Last fall, Moody’s Investors Service issued a negative outlook for higher education. That assessment was the second consecutive downgrade for higher education. The MIS outlook is important because it affects the cost of borrowing for colleges and universities.
Industry assessments by Moody’s can significantly affect the cost of borrowing for a community college. Community colleges borrow more money and borrow more frequently than their 4-year public counterparts. When investor guidance on a sector like higher education goes negative, the cost of borrowing goes up.
Community colleges have the option of seeking tax-backed bonds. When the industry investment guidance is negative, having a guaranteed tax to repay loans makes borrowing easier and less expensive. Conversely, when community colleges choose to issue bonds against their general operating funds, but investors are wary, the cost of borrowing rises. For a community college, compromising its primary revenue stream by devoting part of it to debt repayment can cause serious problems, especially during a recession.
For nearly two decades, WCC has preferred to borrow against the College’s general fund. Having done this several times, the general fund cannot support additional borrowing. Prior to the COVID-19 outbreak, WCC planned to borrow against its general fund to build the “Advanced Transportation Center.” The College has temporarily put those plans on hold while the pandemic sorts itself out.
This doesn’t mean the ATC is gone for good. Disregarding the taxpayers’ best interests, the Board of Trustees has already given the WCC administration permission to borrow construction funds. The approval allows the administration to borrow funds during a recession while investor confidence in higher ed is low. Without a guaranteed tax to repay the loans, the taxpayers will pay top dollar for a building we don’t need.
Photo Credit: Bhautik Joshi, via Flickr