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Following Budget Cuts, Moody’s Demotes University of Alaska Ratings

Moody’s Investors Service has downgraded the credit rating of the University of Alaska from its previous A1 rating to Baa1 following drastic budget cuts by Alaska Governor Mike Dunleavy.

The credit rating committee of Moody’s Corporation demoted the General Revenue Bonds to Baa1 from A1, and the Series 2012 Lease Revenue Bonds from A2 to Baa3.

On June 28, Dunleavy vetoed $130 million in the university’s operating budget. Following a $5 million cut previously approved by the state legislature, this $135 million slash represented 41 percent of UA’s current state funding level of $327 million.

“UA’s strategic position has been materially impaired by this funding reduction,” Moody’s said in a release. “With this unprecedented single year cut in state appropriations, there is a high likelihood of a material reduction in the university’s liquidity over the next year as it uses cash to fund programs pending restructuring of operations, and for the associate costs of that restructuring.”

With the latest ratings, the University of Alaska is the second lowest rated flagship university in the nation.

“This is a direct result of the state’s budget cut and demonstrates what we have been saying — the 41 percent [$136 million] budget cut to the university continues to harm us every day,” University of Alaska President Jim Johnsen said.

“Today’s news just amplifies the impact of the state’s funding cut — Moody’s downgrade harms our ability to bond or borrow money at favorable interest rates and to be viewed as financially stable.”

The university currently owes debt on several of its buildings including the UAF Engineering Building, the UAA University Center and the UAF Power Plant

Last month, Johnsen had warned of “laying off a large number of people,” following the budget cuts as well.

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