By Goldie Blumenstyk

Will the stock market close on a high note tomorrow, the last day of the fiscal year for most colleges? Will that last big gift come in before the books close?

As always, the answers could help determine whether some colleges will face demands to pay off their debt faster than planned or be subjected to extra monitoring by the U.S. Department of Education. Others might encounter more scrutiny from their accreditors, or pay higher rates of interest when they borrow cash to cover day-to-day expenses.

And this summer, the factors that affect the bottom line could indicate even more.

Following a year marked by plunging prices on investment holdings, an unprecedented squeeze on credit, and a notable pullback on giving, the condition of colleges' balance sheets on June 30 will offer the first concrete assessment of how the economic crisis has affected higher education. For some institutions, it may also start the clock on a process of taking stock that could result in a new wave of layoffs.

"It will be a benchmark," says June M. Matte, a managing director for the higher-education practice at the Boston office of the PFM Group, a financial-advisory company. "How people manage from that point, that's going to be the real issue."

While the end-of-fiscal-year value of a college's net assets is just one indicator of the institution's overall health, it's an important one. If the value falls too low relative to debt, bondholders could find the institution in default on covenants and demand repayment.

"It doesn't take a rocket scientist to figure out that a lot of people are going to be close to the line," says Paul Clemente, vice president for business and finance at Bentley University, near Boston.

Likewise, accreditors and the Department of Education look at net assets when they assess whether the institution has adequate resources to educate students or properly steward federal student aid.

End-of-the-year financial statements are also important to credit-rating agencies, whose assessment of colleges' finances determines how much it will cost institutions to borrow money, although those agencies say they consider the broader picture.

Both Standard & Poor's and Moody's Investors Service have noted the deterioration of college finances over the past several months and say they expect the difficult financial conditions to continue through 2012.

The pain will not be limited to endowment-dependent private universities, which have had to make layoffs and halt construction projects as the value of their investments plummeted, nor to the less-wealthy colleges that depend on tuition to cover most of their costs.

Revisiting the Budget

As the economy worsened over the past year, more than 40 states made midyear cuts totaling nearly $60-billion, according to figures from the Center on Budget and Policy Priorities.

States could face similar uncertainty during the next fiscal year, which begins July 1 for all but four states, because of the high unemployment rate and flagging personal-income-tax revenues, according to the Nelson A. Rockefeller Institute of Government, the public-policy-research arm of the State University of New York. All but two states had increases in their unemployment rates in May, and state personal-income-tax collections from January to April this year were 26 percent lower than the same period the year before.

"The sharp declines in personal-income-tax collections will punch still deeper holes in the budgets of many states," a report from the institute said. "This increases the risk that state budget agreements for 2009-10 will not close budget gaps completely, and that states will need to make midyear budget cuts."

Just as the start of a new budget year is not a definitive marker of a new financial picture for states, the end of the fiscal year for colleges is "an artificial construct" as a measure of its financial health, says Mary Peloquin-Dodd, of Standard & Poor's. "We understand that it's just one day in time."

Still, it will be tough for most institutions to look good on that day in time in 2009. Not only have endowments and other investments fallen in value, but also new accounting rules will require some colleges to reclassify some previously unrestricted endowed accounts as restricted, amplifying the negative impact on the bottom line.

Over the past year, many institutions have refinanced their variable-rate debt to reduce or eliminate the "swap" contracts they used to hedge against rising interest rates. But those that have not will have to record those market values too. For the most part, those values are negative and will be liabilities for the colleges that hold them, but because of shifts in interest rates, the impact will not be as great as it might have been a few months ago, according to Roger Goodman, an analyst with Moody's. "The numbers would have looked a lot worse in March or December," he says.

(Negative market values on interest-rate swap contracts could also create another costly headache for institutions if the contracts require the colleges to post letters of credit; because so many banks have had their own credit ratings downgraded, it is now becoming harder for institutions with less-than-sterling financial situations to get such guarantees.)

Colleges have also been focusing on gifts, particularly unrestricted ones. And Mr. Goodman says he suspects a few have been having conversations with benefactors about loosening conditions on donations they have already given, which would allow institutions to put more of the money into the "unrestricted" category.

But that can be a hard sell. Most donors who restrict gifts want to see the money used for the purpose they originally intended, not to support general operations. "They don't like to give for utilities," says Randall C. Doerksen, vice president for business and administration at Friends University, in Kansas.

Friends says it will close out the year without a problem, in part because more than half of its endowment and other investments, although down about $10-million to $45-million from a year ago, are unrestricted. But Mr. Doerksen says he knows of other institutions, including some in Kansas, that could soon feel repercussions.

But the real reverberations, including in all likelihood more cutbacks and more layoffs, won't be felt until September. That's when colleges see how many students actually show up, and how much financial aid they will need to be able to stay.

Eric Kelderman contributed to this article.