Moody’s Report Forecasts a Gloomy Future for Public Universities

Things were supposed to get better after the 2012 fiscal year, the year that colleges fell off the “cliff” created as federal stimulus money for higher education ran out and state appropriations had yet to recover.

Instead, 2012 was just foreshadowing the difficult financial future that public colleges will continue to face, according to a new report from Moody’s Investors Service, a bond-rating company.

Moody’s analysis of median fiscal data from 2012 show that enrollment at public colleges was essentially flat, revenues grew less than 2 percent, and expenses increased more than 3 percent—nearly twice as fast as inflation.

While figures for the flagship institutions were more positive, the data over all put public colleges on a path to economic oblivion. “The developing trend of expense growth outpacing revenue growth is unsustainable,” said Emily Schwarz, an assistant vice president at Moody’s, in a statement touting the report (available to subscribers here).

In addition, political pressure to limit tuition increases and little expectation for big improvements in state spending mean that public colleges will have to continue to cut costs for the foreseeable future, the analysts conclude.

“While cash flow at most publics still remains ample, we expect universities will engage in deeper expense cuts to compensate for slower future revenue growth,” the report said.

Private nonprofit universities managed their costs somewhat better in 2012, Moody’s reports, and have a slightly better outlook for the future, though they face the same pressures on enrollment and tuition.

“Governing boards and management teams continue to exhibit fiscal stewardship of private colleges and universities by holding median operating margins relatively constant over the last five years even as revenue declined,” said Mary Kay Cooney, an assistant vice president at Moody’s, in a news release. (The report on private universities is also available to Moody’s subscribers.)

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