As a result of increased higher education funding recently approved by the Louisiana Legislature, Standard & Poor’s Ratings Services, one of the big three rating agencies, on Wednesday removed many of the state’s public universities from its credit watch.
Standard & Poor’s lifted the negative fiscal connotation on bonds issued by several Louisiana universities, including the University of New Orleans, the University of Louisiana at Lafayette and LSU’s Health Care Community Development Corp.
“This is indeed a step in the right direction, as we continue seeking sustainable sources of funding for all institutions,” Higher Education Commissioner Joe Rallo said in a prepared statement.
LSU also hopes to take advantage of the good news by resurrecting an effort to raise $114 million, mostly for construction projects on the Baton Rouge campus.
“We do not have a set time frame yet. We hope to meet with the university’s financial adviser in the coming weeks to discuss exactly when we might pursue that course of action,” Kristine Calongne Sanders, LSU’s assistant vice chancellor for communications, said in a prepared statement Wednesday.
LSU had hoped to sell bonds, to be repaid by fees, to raise $114 million to finance the construction of a family housing complex and another new residence hall, in addition to renovations to the Evangeline Residence Hall and the refinancing of previous bonds.
LSU withdrew April 24 from a bond sale it was proposing as bad credit news cascaded down on higher education institutions across the state.
Investors who buy the bonds rely on the influential credit rating agencies whose analysts make recommendations about the investments based on their study of the fiscal situation. Cautious findings by the analysts often lead to an increased price for the bonds in order to entice buyers.
“I’ll think they’ll get a better reception this time,” said state Treasurer John N. Kennedy, who heads the State Bond Commission, which would oversee the sale.
Legislators started the session April 13, faced with a $1.6 billion deficit and following years of cuts to state support for public colleges and universities as a way to help balance the budget.
“They gutted the universities like fish,” Kennedy said. “And we were going into another session with a billion-dollar hole. The rating agencies said, ‘Gee, with this kind of record, we have to put them on negative credit watch.’ ”
Moody’s Investors Service had lowered LSU’s credit outlook from positive to stable in mid-April, citing limited prospects for sustained revenue growth. Then on April 28, Standard & Poor’s imposed a credit watch, with its negative fiscal connotation, on bonds issued by several other Louisiana higher education institutions.
Debra Boyd, a Standard & Poor’s credit analyst, said the reason was because the state’s universities were expected to receive deep cuts in state funding.
“These latter budget cuts did not occur, so we are removing the bonds from CreditWatch,” Boyd said. “However, we believe the impact of the historic cuts could still present rating pressure for each university, which will need to be evaluated during their next full review.”
“We outlined a path to protect higher education and — with the help of the Legislature — we delivered on that promise,” Commissioner of Administration Kristy Nichols said.
The state operating budget for the fiscal year that began July 1 increased funding for higher education by 3.8 percent over the last fiscal year. Nichols also argued that Gov. Bobby Jindal’s SAVE program, in effect, created a dedicated revenue stream for higher education.
The controversial program’s other goal was for Jindal to say the taxes imposed by the Legislature were “revenue neutral,” that is, offset by credits. SAVE levies a fee on college students, who will receive a credit for the same amount that is turned over to the institution, which can then collect the amount from the state. It should raise about $350 million a year for colleges and universities.
Follow Mark Ballard on Twitter, @MarkBallardCNB. For more coverage of government and politics, follow our Politics Blog at http://blogs.the advocate.com/politicsblog.