Moody’s Investors Service has downgraded the credit ratings of seven public universities in Illinois.
Illinois state government already has the worst credit rating of any state in the nation. And the largest city in Illinois – Chicago — recently saw the credit rating on more than $8 billion of its general obligation debt dropped a nearly unprecedented three levels at one time by Moody’s.
The downgrade of Illinois universities, announced August 9, came with a warning that further downgrades of university credit ratings could come if the state government does not resolve problems in its worst-in-the-nation government pension system, conservatively estimated to have $100 billion in unfunded liabilities.
The 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. Most of the $2.24 billion in debt the universities currently hold belongs to the University of Illinois, which has $1.56 billion in debt.
If any of the universities borrow more money, they likely would have to pay higher rates of interest because of the lower credit ratings. This soon could happen. The University of Illinois is preparing a $77 million bond sale to fund a renovation project at its hospital in Chicago.
Moody’s pinned much of the blame for the lower credit ratings on the state’s dismal pension situation.
“If pension reform is passed, UI may need to fund a portion of its pension expense,” Moody’s wrote in its 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.”