University in Fiscal Trouble Had Designs on $14 Million in Federal Covid Aid, Official Says

When New Jersey City University declared a financial crisis last year, the president and board cited a $14-million budget shortfall caused by steadily declining enrollment exacerbated by the financial impact of the pandemic.

That was only a partial explanation, according to a report released on Thursday by the New Jersey state comptroller, who conducted an investigation into the university’s finances at the request of Gov. Phil Murphy, a Democrat.

The immediate cause of the budget deficit, the comptroller found, was that university officials had papered over the shortfall by planning to use $14 million in federal coronavirus aid dollars to pay for a financial-aid program, a purpose unrelated to the pandemic.

The money awarded to the university under the Higher Education Emergency Relief Fund, a federal program known as Heerf, could not legally be used for an existing program, the acting state comptroller, Kevin D. Walsh, told reporters at a news conference. The student-aid program guarantees that the state’s high-school graduates from families earning less than $65,000 a year can complete their degrees without any student loans if they attend full time.

In total, the federal government gave out about $77 billion in Heerf money, meant for colleges to offset the financial damages of the pandemic, including increased expenses of health and safety, and improved access to online courses. A complex set of rules associated with the dollars stipulated that the money had to be spent on costs directly related to the pandemic and that half of the money for each college had to go directly to students.

While the regional university’s chief financial officer had warned the then president, Sue Henderson, several times about the restrictions on the federal aid, according to the comptroller’s investigation, she presented a budget in June 2021 to the university’s Board of Trustees that allocated the coronavirus money for improper uses.

“Internal emails from both before and after the adoption of the fiscal year 2022 budget reveal that members of NJCU’s administration were aware that federal guidelines likely prohibited them from using Heerf funding to pay for existing institutional scholarships,” the comptroller’s report says. “Nevertheless, in June 2021, the senior administrators presented and received board approval for a budget that used the funding for that exact purpose,” the comptroller wrote.

Walsh declined to comment on whether any of the former university officials could face civil or criminal charges for their conduct.

Although the coronavirus aid was improperly budgeted, the comptroller said, it appeared to his agency that the university had spent the money for the purpose it was intended. Eventually, the report says, administrators used cash reserves to pay for the financial-aid program, creating the $14-million shortfall.

“When this deficit was finally brought to their attention, NJCU’s Board of Trustees declared a financial emergency in June 2022 and imposed deep cuts to the university’s expenses,” according to the state investigation.

The comptroller’s report also points to flaws in the university’s governance, finding that the trustees had little training for their duties and provided inadequate oversight of Henderson, even in the aftermath of the financial crisis.

“Without exploring the causes of the financial emergency, the Board of Trustees permitted the president to resign immediately, before it declared the financial emergency,” the report says, “with separation benefits that included a $288,000 ‘transitional sabbatical,’ a car, and a housing subsidy.”

In the comptroller’s report, Henderson disputed the idea that she had knowingly proposed misusing the Heerf money or that she had instructed others to do so.

‘Pleased’ With the Findings

New Jersey City University issued a statement on Thursday that noted the administrators named in the report had all left the institution and that it “is pleased that the comptroller’s findings reinforce what the university has consistently maintained — no funds were misappropriated.”

The statement also praised the report’s findings that “years-long budget issues, exacerbated by the pandemic and low student enrollment, were significant contributors to the university’s financial crisis.”

The report says the institution was in deep trouble even before the pandemic. Enrollment declines, primarily caused by a fall in community-college transfers, were greater at the university than nationally, the report says, and its efforts to attract more students only drove up expenses, not enrollment.

With the exception of 2018, financial reports from 2015 to 2020 showed that expenses associated with recruiting and retaining students increased by an average of $1 million annually, the comptroller found.

Spending on student services grew from $14 million in 2011 to a high of $23 million in 2018, the new report says. Instructional costs, including faculty salaries, “grew from $56 million in 2011 to a peak of $72 million in 2018, then dropped back down to $59 million in 2021,” according to the report. The university expanded the number of undergraduate minors from six to 50 between 2011 and 2021, and master’s-degree programs increased from 29 to 54 over a similar period.

Real-estate deals — such as a 20-year lease on a 70,000-square-foot building to house the university’s business school, at an annual rent of $2.3 million — also helped to push the university into the red, the comptroller found. The efforts to expand physical space led to a nearly 19-percent increase in maintaining and operating all of the university’s facilities and a 78-percent increase in interest payments on debt incurred to buy or renovate properties from 2011 to 2021.

All of that expansion has now ground to a halt. In December the university announced it would cut academic offerings by nearly 40 percent, along with the jobs of 30 tenured faculty members and 19 non-tenured instructors.

Some of those jobs and programs may yet be preserved, said Ira Thor, a university spokesperson, as administrators consider their options and the fall enrollment picture. The university is also seeking at least $10 million in special appropriations from the state, though that figure could grow, depending on how many students show up in the fall.

If the university receives the extra money, it “will be the end of the crisis,” said Thor, “and we can start talking about more positive things.”