Moody’s calls Iowa education support ‘credit positive’

Iowa's recent passage of a $986 million budget comprise that includes a 4 percent boost in funding to each of the state's public universities and 15 community colleges is being called 'credit positive” by Moody's Corporation.

The 4 percent increase, plus modest additional funding for K-12 education, is considered credit positive by the investor's service that provides credit ratings because it exceeds the rate of inflation and 'is likely higher than the universities and community colleges would have increased tuition,” according to Moody's weekly credit outlook.

The University of Iowa, Iowa State University and University of Northern Iowa, through the Board of Regents, agreed to freeze tuition for a second consecutive year for undergraduate in-state students if the legislature boosted funding.

Despite its positive declaration, Moody's weekly report notes that the universities' agreement to freeze tuition with the 4 percent increase in state support limits growth of net tuition revenue.

'Student tuition is the primary source of revenue for UNI and ISU and the secondary source of revenue for (UI) behind patient-care revenue from University of Iowa Hospitals and Clinics,” according to the report. 'A second year of low tuition-revenue growth is part of the growing financial challenge that many U.S. public universities face because of limited overall revenue growth.”

Moody's analysts, in the report, say they expect minimal effects from the tuition freeze on UI and ISU because both have considerable out-of-state student demand. In the last budget year, the UI reported less than 20 percent of its tuition revenue from in-state undergraduate students but UNI reported getting about 75 percent of its tuition revenue from undergraduate students from Iowa.

Acknowledging UNI's mission to educate Iowa residents, the state allocated an extra $2.6 million to Northern Iowa for the 2015 budget year, and UNI also received a one-time $10 million supplemental appropriation in last year's budget to be spent on issues related to dependence on in-state tuition.

On April 30, Moody's revised the outlook to negative on certain UNI securities that carry pledges related to student charges.

Moody's declaration of 'credit positive” or 'credit negative” does not connote a rating or outlook change, said David Jacobson, a spokesman for Moody's Investors Service. But, he said, it's one thing that could have an impact in the future.

'It is indicative of the impact of a distinct event or development as one of many credit factors affecting the issuer,” he said.

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