Moody's Investor Services recently downgraded Southwestern Illinois College's general obligation debt from Aa2 to Aa3, placing the school among the 15 Illinois community colleges downgraded due to the state's continuing budget problems.
The college was founded in 1946 and enrolled 169 students; more than 60 percent were World War II veterans. Originally named Belleville Junior College, the college was renamed in 2000. Southwestern Illinois College has grown from a small junior college operated by the Belleville Township High School District 201 to a network with three campuses, an industrial training center and more than 20 off-campus sites. Modern technology allows an instructor to teach a class at all three campuses simultaneously.
While the college remains dedicated to the residents within the boundaries of the current Class I Belleville Junior College District 522, the state's ongoing budget crisis has affected a number of community college districts. An Aa rating is still relatively good, but the qualifier has dropped from the middle to low in the rating category. In addition, Moody's has assigned the college a negative outlook.
"Despite the State of Illinois' 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. “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 that 23 of Illinois’ colleges now carry a negative outlook.
“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 primarily rely 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," Moody's said. "Most entered the fiscal year with healthy reserves providing some cushion against the revenue shortfalls. 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.
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