Streams

Peaceful Transition Marks Rutgers-UMDNJ Restructuring

Rutgers assumes control of most of the University of Medicine and Dentistry of New Jersey, but financial issues and other questions remain to be resolved

Tuesday, November 20, 2012

Rutgers University's governing boards on Monday agreed to take control of most of the University of Medicine and Dentistry of New Jersey, with no dissent and none of the vitriol that marked the debate over the restructuring of higher education in the first half of the year.

However, the resolution approved by the board of governors and board of trustees does contain five conditions, including two that primarily deal with the financial health and stability of University Hospital. The Newark facility will remain the primary teaching hospital for UMDNJ’s Newark medical schools that are being transferred to Rutgers.

The restructuring accepted during a joint meeting of the two boards, little resembled the initial plan put forth this past January by a gubernatorial commission headed by Sol Barer, who is also a Rutgers trustee, and endorsed by Gov. Chris Christie. Under that plan, Rutgers would have received only three units from UMDNJ and would have had to give its Camden campus to Rowan University in Glassboro. UMDNJ would have remained a smaller medical university with its own hospital.

Ultimately, the united and vocal opposition from students, faculty, staff, and alumni in Camden, and from some of Rutgers’ trustees, led to last-minute revisions in Trenton. The resultant law not only kept the Camden campus as part of Rutgers, but also has the university absorbing all of UMDNJ except its School of Osteopathic Medicine (SOM) and University Hospital. Getting the medical, denta,l and nursing schools closes a circle for Rutgers, which had a medical facility until the 1970s, when UMDNJ was created.

“As I looked at the situation last spring, this was as good of an outcome as I could have imagined,” said Rutgers President Robert Barchi, who was hired in the midst of the controversy. “In terms of strengthening higher education in the state and successfully building another R-1 [research] university, in South Jersey, this is the right play. And you’re not destroying or diminishing the power of the great state university that is Rutgers.”

Approval of any restructuring by the Rutgers’ boards started out as a threat to try to stop legislators from taking Camden away. The university asserts a 1956 covenant with the state requires the Rutgers boards’ consent on all structural changes. But due to the complexity and expense of the proposition, the boards’ approval turned into a necessity.

“It is absolutely critical that we understand the inside and out of this in order to be able to support it,” said Daniel Schulman, a member of the board of governors. The conclusion the joint boards can draw from their examination of the financial aspects is that the expanded Rutgers would be “a viable institution with positive cash flows.”

Some financial details, notably absent from the Barer Commission report, finally got an airing. Officials put the one-time costs at between $45 million and $75 million spread over two years, due to the transfer of the UMDNJ units and Rutgers’ portion of the medical schools’ debt at $456 million. There are likely to be future costs to upgrade the Newark schools because “the facilities coming over are not all up to Rutgers standards,” said Schulman, but no specifics were given.

Cost-Benefit Analysis

Barchi termed the costs “insignificant . . . when weighed against the benefits.” He pledged the university would not raise tuition to recoup that money but hoped Rutgers would get some money from the state and would find places to cut the budget to make up the remainder. It cannot come in cuts to union employees at any of the affected institutions for the first year of the new setup, which takes effect July 1, 2013.

But staff cuts may come eventually. In an email to faculty and staff on Monday, Barchi wrote, “While I anticipate some efficiencies and redeployment as we combine operations and adopt best practices across the new institution, our priority must be to maintain all critical academic, administrative, and clinical functions as we build a university that is greater than the sum of its parts.”

According to financial data presented Monday, the combined Rutgers and UMDNJ will have a roughly $3 billion operating budget and some $5.3 billion in assets.

“This will be a very, very large institution with a lot of financial capacity,” said Bruce Fehn, Rutgers’ senior vice president for finance and administration. Still, taking on three-quarters of the debt of a university with a “weaker balance sheet” -- UMDNJ showed a $12 million accounting loss last year -- and adding $470 million in new debt of its own could hurt Rutgers’ credit rating slightly. Even so, by restructuring the nearly $2 billion debt, even if Rutgers’ credit rating is downgraded to A1/A+, the university will save $5.5 million a year in interest. If it keeps its current Aa2/AA rating, the savings will be $6.3 million, according to the financial estimates.

“An $800,000 difference in a $3 billion budget is not going to be that significant to us,” Fehn said.

It’s unclear what Moody’s Investors Service will do or when. David Jacobson, a spokesman, said the agency would not be able to determine any ratings impacts on the affected schools until it could determine “which parties will be responsible for payment of debt service on outstanding bonds, and the magnitude of other costs associated with the merger.”

