CHICAGO – Illinois' prolonged budget impasse poses a threat to five cash-starved public universities' ability to meet their debt obligations, Standard & Poor's warned in a report Wednesday.
The rating agency put five of the seven Illinois public universities it rates on CreditWatch.
Illinois is the last state without an enacted fiscal 2016 budget. Though 90% of state government spending continues under continuing appropriations, court orders and consent agreements, higher education operating aid and student grants are being withheld because they are subject to annual appropriation.
"In our opinion, the continuing budget impasse could significantly impair these five universities' ability or willingness to make debt payments," said the report authored by analyst Jessica Matsumori. "Furthermore, given the length of current budget impasse and the absence of a substantial agreement among elected leaders, it is our opinion that state appropriation outcomes will remain uncertain in the intermediate term."
The CreditWatch placement is expected to be resolved in the next 90 days.
It covers the auxiliary facility system revenue bonds and certificates of participation of A-minus rated Eastern Illinois University, Governors State University, Northeastern Illinois University, and Western Illinois University; and Southern Illinois University, which is rated A. All had carried negative outlooks.
"We understand leadership teams at a number of institutions have considered contingency plans, implemented furloughs, and enacted hiring and expense freezes where possible. Many institutions report close monitoring of cash flow and report no instances of nonpayment or payment delays," the report said. The schools are barred from short-term borrowing through credit lines or other means without state approval.
The gridlock over the state budget has hamstrung their ability also to plan for the next fiscal year. Gov. Bruce Rauner proposed a 20% cut in university aid in his fiscal 2017 budget proposal, but the reduction is less than he sought in his fiscal 2016 spending plan.
State appropriations are not pledged to any of the referenced bonds, but they account for 37.3% of the schools' operating revenues and contribute to their cash flow and operating performance, S & P said.
"It is our opinion that while these public universities are currently maintaining operations, operating performance and these institutions' ability to service debt will be extremely limited beyond the outlook period if state appropriations are not secured or if draconian state funding cuts occur," analysts wrote.
The state's flagship University of Illinois and Illinois State University escaped the CreditWatch placement because analysts' believe they have the resources to weather continued delays.
The state Senate last week approved a nearly $4 billion bill that would free up higher education funding but Rauner has threatened a veto. The House narrowly failed recently to override a prior Rauner veto of a funding bill for the state's two-year community colleges.
The Republican governor backs an alternative bill that would release higher education funds but Democrats, who control the General Assembly, dislike a provision that would broaden the governor's budgeting powers.
Moody's Investors Service recently put the ratings of 19 Illinois community colleges and their $855 million of debt under review for a possible downgrade.
Moody's last month downgraded two of the universities now on S & P's watch. Eastern's AFS bonds were dropped to the junk rating of Ba1, and its COPs to Ba3. Northeastern was lowered one notch to Baa3 from Baa2. Moody's also lowered Northern Illinois University, which is not rated by S & P.
Chicago State University, whose struggles are the most acute of the state's nine public universities, is not rated by Moody's or Standard & Poor's. It recently announced the cancellation of spring break in an effort to end the semester early because it is running out of cash needed to stay open.
Concerns over the funding crisis prompted a recent warning from the Higher Learning Commission, which accredits the universities. The commission has notified all Illinois colleges and universities that if they expect to suspend operations or close they must provide a detailed plan on how students will be assured of continuing their education.
The nine have about $2.4 billion of combined debt.
