Moody’s Investors Service downgraded the long term rating of Pennsylvania’s State System of Higher Education to Aa3 from Aa2, with a stable outlook.
The action affects $1.5 billion of debt, but not $529 million of rated privatized student housing debt.
Moody’s, in a report issued late Tuesday, cited the system’s constrained revenue due to weakening state support, declining enrollment, limitations on tuition and fee increases, and challenges in reducing expenditures due to labor-union pushback.
The rating agency also said its July 16 downgrade of Pennsylvania’s general-obligation bonds to Aa2 from Aa1 drove the rating action.
According to Moody’s, cash flow is enough to cover debt service, and liquidity compared to operating expenses is fairly healthy.
Moody’s, in its list of challenges, said unionized faculty and staff, constrains the system’s ability to manage expenses amid challenged enrollment growth. Also, said Moody’s, that drives rising pension and healthcare benefits that further pressure operations.
“[The system] is also exposed to frequent contract negotiations such as those currently under way since the contract ended in June 2011, with possible outcomes including a strike resulting in class cancellations,” Moody’s added.
Universities under the 14-school state system are Bloomsburg, California, Cheyney, Clarion, East Stroudsburg, Edinboro, Indiana, Kutztown, Lock Haven, Mansfield, Millersville, Shippensburg, Slippery Rock and West Chester.
Pennsylvania State University is not part of this system, nor are the four colleges within the Commonwealth System of Higher Education, which consists of four “state-related” schools: Lincoln University, Pennsylvania University, Temple University and the University of Pittsburgh.