I don't see anything in the MSM about this yet, I expect we will shortly.
Almost certainly, something's wrong with the numbers in the first post. I don't doubt that salaries are being slashed at Rutgers. But not because of a 1.5% deficit. A healthy non-profit business has a 4% margin -- that's enough to invest back into the business and improve. A 2% margin is workable but causes long term problems. Breakeven works for a short while, ultimately you run out of money. A 2% loss for a year is not a problem, but needs urgent assessment to reverse. So a 1.5% deficit = not really a problem. 1% of 4.5b = $45 million.
Rutger's budget is 4.4 billion or so. Source:
Fiscal Year Budget | University Budget Office
Back in April, there were multiple articles about Rutgers freezing pay and cutting high salaried folks. At that time, they were forcasting a
$200 million shortfall for the next quarter. That, in itself, was not the end of the world represents a 4-5% loss.
I'm guessing that they are now facing a shortfall that is far greater than that. They easily could be looking at $500 million - $750 million. I'm guessing, I'm not an insider. But most likely, the deficit is huge.
The hospital (and all of it's GME programs) are part of the university. So, when the univ needs to cut, it's going to look everywhere. And the hospital's budget isn't so good to start with:
http://www.uhnj.org/about/board/financial_statements/Audit_Report-FY_2018.pdf This is 2018, but you can see mounting losses. It's hard, as a loss center for the university, to say that you don't want your budget cut. They were losing $370 million a year in 2018. Maybe their budget turned around, but I doubt it.
So, the losses are certainly more than 1.5%. They are likely 8-10%. And that's catastrophic zone.
So should the Univ tap into it's rainy day fund? Well, that's complicated. The biggest problem is that this isn't a one time problem -- these losses are probably going to continue for some time. Most places don't want to use their emergency funds to pay for payroll like this -- it's a losers game, you end up in the same place with no money left really quick. It's like paying your mortgage on a credit card - rarely works out well. And, the Univ does NOT have $500 million in cash -- almost certainly it's invested, and now is worth much less, and they really don't want to sell when the market has tanked.
Because it's a state university, they probably are also looking at big state budget cuts also. If you look back at their budget, you'll see $200 million in state funding. The state probably can't afford that anymore, and they can't run a deficit or print money like the feds. Then add in lost revenue (dorms, tuition, etc) and they are probably in big trouble.
Cutting GME salaries and salaries at the bottom of their payscale is a terrible choice for a million reasons. People may leave as the economy improves and others can pay more (as it will take time for the Univ to catch up). Resident recruiting may be a nightmare if they can't even promise what anyone's salary will be. Faculty may leave for the same reason, which will only worsen the problem. It will turn around at some point, but could take awhile. So, this means one of two things: Either the people who run the place are complete idiots (which honestly seems unlikely). Or, their financial situation is so bad that they have no choice. I expect that if they left all of those salaries alone, the salary cuts to physicians and other high earners would be so awful they were worried the whole thing would collapse. I would hope that they used a "sliding scale" for the cuts -- the more you make, the more they cut. But even that is risky -- if your Orthopedic surgeons, Gastroenterologists, and Cardiologists all leave because you cut their salary, you lose all of your income.
The hospital really has no choice but to be part of the university, as it loses so much money every year it needs funding from someone. If it was on its own, it would need $300-400 mil infusion every year, which is 40% of its budget.
Don't get me wrong -- this sucks. And I'd fight tooth and nail to protect residents and their benefits. But there may be no choice here at all.
Honestly, the part of this story that I find the most irritating is that there is a union, who apparently didn't notice or didn't object to a clause in the contract that says that salaries can just be decreased at the Univ choice if there is a financial mess. If that clause wasn't there, there would still be decreases -- or without, the whole place will likely go bankrupt and no one would have a job (pensions lost, etc). But at least the employees would have some say in the matter as to how those cuts are distributed. If I were at RWJ, I'd want my union fees back.
