BRADENTON, Fla. – West Virginia State University's bonds were downgraded to junk level by Moody's Investors Service because of material financial problems that include federal sanctions.
WVSU’s $10.7 million of outstanding bonds were lowered five notches to B1 from Baa2.
The B1 rating was placed on review for further downgrade.
“The magnitude of the downgrade is the result of a material negative variance of fiscal 2017 financial performance relative to our prior expectations and further expected weak performance in fiscal 2018,” said Moody’s analyst Christopher Collins.
Collins also said expense reductions planned for fiscal 2017 failed to materialize, resulting in another sizeable operating deficit in fiscal 2017, further decreasing liquidity to just $1.3 million.
The rating remains under review for further downgrade, he said, based on uncertainty around the university’s ability to navigate through recent federal sanctions and uncertainty about the ability to balance operations in fiscal 2018.
The analyst said Moody’s rating “favorably” incorporates WVSU’s role as a historically black public university in the Charleston metropolitan area. It is the only public university in the state’s capital city, and has nearly 3,000 full-time students.
In July, WVSU and other public universities in West Virginia were placed on provisional certification and heightened cash monitoring for five years by the U.S. Department of Education due to delayed financial statements and annual compliance reports.
It was the third year submissions were delayed because information needed from state agencies was not timely filed, pushing back the release of comprehensive annual financial reports.
Gov. Jim Justice launched an investigation, ordering state agencies to submit to his office the dates each filed information. He said the USDOE sanctions will mean that universities “will have to float a greater share of student loan funding up front.”
Justice railed against Democrats for state budget cuts in an Aug. 4 press conference that took place a day after he appeared at a rally with President Donald Trump, announcing that he would switch to the Republican Party.
Democrats “were willing to hurt constituents [and] cut our universities even more,” Justice said, complaining that some of his budget proposals didn’t pass because some of them were also supported by the GOP. “My own party left me.”
Justice did not respond to a request for comment about WVCU’s downgrade on Friday. He has said that the university received a 4.88% cut from the Legislature that required increases in tuition.
Moody’s said the university has not released “clear strategies” to address its fundamental fiscal imbalance.
“A weak strategic position and poor fundamentals in its core student market will make tuition revenue growth challenging, with the university projecting declines in core enrollment for fall 2018,” Collins said. “Revenue pressures are exacerbated by expected reductions in state operating support.”
The university will confront significant financial distress in fiscal 2018, he said, without “material and rapid expense reductions” or extraordinary support from the state.