Universities Face Pressure

Illinois’ public universities have now received all or most of their fiscal 2010 state aid appropriation — a credit positive for the schools — but ongoing liquidity strains are expected until the state solves its budget crisis, Moody’s Investors Service said Monday.

The risk posed by the state’s liquidity problems contributed to the downgrades of five of the eight universities rated by Moody’s in February, and left a negative watch attached to seven of the schools. The agency recently affirmed the ratings but assigned negative outlooks.

“Regardless of these recent payments by the state, we maintain a negative outlook for all of Illinois’ rated public universities, reflecting our continued concerns over the state’s fiscal challenges and the subsequent implications for amount and timing of university appropriations,” Moody’s wrote in its report.

The state’s fiscal 2011 budget reduces university appropriations by 6.2%. The state closed out fiscal 2010 on June 30 with about $6 billion of bills due. Emergency budget legislation gives the state until the end of the year to pay the bills.

The delivery of committed appropriations has allowed the universities to avoid taking advantage of new temporary power from the legislature to use short-term borrowing for operations. With the start of the new school year approaching, Moody’s said tuition payments should also help improve liquidity although the schools remain vulnerable to the timing of state payments.

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