CHICAGO – Illinois' budget crisis and political gridlock have taken a toll on the state's public colleges and universities, S&P Global Ratings said in a report recapping the credit erosion and warning of a tough road ahead for the schools.
The state has nine public universities with more than $2 billion of debt outstanding. Seven are rated by S&P. The state also has 39 community college districts.
Two-year community colleges and four-year universities struggled for much of fiscal 2016 without any of their state aid. In the spring, lawmakers freed partial funding of $600 million. As the fiscal 2016 budget impasse was set to drag into fiscal 2017 July 1, lawmakers again passed partial funding of $1 billion in a stopgap spending plan designed to get the state through December. It gets schools to an average of about 80% of what they were previously appropriated and there's no guarantee of funding for the second half of the fiscal year.
S&P downgraded Illinois in June, and several universities also soon took a credit hit. While state downgrades don't necessarily equate to a direct or proportional change in the rating and outlook on each university, given that state appropriations make up approximately 40% of these institutions' revenue on average the impact has been acute in the past year, S&P said in its report, "Illinois' Fiscal Woes Weigh Hard On Public Universities And Colleges."
"The negative outlook on the state's rated public universities reflects the considerable financial and liquidity challenges we believe these institutions will continue to face over the next one to two years, particularly if the state continues to delay, reduce, or not provide operating appropriations or Monetary Assistance Program funding," wrote analyst Ashley Ramchandani in the report published Wednesday.
The flagship University of Illinois relies less on state aid than its counterparts, with support accounting for 30% of its operating revenues. Governors' State University is on the high end at 45.6%.
The flagship and Illinois State University enjoy higher ratings than the state's BBB-plus. They are rated at A-plus and A, respectively, after downgrades this year. Eastern Illinois, Governors State, and Northeastern State have junk-level ratings after downgrades. Southern Illinois is rated BBB-plus and Western Illinois University is BBB-minus.
Many community college districts have ample reserves to cushion the impact of reduced and delayed state funding, though some are in a weaker position and haven't been immune to credit spillover. The rating agency has downgraded 15 of the 26 districts it rates primarily over state budget woes.
"The prolonged uncertainty and likely reduction in state revenues cannot continue indefinitely before CCDs drain their reserves and are forced to rely on short-term borrowing to meet cash flow needs," S&P wrote. "We will likely continue to lower ratings on issuers which do not show plans to align their budgets with the decrease in revenue and maintain their very strong reserves through expenditure cuts and/or tuition and property tax increases."
