In response to decreased state funding, community college officials have reduced expenditures, increased tuition rates and issuance of short- and long-term debt. | File photo
In response to decreased state funding, community college officials have reduced expenditures, increased tuition rates and issuance of short- and long-term debt. | File photo
Illinois' budget woes have affected Community College District 505 and Parkland College.
Because of the state's delay in funding higher education, Moody's Investors Service downgraded the rating on the district's general obligation unlimited tax from Aa2 to Aa3.
Founded in 1967, Parkland College has provided academic and vocational classes to more than 300,000 people over its nearly 50-year history. District 505 is the third-largest community college district in the state. It serves 54 East Central Illinois communities with a total population of approximately 245,000.
Moody's reviewed Parkland and 26 other Illinois community colleges' ratings due to the state's continuing budget issues. Fifteen community colleges, including Parkland, were downgraded and received negative ratings due to the uncertainty of funding and the anticipated depletion of the colleges' reserves. Parkland maintained its Aa rating category, but the qualifier that indicates its position within the category dropped from the center to the lower third – from a 2 to a 3.
"Despite the state of Illinois' (Baa2 negative) unprecedented yearlong 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. “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 added that 23 of Illinois’ colleges “now carry a negative outlook.”
When the state eventually does pass a budget, the downgrade 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 on 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.
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