Coronavirus delaying use of New Jersey's resurrected higher education P3 program
Financial challenges surrounding the COVID-19 pandemic may prompt New Jersey colleges to hold off on using the state’s re-launched public-private partnership program.
Kevin McClure, an associate professor of higher education at UNC Wilmington, said that while the P3 law, which took effect last year, provides colleges with increased financing options, he expects most schools to wait the current health crisis subsides before tackling new infrastructure initiatives. The P3 legislation enables public colleges to enter into P3 agreements with a private developer that assumes full financial and administrative responsibility for capital projects. The original program had expired in 2015.
“They are going to be very cautious to take on any kind of risk in the near-term,” said McClure, who has conducted extensive research into higher education P3s. “Construction probably isn’t a high priority now for colleges.”
New Jersey colleges aggressively lobbied lawmakers to re-authorize the state’s higher education P3 program following its expiration in 2015 after a five-year run. Former Gov. Chris Christie conditionally vetoed a bill in August 2015 to extend the program because of objections to provisions imposing wage requirements and mandating labor agreements.
Gov. Phil Murphy signed legislation in August 2018 resurrecting higher education P3s and expanding the program to local governments, school districts and public authorities. A number of New Jersey public colleges used the state’s prior P3 program including Rutgers, The College of New Jersey, Montclair State, Rowan, New Jersey City University and Stockton University to construct an Atlantic City satellite campus.
Past New Jersey higher education P3 projects for residence halls, dining halls and fitness centers were big drivers of increasing student enrollment, according to Brian M. Nelson, a partner with Archer & Greiner P.C. who leads the firm's State and Local Law & Government Practice Group. Nelson said previously planned higher education P3s would likely be paused until COVID-19 is under control.
“Utilization of the new P3 law was off to a slow start even before the pandemic hit, “ Nelson said. “Given the current uncertainty, I wouldn’t anticipate new projects proceeding at this moment while capital needs are reexamined.”
Nelson noted that prior to the health crisis colleges were seeking more clarity on the updated P3 rules before proceeding. The New Jersey Department of Treasury, which oversees the P3 law, published updates regulations for the program in April.
McClure said while P3 plans have been halted for the moment, looming budget challenges facing New Jersey public colleges from declining state aid in the next few years could create a catalyst for these deals post-pandemic for schools with limited debt capacity. State Treasurer Elizabeth Maher Muoio projected revenue losses of over $10 billion through the end of the next fiscal year in June 2021 resulting from the COVID-19 and schools are bracing for cuts in Gov. Phil Murphy's revised budget to be released in August.
“Budgetary concerns are going to cause schools to look for a private partner for some of these construction projects,” McClure said. “It would enable colleges to take on a project without the additional debt.”
Fitch Ratings downgraded New Jersey general obligation bonds to A-minus from A in April citing the state’s lack of “meaningful reserves” to combat a severe recession. The Garden State’s debt is rated A3 by Moody's Investors Service, A-minus by S&P Global Ratings and A by Kroll Bond Rating Agency.