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Five universities with junk bond ratings must be some kind of record

Monday, Apr 24, 2017

* My weekly syndicated newspaper column

Congratulations, everybody! Illinois now has five public universities with junk bond credit ratings. That has to be some kind of record.

Last week, S&P Global Ratings lowered the credit score of both Southern Illinois University and Western Illinois University into junk bond status. Eastern, Northeastern and Governor’s State were already in junk bond territory and their ratings were lowered even further last week. The University of Illinois, the state’s flagship, was also downgraded to just three notches above junk status and, like all the other universities, put on a “credit watch with negative implications,” meaning it could be downgraded again within the next 90 days.

All of the downgrade reports noted that none of the universities have received any funds since their partial “stopgap” appropriation in June of last year. The reports also seemed to advocate for another stopgap funding bill this fiscal year.

For instance, while noting in the U of I’s report that a stopgap had been passed last year to cover the first six months of this fiscal year, S&P went on to write: “the state has yet to pass a budget for fiscal 2017 and has not conclusively communicated plans for stop-gap funding to support the state’s public higher education institutions.”

As you may know, Gov. Bruce Rauner and his legislative Republicans are adamantly opposed to another temporary stopgap budget that would use existing special state funds that are currently piling up in bank accounts to help out struggling universities, college students and human service providers and recipients.

Their argument is that distributing the money would take the pressure off everyone to pass a real budget with the governor’s demanded reforms. At the same time, Rauner and GOP legislators want to take state employees out of the “pressure” equation with a continuing appropriation, which means those salaries would essentially be funded throughout eternity. But since the lack of funding for social services and higher education over the past two years hasn’t spurred anyone in Springfield to action, it might be that only an actual government shutdown after state employees can’t come to work will actually move the needle.

“If state operating appropriations are received in fiscal 2017,” S&P declared in its SIU downgrade report, “we will incorporate the impact of those appropriations at that time,” suggesting that some money thrown at the universities via a stopgap plan could forestall another immediate ratings downgrade.

Junk status means many investment institutions, like pension funds, cannot buy those bonds. So, while the state hobbles the universities by refusing to make full appropriations, it’s also undermining their ability to borrow at semi-reasonable rates. Speculators looking for relatively high returns on bonds that have to be repaid will gladly buy those bonds and rake in the dough. Meanwhile, precious dollars that the universities cannot afford to spend have to be used to make higher interest payments. It’s a horrific fiscal cycle and, in our case, it’s completely man-made.

It could take our universities a decade or more to recover from these body blows. At the very least, we need a stopgap budget now and then a full, “real” budget before the beginning of next fiscal year.

The governor is currently running all over the state proclaiming to anyone who will listen that a deal is “very close.” He said at an Elk Grove Village event last week that “a big comprehensive package” was being prepared. Democrats say they have no idea what he’s talking about.

Rauner had better be right because, even though the Democratic Party has its own dirty hands here, the governor is the state’s chief executive, so he will wear the jacket for failure. He’s come up with excuse after excuse for more than two years now for why he can’t get a budget passed, or even why he won’t propose his own balanced budget. No more.

And if you dig a little deeper at those S&P reports, you’ll see that the ratings agency had some very specific warnings for state government as well.

Illinois’ credit rating is just barely above junk status. And S&P warned in several of its downgrades that the universities could be in for a “multinotch downgrade” if the state’s rating is lowered. Another downgrade report warned that there was “at least a one-in-two likelihood of a rating change within the next 90 days,” more than implying that action against the state’s credit rating could happen soon.

* Related…

* Editorial: The longer we wait, the worse it will get: The 2016 State Higher Education Finance report released Thursday by the State Higher Education Executive Officers Association identified our state as an outlier, saying: “It’s impossible to examine state higher education finances in 2016 without separating the collapse in Illinois from a more nuanced picture across the rest of the country.” The report noted that thanks to the 22-month long budget impasse, appropriations per full-time student dropped by 80 percent in Illinois. Enrollment in public institutions dropped by 46,000 students. Illinois was so horrible it weighed down the rest of the country: If Illinois is included, overall public support for higher education fell by 1.8 percent. Remove Illinois, and overall support increased by 3.2 percent. That’s mortifying.

