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New Jersey City University’s financial emergency last summer was one of many factors that prompted a new slate of legislation to strengthen the state’s fiscal oversight of public higher ed institutions.

New Jersey City University

Months after revelations of financial turmoil spurred a state investigation at New Jersey City University, legislators want to make sure they’re not caught by surprise the next time a public institution faces a crisis.

To that end, they’ve introduced three pieces of legislation designed to beef up financial oversight of the state’s colleges and universities.

One bill would require institutions to file an annual fiscal monitoring report with the Office of the Secretary of Higher Education—New Jersey’s highest authority on higher ed, who answers to the governor—and submit to an audit by that office every three years. It would also give the secretary the power to appoint a monitor to oversee an institution’s fiscal operations if an audit is particularly troubling.

Another bill would require institutions to post the results of those reports to their website “in a manner understandable to the general public.” And the last bill would mandate training programs in financial higher ed management for members of institutions’ governing boards.

New Jersey invested nearly $2.8 billion in its public higher education institutions last fiscal year, and the governor has proposed a $100 million increase for FY2023. Brian Bridges, New Jersey’s secretary of higher education, said the legislation would help ensure that investment is managed responsibly.

“As these students and their families make these difficult decisions about where to go to college, we just want to make sure that we’re being good, transparent stewards of those investments—the personal investments of the families as well as the state investments,” Bridges told Inside Higher Ed.

Dustin Weeden, a senior policy analyst at the State Higher Education Executive Officers Association, said the bills would put New Jersey on par with most other states’ fiscal oversight measures. But many of those states don’t need legislation to mandate government oversight because they have a centralized governing body to keep them accountable. New Jersey, on the other hand, has a decentralized higher education system, with no statewide governing board for its public colleges and universities—making it one of only 14 such states in the country, according to a 2016 study by the Education Commission of the States.

“If there was a centralized governing board within the state, like North Carolina or the Georgia system, they would likely be directly involved in the budgeting and financial situation of institutions already,” Weeden said.

Michael Klein, former executive director of the New Jersey Association of State Colleges and Universities, a nonprofit that advocates for the state’s public institutions, said the most significant part of the package of legislation is its training requirement for board members—something many states have considered over the past decade. He said even though members of college and university boards might be well versed in nonprofit or corporate finance, higher education is “a whole different world.”

“If you’re going to give boards more power and responsibility, like they have in New Jersey, you have to make sure they’re prepared,” he said.

A Response to Multiple Crises

The bills are at least in part a response to last year’s budget crisis at New Jersey City University, where plummeting finances prompted a state investigation that is still ongoing. The institution reported a $67 million deficit in 2022, down from a $180 million surplus less than a decade prior and a $100 million surplus in 2021. NJCU’s former president, Sue Henderson, stepped down last July amid allegations of financial mismanagement. Last month the university announced that it would lay off 30 faculty members and cut 37 percent of its 171 academic programs as part of a budget-balancing strategy.

A spokesperson for NJCU said the numbers don't tell the whole story, and that reporting on the issue has conflated the university's "net position" with a budget surplus. He said the figures were the result of standards put in place in 2015 requiring state institutions like NJCU to report pension obligations, which, he added, had a negative impact of $115 million on the university's reported net position. (This paragraph has been added to clarify NJCU's position.)

NJCU isn’t the only public university in New Jersey facing a severe financial shortfall, due mainly to declining enrollment. William Paterson University reported a nearly $30 million deficit in 2021 and ended the year by announcing plans to lay off 100 full-time faculty members—nearly a third of its professors—and shutter two of its majors, as well as put a number of others on hiatus.

“I think it’s fair to say that some public trust has been eroded, and that’s where the Legislature and governor are stepping in,” Klein said. “They wouldn’t be filing legislation if this weren’t on everyone’s minds.”

Andres Acebo, NJCU’s interim president, who took office last week, said he supports the legislation and hopes the push for fiscal responsibility is a “first step in a more meaningful partnership with the state,” one that includes a boost in funding for minority-serving institutions like NJCU.

“We serve the most socioeconomically diverse population in the state … NJCU is indispensable to the community it serves,” he said. “We’ve turned a corner and are moving from crisis response mode to recovery. But this institution is in critical need of state support.”

NJCU enrolls around 6,000 students, many of them low income and from underrepresented groups. Its undergraduate population is 45 percent Latino, 21 percent Black and 54 percent first generation; last year 58 percent of its students were Pell eligible. William Paterson is also a Hispanic- and minority-serving institution, and its students have similar needs.

