CHICAGO — While Illinois is still behind in aid payments to its public universities, the rating risk posed by the state’s liquidity problems eased a bit yesterday when Moody’s Investors Service confirmed the ratings of seven of eight public schools and took them off negative watch.
Moody’s did assign longer-term negative outlooks because it remains concerned over the ongoing effect of payment delays and the potential for state funding cuts.
The rating confirmations yesterday applied to Illinois State University, Southern Illinois University, Western Illinois University, Northern Illinois University, Eastern Illinois University, Governors State University, and Northeastern Illinois University.
Moody’s in February affirmed the Aa3 for flagship University of Illinois’ auxiliary facilities revenue bonds and certificates of participation, the A1 for its south campus bonds, and the A2 for its health system debt, due to careful management of liquidity and diverse revenue base.
Five of the other seven universities at the same time in February were downgraded and the ratings for all seven were left on negative watch. The University of Illinois’ direct debt was assigned a negative outlook while its health care bonds got a stable outlook.
“The negative outlook reflects our longer-term concerns regarding the extensive state appropriation payment delays currently experienced by Illinois public universities, which have placed significant pressure” on their liquidity position and “may continue for a significant period,” analysts wrote in the reports issued yesterday on the seven universities. “The negative outlook also reflects our longer-term concerns for potential cuts in funding from the state.”
Illinois is required to keep university funding at a level equal to at least fiscal 2006 levels in order to continue to receiving federal stimulus funding, but in fiscal 2012 that requirement ends. If the state’s budget problems persist, university funding could face steep reductions.
Moody’s confirmed Governors State’s A3 rating on $28 million of debt. The school has received 73% of its fiscal 2010 allocation from the state and relies on state appropriations for 46% of its revenue. It has 4,154 students and is located in University Park, a far south suburb of Chicago.
Moody’s confirmed Eastern’s A3 rating on $142 million of debt. The school has received just 52% of its appropriation and relies on state aid for 37.8% of its revenues. It is located in Charleston and has 10,557 students.
Illinois State’s A3 rating on $130 million of debt was also confirmed. The school has received just 56% of its state funding allocation and relies on state funding for 36.6% of its revenue. It is located in Normal and has 18,387 students.
Moody’s confirmed Northern’s A3 rating on $116 million of debt. The school has received about 58% of its allotted payments and relies on state appropriations for 36% of revenue. It is located in DeKalb and has 20,000 students.
Northeastern’s A3 rating was also confirmed, affecting $32 million of debt. The school has received about 61% of its state aid and relies on the state for 48% of its revenue. The Chicago school has 7,150 students.
Moody’s confirmed Southern’s A3 rating on $327 million of debt. The school has received just 54% of its annual appropriation and relies on it for nearly 40% of revenues. The university, located in Carbondale, has 28,652 students.
Moody’s also confirmed the A3 rating for Western Illinois and its $50 million of debt.
The school has received about 67% of its annual appropriation and relies on state funding for 40% of its revenue. The school, located in Macomb, has 11,100 students.
Ronald Ward, director of business services at Western, said Moody’s action is a positive for the school, but added that he understands analysts’ concerns over longer-term state support.
“We have had a very tough time and had to tap our unrestricted investment funds. The state is far behind where they were last year, and last year we saw an unprecedented delay,” he said.
While analysts said a resolution to Illinois’ liquidity problems and sustained funding levels could prompt positive action in the future, the prospects for such actions are dim.
Gov. Pat Quinn’s latest proposal to eliminate a $13 billion budget deficit includes leaving $6.2 billion in bills due in fiscal 2010 unpaid at the close of the fiscal year June 30.
Quinn also wants to extend to six months from two months the period into the next fiscal year during which the state can pay bills incurred previous year.
The governor has also proposed steep education cuts from current levels, but would reverse them if lawmakers approve an unpopular income-tax surcharge.