According to a recent report from Moody’s, federal budget cuts that will occur as an effect of the sequestration will have minimal impacts on public universities.
The credit ratings agency says that the general outlook for universities is optimistic in regards to risk factors. A miniscule one percent of universities will see sequestration cuts that are greater than 3 percent of revenue. Stand-alone research universities have the highest risk, as they do not enjoy the same diversity of revenue. Tuition, room and board fees, state appropriations, and other sources of revenue will help most universities absorb the funding cuts.
“We don’t make any statements about whether the government policy on funding is a good idea,” said John Nelson, Moody’s managing director of the health-care and higher-education rating teams. “We’re just saying that universities have a lot of adaptive abilities, and from the perspective of ‘Are bondholders going to get their money back?,’ this is not a serious threat to them.”
The Moody’s analysis assessed the impact on universities from a risk perspective—that is, what the risk of lending money to them is. And from that side of things, Moody’s says universities are still looking strong.
“There are a lot of careers on the line, a lot of disappointed young researchers and older researchers who were used to certain success rates on their grants,” said Nelson. However, he added, “we don’t read this as any kind of major loss in faith in research universities. It’s more a function of the difficult choices that government faces.”
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