline throughout New Jersey and resources may remain scarce, this sort of oversight may be needed to protect New Jersey’s college students,” said Walsh. “As a long-standing, minority-serving institution of higher education, NJCU has an important mission. The report we released this morning looks at what went wrong and identifies specific reforms so that NJCU can continue to fulfill this vital role.”

The full report can be viewed here.