The bond ratings of New Mexico public schools and higher education institutions continue to feel pressure thanks to ongoing state budget challenges.
Moody’s Investors Service, a credit rating agency, said the University of New Mexico, New Mexico State University, and the New Mexico Institute for Mining and Technology’s rating outlooks have moved from stable to negative – though their ratings remained unchanged.
The New Mexico Military Institute was less fortunate as Moody’s downgraded the military school’s Aa2 rating to Aa3. And Moody’s lowered the enhanced credit ratings for 51 of New Mexico’s 89 public school districts.
Lower bond ratings could mean higher borrowing costs for the public institutions.
Vahid Staples, a financial administrator with UNM, said it’s positive that UNM has retained its current rating.
“We are hopeful that steps can be taken at the state level to bolster reserves which would be seen positively by the rating agencies,” Staples said. “Although we do not anticipate it, if UNM were to be downgraded it would increase the costs associated with selling bonds, but given current interest rates we believe it would be a minimal impact.”
The credit rating agency said the university’s weakening cash flows and its ties to the cash-strapped state of New Mexico budget are responsible for the negative outlook. In October, Moody’s downgraded the state of New Mexico’s Aaa rating, the highest rating, to the second highest rating of Aa1.
To balance an anemic budget, state lawmakers cut the state university budgets by 5 percent. Moody’s previously warned that UNM’s ties to the state could result in a lower bond rating.
The Moody’s report said UNM’s rating could improve if the university could absorb state funding cuts, increase balance sheet reserves and liquidity and continue to grow tuition revenue and research activity.
The agency warned that further downgrade of the state’s credit rating could be caused by a discontinuation of the mill levy tax support for the University of New Mexico Hospital and Sandoval Regional Medical Center – both of which are to be decided by voters this election cycle.
Continued enrollment declines, and by proxy, decreases in tuition revenue, could also hurt the credit rating.