BRADENTON, Fla. – Eight Louisiana public universities face possible Moody's Investors Service downgrades.
The institutions were placed on review for downgrade, reflecting looming state funding cuts, including an unexpected contraction in state scholarship aid, Moody's analysts said late Monday.
Louisiana legislators are in a special session dealing with an estimated $940 million budget shortfall this year and a $2 billion gap for the year that starts July 1.
Higher education faces between $70 million and $200 million in cuts in the current year, depending on how lawmakers revise the current budget, Gov. John Bel Edwards wrote in newspaper columns on Monday. He also said that the numbers could be larger in fiscal 2017.
"Funding cuts implemented more than halfway through fiscal year 2016 limit the universities' financial flexibility to adjust revenue or expenses, as spring term enrollment and student charges have been established," Moody's analysts said. "The uncertainty for fiscal year 2017 state funding may adversely affect enrollment, as decisions on the state budget, including scholarship availability, will coincide student choices for fall 2016."
Moody's said it will review eight university ratings, focusing on each institution's ability to adjust to the timing and magnitude of state funding reductions and potential enrollment volatility.
"While the credit impact will be distinct for each university, public universities in Louisiana operate in a very challenging environment," analysts said. "Louisiana's four-year universities have endured a severe 47% decline in operating appropriations between 2010 and 2014 compared to a median of 9% for our rated U.S. public universities."
Moody's also said that to mitigate budget cuts, universities without a solid brand in the region may have exhausted pricing power by increasing tuition by an average of 52% since fiscal 2010 compared to the U.S. average increase of 13%.
Louisiana State University, the state's flagship institution, is among those on review. The A1-rated LSU has $633 million of outstanding long-term debt and annual operating revenues of $818 million, according to Moody's.
The other institutions on review list are the University of New Orleans Research & Technology Foundation, the University of Louisiana at Monroe, LSU Health Sciences Center in New Orleans, Louisiana Tech University, Southeastern Louisiana University, McNeese State University, and Southern University System.
Last April, Standard & Poor's placed five universities on negative CreditWatch because of proposed fiscal 2016 reductions for higher education.
The facilities avoided rating downgrades when S&P removed its watch in April because the state bolstered their 2016 budgets instead of enacting new cuts.
Since then, Louisiana has suffered declining revenues because of low oil prices and a slow-down in sales tax collections, and underfunding of several key budget areas, according to state officials.