East Central Reporter

Lake Land College in Mattoon (CCD 517) was recently downgraded by Moody’s Investors Service, alongside numerous other Illinois community colleges, from an Aa3 to an A1 ranking by the standard-bearing credit agency.

Serving Illinois students with over 40 transfer-ready programs and seven academic divisions, Lake Land College was among over a dozen Illinois community colleges — out of 27 total community college programs statewide — to become the most recent casualty of Illinois’ yearlong budget stalemate.

The institution was reassigned from Aa3 to A1 under Illinois’ general obligation unlimited tax (GOULT) debt. The college has been assigned a negative outlook involving $110,000 in Moody's-rated 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: John Wood Community College, College of DuPage, Moraine Valley CC, Joliet Junior College, Parkland College (CCD 505), Southwestern Illinois College, Triton College, John Wood Community College, Rock Valley 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,” 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.