CHICAGO - Illinois' current fiscal strains pose a threat to the credits of state's public universities that rely heavily on state subsidies, Standard & Poor's said in a new report.
The rating agency's concerns outlined in the report published Friday center on the potential impact of the state's budgetary strains on university appropriations. The state's public higher education institutions rely on the state, on average, for 42% of their revenues.
Standard & Poor's assigns a negative outlook to five of the state's seven public universities. The status reflects concerns over state funding dependence. "We will continue to monitor pension and budget developments in Illinois to assess the risks to public higher education in the state, with a focus on each institution's risk mitigation strategies and long-term financial planning," the report reads.
The rating agency shifted Illinois' outlook last month to negative from developing after the state's adoption of a fiscal 2015 budget that didn't extend expiring income tax rates or include cuts to reflect the nearly $2 billion loss in tax revenue expected.
A recent Illinois Supreme Court ruling assigning strong constitutional protections to retiree healthcare benefits has also raised concerns over the outcome of pending litigation challenging the state's pension system overhaul that was approved in December.
Standard & Poor's rates Illinois' general obligation bonds A-minus. If a downgrade occurs, Standard & Poor's warned public universities could also see their ratings fall. If the state's credit stabilizes, universities could see a positive shift in their outlook.
Illinois' public universities rely more on student tuition and fees than they have in the past, but the state still provides more support to its public universities on a percentage basis than do many other states. The concern for rating analysts is that state decisions about postemployment benefits and other state support could dig into university budgets.
Universities have been hit by delays in state aid disbursements in recent years as the state put off payments of bills to deal with its own liquidity challenges. That's eased over the last year but could worsen given fiscal 2015 challenges.
Standard & Poor's said state university's creditworthiness does't usually exceed its sponsor state, unless it demonstrates overwhelming demand or financial strength. Three Illinois universities are rated higher than the state. The flagship University of Illinois is rated AA-minus and stable and relies on state funding for 31.6% of 2013 revenues, Illinois State University is rated A-plus and negative and relies on the state for 38% of revenues, and Southern Illinois University is rated A and stable and relies on the state for 43% of revenues.
Western Illinois University is rated A-minus and negative and relies on the state for 43.6% of revenues, Eastern Illinois University is rated A-minus and negative and relies on the state for 44% of revenues, Northeastern Illinois University is rated A-minus and negative and relies on the state for 46% of revenues, Governors State University is rated A-minus and negative and relies on the state for 49.3% of revenues.
