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Citing constrained state funding and tuition revenue, Moody's Investors Service downgraded Kansas University's bond rating this week. The move will affect $397 million in debt, Moody's said in a release.
KU officials say the downgrade, from an Aa1 rating to an Aa2, will have only negligible effects on the university's cost of borrowing and ability to finance future projects.
The decision follows a downgrade by Moody's of Kansas state bonds last week.
Among the reasons for the KU downgrade, Moody's pointed to state funding issues. In 2013 the Kansas Legislature passed nearly $35 million in cuts to higher education. This year the state government restored half of the "salary cap" cuts for KU, but the budget does not restore the 1.5 percent across-the-board cuts from 2013.
Moody's also noted limits on KU's ability to raise money through tuition revenue. Those limits include declining enrollments at KU in recent years and guaranteed prices through KU's tuition compacts.
At the same time, KU faces rising expenses as it competes with other universities for new faculty, putting upward pressure on salaries, Moody's said. A historically underfunded retirement system might also require increased contributions from KU down the road.
Along with Kansas State University, KU still has the highest rating among state universities at Aa2. Moody's also downgraded Emporia State University's rating this week.
KU spokesman Joe Monaco said that given low interest rates, the change will have minimal impact on KU's borrowing costs and ability to finance capital projects, such as the McCollum Hall replacement dorms.
The Aa2 rating is still relatively good — Moody's third highest — and indicates an organization has strong capacity to meet financial commitments but is "somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions."
Moody's gave KU a stable outlook given its position as the state's flagship university. The ratings agency also noted that KU has a strong debt cushion from financial reserves and foundations.
Moody's said that a strengthening in student enrollment and continued solid state support could raise KU's rating in the future.
Last week Moody's downgraded the state's bond ratings from Aa1 to Aa2, citing the state's lukewarm economy and revenue reductions from tax cuts. Gov. Sam Brownback's office did not respond to a request for an interview for this story.