Acting State Comptroller Kevin Walsh’s Statement on New Jersey City University’s Financial Emergency
The Office of the State Comptroller releases the transcript of Walsh's remarks to the press about OSC’s NJCU report.
On May 18, the Office of the State Comptroller published its report on what led to New Jersey City University's financial emergency. At a virtual press conference, Kevin D. Walsh, Acting State Comptroller, laid out key findings and recommendations from OSC's investigation into NJCU's financial crisis. What follows below is a lightly edited transcript of Walsh's remarks.
Almost a year ago, New Jersey City University declared a financial emergency, and then in August of last year, about nine months ago, Governor Murphy asked the Office of the State Comptroller to investigate the causes of the financial emergency.
When an institution stumbles like this, leading to the declaration of an emergency, we owe it to the residents of the state of New Jersey and the students of the university to find out what went wrong, to hold people accountable, and to identify how to prevent those problems in the future. That's what we've done in this report.
Today, we share our findings about a collective failure of leadership, a failure of governance at a really difficult time, and when the university was already in a difficult position financially.
We share recommendations about what should change, and we do this all with the belief that transparency and accountability and the changes we suggest will help NJCU better serve its students and help it improve as an important institution in Jersey City and in New Jersey.
Here's what we found.
Even before the pandemic hit, the university was on shaky financial footing due to years of declining student enrollment. In an unsuccessful attempt to attract more students, several years before the pandemic, NJCU spent heavily on tuition discounts, real estate expansion projects, more academic programs, and on marketing consultants. Nothing worked to increase enrollment. Facing annual deficits and continued declines in enrollment in spring 2021, the administration prepared a fiscal year 2022 budget that included an improper allocation of nearly $14 million in federal COVID funds to pay for existing institutional scholarships.
They did this even though it wasn't permitted by federal law, and that's something that wasn't a close call. And as I will explain, they stuck by this position even when they were aware, as shown by emails we obtained, that it was impermissible, that they couldn't use this money in the budget to pay for scholarships or tuition discounts, because -- and this is important -- this money was supposed to be provided directly to NJCU students.
I've mentioned several factors that put the university in a difficult financial position, but this decision about the federal funds in June 2021 and the failure to alter course was the primary cause of the financial emergency.
This timeline shows what happened.
In March 2021, the university learned it would receive a federal Higher Education Emergency Relief Fund, or HEERF, grant of $25 million.
In May, there are several emails about the allowable uses of the funds, and the senior administrators seemed to come to an agreement that they can't use the HEERF funds for the existing scholarship program.
And yet the budget was submitted in June using the funds for the very purpose they had earlier concluded that they couldn't be used for.
Then administrators continued to have more conversations about whether they can use the HEERF funds for this purpose. And notably, no one says they can. And there are plenty of indications that it is not permitted by federal law.
The guidance was clear. Half of the money was for the students. They got to decide what to do with it. It was to meet their emergency needs, not the university's emergency needs.
From May to December, the CFO, the former CFO, sent at least three emails that said the university should not use the COVID funds for the existing institutional scholarship program. But the administration presented it in the budget and didn't correct course for ten months. In the fall of 2021, they actually started using cash reserves, not the federal funds they had budgeted to use--another strong sign that they were aware this use was wrong.
And yet, despite the emails and despite how the funds were actually used, we found no evidence that the administration told the board about the problem until April 2022, when the interim CFO joined the administration. Then in June, the new CFO told the board that there is no surplus as projected and that they will have a $14 million deficit. That led the university to declare an emergency.
To sum all this up, the bad decision in June 2021 about how to use the federal funds and the failure to correct course at any point over ten months led to a financial emergency.
A year later, it's important to note that the $14 million budget gap was not inevitable. It was the result of poor decision-making by leadership and a breakdown in governance.
The university lost ten months when the leaders could have been doing something else to reduce and prepare for the deficit. Instead, inaction led the university to drain cash reserves and spend money it didn't have. They chose inaction over dealing with reality.
We also found the Board of Trustees failed in its oversight responsibilities. It was in the dark about something that was a real threat to the University. Its members weren't trained properly, even though state law required training. The board failed to conduct annual written reviews of the president, even though her contract required them, and that was the best way for them to hold her accountable. The board allowed the president to resign, then, with a six-figure separation package without ever looking into the causes of the crisis she led the University into. All of this help show some of the risks that are inherent in how New Jersey has structured our higher education system for many decades.
The decentralized structure of higher education in New Jersey has created an environment in which it was possible for administrators to make irresponsible financial decisions without detection by the State. In view of our findings here, we make multiple recommendations to prevent this from happening again.
We recommend that the university retain an independent financial monitor. We recommend the university obtain an independent review of the Board of Trustees to ensure the right people are on the board.
We recommend that the University institutes a formal training program for the Board.
We also recommend that the Legislature evaluate whether the existing oversight authority of the Secretary of Higher Education is adequate and whether existing reporting and other requirements adequately protect the interests of students and the institutions themselves. 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.
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.
Waste or Abuse
Waste or Abuse