CARTERVILLE — As Illinois staggers toward the end of its 22nd month without a budget, bond ratings for public universities and colleges across the state have been downgraded by the ratings Standard and Poor’s Global Ratings. John A. Logan College was also downgraded, from AA to and A+, but the college has managed to avoid the junk bond status given to other educational institutions around the state.
“I can’t say we are in a better place than we were three years ago when we had full funding," said Brad McCormick, vice president for business services and college facilities at John A. Logan College. "We had to do a lot of things to mitigate what could have happened.”
JALC’s A+ rating puts them in a position of some stability as they face another year with limited funding as the future of state funding remains uncertain.
According to a report by S&P Global Ratings, further ratings deterioration for the college “was prevented due to what we view as a pro-active management and an articulated plan to stabilize the district’s finances.”
S&P's statement continued, “The rating reflects our assessment of the district’s moderately diverse economy based on manufacturing, higher education and regional services anchored by the cities of Carbondale and Marion, and inherent expenditure flexibility coupled with tuition-raising flexibility and a very strong, albeit declining, general fund balance at the end of the school year 2016.”
The agency also cited the college’s low overall debt burden as a reason for their A+ rating. McCormick said that these things, taken together, are what kept them from falling into junk bond status.
"Of course I would like our grade to be higher,” he said, “any CFO would like that to be the case, but an A+ is still two grades higher that the BBB status that a lot of other institutions are experiencing.”
McCormick explained that the current ratings evaluations are not a surprise, and occur on a regular basis as investors are due that information. The process, he says, begins with a series of phone calls from S&P.
“As it happens, when they called to tell us of our impending evaluation, we were just getting ready to do a bond issue," he said.
One of the things that happens when you do a bond issue, according to McCormick, is that S&P evaluates the issuing institution. So JALC had good timing.
During the next phone call, McCormick and a financial adviser from PMA Financial went through an in-depth presentation, which included research about the college’s district.
“We presented everything from credit hours, to our tax base, to who our biggest employers are, education levels, home values, everything you can imagine. And at the end of that they took our data and went back and did their own research and then arrived at an evaluation,” he said.
A bond issuance can be likened to an individual borrowing from a savings account they have contributed to against a time when they might have an emergency. The college’s process is slightly more complicated in that the taxpayers provided the college with the money from future tax levies.
“We had debt already," McCormick explained, “but interest rates declined since 2007, and much in the way you would refinance your own home when interest rates fall, we refinanced our existing debt to take advantage of those rates.”
McCormick said at the time they refinanced, the college looked at the repayment schedule of the existing debt and changed it so they could shift some of the money, which had already come from the taxpayers into reserves — a "rainy day fund."
The working cash fund bond of $5.5 million, which JALC is required to pay back, is what will allow the college to meet its obligations for the coming year with some sense of sure footing, McCormick said.