College investments break the bank

A report released by the New Jersey State Commission of Investigation (SCI) two weeks ago listed the College’s debt at $350 million and produced an allegation of political interference on the College’s Board of Trustees dating back to the McGreevey administration.

The report, titled “Vulnerable to Abuse: The Importance of Restoring Accountability, Transparency and Oversight to Public Higher Education,” arrived at its debt total for the College using 2004 figures acquired by Moody’s Investor Services, a corporate financing and risk management firm. The College’s debt was reported as being higher than that of any other public college or university in the state.

“It is true that like several other state institutions, (the College) has invested heavily in first class facilities and thus incurred debt,” College president R. Barbara Gitenstein said in a press release posted on the College’s home page. “We did so because we thought it was the responsible thing to do as educators. Had we not made these investments, 19-year-old science labs and classrooms would be out of date and unable to accommodate the type of work currently being done there.”

However, according to 2007 figures provided by Barbara Wineberg, treasurer for the College, the debt most recently was estimated at $337 million. Gitenstein pointed out that much of the reason for the College’s shortage of funds derived from a decade’s worth of reductions to state higher education funding, including the 2006 cuts when the College lost more than $8 million in state funding.

Since the late 1980s, the College has been involved in a vigorous construction and renovation program, which was paid for largely with College bonds. These projects included construction of the New Library, the Social Sciences building, the School of Business building and the Science Complex. Only the library was built using state bonds, though it was still largely funded through College bonds, according to Gitenstein.

“(The College) has a comprehensive capital financing plan to cover all bond debt. The plan extends to the retirement of all current debt,” Wineberg said via e-mail.

“I think it is important to note that we began this discussion of greater public accountabilities at least as early as 2002 with a major review of board structure and a following of the principles of Sarbanes-Oxley,” Gitenstein said via e-mail. “This was before the SCI investigation began, I believe. It was just good management, we thought.”

In addition, the College also adopted the certification of financials by the president and treasurer as a practice and established capital facilities and capital asset-renewal plans.

However, a more contentious point raised by the SCI report is the allegation of political interference on the Board of Trustees, which surfaced after the testimony of Thomas A. Bracken before an executive session of the SCI. According to the report, Bracken, a former member of the College’s Board of Trustees, testified under oath that in 2002, after the expiration of his term on the board, he received a call from the office of then-Gov. James E. McGreevey and was asked if he would be interested in being reappointed to the board. Bracken testified that when he indicated he would be interested in the reappointment that the former governor then told him that a reappointment would be forthcoming.

However, Bracken was never reappointed to the board. According to the report, he testified that he received a call from the governor’s office informing him that the decision to reappoint him had been rescinded. Bracken testified that when he asked why he had not been reappointed, he was told that it was because he had voiced opposition to the governor’s policy on corporate taxes. Bracken was, at the time, CEO and president of Vineland-based Sun Bancorp, Inc.

While Bracken’s claims of political interference on the Board of Trustees were included in the SCI report, his testimony is not open to the public.

“Some of our inquiries involve subpoenas and some involve documents that aren’t public record, so we aren’t at liberty to open that testimony entirely up to the public,” Lee Seglem, spokesman for the SCI, said.

While Gitenstein said she had heard Bracken’s claim before, she took issue with the idea that this anecdotal evidence of a past, isolated incident should reflect on the current board.

“We are extraordinarily fortunate at (the College) to have a board comprised of dedicated and talented individuals who devote unbelievable time and energy to providing for the welfare of the College and its students,” Gitenstein wrote in the press release.

In an effort to keep this process transparent, College officials adopted accounting practices in keeping with the Sarbanes-Oxley Act, which the SCI recommended in the report.

The Sarbanes-Oxley Act, also known as the Public Company Accounting Reform and Investor Protection Act of 2002, a federal law drafted in the wake of several corporate trading scandals, requires all publicly traded companies to comply with a series of guidelines to promote transparency and accountability in corporate financing. While the College is not a publicly traded company, the administration has adopted practices such as Audit Committee oversight for auditor activities, rotation of audit partners and certification of the CEO and CFO, all in keeping with Sarbanes-Oxley requirements.

With only two references throughout the report, the College was far less scrutinized by the SCI than other higher education institutes in the state. The investigation into higher education was initiated following a corruption scandal at the University of Medicine and Dentistry of New Jersey (UMDNJ), when federal monitors concluded that the school paid millions of dollars in illegal fees to physicians.

While the SCI found that UMDNJ has since improved its practices, commissioners found additional evidence of procurement abuses and waste at the university, including “favored treatment of vendors in exchange for personal gifts and benefits for university employees.”

The SCI also found evidence of “questionable and undocumented travel, business and expenditures and lack of budgetary and accounting transparency” at Rutgers University.

The SCI report lists several recommendations for instituting increased accountability and transparency in New Jersey’s public colleges and universities, including the elevation of the Commission on Higher Education (CHE), the regulatory body that supervises public colleges and universities in the state, into the governor’s cabinet, as well as an “overhaul” of the composition of state college and university governing bodies, such as the Board of Trustees. To this, Gitenstein took serious issue.

“Investing this kind of responsibility in CHE is unwise, not just because they do not currently have the resources and expertise which exists in other places,” Gitenstein said via e-mail. “To assume these responsibilities would result in adding a tremendous layer of administration in CHE (which would necessarily take resources from direct instruction/student support).”

Gitenstein also expressed concern that increased authority in the CHE would result in a situation similar to that under the state’s Department of Higher Education, which was dismantled in 1994 by the Higher Education Restructuring Act after it was determined that the department’s structure was too convoluted and bureaucratized.

But Seglem said the SCI has no interest in returning to the days of the Department of Higher Education.

“Right now, you have a situation where there’s no accountability or transparency at these institutions for the people who invest in them and pay taxes,” he said. “We want to strengthen the internal regulatory bodies at these institutions, not weaken them. We’re not looking to control their operations. They should be expanded. They should be empowered. They should be given the authority to correct the problems we’ve identified, but with transparency.”

Taxpayers contribute more than $1.5 billion in funding to higher education each year, according to the report.

In addition to being made public, copies of the SCI report on higher education were sent to the Office of the Governor, the State Legislature, the Office of the Attorney General, the Office of the United States Attorney for the District of New Jersey, the CHE, The New Jersey Education Finance Agency and all institutions of higher education, both public and private, in New Jersey for further action.

The 189-page report was the result of a 2-1/2-year investigation by the SCI into higher education.