CHICAGO – Illinois’ record-breaking stretch without a complete budget could push the credit ratings of two more state universities into the junk level.
Moody’s Investors Service on Monday said it placed seven state universities under review for potential downgrades affecting $2.2 billion of debt because Illinois has failed to provide them with full operating funding.
Four universities, Northeastern Illinois, Northern Illinois, Governors State, and Eastern Illinois, already have some or all of their debt rated junk. Multi-notch downgrades would push ratings for Illinois State and Southern Illinois universities into junk.
“We will review contingency plans and other expense actions initiated to cope with the shortfall in state operating appropriations. Also included in the reviews are budgeted (fiscal) 2018 operations and assumptions,” the credit rating agency said in a statement.
Illinois is limping toward the June 30 end of a second-straight fiscal year without a complete budget due to a stalemate between its Republican governor and Democrats who control the legislature.
Moody’s said the potential exists for multi-notch downgrades depending on a university’s liquidity and ongoing ability to adjust to the lack of state funding.
The state’s biggest system, the University of Illinois, has so far escaped a downgrade of its Aa3 Moody’s rating since the budget impasse began in 2015.
Moody’s last review resulted in downgrades for six of the universities in June 2016.
Only about four public universities in three other states and Puerto Rico are currently rated junk by Moody’s.
Ahead of its review, Moody’s on Monday cut Northeastern Illinois’ certificates of participation rating two notches deeper into junk, to B1 from Ba2, citing the school’s “continued rapid liquidity deterioration due to weakened cash flow caused in part by a protracted state budget impasse.”
Northeastern’s Interim President Richard Helldobler said he was not surprised by the move.
“The real tragedy here is that after a long history of fiscal responsibility and sound planning, the financial reputations of Northeastern Illinois University and other Illinois public universities are at stake, and this is really reflection of Springfield’s inaction regarding the state’s budget,” he said in a statement.
The Illinois House earlier this month passed $817 million in spending to provide a lifeline to higher education and other state programs. But the measure’s fate is unclear in the Senate, which returns from a spring break next week. A spokesman for Senate President John Cullerton said on Tuesday the bill remains under review.