Testimony Before the Senate Budget Committee on UMDNJ Merger Plan Costs

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Health Professionals and Allied Employees/AFT/AFL-CIO 110 Kinderkamack Road Emerson, NJ 07630 201-262-5005 www.hpae.org Testimony of Jean Pierce Health Professionals and Allied Employees (HPAE)/AFT,AFL-CIO Senate Budget Committee Hearing March 13, 2012 I thank you Chairman Sarlo, Vice-chairman Stack and Committee members for the opportunity to address you today on the 2013 budget and to raise our concerns regarding the impact on the 2013 budget of the Governor’s proposal to reorganize UMDNJ. My name is Jean Pierce; I am here to represent the Health Professionals and Allied Employees AFT, AFL-CIO (HPAE). HPAE represents 12,000 nurses and health care workers, of which 4,000 are nurses, researchers and healthcare professionals at UMDNJ. On January 25th, 2012 the Governor endorsed the final report of his UMDNJ Advisory Committee. The report recommended broad changes to higher education throughout the State, including the transfer of the Robert Wood Johnson Medical School to Rutgers in New Brunswick/Piscataway and the realignment of UMDNJ’s remnants as the New Jersey Health Sciences University (NJHSU). HPAE and other unions have testified on several occasions about the educational, healthcare and research implications of reorganization, so today I will focus on the financial issues that are poised to impact the 2013 budget. We are concerned that the Governor is not providing a realistic and responsible accounting of the cost of reorganization and its impact on the New Jersey economy. Cost Estimates The Governor does not mention his plan to reorganize higher education in his 2013 Budget Summary and he has repeatedly claimed any changes will be budget neutral. Yet, there is no analysis of how much reorganization will cost or – without State support – how UMDNJ’s already strapped budget will handle the additional burden. Previous cost estimates from the Vagelos report reached as high as $1.3 billion for a merger of UMDNJ.
While cost estimates are missing from the Report and Governor’s budget, Rutgers and UMDNJ have produced initial estimates. In New Brunswick, Rutgers has estimated one-time costs of $40 million and is still determining long-term costs. UMDNJ estimated it would take a minimum investment of $150 million over the next five years to ensure the financial success of NJHSU and $25 million every year to protect University Hospital. Meanwhile, according to the latest data from the Department of Health, University Hospital’s charity care reimbursements are being cut for FY2013 by almost $350,000. Bond Debt and the Need for Capital Improvements Additionally, the Governor’s report fails to address UMDNJ’s $650 million outstanding debt. Since the cost of issuing debt depends on UMDNJ’s credit rating, any downgrade by credit rating agencies would set us back. If reorganization does not get it right, the impact on credit could be as disastrous as default since UMDNJ’s bond covenants include strict financial requirements. I must stress the importance of UMDNJ’s ability to issue bonds and other debt. UMDNJ struggles to accomplish all that we do with aging equipment and strapped budgets in an ever-changing industry. UMDNJ’s aspirations are already limited by lack of resources. If NJHSU’s ability to invest is impaired from the start then the new University will not be able to continue the accomplishments of UMDNJ nor will it be able to compete with newly separate institutions on an equal playing field. Debt is critical in order to fund capital improvements and invest in the future of UMDNJ. Reputation and Economic Impact Despite the current challenges that we face at UMDNJ and contrary to the failing institution that the Governor and his advisory committee portray, UMDNJ is a leader in bringing research dollars and lifesaving discoveries to New Jersey and the world. Advances in specialties ranging from genomics to cancer therapy, to cardiology, infectious disease and in other areas of medical research are regular occurrences. In 2010, UMDNJ attracted external research awards totaling $195million. UMDNJ tops all New Jersey universities in National Institutes of Health awards and life sciences research. UMDNJ as an economic engine has enormous implications for NJ’s economy, as well as Newark’s. UMDNJ research activities create or support over 8,000 full and part-time jobs, has spun-off over 20 companies, and spur $380 million yearly in local spending. 1 A reorganization plan should include the project impact on jobs and the economy of the Newark area, and any project job loss should be mitigated. A reorganization plan
UMDNJ Annual Institutional Profile, September, 2011.
should offer opportunities for investment, for job creation, and for improving, not weakening our local economies. Issues of Substance The Governor’s appointed Committee Chairman has characterized outstanding financial questions as details of implementation to be worked out by the Universities involved. But these questions are not just details. Accessible, affordable and quality patient care, medical research, education, and community health care are issues of substance, and matter a great deal to our communities, our patients, students and medical professionals. Reorganization could present an opportunity to increase grants and funding for UMDNJ, but the Governor’s plan instead appears to increase only the competition between three medical schools and research programs. We worry that without a real fiscal plan and state investment, the proposed NJHSU could be set up to fail – jeopardizing patient and community healthcare in many areas of the State, the education of tomorrow’s health professionals and medical advances, even hurting New Jersey’s economy and endangering numerous jobs. Unfortunately, the current plan does not get it right for UMDNJ’s students, patients, medical researchers, and healthcare professionals. Recommendations Therefore, we ask that your Committee undertake an independent analysis of the total costs of reorganization, bond debt, and potential impact on jobs and the State’s economy; and consider paying-down some of UMDNJ’s outstanding debt so that NJHSU can thrive; and consider pledging support for NJHSU and University Hospital through any reorganization to mitigate harmful impacts on the economy, on medical education, on patient and community care and on the economic and long-term healthcare benefits of medical research. The best way to provide all of these protections is to conduct the merger with legislative oversight, in the public arena, with community input and accountability for public funding, and not merely through an Executive Reorganization Plan that leaves these critical issues’ to a handful of executives. Thank you.
Pierce and Murphy budget testimony UMDNJ.doc363.5 KB