The nation's oldest public community college, Joliet Junior College (JJC), has been affected by Illinois' ongoing budget woes as Moody's Investors Services recently downgraded the college's rating from Aa1 to Aa2.
The 115-year-old college was founded in 1901 with six students. Today, the college serves more than 40,000 students at its six locations. With 184 degree and certificate programs, JJC prepares its students to move on to four-year universities or out into the workforce. Approximately 700,000 people live within the district.
JJC was one of the 15 community colleges that had their credit rating downgraded by Moody's. The state's fiscal issues generated a review of all 27 community colleges on March 17. While JJC held onto its Aa rating category, within the category it dropped from the top to the mid-level. It was also assigned a negative outlook due to the uncertainty of state funding and its sizable pension contributions. Should the state continue to face financial difficulties, JJC's reserves may decline to an unacceptable level.
"Despite the State of Illinois' unprecedented yearlong 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.
When the state eventually does pass a full 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 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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