Richland one of 15 Illinois community colleges in Moody’s credit downgrade
Decatur-based Richland Community College recently joined the ranks of the Illinois budget stalemate’s latest losses as part of a group of 15 Illinois community colleges — out of 27 total community-college programs statewide — to suffer credit downgrades.
Richland Community College District (CCD) 537 was reassigned from Aa3 to A1 under Illinois’ general obligation (GO) rating and assigned a negative outlook, affecting $160,000 in Moody's-rated debt.
The downgrade to A1 reflects that while Richland Community College's reserves remain sound, its financial position is not commensurate with other highly rated entities in the sector. It also incorporates the college's limited revenue-raising flexibility and moderate tax-base concentration.
Richland is distinguished by its flexible curriculum, designed both for students who benefit from a broad curriculum and for those focused on a certificate or degree outcome.
“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, noting that 23 of Illinois’ colleges “now carry a negative outlook.”
“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 said.
The other downgraded colleges are College of DuPage, Moraine Valley Community College, Joliet Junior College, Parkland College, Southwestern Illinois College, Triton College, John Wood Community College, Rock Valley College, Lake Land College, Rend Lake College, Black Hawk College, Prairie State College, John A. Logan College and Kaskaskia College.
When the state eventually does pass a budget, the downgrades 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.
By design, community colleges depend on state appropriations, tuition and property-tax revenue to run operations, unlike state universities, which rely primarily on state appropriations and tuition. Despite the added stream of revenue, the budget has wreaked havoc on community colleges.
“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," Moody’s said. "Most entered the fiscal year with healthy reserves, providing some cushion against the revenue shortfalls. 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, increased tuition rates and issuance of short and long-term debt.