Moody's Investors Service is today releasing a report predicting that the coming years will see more public colleges declare "financial exigency," a condition of such dire financial danger that faculty groups acknowledge it may justify steps as severe as layoffs of tenured faculty members. Moody's makes its prediction on the basis of continued state budget cuts -- without additional federal stimulus money to minimize the impact of cuts. Moody's rates colleges' credit-worthiness, and the ratings can have a significant impact on the cost of borrowing through bonds. The report notes the fears of some colleges that a declaration of financial exigency might result in a lower bond rating.
But Moody's says not to worry. A summary of the report from Moody's says that "financial exigency is likely to be a positive step in terms of credit standing because it empowers management to take aggressive cost-cutting steps to preserve cash flow to pay debt service. Such a declaration would have little or no negative impact on a university's bond rating if Moody's expects the actions to improve the institution's future financial position."
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