Moody’s downgraded Northeastern Illinois University three notches to B1 from Ba2, April 17, and announced that Northeastern would be among six public universities that would be further reviewed for downgrading.

Illinois public universities got a one-two punch in the gut from national credit rating agencies as both Moody’s and Standard & Poor Global Ratings announced downgrades based on a lack of cash-flow from the 22-month Illinois budget impasse. Now five Illinois public higher education institutions are officially in “junk status.”

Moody’s downgraded Northeastern Illinois University three notches to B1 from Ba2, April 17, and announced that Northeastern would be among six public universities that would be further reviewed for downgrading.

“The review is prompted by failure of the State of Illinois to enact a budget providing full operating funding to the universities for the current fiscal year (FY) 2017 and resulting operational and liquidity strains on the universities,” Moody’s announced.

Moody’s has already deemed Northeastern, Eastern Illinois and Governors State universities as having “junk” status” and warned that Illinois State, Northern Illinois and Southern Illinois are nearing “not prime” territory.

On April 19, S&P also downgraded Northeastern Illinois and Southern Illinois in Carbondale by three steps, pushing SIU into “junk status.”

S&P dropped University of Illinois to three notches above junk status and, like all the other universities, with notice that more downgrading could come within 90 days when the universities end their fiscal years in July, 2017. Illinois State University remained on its bond-rating tier, but was flagged as having a “negative outlook.” S&P said the only other public universities it rates that are in junk bond status are Alabama State University and the University of Puerto Rico.

The negative bond ratings mean that institutions will have to pay much higher interest rates to issue debt. The status also blocks potential buyer public institutions, such as pension funds, from purchasing bonds. The state university system has $2.2 billion in debt.

Public university presidents testified at a Senate budget hearing April 25 for the Illinois House’s $800 million “lifeline” proposed stopgap budget, which would release $559 million to the state’s public universities and community colleges and fund MAP grants. Presidents have complained of faculty and staff poaching, student enrollment dropping and massive staff cuts, according to reports of the testimony. They said that it may take years to recover from the damage done to state institutions.

S&P also pointed out the long-term damage that the state’s budget inaction would have on Illinois public universities:

“Staff and class reductions and the general ambiguity surrounding state funding have, in our view, weakened many of these institutions’ competitive market position with regard to faculty, staff, and student recruitment,” the report said.  “If these pressures continue, these universities will have minimal resources and limited flexibility to implement any significant strategic efforts to repair the damage done to their brand and general market position over the past few years.”

At a higher education rally outside the Capitol in Springfield April 27, State Rep. Katie Stewart (D-Collinsville) said the SIU-Edwardsville pharmacy school was owed $1.25 million by the State of Illinois, one of only three public pharmacy schools and the only one outside Chicago.

“The rest of students in the entire state in Illinois will have nowhere for them to go [outside Chicago] for their [pharmacy] studies. We want to keep our students in our state, but we can’t if we don’t have the programs in our state,” she said. “We’re in desperate straits right now and we’re ready to start losing programs.”

Illinois Secretary of Education Beth Purvis responded to the downgrades on behalf of Gov. Bruce Rauner saying the Governor is “gravely concerned about the severe financial challenges facing our students, colleges and universities due to the General Assembly’s failure to pass a balanced budget.”

Illinois Universities have not received any state funding since January, when they received “stopgap” funding of $1 billion. The state has shorted the universities by more than $2 billion in the past two years.

Illinois Universities’ credit rating statuses April, 2017

Source: Moody’s, Standard & Poor Global