One of the influential financial rating agencies has placed eight of Louisiana’s public universities on its credit downgrade watch list, including LSU, the University of New Orleans, Southern University, the University of Louisiana at Monroe and Louisiana Tech University.
The decision to review the schools for downgrades, which Moody’s Investors Service announced this week, is directly tied to a state budget crisis that threatens drastic cuts to higher education funding.
The Louisiana Legislature is in a special session to try to address a $900 million shortfall in the budget that ends June 30 and a $2 billion shortfall in the budget that begins July 1. Lawmakers have said they are trying to work out a fix that would include some cuts and some revenue-generating measures.
“Funding cuts implemented more than halfway through (fiscal) 2016 limit the universities’ financial flexibility to adjust revenue or expenses, as spring term enrollment and student charges have been established,” Moody’s analysts said in a news release. “The uncertainty for (fiscal) 2017 state funding may adversely affect enrollment, as decisions on the state budget, including scholarship availability, will coincide student choices for fall 2016.”
Each university’s ability to adjust to the budget cuts and potential enrollment volatility will be evaluated as the creditor decides whether campuses’ financial expectations should be lowered.
“Reliance on state funding, expense flexibility, pricing power, strength of cash flow, and liquidity will factor into our assessment of ratings and outlooks for each university,” the release said.
The release further notes the repeated budget cuts that colleges and universities in Louisiana have faced in recent years.
Operational funding for four-year universities was slashed nearly in half from 2010 to 2014, based on Moody’s assessment, prompting steep tuition hikes. During that time, the national average decrease in state support was 9 percent.
Gov. John Bel Edwards, a Democrat who took office Jan. 11, said the news from Moody’s should serve as a wake-up call.
“Over the last eight years, Louisiana’s higher education institutions have faced the largest disinvestment in the country,” he said. “Now, faced with the largest budget deficit in our state’s history, further cuts will be necessary if the Legislature will not work with me to bring in additional revenue. We cannot continue to chip away at funding for higher education and expect them to have the ability to invest in our children’s education.”
The universities Moody’s has placed on review:
- LSU, A1 (debt)
- University of New Orleans, A2 (debt)
- University of Louisiana at Monroe, A2 (issuer)
- LSU Health Sciences Center in New Orleans, A3 (debt)
- Louisiana Tech University, A3 (debt)
- Southeastern Louisiana University, A3 (debt)
- McNeese State University, A3 (debt)
- Southern University System, Baa2 (issuer) Baa3 (debt).