Moody’s Investors Service announced on Thursday that it had downgraded the credit rating of Rutgers University, New Jersey’s public flagship university, because of the added financial burden of its newly acquired medical facilities.
Last year, state lawmakers and the Rutgers governing boards approved the controversial move, with Rutgers taking over nine of the 11 units of the troubled University of Medicine and Dentistry of New Jersey as part of a statewide overhaul of public higher education that will take effect on July 1.
While Rutgers had long wanted to absorb the medical-school properties in order to increase its research spending, the move will add nearly $500-million in debt to Rutgers’s balance sheet—an increase of 56 percent of much-lower-rated debt, according to an analysis by the bond-rating agency.
Rutgers is already running on a very tight budget, and the acquisition will bear additional one-time costs and give the university little opportunity to reduce its expenditures in the next few years, Moody’s says in its report.
The news is not all bad for Rutgers, which is seeking to improve its national profile as it joins the Big Ten athletic conference next year. “Rutgers will be better positioned to recruit top faculty and students and, as a result, to capture a greater share of available research funding,” the report says.
The takeover will give Rutgers control of the Robert Wood Johnson Medical School, the Ernest Mario School of Pharmacy, the College of Nursing, and the Institute for Health, Health-Care Policy, and Aging Research, among others. The moves are expected to increase Rutgers’s total revenue to an estimated $3-billion, with more than $500-million in research spending and an enrollment rise to roughly 57,000 full-time students.
But those expected benefits will take a couple of years to develop as the university sorts out how to manage the new medical facilities, Moody’s concludes.
“Last, we expect it to be at least two years before the restructuring of the various boards and multiple changes to senior management will effectively harness the synergies of the expanded research capabilities, increase operating efficiencies, and build a more robust philanthropic culture to sustain positive operations and to grow the balance sheet to cushion debt and operations,” the report says.
The university, in a news release, notes that the downgrade was not unexpected. “The university and its financial advisers have long anticipated that the complex challenges surrounding integration with UMDNJ could lead to a short-term adjustment in Rutgers’s bond rating,” the news release says.