Congratulations, everybody! Illinois now has five
public universities with junk bond credit ratings. That has to be some kind of
Last week, S&P Global Ratings lowered the credit score
of both Southern Illinois University and Western Illinois University into junk
bond status. Eastern, Northeastern and Governor’s State were already in junk
bond territory and their ratings were lowered even further last week. The
University of Illinois, the state’s flagship, was also downgraded to just three
notches above junk status and, like all the other universities, put on a
“credit watch with negative implications,” meaning it could be
downgraded again within the next 90 days.
All of the downgrade reports noted that none of the
universities have received any funds since their partial “stopgap”
appropriation in June of last year. The reports also seemed to advocate for
another stopgap funding bill this fiscal year.
For instance, while noting in the U of I’s report that a
stopgap had been passed last year to cover the first six months of this fiscal
year, S&P went on to write: “the state has yet to pass a budget for
fiscal 2017 and has not conclusively communicated plans for stop-gap funding to
support the state’s public higher education institutions.”
As you may know, Gov. Bruce Rauner and his legislative
Republicans are adamantly opposed to another temporary stopgap budget that
would use existing special state funds that are currently piling up in bank
accounts to help out struggling universities, college students and human
service providers and recipients.
Their argument is that distributing the money would take the
pressure off everyone to pass a real budget with the governor’s demanded
reforms. At the same time, Rauner and GOP legislators want to take state
employees out of the “pressure” equation with a continuing
appropriation, which means those salaries would essentially be funded
throughout eternity. But since the lack of funding for social services and
higher education over the past two years hasn’t spurred anyone in Springfield
to action, it might be that only an actual government shutdown after state
employees can’t come to work will actually move the needle.
“If state operating appropriations are received in
fiscal 2017,” S&P declared in its SIU downgrade report, “we will
incorporate the impact of those appropriations at that time,” suggesting
that some money thrown at the universities via a stopgap plan could forestall
another immediate ratings downgrade.
Junk status means many investment institutions, like pension
funds, cannot buy those bonds. So, while the state hobbles the universities by
refusing to make full appropriations, it’s also undermining their ability to
borrow at semi-reasonable rates. Speculators looking for relatively high
returns on bonds that have to be repaid will gladly buy those bonds and rake in
the dough. Meanwhile, precious dollars that the universities cannot afford to
spend have to be used to make higher interest payments. It’s a horrific fiscal
cycle and, in our case, it’s completely man-made.
It could take our universities a decade or more to recover
from these body blows. At the very least, we need a stopgap budget now and then
a full, “real” budget before the beginning of next fiscal year.
The governor is currently running all over the state
proclaiming to anyone who will listen that a deal is “very close.” He
said at an Elk Grove Village event last week that “a big comprehensive
package” was being prepared. Democrats say they have no idea what he’s talking
Rauner had better be right because, even though the
Democratic Party has its own dirty hands here, the governor is the state’s
chief executive, so he will wear the jacket for failure. He’s come up with
excuse after excuse for more than two years now for why he can’t get a budget
passed, or even why he won’t propose his own balanced budget. No more.
And if you dig a little deeper at those S&P reports,
you’ll see that the ratings agency had some very specific warnings for state
government as well.
Illinois’ credit rating is just barely above junk status.
And S&P warned in several of its downgrades that the universities could be
in for a “multinotch downgrade” if the state’s rating is lowered. Another
downgrade report warned that there was “at least a one-in-two likelihood of a
rating change within the next 90 days,” more than implying that action against
the state’s credit rating could happen soon.
Rich Miller also publishes
Capitol Fax, a daily political newsletter, and CapitolFax.com.
Rich Miller’s column
is just a fraction of the content that appears in this week’s print edition of
the Southwest News-Herald. Want to get the all the news? Pick up the Southwest
News-Herald on local newsstands for just 75 cents a copy. For greater savings
and convenience, call (708) 496-0265 during weekday business hours and order a
subscription by mail, delivered each week to your home or business.