CHICAGO – Illinois public university presidents warned lawmakers of the long-term fiscal and reputational damage the state’s historic budget impasse is causing the schools as the Senate prepares to vote on a House measure that frees up $559 million for higher education.

The presidents, during testimony Tuesday at a committee hearing on fiscal 2018 appropriations, called the piecemeal funding proposal a drop in the bucket that doesn’t go very far to cure their fiscal ills after two years of underfunding but all said they would gladly accept it.

“A little bit helps but we really need a full budget,” said Northern Illinois University President Douglas Baker.

“It’s just to get us through the academic year but it’s not adequate,” said Western Illinois University president Jack Thomas, adding that the school is managing cash flow on a “day-to-day basis.”

The school has laid off employees, imposed furloughs and offered an early retirement program to manage through the funding crisis.

Western Illinois University President Jack Thomas warns that confidence in the state's system continues to "erode."

“We are on the verge of a complete collapse of the higher education system that is sending our intellectual capital out of the state,” Thomas told lawmakers.

The budget gridlock between Gov. Bruce Rauner, a Republican, and the General Assembly’s Democratic majorities have shorted the higher education system of more than $2 billion in operating aid, causing ratings on about $2 billion of higher ed debt to plummet.

After a fresh round of downgrades, S&P Global Ratings now rates five state universities in junk territory.

Illinois’ credit deterioration stands when compared to public university counterparts across the country. S&P said only Alabama State University and the University of Puerto Rico carry speculative grade ratings among the nation’s public universities it rates. Various Puerto Rico issues carry CC ratings and Alabama carries a B rating.

Western Illinois officials said the school has no near-term borrowing plans but they worry over the higher future costs of borrowing and Thomas said the headlines about its recent three-notch downgrade further hurt because it “puts us in the news again.”

Some parents and potential students may look at its below investment grade rating and question the educational value of attendance as confidence in the system continues to erode, Thomas said.

Senate President John Cullerton, D-Chicago, said the chamber would vote as soon as this week on the roughly $800 million appropriation dubbed by House Democrats as a “lifeline.” It allocates $258 million for social services which also are starved for payments, and $559 million to the state’s nine universities and its community colleges as well as funding some low-income grants.

The package relies on surplus revenues in special non-general fund accounts earmarked for higher education and human services. It passed the House in a partisan 64 to 45 vote with one member voting present earlier this month.

The money is sitting unused in the special funds “which is kind of ridiculous when we have so many people who are owed so much money,” Cullerton said. Senate amendments are expected and the measure must go through committee. If altered, the bill would then be returned to the House for review after the Senate’s expected passage.

Gov. Bruce Rauner has slammed it as just another short-term solution when pressure should remain on a long-term budget fix. Democrats enjoy a veto proof majority in the Senate but not the House. If it fails, Democrats would likely use the lack of support as political fodder. Tensions have been rising with Rauner running campaign-like commercials and public appearances promoting his budget plans.

Cullerton, the co-author with his Republican counterpart in the Senate of the attempted sweeping budget fix known as the “Grand Bargain,” disagrees.

“We still have the pressure of owing $13 billion and spending $8 billion more than we have coming in,” Cullerton said of the state’s bill backlog and budget deficit. The package remains stalled as Rauner wants further concessions on his demands tied to a local property tax freeze and other policy proposals.

The state’s universities have been sounding the alarms for some time but their pleas are growing more intense as they warn of the dire long-term impact on their balance sheets, enrollment, and on their regional economies.

Some are struggling to stay open and maintain programs. They worry about their ability to attract students, faculty and research grants. Some say tuition hikes and aid cuts lie ahead that will further harm their enrollment prospects. Meanwhile, they are draining cash cushions and deferring maintenance and other capital needs.

It’s going to have “long-run negative dividends for the state,” said Baker of Northern Illinois State.

The state’s University of Illinois flagship has better weathered the aid drought as it relies on a diverse mix of revenues including research grants and has solid financial cushions while drawing students from across the country to its top-ranked programs, but the impact has still been profound.

University of Illinois President Timothy Killeen said top faculty is being “poached” and the losses impact both reputation and research funds as the “best and brightest” move out of Illinois. Delays in state Medicaid payments to its health system threaten federal matching dollars and capital projects are being put off.

The ongoing budget impasse is “threatening the foundation of excellence that has made the U of I system a cut above, in fact a global leader in discovery and education and innovation,” Killeen said.

A fresh round of downgrades by S&P this month dropped Western and Southern Illinois University into junk, while Northeastern Illinois University, Eastern Illinois University and Governors State University sunk further into speculative grade.

Only Illinois State University, which was not downgraded, and the University of Illinois, which was dropped one notch, carry investment-grade ratings. S&P does not rate the state’s other two other public universities, Chicago State University and Northern Illinois University.

The schools carry more than $2 billion in outstanding debt and have shorted more than $2 billion in expected aid over the last two fiscal years.

Earlier this month, Moody’s Investors Service downgraded Northeastern Illinois and placed its rating and the six other public universities it rates on review. Moody’s already rates Eastern, Northeastern, and Governor’s State at junk levels.

Northern Illinois University’s auxiliary bonds are low investment grade and its certificates of participation are junk. Southern and Illinois State are rated in the Baa category and the flagship carries varying ratings that range from A3 to Aa3 levels.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.