Rend Lake College in Ina; Kaskaskia College in Centralia; and Southwestern Illinois College (SIC), with campuses in Belleville, Granite City and Red Bud, recently suffered a setback in the form of credit downgrading by Moody’s.
The three were among over one dozen Illinois community colleges to become the latest casualties of the now yearlong budget stalemate in the Prairie State. Rend Lake’s (CCD 521) rating was lowered from Aa3 to A1; Kaskaskia (CCD 501) went down from A1 to A3, and Southwestern Illinois College’s (CCD 522) rank was decreased from Aa2 to Aa3 in the credit agency’s most recent analysis of Illinois institutions.
While Kaskaskia and SIC carry respective debts of $30 million and $27.5 million under Illinois’ general obligation unlimited tax (GOULT) debt, Rend College's GOULT debt is secured by a dedicated property tax levy, unlimited as to rate and amount.
The Rend Lake Community College District 521 is located in the southern portion of the state, covering 1,850 square miles across eight counties.
“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 reported, noting that 23 of Illinois’ colleges now carry a negative outlook.
“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.
Other downgraded colleges are:John Wood Community College, College of DuPage, Moraine Valley CC, Joliet Junior College, Parkland College (CCD 505), Triton College, John Wood Community College, Rock Valley College, Lake Land College, Richland Community College, Black Hawk College, Prairie State College and John A. Logan College.
When the state eventually does pass a full 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 primarily rely 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. Most entered the fiscal year with healthy reserves providing some cushion against the revenue shortfalls,” Moody’s said. “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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