CHICAGO – Illinois' public colleges and universities remain at risk of further credit damage as they remain starved for aid after 21 months of state budget gridlock, Moody's Investors Service said Thursday.
State aid that flows to public colleges and universities requires an appropriation, unlike many other areas of state spending that flow based on continuing appropriations or legal orders, and higher education institutions have received dribs and drabs of funding through temporary and stopgap authorizations since July 2015.
The strains have already dragged down many of the universities' ratings, leaving some in junk territory. Moody's assigns a negative outlook to the eight universities it rates.
The state has nine public universities with more than $2 billion of debt outstanding. State aid makes up on average about 40 % of the universities' operating revenue.
As the impasse stretches toward a third fiscal year, the strains are being felt in staffing and programming cuts that could have a lasting impact on school reputations, enrollment, and their longer term financial health.
"These credit negative circumstances are increasingly forcing the state's public universities to take considerable steps to continue operations and stem the tide of eroding unrestricted liquidity," says the piece "Protracted Budget Gridlock Credit Negative" authored by analysts Matthew Kuchtyak, David Levett, and Susan Fitzgerald.
"Material programming reductions and staffing cuts, while necessary to keep the state's public universities operational in the short-term, will further impair the universities' abilities to sustain their strategic competitiveness and attract students for the upcoming fall 2017 class," Moody's wrote.
In the past week, Northeastern Illinois University, which carries a speculative rating of Ba2 with a negative outlook, announced the elimination of 300 student employee positions. Roughly 1,100 university employees will take an unpaid week off during the university's spring break. Hiring and spending freezes are in place.
Governors State University, which is rated at the junk level of Ba1 with a negative outlook, announced the elimination of 22 academic programs and a 15% tuition increase for all undergraduate, graduate and doctoral programs to take effect during the next academic year. That comes on top of the past elimination of 35 programs and 62 staffing cuts.
The reputational hit only serves to worsen other enrollment challenges. Long-term projections show a decreasing numbers of high school students nationally and regionally in the Midwest over the next 15 years.
Illinois is expected to fare worse than its regional and national peers with high school graduates expected to be 14% lower in 2031-32 than 2016-17, compared to 3% lower nationally and 7% lower regionally.
"These demographic challenges add further pressure to the state's universities, limiting their ability to grow student related revenues to mitigate the impact of state-level issues," Moody's wrote.
Fiscal 2017 liquidity, enrollment and operations are expected to further erode but "we fully expect that the state's public universities will make their upcoming debt service payments," Moody's said.
The state's 39 community colleges have experienced similar, though less severe, operational and credit pressure, analysts said. Reserves have declined, but remain healthy for community colleges rated by Moody's.
Community colleges enjoy a more a diverse revenue stream than four-year public universities with local property taxes providing a significant source of revenue.
Both community colleges and public universities face strains dealing with diminished state funding of the Monetary Award Program for lower income students forcing some schools to dip into their coffers to cover the losses.
