Moody’s Investor Services announced recently that Western Carolina University was deemed high quality after receiving a credit issuer rating of Aa3.
According to the release, however, the university’s overall outlook has been reduced from “stable” to “negative.”
Western’s issuer rating, a score determining how well an institution can honor it’s financial obligations, has remained at a rating Aa3. This has been a relief for Robert Edwards, Vice Chancellor for Administration and Finance, and also a warning to tread lightly.
“While we are pleased that we have retained our credit rating of Aa3, we must carefully monitor our financial resources,” Edwards said. “As we have in the past, we will continue to be extremely diligent in deciding when – and if – to take on additional debt.”
Edwards said that budget cuts were the main cause of Moody’s taking Western’s outlook from “stable” to “negative.” According to Moody’s release, the outlook was reduced because the state budgets continue to be cut from Western’s revenue. This year alone Western’s revenue from the state was reduced by 16.4%, a devastating blow to the University because the state’s budget made up 49.6% of Western’s operating revenue for the 2010 fiscal year.
The other problem with Western’s fiscal uncertainty is the university’s growing debt.
“With several recent major projects on campus, including a new student recreation center, dining hall and two residence halls, we have taken on new debt in the past three years,” Edwards said. “That debt, combined with a significant reduction of state funding over the past three years, has led to the recent change in our outlook. We cannot control budget cuts, but we can control our debt.”
The growing debt is an issue, with the press release stating that Western was $89 million in debt, a 38% increase since 2008.
Edwards corrected that statement, saying WCU is actually over $106 million in debt. He said that the majority of the debt has come from recent renovations and constructions on campus in the past few years.
“That $88.9 million in debt (through the 2009-10 fiscal year) includes bonds issued for construction of Campus Recreation Center, Courtyard Dining Hall and Balsam Residence Hall,” he said. “It does not include construction of Blue Ridge Residence Hall.”
When asked what the university is doing to pay back the debt, Edwards said “That debt is being repaid through fees, including housing fees, meal plans and recreation fees.”
Edwards assures that the outlook being changed will not have any effect on students at Western. He said that future construction and renovation projects funded by the university could be delayed until the negative outlook is removed.
The plan to repay the debt through student’s fees heavily relies on Western’s admissions continuously growing, as stated in Moody’s press release. However, the press release said that applications to Western from high school graduates have increased more than three times since 2007.
The press release also said that Western has grown by 7% in admissions, leaving the university with over 8,000 students, and that WCU is preparing to enroll over 10,000 students over the next several years.
The release said that raising tuition each year is not a sustainable way to handle state budget decreases.
Other ways Western is saving money in order to repay debts and not gain more debt is through program cuts and wise budgeting.
When asked about the programs that were being cut from the university this year, Edwards said, “In dealing with ongoing budget reductions, cultural and academic enhancement programs for the academic and local community have all but been eliminated.”
Edwards said that WCU’s Advancement and External Affairs lost a lot of their funding, and the restrictions on fundraising and communication from alumni, donors, and prospective donors have become very severe.
He also said that I.T. services, support, and training have been greatly reduced, and online training resources for computer programs have been eliminated to move funding elsewhere.
“In addition, upgrades to student email will be delayed, as will the long overdue replacement and enhancement of classroom technology which now averages 5-6 years-old,” Edwards said.
Students are not the only ones to be affected from state budget cuts. In total, Edwards said that the university had to cut 103.55 job positions. Thirty-two of those positions were graduate assistantships cut due to the graduate program’s budget being reduced by approximately $647,000.
Other positions were lost from the College of Education and Allied Professions, College of Business, Provost Division, Academic Tutoring, Career Services, The Writing Center, Facilities Management, General Faculty, Administrative Support, Advising, unfilled retirements and instructor positions, Controller’s Office, and accounting.
Position cuts will affect students by increasing class size, many classes seeing maybe three times as many students since a few years ago.
“The number of classes with more than 50 students has nearly doubled, from 17 to 33 to a 94 percent increase,” Edwards said. “Additional position losses in the academic departments will negatively affect the academic environment. While not directly affecting faculty workload, these positions directly support teaching activities and will no doubt have an impact.”
When asked how WCU planned to save money, Edwards said, “We continue to seek and implement energy savings alternatives to cut energy costs. Equipment purchases and travel have been severely curtailed. All vacant positions are being scrutinized before being filled to be sure those positions are essential to the operation of the university and its core mission.”
Moody’s release said WCU is in a demographically diverse state that is seeing increases in high-school student graduates. It said the University is continuing to grow in enrollment and in capital, which promises financial growth, and the University has been able to respond quickly to its debt issues because of strong financial management.
“WCU remains a very stable university financially. I am very optimistic about the university’s future,” Edwards said. “WCU will weather this storm. Under the leadership and vision of Chancellor Belcher, along with the great administration, faculty, staff and students, WCU will make strategic decisions now that will position us to be a strong, competitive frontrunner in higher education when economic times improve. We must continue to look for opportunities during this national financial downturn.”
