Five institutions of higher education in Louisiana have been placed on the negative credit watch list by national credit rating agency Standard & Poor’s as a result of the $1.6 billion budget shortfall in the state. The move could affect future construction projects for the schools.
The affected campuses include the University of Louisiana at Lafayette, Nicholls State, University of New Orleans, Delgado Community College and LSU’s Bogalusa Community Medical Center Project.
Standard and Poor’s credit analyst Bianca Gaytan-Burrell of the Dallas office said that the schools have a one out of three chance of seeing their credit rating deteriorate at this point, which could affect repayment on loans for campus construction projects, writes Ken Stickney for The Advertiser.
For one of the schools affected, The Delgado Community College Foundation, the decision only applies to a small portion of the total facility portfolio, as the school only took out bonds for one building at the school. School officials report that most of the debt concerning the building has already been paid off.
Higher education officials in the state are downplaying the announcement, saying it was not an official decision and the institutions in Louisiana have not yet had their credit ratings affected, writes Julia O’Donoghue for Nola.
“This is a not a decision. This is an observation,” said Joseph Rallo, Louisiana’s higher education commissioner, about the Standard & Poor’s report.
According to the credit agency, the “best case scenario” for the schools would be future financial uncertainty. The analysis will be officially reevaluated in 90 days after the state budget has been finalized.
“Although the reductions would vary by institution, we believe that these universities have an already weakened financial profile and any further reduction could impair cash flow and operating performance,” reads the Standard & Poor’s report.
The administration for Governor Bobby Jindal believes the schools will be removed from the credit watch list after the new state budget has been released in June.
Treasurer John Kennedy has called a meeting of the State Bond Commission next week in order to offer a “market update” before the governor makes $355 million in bonds available. While he would not delve into details concerning the meeting, Kennedy did suggest that the state’s bond rating could be affected if the budget crisis is not resolved.
Kennedy continued to say that the decision to place the schools on the watch list was not due to any actions taken by the schools themselves.
“They didn’t do anything wrong,” Kennedy said. “The problem lies with decisions made about cutting higher education at the state level. UL is a victim of bad decisions made at the state level, where higher education has been gutted like a fish.”