Higher Education

Budget cuts threaten credit rankings of Louisiana universities

Allan Booth

Allan Booth

State budget troubles are threatening the credit ranking of Louisiana’s higher education institutions.

 

Moody’s Investors Services announced it has placed eight of the state’s universities, including Louisiana State University and the University of New Orleans, on review for a credit downgrade. If the school’s credit scores go down, it will likely make it more expensive for them to borrow money.

 

“Lawmakers plan to address Louisiana’s $940 million deficit with more education spending cuts.”

In explaining the reason for the review, the credit rating agency said the education budget cuts proposed by state lawmakers to address Louisiana’s $940 million deficit would leave these schools struggling to meet their financial obligations. The state’s legislature is considering $70 million in cuts to higher education.

 

“Funding cuts implemented more than halfway through FY 2016 limit the universities’ financial flexibility to adjust revenue or expenses, as spring term enrollment and student charges have been established,” Moody’s said in a statement. “The uncertainty for FY 2017 state funding may adversely affect enrollment, as decisions on the state budget, including scholarship availability, will coincide student choices for fall 2016.”

 

Moody’s noted its review will consider funding reductions and the effect on enrollment in addition to each individual school’s reliance on state funding, expense flexibility, strength of cash flow and liquidity, among other factors. While each school will be assessed separately, Moody’s also offered a general critique of Louisiana’s higher education system, noting public universities are operating “in a very challenging environment.”

 

Funding cuts to public universities

As Moody’s noted, from 2010 to 2014, Louisiana four-year universities saw a 47 percent decrease in operating appropriations, significantly more than the average of 9 percent for all U.S. four-year higher education institutions. In response to the cuts, tuition at these schools has gone up 52 percent since fiscal year 2010, as compared to the U.S. average of 13 percent.

 

“State funding accounts for only 25 percent of a public university’s budget, down from 60 percent in 2008.”

Eight years ago, the state provided 60 percent of the funding for colleges and universities. But, as The Advocate reported, taxpayer funding now accounts for only 25 percent of public higher education funds, and the bulk of school’s budgets come from student tuition. For example, the University of Louisiana at Lafayette saw mandatory fees and tuition spike by 140 percent since 2008.

The Advocate noted that while every state made cuts to education spending following the 2008 recession, most have begun returning those funds as the economy improves. However, Louisiana, which led the country in higher education funding cuts, has not restored any funding.

 

In addition to tuition spikes and increased financial burden, The Advocate found budget cuts are affecting the quality of education in Louisiana, as well as the access to it. The state ranks 48th in educational attainment as defined by the percentage of adults with a bachelor or associate’s degree. Tuition assistance for low-income students, especially in minority communities, has also dropped. State funding for the need-based Go Grant has remained mostly stagnant since 2009. While funding for the merit-based Taylor Opportunity Program for Students has increased, the Advocate found 41 percent of recipients came from families with household incomes exceeding $100,000 and only 32 percent came from households where total income was below $50,000.

 

Meanwhile, as thousands of college students descended on the capitol steps in a series of protests over education cuts, Louisiana’s newly elected Gov. John Bel Edwards, called on legislators to heed Moody’s warning. As The Times-Picayune reported, Edwards said lawmakers need to find ways to increase revenue so as to avoid reducing education funding any further.

 

“This announcement should serve as a wakeup call for anyone who thinks we can simply cut our way out of this crisis, and I am hopeful this will bring folks to the table to work with me to avoid making these cuts that will have a negative long-term impact on higher education in this state,” Edwards said.

 

How Questica can help

Loss of state funding can have a dramatic impact on public higher education institutions, and necessitates careful budget planning. A school must balance budgetary restrictions with the best interests of students, staff and faculty, meeting the expenses of both academic programs for its scholars and health care and benefits for its employees.

 

Through Questica’s higher education budgeting platform, colleges and universities can gain granular insight into their funding, allowing for sound financial decision-making. By streamlining data from multiple sources and eliminating inefficient spreadsheets, schools can easily and accurately track expenses related to operating and capital project budgets, and identify funding gaps and revenue streams. Additionally, Questica’s salary and position planning tools allow for accurate calculating of expenses associated with staff salaries and benefits.

 

Schools may also use Questica to prepare for proposed cuts or midyear funding changes through multi-year forecasting and the creation of unlimited hypothetical budget scenarios. Colleges and universities facing uncertainties in state funding should contact Questica to learn how comprehensive web-based budgeting tools can help with complex budgetary decisions.