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S&P Downgrades Rutgers’ Credit Rating, Citing Medical School Merger

Report: Rutgers-UMDNJ Merger Left University With Over $110 Million in Debt
Student Protest, Spring 2013 Semester
Many students protested the potential tuition rise the merger might create Charlie Kratovil

NEW BRUNSWICK, NJ—Standard & Poor’s ratings agency issued another downgrade to Rutgers University's credit, citing drained financial resources which came as a result of the Rutgers-UMDNJ merger. 

The agency also lowered Rutger's long-term bond and debt ratings one notch from AA- to A+. Among other downgraded ratings were the commercial paper rating, which went from A-1 to A-1+.

"The ratings and outlook reflect our view that Rutgers' financial resources have diminished somewhat since the university assumed almost 72% of the former University of Medicine and Dentistry of New Jersey's assets and related liabilities in the summer of 2013," S&P credit analyst Ken Rodgers wrote in a statement. 

According to the S&P report, issued on Friday, September 25, Rutgers had over $115 million in outstanding debt.

Rutgers and the University of Medicine and Dentistry of New Jersey (UMDNJ) merged in 2013, after lengthy negotiations allowed Rutgers to absorb most of UMDNJ's New Brunswick, Piscataway and Newark campuses.

The merger was pushed by Governor Chris Christie and the New Jersey State Legislature. It brought with it $76.3 million in uncovered costs to the University, including the combining of computer systems and records, human resources, and campus facilities.

Roughly $50 million, or half of the total expected cost for the merger, had already been spent come the summer.

President Barchi, along with Governor Christie and other Rutgers officials, assured students that they would not be forced to incur the costs of the merger in the form of rising tuition. 

“The commitment that President Barchi made to me and made to the Legislature was that those costs would be paid for out of savings at the university and not out of higher tuition or more money from the state,” Christie said on a call-in radio show in 2013.

“The fact is that if you’re a manager who will now be running a $4 billion company and you can’t find $70 million in savings somewhere, then you’re not very much of a manager, and he is a very good manager.”

Barchi also echoed Christie's claims that the UMDNJ debt would not raise tuition throughout 2013, at many strategic planning town hall meetings.

However, when testifying at the Assembly Budget Hearing in April 2015, Barchi reversed his stance.

He told committee members that Rutgers has anywhere between $17 million and $25 million remaining that would have to be spent on the merger, calling it an "unfunded mandate."

"Everything we’ve done to reduce costs is eaten up by the $50 million” and said that money could have helped keep tuition down, going against previous statements that the $50 million would not be paid by students through tuition.

Critics of the merger have cited it as the reason for the consistently increasing tuition at Rutgers over the past several years. 

Early this July, the Rutgers governing board approved a 2.4% tuition increase.  That increase was preceded by a 2.2% increase in 2014 and a 3.3% tuition hike in 2013.