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Public universities under strong control from their state legislatures and governing systems are having a more difficult time responding to the financial pressures on public higher education, according to a new report from Moody's. State governments can control decisions as wide ranging as tuition rates to faculty pay levels to procurement, despite the fact that many legislatures with such policies have also dramatically dropped their funding levels. A recent credit outlook report from Moody's says such an environment prevents "leaders from taking decisive actions to address economic and market challenges," and can weaken a college's financial standing in an era of economic difficulty for higher education (last year, 20 percent of Moody’s rated public universities saw a decline in revenue).

"Competing priorities from multiple stakeholders, including state government, governing boards, faculty, students and alumni, will inhibit some public universities from quickly adjusting either to ongoing funding reductions or broader changes in their market landscape," said Moody's May 14 Weekly Credit Outlook for Public Finance. "Inability to adapt to economic and market realities will reduce the competitiveness of some public universities and contribute to growing fiscal challenges," the report continued. "Universities that have greater flexibility to adjust revenue, such as through tuition increases and growth in out-of-state enrollment, or to modify their operating model will outperform the sector."