For Colleges in Some States, Financial Relief Is Far Off

July 13, 2010

 Even when the economy begins to recover and employment picks up, public colleges shouldn't expect much immediate relief from their states, warns a report this month from Moody's Investors Service. Some states will very likely recover much more slowly than others. In more than half of the states, recovery is not projected to kick in until at least 2013, 2014, or later. And even then, the report notes, states will still face pressures for spending on public-employee pensions, health care, primary education, and other services.

"Universities need to be especially cautious about not assuming that their state will be able re-establish past support levels in the near future," says the report from the credit-rating agency.

The map shows the year in which each state is expected to see its employment picture recover, according to Moody’s projections.

The forecast could be particularly bad news for colleges in states that are both projected to recover slowly and have relied heavily on federal stimulus funds, which will run out by the 2012 fiscal year.

Stimulus funds accounted for at least 5 percent of the budgeted state support for public colleges in 20 states in the 2009 and 2010 fiscal years. (In three states, Colorado, Massachusetts, and Arizona, stimulus funds accounted for at least 10 percent.) The map indicates which states they are, and their average reliance on stimulus funds in the 2009 and 2010 fiscal years.

The combination of a prolonged period of constrained state spending and colleges' limited ability to raise revenue through other sources means that institutions will probably face greater pressure to improve productivity, the report predicts.

It adds that while Moody's does not expect a general trend toward defaults on bonds, the risk has increased that institutions' credit ratings will be downgraded.

The report also chides public colleges, saying few have begun the "fundamental recasting" of their operations that such conditions require. For example, the report says, "due to inertia and anachronistic labor-force practices, most public universities still utilize their facilities for a only a fraction of the times that students would be willing to attend class."