Illinois's Seven Universities Face Downgrades Over Budget MorassBy
Lack of spending plan is draining liquidity, Moody’s says
University of Illinois, the flagship, among those reviewed
Another day, another blow to institutions that rely on Illinois.
Moody’s Investors Service placed all seven of the state’s public universities it rates on review for downgrades as the unprecedented budget impasse leaves the aid-dependent schools burning through cash. Illinois hasn’t had a full-year spending plan for more than 21 months, and the most recent one ran only through the end of 2016.
Four of the seven already have junk ratings on their bonds, while two others are within one or two levels of losing their investment-grade status. Only debt from the state’s flagship institution, the University of Illinois, is rated more than three steps above junk. The review affects $2.2 billion of debt and threatens to leave the universities facing increased borrowing costs if investors demand higher yields to compensate for the risk.
“The result of the review could result in differing actions, including some potential multi-notch rating actions depending on liquidity and ongoing ability to adjust to the prolonged lack of state operating funding,” Moody’s said in an emailed statement Tuesday.
Illinois has been without a full-year budget since July 2015 because Republican Governor Bruce Rauner and the Democrat-led legislature have failed to agree on how to close the government’s chronic deficits. While the state passed a temporary one last year that restored some funding to universities, it wasn’t been enough to prevent furloughs and other cuts at the schools. It has since expired, and Rauner has said he opposes enacting another such stop-gap measure.
Moody’s also lowered Illinois’s Northeastern deeper into junk on Monday, dropping its rating by two steps to B1, four levels below investment grade.