“New Jersey has flagships that are the envy of states all over the country. NJCU is a lifeboat institution, and we have to stretch our dollar beyond keeping the lights on,” Acebo said. “I hope these bills will invite a level of proactive engagement from the state so the lifeboats don’t have to send up flares.”

Support, With a Dash of Indignation

Many New Jersey university leaders expressed support for the bills but noted that even without the legislation, they have been filing financial reports and conducting their own audits for years.

Montclair State University president Jonathan Koppell wrote in an email to Inside Higher Ed that he “applauds the state’s commitment to transparency,” which he said Montclair State has long upheld on its own.

“Indeed, it is Montclair’s careful financial stewardship that put us in a position to aid Bloomfield College when it was facing closure,” he wrote.

Administrators from Rutgers University, William Paterson University and Stockton University all responded along similar lines.

“I don’t see it as an overhaul or the beginning of one … we’ve been doing these reports for years,” said Harvey Kesselman, the president of Stockton University. “But I’m very supportive … if this raises red flags earlier in the process, that’s a good thing.”

Bridges, the secretary of education, said it’s true that many institutions have regularly submitted financial statements and conducted internal audits. The purpose of the legislation, he said, is to codify a consistent framework for transparency and ensure the public has access to that information.

“We want to create uniformity across the state and establish some foundational benchmarks,” he said. “Our goal isn’t to be incredibly burdensome.”

But if New Jersey officials have had access to these data for years, some say it raises a question: Why didn’t they foresee NJCU’s collapse?

Weeden said it could well be a problem of capacity for a secretary of higher education’s office that is understaffed and overworked.

“That office in New Jersey is a relatively small one,” he said. “Something like this is an impetus for making sure that the secretary’s office is actually focusing on this topic, whereas they may not have been just for capacity reasons.”

Bridges acknowledged that with 25 staff members, his is “one of the smaller” state higher education offices in the country, but he thinks they’ll be able to handle the added responsibility.

“In some of those bills, there is language that would add additional staff to our office to carry out some of the pieces of this legislation,” he said. “But we’re not looking to expand the office in some grand way.”

Linda Stamato, former chair of the Board of Governors at Rutgers, the state’s public flagship, said that the bills will be effectively toothless in ensuring fiscal accountability unless they give the state the power to intervene in institutional planning.

“The reason they’re so focused on fiscal accountability is because that’s what’s been in the headlines,” she said. “That’s what’s driving this, because it’s embarrassing for [Governor Phil] Murphy. But there’s no enforcement mechanism built into the legislation, so what’s it really going to do?”

To Klein, formerly of the NJASCU, the true purpose of the legislation is clear: to send a message.

“Back when he chaired the task force on higher ed, [former New Jersey governor] Tom Kean used a phrase that didn’t wind up in the report but always stuck with me. He said, ‘Sometimes there has to be an act of legislative violence,’” Klein said. “That’s what these bills are. They’ll get institutions’ attention.”

Balancing Institutional Autonomy and Public Oversight

Klein said the legislation can be seen as the latest step in an effort to find a balance between institutional autonomy and public governance that has been underway since 1994, when then governor Christine Todd Whitman, a Republican, eliminated the state’s department of higher education and statewide Board of Higher Education and replaced them with the Office of the Secretary of Higher Education.

“After implementing a laissez-faire coordinating approach to replace a restrictive statewide governance model, New Jersey has reacted to some financial crises and losses of public confidence since then to put in place several state-mandated accountability measures and reporting requirements,” Klein said.

In 2007, the State Commission of Investigation launched an inquiry into waste and corruption at the University of Medicine and Dentistry of New Jersey, as well as budget-transparency concerns at Rutgers. In 2009 the state Legislature passed a slate of bills codifying many of the commission’s recommendations—such as requiring institutions to appoint both internal and independent fiscal auditors—and putting some limits on the autonomy that Whitman’s administration had granted to state institutions.

Zakiya Smith Ellis, New Jersey’s higher education secretary from 2018 to 2020, said the question of whether the secretary and state should have more oversight “has been percolating for a long time.”

“Prior to this legislation, there were moves to give the secretary more authority over program approval based on student outcomes, for instance,” she said. “That wasn’t the only measure that came out of those conversations, and there’s been a good amount of reform in this area. The question is, how much more is needed?”

According to Stamato, who served as the last chair of New Jersey’s statewide Board of Higher Education before it was dissolved in 1994, the answer is: quite a bit more. She said the lack of a centralized authority over higher ed is at the root of New Jersey’s fiscal mismanagement issues; the proposed bills, she said, won’t do much to solve that problem.

“The state board was good at keeping institutions in line, and its absence has had such a clear impact,” she said. “What we’ve had since [1994] is basically window dressing … there’s no teeth to it.”

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