Grade Point

The Illinois budget impasse has now spread to three universities struggling to pay bills. Moody’s cut Eastern Illinois University’s credit rating to junk territory while Northeastern Illinois University and Northern Illinois University sit one notch just above junk. All three universities are in danger of losing accreditation. More downgrades will come.

The Washington Post reports Illinois Budget Battle Leads Moody’s to Downgrade Several State Universities.

An epic budget battle in Illinois led Moody’s Investors Service to downgrade the credit rating of three of the state’s public universities late Wednesday, the latest setback for schools that have been starved of funding for eight months and now face possible accreditation challenges.

Northeastern Illinois University and Northern Illinois University had their credit ratings lowered to just above junk status, while Eastern Illinois University’s rating is now below investment grade. That means analysts consider revenue bonds issued on behalf of the school to be a credit risk for investors.

“The downgrade is driven by EIU’s increasing vulnerability to the ongoing state budget impasse given its thin liquidity, declining enrollment and high reliance on state funding,” Moody’s said in a statement. “Liquid reserves are expected to be exhausted by the end of the fiscal year.”

Moody’s has held a negative outlook on all eight Illinois universities it rates since the fall because of their diminishing cash flow. Analysts said there was no indication that Illinois would allow its public universities to borrow money during the budget impasse, despite the strain the ordeal has placed on their operations.

Universities in Illinois have not seen a dime from the state in eight months as the Democratic-controlled general assembly and Republican Governor Bruce Rauner have failed to agree on a budget. The governor has tied passage of the $36 billion budget to changes in collective bargaining rights for public employees and worker compensation, business-friendly moves he says will help turn around the state’s flagging economy. If the legislature refuses to sign on to his changes, Rauner wants lawmakers to let him make $3.5 billion in spending cuts in any way he chooses.

Rauner Holds Out For Reform

Rauner repeatedly has stated he will not sign a budget unless Democrats agree to reform. I applaud that stance.

Mike “Mish” Shedlock