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Moody’s: Sequester May Hurt Research Universities’ Credit Ratings

November 18, 2013

The squeeze that research universities are feeling because of federal budget cuts may put their credit ratings at risk, Moody's Investor Services said Friday. The rating agency did not formally change its outlook on research universities but did warn that the budget reductions, known as sequestration, are a negative development for the creditworthiness of those institutions. “Increasing pressure on federal research funding is credit negative for research universities, especially those with less-established records that will likely be less successful in securing grants in the current strained environment,” Moody’s wrote in its weekly credit outlook report. “Many universities built up their research infrastructure, both physical and faculty, in the mid-2000s, expecting increasing grants and contracts would cover the cost of their investments,” the report adds. “Now that the anticipated funding is constrained, some universities will struggle to cover the increased fixed costs, resulting in weakening operating performance.”

Moody’s cited a survey released this week that found 70 percent of large research universities had experienced funding reductions or delayed research projects due to sequestration.

Higher education and research advocates have said the sequester budget cuts, which first took effect in March, are severely detrimental to scientific discovery and the nation’s economic competitiveness. College presidents and their lobbyists in Washington are pressing lawmakers to end sequestration, which will trigger another round of across-the-board cuts in mid-January unless Congress acts to stop it. 

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Michael Stratford

Michael Stratford, Reporter, covers federal policy for Inside Higher Ed. He joined the publication in August 2013 after a stint covering the Arkansas state legislature for The Associated Press. He previously worked and interned at Kiplinger’s Personal Finance magazine and The Chronicle of Higher Education. At The Chronicle, he wrote about federal policy and covered higher education issues in the 2012 elections. Michael grew up in Belmont, Mass. and graduated from Cornell University, where he was managing editor of The Cornell Daily Sun.

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