- Posted by Rich Miller        

  1. - Roman - Monday, Apr 24, 17 @ 9:22 am:

    One of the slogans the Chicago Teachers Union is fond of using it that CPS is “broke on purpose.” That never made a ton of sense to me. I don’t think Rahm of Claypool had a strategic reason for driving the system into insolvency.

    But that slogan does seem to fit higher education in Illinois under Bruce Rauner.

  2. - Roman - Monday, Apr 24, 17 @ 9:23 am:

    *or Claypool

  3. - Annonin' - Monday, Apr 24, 17 @ 9:23 am:

    Hope you folo up with the crazy “balanced budget with No tax increase” mailer. it seems to be clear message that there will be no budget.
    BTW you really do not give proper credit to the same rating agencies who help fuel the world wide economy crash we like to call the Bush/Cheney Depression. These same scam artists made zillions rating junk housing bonds AAA….guessin’ DopeyDuct has plenty of 1%ers who can buy IL and higher debt.

  4. - AC - Monday, Apr 24, 17 @ 9:25 am:

    Governors…oh I can’t think of the word. It’s a phrase commonly used by OW. Governors groan? Governors moan? Governors push for term limits and nebulous​ reforms? It’s a Monday maybe it’ll come to me when the coffee kicks in.

  5. - Oswego Willy - Monday, Apr 24, 17 @ 9:29 am:


    Rauner, in 2014…

    ===“Illinois’ credit rating has been downgraded 13 times under Pat Quinn and now, because of his failed leadership, our state’s economy and finances are still broken. Pat Quinn put special interest politics ahead of Illinois workers. We need to change direction before it’s too late.” – Rauner campaign spokesperson Mike Schrimpf…===

    Rauner made sure the downgrades were “Pat Quinn failed” as with everything in the state in 2014.

    The rub here?

    Rauner is purposely failing higher education, a want to close some universities, and cripple others.

    Bruce Rauner is failing, and by failing, Rauner is succeeding to destroying higher education, all by design.

  6. - Norseman - Monday, Apr 24, 17 @ 9:56 am:

    The destruction of higher education is a message that should resonate with middle class families. It’s a message the schools and school communities need to be shouting to all.

    Lest we forget, private colleges are also being victimized by Rauner’s impasse.

  7. - Dee Lay - Monday, Apr 24, 17 @ 10:23 am:

    You would think that the Reps and Sens from those university districts would be howling at both the Governor and the legislature.

    I guess the crickets speak louder than their words.

  8. - Lt Guv - Monday, Apr 24, 17 @ 10:52 am:

    Any one know where NIU & ISU stand in the mix?

  9. - anon2 - Monday, Apr 24, 17 @ 10:58 am:

    === I guess the crickets speak louder than their words. ===

    No profiles in courage there.

  10. - Ginhouse Tommy - Monday, Apr 24, 17 @ 11:28 am:

    I still don’t see what the end result Rauner is looking for. He can’t have a conscience. This budget impasse that he has caused is devastating to state colleges and universities and he is making absolutely no attempt stop it. Everybody who is involved with state government and who reads this column knows that he personally stopped the grand bargain from happening with his bullying and threats. The one thing that that neither Rauner or MJM cannot escape even with threats is that this is their legacy and they can’t blame somebody else for it.

  11. - DuPage Bard - Monday, Apr 24, 17 @ 11:59 am:

    Every Governor wants a building or something at a University named in their honor. For Bruce it’ll be the headstone of EIU.

  12. - Jeff Parker - Monday, Apr 24, 17 @ 12:01 pm:

    There does not appear to be an end game with Rauner and the universities. It’s as though they are not even on his radar.

