State Report Blames Leaders for Financial Issues at N.J. City U

A scathing report from the New Jersey comptroller’s office found that a financial emergency at New Jersey City University was the result of systemwide failures, including deliberate missteps by the former president and a lack of oversight by the institution’s governing board.

The report, released Thursday, found that NJCU leadership prepared a budget that “contained an unlawful use of federal COVID-19 relief funds, then failed to disclose that fact for months,” according to a press release from the Office of the State Comptroller. State officials went on to call the actions of senior administrators who provoked the crisis “remarkably irresponsible.”

The comptroller’s office also offered recommendations to the embattled public university as it seeks to dig out of its fiscal crisis.

The Findings

To understand how NJCU arrived at its current state—financially struggling and under state scrutiny—the report goes back to 2016, when enrollment began to decline. That fall, NJCU reported 8,504 students, according to the Department of Education’s Integrated Postsecondary Education Data System. By fall 2021, the latest year for which federal data are available, enrollment numbers had slipped to 6,918, a loss of more than 1,500 students.

As enrollment declined, NJCU increased scholarship funding to draw more students, added academic programs, invested heavily in real estate expansion projects and hired marketing consultants to help boost its head count. But none of those strategies seemed to pay off. Once the coronavirus pandemic hit in March of 2020, “the university’s financial situation worsened,” according to the report.

Facing financial pressures, in May 2021 administrators began discussing leveraging federal COVID-19 relief funds to pay for scholarship programs. The chief financial officer at the time, who has since left the university, cautioned the president and other senior officials about using money from the Higher Education Emergency Relief Fund to pay for scholarships, a report timeline shows. However, by June 2021, senior officials included those funds in a budget proposal.

“With the University in this unstable financial position, NJCU senior administrators submitted a budget for approval by the Board of Trustees (the Board) that proposed using nearly $14 million in federal COVID-19 relief funds to pay for an existing institutional scholarship program,” the report found, noting that using coronavirus relief dollars in that way “likely violated federal law.”

The report added that NJCU leadership moved forward with its budget proposal “without informing the Board of serious potential risks.” Trustees then adopted the proposed budget in June 2021.

But with legal concerns echoing through administrative email chains, leaders decided not to tap into federal relief funds to pay for scholarships—despite including that money in the budget—and instead began drawing from the university’s financial reserves in fall 2021, the report indicated. In June 2022, a new chief financial officer told the board that NJCU would end the fiscal year with a budget deficit projected at $13.8 million, leading to the declaration of a financial emergency that same month.

Acting state comptroller Kevin Walsh said in a Thursday press conference that the financial emergency came about because of a “collective failure of leadership.” While officials were warned about potential legal issues, he said they “chose inaction over dealing with reality.”

In addition to NJCU administrators, the board failed to provide adequate oversight, Walsh said.

Ultimately, the fallout from the financial emergency—which is ongoing—led to the resignation of then president Sue Henderson, who stepped down during the crisis with a generous exit package, cuts to academic and athletic programs, and layoffs to help stabilize university finances. The university has also sought additional state aid to help right the ship amid its financial emergency.

A statement from the university largely put a positive shine on the report, noting that the investigation found that no federal coronavirus relief dollars were misused by NJCU.

“NJCU is pleased that the Comptroller’s findings reinforce what the University has consistently maintained—no funds were misappropriated,” the university statement read in part. “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 deficit of $22 million by approximately 50%.”

The statement added that efforts to decrease the deficit are ongoing, and “current leadership has implemented guardrails to ensure that such a crisis never occurs again.”

The Recommendations

In addition to the findings, the report also outlined various recommendations, including the establishment of new “policies, procedures, and internal controls related to budgeting and the accountability of the administration to the Board of Trustees.” The report added that the college should disclose “assumptions and risks during the budgeting process and formalize the role of the [chief financial officer] in reporting to the Board.” New policies should also be posted online.

Furthermore, it recommended “a comprehensive review of the current composition of the Board of Trustees and its operational policies and procedures” to ensure effective board governance. The report noted that Board of Trustees members received little training for their positions and had not provided formal performance assessments of Henderson, as they were required to do.

The state comptroller also urged the university to engage “an independent financial monitor” to make sure administrators and trustees “are discharging their duties in accordance with established policies, procedures, and internal controls and with the highest standards of integrity and transparency.”

And the university should establish a program to assess its academic offerings in order to better understand how to allocate resources and adjust to market demands, according to the report.

Finally, the comptroller’s report made two recommendations for the state Legislature.

First, lawmakers should evaluate whether the Office of the Secretary of Higher Education has powers to “adequately guard against poor decisions made by the administrations or boards of public colleges and universities,” and determine whether current reporting requirements “adequately protect the interests of taxpayers and students of public colleges and universities as well as the institutions themselves.”

Lawmakers were also encouraged to “authorize and direct” the Office of the Secretary of Higher Education “to institute requirements related to reporting by CFOs to boards of trustees, audit committees, and [Office of the Secretary of Higher Education], including with regard to the validity of the preparation of budgets, accuracy of financial reports, and duties to protect public funds.”