State watchdog slams New Jersey City University for mismanagement that led to financial crisis

Top officials at New Jersey City University illicitly budgeted nearly $14 million in federal COVID-19 relief funds to fix a financial crisis and when that backfired, allowed the school’s president to resign with a $288,000 severance payment, a car, and a housing subsidy, according to a new state watchdog report.

Investigators at the Office of the State Comptroller determined that former president Sue Henderson and other administrators hid their mismanagement from the board of trustees, who declared a financial emergency last June after a new CFO sounded the alarm.

That declaration led to layoffs and other deep cuts — and Gov. Phil Murphy’s call a month later for a state investigation at the 96-year-old school in Jersey City that serves mostly low-income students of color.

Acting State Comptroller Kevin Walsh called administrators’ actions “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,” Walsh said in a statement. “Senior administrators fundamentally failed in their duties to protect NJCU.”

Investigators said a lack of oversight contributed to the crisis — not only on the part of the trustees, who accepted Henderson’s resignation and gave her a sweetheart severance deal without investigating, but also by the state, where the decentralized system of public higher education “created an environment in which irresponsible financial decisions by administrators can go undetected by the state.”

“As more public universities in New Jersey are facing declines in student enrollment and tuition dollars, the state’s lack of oversight poses continued risks for students and taxpayers,” investigators wrote.

The report recommends that legislators examine whether the Office of the Secretary of Higher Education adequately guards against mismanagement at colleges and universities. That office, created in 2009, has powers to review but not supervise or intervene in an institution’s operations, and primarily focuses on policy development and the statewide plan for higher education, according to the report.

Investigators also urged lawmakers to require universities’ financial officials to report more comprehensively, especially on budgets, to their boards of trustees, auditors, and the Office of the Secretary of Higher Education.

“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,” Walsh said.

Attorney Matthew Boxer is the university’s outside counsel and served as state comptroller from 2008 through 2013. He said the comptroller’s findings reinforce what the university has consistently maintained — 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,” Boxer said in a statement. “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%.”

Boxer credited the interim president’s partnership with university unions in decreasing the deficit, which the school expects to eliminate over the next two years.

“Current leadership has implemented guardrails to ensure that such a crisis never occurs again,” Boxer said. “NJCU welcomes the state’s investment and partnership, as well as its fiscal oversight of public higher education institutions as we move forward.”

Annual state aid to the university has declined slightly since 2011, from $27 million in 2011 to $26.7 million in 2021, although it dipped to $24.3 million a few years and as low as $21.5 million one year, according to the report.

Long-brewing problems, mismanaged

The problems at New Jersey City were long-brewing challenges that colleges and universities everywhere have endured in recent years — shrinking state aid and dwindling enrollment that plummeted faster during the pandemic.

But Henderson, who became the university’s president in 2012, and other administrators made a series of bad decisions in an attempt to recover that instead plunged the school deeper into debt, investigators found.

They poured millions into hiring marketing consultants, expanding scholarships to attract more students, adding academic programs, beefing up student services, and opening a new campus in Fort Monmouth, according to the report.

Those measures failed to reverse the school’s freefall, though, and Henderson and other senior administrators decided to use pandemic-relief funds to support a scholarship program that predated the pandemic, a “likely unlawful” use of that money, investigators said.

The administrators ignored repeated warnings from the school’s former CFO that the funds couldn’t be used that way and presented a 2022 budget proposal to trustees — one that showed a surplus — without revealing the university’s precarious financial position or the problematic pandemic-relief allocation, according to the report. The board adopted the proposed budget.

Those pandemic funds were not ultimately spent as planned. The school instead began draining its cash reserves to fund institutional scholarships in fall 2021, investigators found.

“The bad decision in June 2021 about how to use the federal funds and the failure to correct course at any point over 10 months led to a financial emergency a year later,” Walsh said during a news conference Thursday morning.

In September 2021, faculty members moved to oust Henderson, giving her a no-confidence vote.

She stayed on another nine months though, signing a voluntary separation agreement four days before trustees declared the financial emergency, according to the comptroller’s report. She left with $288,000 (for a 12-month “transitional sabbatical” at 80 percent of her base pay), a $7,500 housing stipend, and a car the university bought her.

She could not be reached for comment. She denied any ill intentions to investigators when shown a draft of their findings, according to the report.

Recommendations

Besides urging state legislators to improve fiscal oversight for all public colleges and universities, investigators offered several recommendations for New Jersey City University.

They urged the school to establish new policies, procedures, and internal controls to ensure sound budgeting and administrators’ accountability to the board of trustees — and publicly post them to the university’s website to ensure transparency. They recommended the school hire an independent financial monitor who specializes in higher education finances to investigate and report on school practices.

They also recommended changes for the board of trustees, whose members investigators discovered had gotten little to no training for their position and had done no formal performance assessments of Henderson, as they were required to do annually, and yet continued to boost her salary.

Specifically, investigators called for an independent external review of board composition and operations, formal training for board members, and a requirement that the board annually evaluate the president’s performance.

And they recommended the school regularly assess its academic offerings to ensure they’re financially sustainable. When the investigation started, the school offered about 250 academic programs housed across four colleges, up from about 35 a decade ago, according to the report.