Moody’s views higher ed cut, KU spending restrictions as negative

A spending restriction placed on the University of Kansas by the Legislature could negatively affect the university’s credit, Moody’s Investor Services says.

And Gov. Sam Brownback’s recently announced 3 percent cut to state university funding is a credit negative for all public universities, the rating agency said. It added that higher education funding in Kansas has already been reduced by 10 percent since 2008.

The Legislature placed a provision in the budget restricting KU from spending beyond its approved budget without permission from lawmakers.

The measure was a response to the university’s decision to go out of state for a $327 million bond issue in January to avoid the need for legislative approval.

“The amendment does not limit KU’s ability to pay for budgeted expenses, including debt service, or the ability to use special revenue fund reserves if revenues fall short of assumptions,” Moody’s analyst Michael Osborn wrote this week. “However, additional spending out of any special revenue fund would require approval of the legislature or the state finance council, which could take significant time and have little impact on current budgetary needs.

“These restrictions are credit negative because they limit the university’s flexibility to manage its budget on a real-time basis,” Osborn wrote.

The Legislature’s action does not affect bondholder security, Osborn added, but “it highlights the importance and significance of the relationship between a state and its public universities.”

Both the budget cut and the restriction are considered credit negatives by the rating agency, but Moody’s has not changed the university’s credit rating of Aa2. Moody’s gave KU a negative outlook in December, citing its decision to finance large-scale construction through bonds.

Rep. Ron Ryckman, R-Olathe, House Appropriations chair, said that if KU does experience a credit change, it will be because of the decision to issue the bonds in the first place.

This story was originally published March 11, 2016 at 1:39 PM with the headline "Moody’s views higher ed cut, KU spending restrictions as negative."