  13. - Flip357 - Monday, Apr 24, 17 @ 12:52 pm:

    I hope this does not get buried, as I think this is a legitimate question:

    Tanking credit ratings is an indicator of inability to pay (or risk of default on debts). Does this mean that the state could experience a credit crisis similar to the credit freeze in 2008? Additionally, and probably most importantly, who stands to benefit from shorting the state’s credit?

  14. - striketoo - Monday, Apr 24, 17 @ 12:57 pm:

    No matter what the ultimate outcome of the state’s budget crisis, we need to rethink the need for supporting a dozen state universities. Closing Eastern, Western, and Chicago State and reassigning their students to the remaining nine schools would ultimately save millions of dollars per year. Money greatly needed elsewhere.

  15. - Oswego Willy - Monday, Apr 24, 17 @ 1:05 pm:

    - striketoo -

    Governors open universities, put they’d name on their buildings.

    Governors don’t board up windows and doors, scuttle universities.

    If they did, why hasn’t Rauner been honest about wanting universities closed these 3 years.

  16. - wordslinger - Monday, Apr 24, 17 @ 1:14 pm:

    –There does not appear to be an end game with Rauner and the universities. It’s as though they are not even on his radar.–

    On the contrary, higher ed is at the top of the list.

    The end game is some of them are going to be shut down. There will come a time when lack of funding shrinks enrollment to the point that some institutions are no longer viable.

    Rauner is just not being honest about the objective or pursuing it an a rational, planned way. It’s social Darwinism.

    The same strategy is being employed against social service contractors.

    It’s been more than two years. This stuff doesn’t happen by accident.

  17. - East Central Illinois - Monday, Apr 24, 17 @ 1:14 pm:

    Hey striketoo . . . Please let us know when you come to Charleston, Macomb and Chicago to tell the students, workers, and community members this ‘great’ news of yours. I want a front row seat. > by whose standards, yours???

  18. - East Central Illinois - Monday, Apr 24, 17 @ 1:17 pm:

    - striketoo -
    ===Closing Eastern, Western, and Chicago State and reassigning their students to the remaining nine schools would ultimately save millions of dollars per year. Money greatly needed elsewhere.=== By whose standards does the “money greatly needed elsewhere” phrase apply?? Please think before you make such an absurd comment in the future!

  19. - G'Kar - Monday, Apr 24, 17 @ 2:37 pm:

    On Thursday there will be a teach out and rally in Springfield in support of higher education. I’m afraid, though, no matter how many show up and how loud they are, it will have absolutely no impact on the crisis.

  20. - Striketoo - Monday, Apr 24, 17 @ 3:56 pm:

    I see lots of folks defending their individual state subsidized school, but no one really explaining why we need to have an even dozen of them. Cuts are coming everywhere in the state budget, why not here?

  21. - Demoralized - Monday, Apr 24, 17 @ 4:07 pm:


    Starving the universities of funding isn’t how you should start a policy conversation on the university system in Illinois.

  22. - peon - Monday, Apr 24, 17 @ 6:10 pm:

    - wordslinger -
    == It’s been more than two years. This stuff doesn’t happen by accident. ==

    Sadly this must be true. I hope the IL State Museum isn’t the template. Downsizing using uncertainty and haphazard actions.

  23. - EAF - Monday, Apr 24, 17 @ 7:44 pm:

    FYI, the funds set aside for higher ed piling up in the bank are not “special funds.” Rather the EAF is a general fund dedicated to funding education. That distinction matters.

  24. - Doc Anonymous - Tuesday, Apr 25, 17 @ 12:04 am:

    == Strike too== If you think that Illinois has excess capacity in its higher ed system, you need to think about why we are exporting thousands of college students to other states, and whether driving ambitious, smart kids out of state is good for the future of Illinois.

    If you think we should just make everyone go to two or three campuses, you might want to ask whether bigger universities are always more efficient, whether everyone wanting a four year degree can pick up and move to one of handful of surviving campuses, and whether it is fair to destroy Macomb, Charleston, Carbondale, etc. in the process.

    Your comment that the money is badly needed elsewhere would be more persuasive if you said where else the money was needed.

Sorry, comments for this post are now closed.

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