Moody's downgrades 15 Illinois community colleges' bond ratings
More than a dozen community colleges in Illinois have become the latest casualties of the budget stalemate that has dragged on for over a year.
Moody’s Investors Service recently downgraded 15 of Illinois’ 27 community colleges.
“Despite the State of Illinois' (Baa2 negative) unprecedented year-long delay in approving a full higher education budget, the credit quality of rated Illinois community colleges remains strong due to their sound reserves and diverse revenue streams,” Moody’s said in its report. “However, the state's fiscal challenges have taken a toll, weakening colleges' financial positions and leaving them vulnerable to further state-aid delays and potential increases in pension costs.”
Moody’s also said 23 of Illinois’ colleges “now carry a negative outlook.”
The downgraded colleges are College of DuPage (Aaa to Aa1), Moraine Valley CC (Aaa to Aa1), Joliet Junior College (Aa1 to Aa2), Parkland College (CCD 505)( Aa2 to Aa3), Southwestern Illinois College (Aa2 to Aa3), Triton College (Aa1 to Aa3), John Wood Community College (Aa3 to A1), Rock Valley College (Aa2 to A1), Lake Land College (Aa3 to A1), Richland Community College (Aa3 to A1), Rend Lake College (Aa3 to A1), Black Hawk College (Aa3 to A1), Prairie State College (Aa3 to A1), John A Logan College (A1 to A2) and Kaskaskia College (A1 to A3).
When the state eventually does pass a budget, the downgrade will not be reversed, Moody’s said.
“Our recent rating actions reflect colleges’ exposure to the fiscally challenged State of Illinois for operating support, program and scholarship grants, and pension funding,” the report said. “This exposure will continue beyond passage of a state budget. We would consider reviewing the credits in a positive direction if the state’s credit quality were to improve.”
Last month, Moody’s placed the University of Illinois and six other state universities on review for downgrade after downgrading the state of Illinois from Baa1 to Baa2.
Community colleges rely on state appropriations, property tax revenue and tuition to operate, unlike state universities, which rely mostly on state appropriations and tuition. Despite the added revenue stream, the budget impasse hit community colleges hard.
“The state has gone nearly a year without adopting a full budget, leaving community colleges with only a fraction of the state support they were expecting. Most entered the fiscal year with healthy reserves providing some cushion against the revenue shortfalls,” Moody’s said. “Based on our conversations with community-college officials, we expect most will close fiscal 2016 with reduced, though still sound, cash levels. The weakest colleges will likely have narrow reserves, but still retain sufficient liquidity.”
In response to decreased state funding, community-college officials have reduced expenditures, and increased tuition rates and issuance of short- and long-term debt.