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ISU's debt rating drops; no immediate impact

Published: Wednesday, Aug. 14, 2013 10:09 a.m. CDT

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(MCT) NORMAL — The state’s ongoing financial problems have resulted in downgraded debt ratings for Illinois State University and six other universities, and the rating agency warns it could go lower.

Moody’s Investors Service lowered ISU’s rating from A2 to A3 with a negative outlook, based on the risk of continued decreases in state funding, delays in distribution of that funding and possible enrollment declines. The action came two months after Moody’s downgraded the state’s credit rating and said it was reviewing all public universities.

Dan Layzell, ISU vice president of finance and planning, said Tuesday the action was not unexpected because of the state’s lowered rating, but “we were disappointed.”

He said the downgrade will have no impact in the short term because ISU is not planning to market any bonds or certificates of participation until early 2014. The rating does not affect existing debt.

However, the university is expecting to finance its planned upgrade of student information systems through certificates of participation that are similar to bonds.

“If this is still hanging out there, it could have an impact on the interest we would have to pay,” Layzell said.

ISU is not alone.

Northern Illinois University is the only public university in Illinois that was not downgraded by Moody’s on Friday.

The agency said the universities are vulnerable to the impact of pension reform. If nothing is done, there will be continued pressure on state operating appropriations, Moody’s noted.

“It’s in all of our best interests” if the public employee pensions situation could be resolved, Layzell said

“All of the universities have learned to adjust to the slower payment process,” he said, but if no agreement is reached on the pension problem “that will continue to suck more and more money.”

Although Moody’s noted passage of pension reform could require ISU to fund a portion of its pension expense, Layzell said if that change is “phased in over a fairly lengthy period” — as has been proposed — “we’ll have time to be able to adjust to that.”

Meanwhile, a financial task force, headed by Layzell and Sheri Noren Everts, vice president of academic affairs and provost, is sorting through recommendations from various working groups to maintain educational quality and access amid dwindling state support.

The task force was created last year by former ISU President Al Bowman. Layzell said the recommendations will be discussed with Bowman’s successor, Timothy Flanagan, whose first official day as president is Thursday. No target date has been set for a final report.

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©2013 The Pantagraph (Bloomington, Ill.)

Distributed by MCT Information Services

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