Cost of Education Restructuring Remains a Mystery, Even as Bill Clears Committee
The New Jersey Senate Higher Education Committee passed the controversial New Jersey Medical and Health Sciences Education Restructuring Act yesterday, despite not knowing what the legislation will cost the state. Although most of the questions from the committee related to the failure of the bill’s sponsors to provide a price tag to overhaul much of the structure and governance of Rutgers-Camden, Rutgers-Newark, Rowan University, and the University of Medicine and Dentistry of New Jersey (UMDNJ), the committee released the bill by a vote of 5-0.
“I understand there are some steps we can take to work with sponsors to continue to improve this bill,” said committee member Sen. Tom Kean, Jr. (R- Union) after voting to release it to the Budget and Appropriations Committee in advance of a hearing scheduled for that committee on Monday.
Expressing a sentiment that likely explains why his four committee colleagues also voted to pass the bill despite their stated reservations, he continued, “I think it deserves to be debated in the budget committee because from a policy point of view, the goal would be making sure New Jersey’s got the best higher education infrastructure in the country.”
Questions about the cost have been circulating since the restructuring debate began in January. But as higher education committee vice-chair Sen. Nellie Pou (D-Paterson) pointed out, “Here we are on the day of the hearing . . . without having any of that information available to us. It is a keen and important part of this legislation.”
Legislation co-sponsor Donald Norcross (D-Camden) testified that the operational costs and debt of the universities in question should remain at current levels because the money allocated to each institution will not change and that the liabilities of each will transfer along with its assets. However, this answer does not account for the increased costs to Rutgers of refinancing its debt in the event Camden is removed from Rutgers' control -- a scenario that would arguably nullify the terms of Rutgers’ covenant with bondholders and cause Rutgers to refinance its debt rather than default on its bonded loans.
These and related costs of the transfers are still being calculated and Norcross couldn’t promise they would be ready in time for Monday’s hearing. He also wasn’t sure if a full bond report could be prepared by the end of the current legislative session June 30 -- the day before Gov. Chris Christie and bill supporters hope to have it passed. He did, however promise to have amendments that reflect negotiations with skeptics prepared in time.
When Pou asked how Norcross could expect the committees to vote on a bill without knowing the cost, she replied, “We’d have numbers if we didn’t listen to stakeholders, if we didn’t make changes.”
In the absence of official estimates, Rutgers’ Board of Trustees and Board of Governors have predicted the cost to refinance its nearly $1 billion in bonded debt at $155 million, an amount that would be used to purchase Treasury bonds for bondholders to replace the technically defaulted Rutgers bonds. However, the anti-legislation group Save Rutgers Camden's own analysis found those costs could, in fact, reach $225 million.
As Eugene Pillotte, Rutgers-Camden Area Head and Professor of Accounting and Finance who conducted the analysis, testified, “In the event Rutgers disposes of the Camden campus, it should refund and refinance all of its bonds to protect itself from possible legal action by bondholders or their trustees. Should the university choose not to refund, holders of some bond series will have a strong financial incentive to press for refunding. The total cost of refunding Rutgers bonds and issuing replacement debt is estimated to be $226 million.”
Executive members of Rutgers’ boards of trustees and governors Lora Fong and Gerald Harvey, who vehemently asserted they would not relinquish the Rutgers-Camden campus, insisted the costs catalyzed by such a separation would be both inevitable and wasteful. “On advice of our bond counsel and investment advisors, [a loss of revenue from Rutgers-Camden] would trigger the defeasance [refinancing] of all our bonds. The Camden proposal is unnecessary to further higher education and the additional costs are a drain on precious resources. We’re still working on impact of absorbing $600 million of UMDNJ debt issues.”
Under the likely scenario that Rutgers will absorb UMDNJ, the university will be asked to take on the medical institution’s approximately half-billion dollar debt. To protect Rutgers against the risk involved with shouldering that debt, Fong and Harvey requested that the state enact a temporary “hold harmless” clause to ensure the university's credit isn’t jeopardized by any unforeseen consequences.
Though neither Rutgers trustees nor governors oppose a merger with UMDNJ, vocal UMDNJ supporter Sen. Ron Rice (D-Essex), fears University Hospital (UH) will lose support and funding once its parent institution is moved into Rutgers. To him, the transition is costly and dangerous to the indigent population UH serves.
An Angry Outburst
“To move a bill of this magnitude out of committee, even to appropriations, that is going to cost not millions but billions of dollars in transitioning does not make any sense,” Rice yelled at committee members from the speakers’ podium. “To me, it’s an insult.”
But draft amendments to the bill strengthen the language of support for UH, establishing it in no uncertain terms as the primary teaching hospital for UMDNJ and creating an impenetrable financial firewall between UH and UMDNJ/Rutgers that would prevent moneys appropriated to the hospital from being sent anywhere else.
Bill co-sponsor Sen. Joseph Vitale (D-Middlesex) told the committee that as the Chair of the Health, Human Services and Senior Citizens Committee, he is fully committed to success of UH and fully committed to its mission. “It’s the mission of the state to ensure that funding continues for University Hospital and that all the programs continue to exist, and that includes the programs administered by UMDNJ. It’s my commitment to make sure that happens.”
While not all of the hearing was devoted to finances, a common theme heard by speakers was that of unintended repercussions. Representatives from UMDNJ and its School of Osteopathic Medicine (SOM), located in Stratford, testified that the proposal to shift SOM to Rowan would not only damage SOM’s reputation and resources but cause it to lose its accreditation as well.
With the exception of the SOM issue, which Vitale testified is still being worked out, a seeming accord has been forming in South Jersey. Rutgers-Camden chancellor Wendell Pritchett and many of his faculty members testified in support of the creation of collaborative programs between his campus and Rowan, as did Rowan president Ali Houshmand, who was promoted from interim president to president on Wednesday.
But the nearly singular cry from speakers who traveled from Camden and Glassboro was a plea for the limitation of powers of the proposed Rutgers-Camden/Rowan board. As evidenced in yesterday’s hearings as well as a flurry of resolutions passed over the past two weeks, the majority of stakeholders would sanction a board whose authority was limited to overseeing new voluntary collaborations between the two universities. Last week, both Rutgers governing boards affirmed this position and yesterday, Fong and Harvey disclosed that incoming Rutgers president Robert Barchi upholds these beliefs as well. Yesterday they restated their exception to the bill’s call for more gubernatorial appointees to the Board of Governors to oversee affairs at Rutgers-Newark while expressing gratitude to legislators for causing them to evaluate and address the inequity in funding and representation between their three campuses.
Wednesday, nearly 500 faculty members from all three of those campuses signed a petition that was sent to legislators in support of the Rutgers’ boards’ principles, and this afternoon Rowan’s faculty senate and its union and constituents meet to vote on a resolution drafted last week that echoes the demands of Rutgers’ governing boards and faculty. In anticipation of future collaborations, which would likely focus on the health sciences, Rowan trustees on Wednesday approved the creation of a School of Biomedical Engineering, a department of Biomedical Engineering and Sciences, and several related bachelor’s and master’s degrees.