More Than Money

In addition to the financial questions, about a dozen teams have been working on the other aspects of acquiring UMDNJ, including academic, clinical, and technology concerns. Barchi said the work has shown “huge benefits and opportunities to the state and this institution.” Rutgers’ stature will rise, it will be able to recruit the nation’s best faculty and attract and retain “the best and the brightest” students. Further, the university stands to get additional research dollars. All of these will provide immeasurable benefit.

UMDNJ’s Interim President Denise Rodgers, who has the unenviable task of helping dismantle the nearly 50-year old university, said officials there will continue to work with Rutgers to “fully implement” the restructuring.

While University Hospital is not part of the merger, Rutgers officials say its health is vital to the success of what will be Rutgers’ new medical schools, because it will remain the primary teaching hospital for UMDNJ’s Newark schools of medicine, dentistry, and nursing. “We cannot do this unless the issue of University Hospital is successfully concluded,” Barchi said. “We can’t do anything about that except urge the Legislature to act.” Under the New Jersey Medical and Health Sciences Education Restructuring Act, University Hospital is to become a freestanding, nonprofit hospital with its own governing board (which has yet to be appointed). The act states that the hospital is to receive a level of funding sufficient to maintain the services it currently provides to the community. What's more, the state will help the hospital refinance its portion of the UMDNJ debt, which Rutgers officials calculated at $117 million.

The resolution that the two boards approved states that they accept the restructuring changes in the act provided the debts of both University Hospital and the osteopathic medicine school are refinanced by the effective date of the act and that University Hospital meets all the other requirements of the law and will remain the Newark schools’ teaching hospital.

Serious Doubts

Gordon MacInnes, a former state senator and member of the board of governors, said he hopes Rutgers is serious about holding the state to those conditions.

“The state has not demonstrated the kind of organizational leadership that would allow University Hospital to emerge as a strong institution,” he said. “What has it been doing since June?”

Barchi said the university is going to put whatever pressure it can on the state to get University Hospital’s share of the debt paid. He would not speculate on whether that could be a deal-breaker next June if the debt is not paid off.

Michael Drewniak, a spokesman for Christie, would not comment on the status of University Hospital. He released a statement from the governor thanking the boards for their vote. “The integration of these New Jersey institutions unleashes the full potential of Rutgers University, making it a national magnet and competitor for medical research funding, educational talent, and opportunity for students,” Christie said, adding the restructuring would “secure Rutgers University’s place as a premiere center in the nation for education excellence, the health sciences industry, and an engine of economic growth.” Ralph Izzo, chair of the board of governors, said there is still a lot of work ahead but praised the restructuring as it moves forward. “These are truly historic times,” he said.

Izzo is chairman of the board, president, and CEO of PSEG

Two members of the public urged the boards not to proceed with the vote, but instead to hold public hearings on the matter. One man cited the corruption investigation of UMDNJ as making it unworthy to join with Rutgers.

Janet Golden, a history professor at Rutgers-Camden and vice president of its faculty union, thanked the boards for helping to prevent the South Jersey campus from being given to Rowan.

Instead, the two are going to partner on new and expanded programs in the health sciences to further help the growth at Rowan, which just opened its own medical school and will be getting UMDNJ’s osteopathic medicine school. She also gave credit to those at Camden who fought to keep the school part of the state university.

“We played our part and in the end we made Rutgers a stronger institution,” she said.

Sen. Donald Norcross (D-Camden), one of those who supported combining Rutgers-Camden and Rowan in some form to keep more higher education dollars and boost scholastic programs in South Jersey, applauded the vote as helping to strengthen both schools.

“We will see a more independent Rutgers-Camden with its own governing board to make the decisions that are best for its campus,” he said. “South Jersey tuition dollars will stay where they belong, enabling Rutgers to build programs that are meaningful to the students here. This vote also fosters the developing bonds between two great institutions -- Rutgers-Camden and Rowan -- that have become engines of economic growth for our region.”

Andrew Shankman, a history professor and one of the leaders of the movement to keep the Camden campus as part of Rutgers, said he was gratified by the vote.

"We're truly excited by what our boards did today,” he said. “It's clear that Rutgers controls its own destiny and that Rutgers-Camden is fully part of Rutgers. I'm very glad that the politicians have come to understand that working with the university and its faculty that cares so deeply about higher education in New Jersey is the best way to improve higher education."

NJ Spotlight is an online news service providing insight and information on issues critical to New Jersey, with the aim of informing and engaging the state’s communities and businesses. Read more From New Jersey Spotlight.

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