Community colleges depend on state appropriations, tuition and property tax revenue to run operations. | File photo
Community colleges depend on state appropriations, tuition and property tax revenue to run operations. | File photo
John Wood Community College in Quincy was recently downgraded by Moody’s Investors Service -- along with 14 other Illinois institutions of higher learning -- slipping from an Aa3 to an A1 ranking by the standard-bearing credit agency.
Serving the tri-state area of Illinois, Missouri and Iowa with transfer and career programs, John Wood Community College was one of 27 community college programs statewide to become a casualty of the budget stalemate that has dragged on for a year.
JWCC-Community College District 539 was reassigned the lower rating under Illinois’ general obligation unlimited tax debt. The college has $8.9 million of outstanding general obligation debt.
“Despite the state of Illinois' (Baa2 negative) unprecedented year-long delay in approving a full higher education budget, the credit quality of rated Illinois community colleges remains strong due to their sound reserves and diverse revenue streams,” Moody’s said in its report, noting that 23 of Illinois’ colleges “now carry a negative outlook.”
“However, the state's fiscal challenges have taken a toll, weakening colleges' financial positions and leaving them vulnerable to further state aid delays and potential increases in pension costs,” Moody’s added.
Other downgraded colleges are: College of DuPage, Moraine Valley CC, Joliet Junior College, Parkland College (CCD 505), Southwestern Illinois College, Triton College, Rock Valley College, Lake Land College, Richland Community College, Rend Lake College, Black Hawk College, Prairie State College, John A Logan College and Kaskaskia College.
When the state eventually does pass a budget, the downgrade will not be reversed, Moody’s said.
“Our recent rating actions reflect colleges’ exposure to the fiscally challenged state of Illinois for operating support, program and scholarship grants and pension funding,” the report said. “This exposure will continue beyond passage of a state budget. We would consider reviewing the credits in a positive direction if the state’s credit quality were to improve.”
Last month, Moody’s placed the University of Illinois and six other state universities on review for downgrade after downgrading the State of Illinois from Baa1 to Baa2.
By design, community colleges depend on state appropriations, tuition and property tax revenue to run operations, unlike state universities, which rely on primarily on state appropriations and tuition. Despite the added stream of revenue, the budget has wreaked havoc on community colleges.
“The state has gone nearly a year without adopting a full budget, leaving community colleges with only a fraction of the state support they were expecting. Most entered the fiscal year with healthy reserves providing some cushion against the revenue shortfalls,” Moody’s said. “Based on our conversations with community college officials, we expect most will close fiscal 2016 with reduced, though still sound, cash levels. The weakest colleges will likely have narrow reserves but still retain sufficient liquidity.”
In response to decreased state funding, community college officials have reduced expenditures, increased tuition rates and issuance of short- and long-term debt.