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Bond-Rating Agency Considers Downgrade for Illinois’s Public Universities

Moody’s Investors Service just dumped a load of coal into the Christmas stockings of Illinois’s public universities. The bond-rating agency announced on Tuesday that it was considering downgrading the credit rating of the eight institutions because of the state’s poor fiscal situation and the universities’ reliance on state funds.

Moody’s rates about $2.6-billion in debt issued by the university system. A downgrade could increase the cost of future borrowing, not to mention the stigma that a downgrade represents to possible donors and business partners.

The universities are largely victims of their state’s budget impasse and political intransigence. Last week Moody’s announced that Illinois’s economic outlook had shifted from “stable” to “negative,” and in January the ratings agency made the state the lowest rated in the nation.

The problems there include lawmakers’ inability to pay for an estimated $96-billion in future pension commitments as well as $9-billion in unpaid obligations to state agencies. The extra cost of borrowing brought on by a downgrade could be a double whammy if the universities are forced to borrow money to cover the state’s delinquent payments.

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