Moody’s reviews Howard University for a possible credit-rating downgrade

July 9, 2013

Moody’s Investors Service is reviewing data on Howard University for a possible downgrade of its credit rating, another sign of fiscal challenges at the historically black school in Northwest Washington.

Since 2011, Moody’s has assigned an A3 rating to about $290 million in bonds issued as Howard was planning upgrades to its campus. That rating, the seventh-highest on the 21-level Moody’s scale, indicates that there is a low risk the university will default on its debt. A shift to the next-lower rating level, if it occurs, would suggest a moderate credit risk.

The review “reflects Howard University’s extremely pressured environment,” Moody’s said in a statement Monday, citing an enrollment decline, cuts in federal funding and a drop in the university hospital’s usage. Weighing on the university is an expected $25 million funding reduction related to the federal budget sequester.

University officials said demand for a Howard education remains strong.

“Like most universities today, Howard University faces revenue challenges,” university spokeswoman Kerry-Ann Hamilton said Tuesday, “but we remain engaged in a proactive and aggressive multi-pronged and multi-year effort to address those pressures, which has resulted in four consecutive years of positive operating results and an endowment that is above pre-recession levels.”

In January, Moody’s expressed a negative outlook for the entire sector of higher education, saying that even market leaders face “diminished prospects for revenue growth.” But conditions vary from school to school: In February, Boston University was upgraded to an A1 rating, and in March, Northern Illinois University was downgraded to A3.

Of 282 private colleges and universities rated by Moody’s, 185 have a credit rating in the A range. Georgetown, like Howard, has an A3 rating. Catholic, American and Gallaudet are rated higher, at A2, according to Moody’s data. George Washington is rated at A1.

Debate over Howard’s fiscal condition flared in public June 7 with the disclosure of a letter from Board of Trustees Vice Chairwoman Renee Higginbotham-Brooks that asserted the university is “in genuine trouble” because of fiscal and management issues. Board Chairman Addison Barry Rand replied on June 10 that the university “remains academically, financially and operationally strong.”

In addition, Howard’s Council of Deans, which represent leaders of schools and colleges within the university, charged in a letter disclosed July 1 that “fiscal mismanagement is doing irreparable harm” to Howard.

University President Sidney A. Ribeau said he rejects that allegation “unequivocally.” The deans, after a meeting with Ribeau, pledged to help the university meet its challenges.

Howard enrolled 10,002 students last fall, down 5 percent from the year before. University officials say their goal is to hold fall enrollment steady at 10,000.

Possible factors in last year’s drop, officials say, include tighter eligibility standards for federal education loans and grants. Also, tuition has risen significantly in recent years. For the coming year, tuition and fees were frozen at about $22,700.

Howard will receive about $222 million this year through federal appropriations, roughly 5 percent less than what it received the year before. President Obama wants to restore the appropriation to its previous level. Whether that will happen is unclear, and university officials are bracing for a further squeeze related to the sequester.

Rep. Jack Kingston (R-Ga.), who leads a House subcommittee that oversees the Howard appropriation, said it can be risky for any institution these days to rely too much on federal funding. Howard, he said, ought to have strong fundraising potential.

“As they raise money,” Kingston said, “that would send a strong signal back to Capitol Hill that ‘We’re working with you, and we’re going to get this done.’ ”

A former Post education editor, Nick writes about college from the perspective of a father of three who will soon be buried in tuition bills.
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