TOPEKA — Recent funding cuts for public universities prompted Moody’s Investors Service to lower its outlook to “negative” for three state universities.

The international bond rating firm said the 3 percent budget cut that Gov. Sam Brownback ordered earlier this year, plus the additional 3 percent cut proposed for next year, “will challenge university budgets as the state deals with its own fiscal issues.”

Kansas University in Lawrence already had a negative outlook attached to its Aa2 rating. On Wednesday, Moody’s also put the negative outlook on bonds issued by Kansas State University, which is also rated Aa2; Wichita State University, which is rated Aa3; and Pittsburg State University, which is A1.

“The proposed funding reductions by themselves are manageable with continued careful expense containment,” Moody’s said. “However, declining numbers of in-state high school students and aggressive regional competition are also applying pressure on tuition revenue, the largest source of revenue for all Kansas public universities.”

“Favorably, Kansas public universities have historically maintained moderate leverage, with capital support coming from the state,” the firm said. “While capital support has waned in recent years, leverage levels are expected to remain manageable. Operating cash flow stress tested for a 5% reduction in state funding indicates still sound debt service coverage for all.”

Moody’s spokesman David Jacobson explained that the firm’s highest rating is Aaa, which denotes virtually no risk to a bondholder. The next highest is Aa1, then Aa2 and Aa3.

“That means high quality bonds, with very low credit risk,” he said. “That’s our opinion of what the risk is to the bondholders of being repaid in full, on time, with interest.”

The A1 and A2 ratings, he said, represents “upper medium-grade” credit risk. “It’s not as high quality as the others, but still a solid rating.”

The outlooks attached to those ratings represent an opinion about the likely rating direction of an institution’s rating over the medium term. Moody’s has four outlook ratings: positive, negative, stable and developing.

Washburn University, a municipal university in Topeka, and Fort Hays State University are both rated A1 with stable outlooks. The lowest-rated university in Kansas is Emporia State University, which is A2 with a stable outlook.

The ratings and outlooks are used by investment firms that purchase bonds in order to determine the interest rates they change on those debts. Lower ratings and negative outlooks tend to result in higher interest rates.

The report noted that KU had total operating revenues in fiscal year 2015 of $1.16 billion and outstanding debt of about $846 million.

That debt figure does not include the $327 million in bonds issued in December for its Central District development project. State appropriations account for 21.1 percent of KU’s total funding.

Those bonds are actually the debt of a third-party nonprofit corporation that KU established for the project. KU will make lease-purchase payments to the corporation, and those payments will be used to repay the bonds.