With the threat of deep budget cuts looming, Standard & Poor’s is sounding an alarm on five Louisiana higher education institutions.
S&P’s decision to put Nicholls State University, University of Louisiana at Lafayette, University of New Orleans Research Foundation, LSU’s Bogalusa Community Medical Center Project and the Delgado Community College Foundation on its CreditWatch negative list comes as a rare move as the state budget is still being mulled. The change could affect the institutions’ abilities to secure bonds for campus projects until the budget is resolved, and S&P’s report wasn’t optimistic about the outlook for the coming year, noting that even “the best-case scenario” isn’t rosy.
“Although it is unusual for us to take a rating action on a budget that has not been approved, we believe that, given the history of state appropriation reductions coupled with the proposed reductions in higher education funding, even the best-case scenario could pressure public universities in Louisiana and result in significant related financial uncertainty,” analyst Bianca Gaytan-Burrell wrote in the report out this week.
The move effectively places the schools on a watch list, cautioning investors that their ratings could be lowered in the near future.
“During this time, we will continue to monitor the universities’ respective response to the budget, and we expect to resolve the CreditWatch negative status in the next 90 days,” Gaytan-Burrell wrote.
Higher Education Commissioner Joe Rallo said he’s optimistic that the schools will be taken off S&P’s watch list then.
“We believe the outcome of the budget will be much more positive than it is now,” he said Friday.
Louisiana faces a $1.6 billion funding shortfall for the budget year that begins July 1. Legislators wrapped up the third week of session with no clear plan for lessening the hit to higher education funding — which, under a worst-case scenario, could see funding slashed by 82 percent.
Last week, Moody’s Investor Services lowered LSU’s bond rating from positive to stable, similarly citing the budget uncertainty.
Louisiana Treasurer John Kennedy said he isn’t surprised by the shift and colleges are not at fault. He laid blame on the state’s handling of the budget in recent years.
“This day has been coming for a long time,” he said. “You could see this one coming.”
He said the recent actions taken by the investors services might not be the last unless the Legislature quickly addresses the budget crisis.
“We can fix it. The way to fix it is to start making higher education the priority that everyone in the State Capitol says it is,” he said. “In government, it’s not what you say; it’s where you spend your money.”
Kennedy is expected to give an update to the Bond Commission on Tuesday in advance of the state’s proposed $335 million general obligation bond issue. He wouldn’t elaborate on what he will say during that meeting.
Gov. Bobby Jindal’s administration expressed optimism about the state of the budget negotiations in the face of S&P’s action.
“While the budget is always modified as it moves through the legislative process, higher education funding will continue to be a top priority of the administration and legislative leaders,” Commissioner of Administration Kristy Nichols said in a statement. “Once the budget is passed, we expect S&P to remove this monitoring.”
The S&P report also cites deep cuts that universities and colleges have faced in recent years.
“The historical severity of these reductions, coupled with the inability to raise tuition, adds to the credit risk, in our view,” Gaytan-Burrell wrote.