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posted: 8/13/2013 3:54 PM

Moody's downgrades debt of 7 state universities

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  • Friday's debt downgrades affect Illinois State University as well as six other public colleges.

      Friday's debt downgrades affect Illinois State University as well as six other public colleges.
    Associated Press file photo

  • Only Northern Illinois University in DeKalb was able to maintain its debt rating.

       Only Northern Illinois University in DeKalb was able to maintain its debt rating.
    File photo by BRIAN HILL | Staff Photographer

Associated Press

SPRINGFIELD -- A major bond-rating agency has downgraded debt ratings on seven public universities in Illinois, and it warned that more decreases could take place if the state doesn't address its pension problem.

Moody's Investors Service took the actions Friday, about two months after it downgraded the state's rating and warned that it was reviewing all of Illinois' public universities. Illinois now has the lowest credit rating of any state in the country, largely because of its unpaid bills and $100 billion in unfunded retirement plans for state employees.

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The state's downgrade means that when Illinois tries to borrow money, it faces a higher interest rate, just like someone who tries to get a car loan with maxed out credit cards. Now, those higher interest rates are trickling down to other Illinois institutions that get state aid.

Friday's downgrades affect the University of Illinois, Eastern Illinois University, Governors State University, Illinois State University, Northeastern Illinois University, Southern Illinois University and Western Illinois University. Only Northern Illinois University was able to maintain its rating.

The downgrades affect a combined $2.24 billion in debt, but most of that belongs to the University of Illinois, which has $1.56 billion in debt.

A lower debt rating means it will cost more for the schools to borrow money, which is something they often do for major construction projects. For instance, the University of Illinois is preparing to a $77 million bond sale in order to pay for renovation project at its hospital in Chicago.

"It's disappointing and unfortunate, but it doesn't come as a surprise," University of Illinois spokesman Tom Hardy told The News-Gazette. "We're a public university in Illinois, a state that's not well regarded by the financial ratings houses for a multitude of reasons."

Chicago Public Schools was also downgraded last month.

In separate research notes, Moody's attributed its decisions on schools' revenue from the state.

"If pension reform is passed, UI may need to fund a portion of its pension expense," according to the report on the University of Illinois, which saw its rating decline from Aa2 to Aa3. "If pension reform fails to be enacted, we expect continued pressure on state operating appropriations."

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