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Trump budget cuts could hit research universities hard, Moody’s warns

President Trump (Jessica Kourkounis/Getty Images)

President Trump’s budget proposal to slash federal research funding and end financial support for the arts could hurt the bottom line of colleges and universities that rely on those government dollars, Moody’s Investors Service said Tuesday.

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The White House budget, released earlier this month, dials back discretionary funding for agencies that pour billions of dollars into higher education. If Congress passes the budget as proposed, Moody’s analysts say it would add financial stress to a number of colleges and universities.

The credit rating agency warns that the proposed $5.8 billion cut in funding to the National Institutes of Health would have the most significant impact on higher education. Roughly 80 percent of NIH’s budget supports grants to 300,000 researchers at universities across the country. Johns Hopkins University in Baltimore, for instance, was awarded $651 million in NIH funding in 2016, while University of California at San Francisco received $578 million.

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Universities with diversified research portfolios, large operating budgets, significant revenue and strong fundraising capabilities, like Johns Hopkins or Yale University, could adjust to the reduction in federal funding over several years, according to Moody’s. However, schools without those sorts of resources would struggle.

“The more concentrated the research is in the identified areas for cuts, the more vulnerable the institution,” said Susan I. Fitzgerald, associate managing director at Moody’s.

Because the White House budget lacks much detail, analysts say it’s difficult to tell whether an increase in the Department of Defense budget will benefit universities with defense-related research projects. There are also no specifics on funding for the National Science Foundation, an agency with a $7.5 billion budget that funds about a quarter of the federally backed research at colleges and universities.

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Moody’s analysts are also concerned about the ripple effects of the proposed elimination of funding for the National Endowment for the Arts and the National Endowment for the Humanities. Many of the schools rated by Moody’s receive grants from both entities, though the awards are a small portion of their budgets. Still, those grants often fund programs that are appealing to students and donors, who might lose interest in the school if certain arts programs disappear, Fitzgerald said.

Analysts at Moody’s say the budget constraints facing the Education Department might not create much financial strain for colleges and universities. Holding the line on discretionary funding for the Pell Grant program would have no financial impact on universities, they say. Yet the elimination of the Federal Supplemental Educational Opportunity Grant and reduction in Federal Work Study funding could place minor stress on the budgets of the roughly 550 schools rated by Moody’s. The two programs combined are less than 2.5 percent of total operating revenue for those schools, but the elimination would add pressure on already thin operating margins for colleges with budget problems.

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The proposed spending cuts come at a time when some state legislatures are calling for a reduction in public higher education funding to close budget deficits.

“We’re in budget season right now and higher ed funding in many states is coming under pressure. Cuts at both the federal level and the state level would certainly cause pressure for public universities,” Fitzgerald said.

Read more about the White House budget’s impact on higher education:

College-prep programs for the poor slashed in Trump’s budget

After White House courts HBCUs, budget disappoints school leaders

In Trump’s budget: The unwisest cut