Lousy credit report

Lousy credit report

Because the University of Illinois and the other state universities need state appropriations to fully fund their operations, some of those schools are seeing their credit ratings sink to junk-bond status.

It's like the boy who joined his friends skipping school.

He knew he was in with the wrong crowd and would get caught.

But what he didn't know: How bad the punishment was going to hurt.

If only the University of Illinois was a fringe member in a gang of scoundrels, it could plead for leniency from the principal and set a new path.

But the UI cannot separate itself from the state of Illinois. Therefore, it winces every time a large credit rating agency lashes the state with ever-lower bond rating.

Last month, Standard & Poor's lowered the UI's credit rating one level to A (mid-level investment grade) because the university cannot be more than three rating levels above the state's BBB (low-end investment grade).

Further, last month another credit rating agency, Moody's, placed the UI and five other Illinois public universities on review for credit downgrades.

Does it hurt less if you know it's coming?

Maybe not to the state's universities, but it's information investors in government bonds want to know. How likely are they to receive timely payments?

The answer is, not sure. Maybe investors will get their money, maybe they'll lose some.

The state's ever-grimmer outlook stems from its political standoff in Springfield. If no action is taken this month, Illinois will have two straight fiscal years without any spending plan or any strategy to balance its books and to revive the state's economy.

In short, Illinois is becoming a bad risk.

And when it comes to lending money, bad risks have to pay high market interest rates — including universities, which have little influence over how the Legislature and the governor conduct business.

That's more tax, tuition and housing dollars spent on interest — and less money available for salaries, programs and construction.

Bad fiscal practices — in Illinois' case, years of deficit spending — have consequences. And one of those consequences — junk-bond status — is hiding behind cryptic credit ratings.

The UI, compared to its sister universities, is the healthy sibling. The recent S&P report had a fairly favorable view of the UI's ability to make bond payments.

Not so for Southern and Western Illinois universities, which fell from low investment grade to junk status. Northeastern, Eastern and Governors State fell deeper in the junk category.

At last week's UI Board of Trustees meeting, university officials expressed hope that Moody's might spare a credit downgrade and keep its modestly high rating. But they are prepared for more bad news.

The solution to these credit problems lies with the state's leaders.

Unfortunately, those leaders place a higher value on political outcomes than they do on economic ones.

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