Moody’s Downgrades 7 Illinois State Public Universities Because of Illinois Debt
Bond Buyer Online reports (9/3/13):
""Illinois’ public universities are burdened, as are the state’s local governments, by the weight of state inaction on pension reform, but face additional fiscal strains from declining aid and tight in-state tuition regulations.
That’s the conclusion in a report Moody’s Investors Service published last week following its Aug. 9 downgrade of seven of the state’s eight public universities. The action impacted $2.5 billion of rated debt. All eight carry a negative outlook.
"Illinois public universities face multiple financial challenges which will continue to pressure credit quality," said the report, authored by analysts Erin Ortiz, Diane Viacava, Emily Schwarz, and Edith Behr.
The August downgrades came after Moody’s put the credits on review in June over their exposure to the state’s fiscal woes. Moody’s previously had downgraded four and confirmed the ratings of the other four in a review concluded in March.
The latest review cut even the flagship University of Illinois’ rating. The school, which enjoys more financial flexibility and balance sheet strengths than the others, had been spared credit deterioration over the state’s pension and liquidity troubles in recent years.
Analysts put the universities’ exposure to the state’s pension mess at the top of the list of pressures squeezing them. Proposed reforms have not been able to break through political gridlock in the state capital. A legislative conference committee is expected to unveil a new reform package this month.
Illinois’ $95 billion of unfunded liabilities strain both the state’s budget and its liquidity, impacting the size of operating aid and the timing of those payments to the universities. The state is chronically behind on aid and closed out fiscal 2013 on June 30 owing $6 billion to aid recipients and vendors.”“
"Back in 1981, Illinois reported $164 million in debt service “interest” expense. By 2012, Illinois’ accumulating debt led to a reported $1.6 billion in interest expense — about 900% higher than in 1981, despite a 95% decline in general interest rates! To boot, Illinois has had a longstanding ‘balanced budget’ requirement in the state constitution, which theoretically constrained state borrowing.
In 1981, Illinois reported $8.4 billion in total liabilities. By 2012, that amount had risen to over $100 billion. And that is just the amount reported by the state under current government accounting standards. These standards have long allowed states to accumulate massive off-balance sheet liabilities for retirement programs for government employees. Truth in Accounting estimates these obligations totaled over $120 billion in Illinois as of fiscal year-end 2011 – an amount about equal to the state’s total reported liabilities.
$164 million in interest expenses in 1981 would be equal to $421 million in today’s dollars, and $8.4 billion in total liabilities in 1981 is equal to $22 billion in 2013 money, so the percentage increases aren’t quite as dramatic as claimed.
Still, that’s a whole lot of debt.”
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