July 25 (Reuters) - Public universities and colleges in the United States continue to struggle with state funding cuts and a slowly recovering economy, Standard & Poor’s Ratings Services said on Wednesday, adding the sector has a mixed outlook.
“We believe the climate of state budget austerity is likely to persist in the near term and will continue to present significant challenges to public universities,” the rating agency said in a report.
Facing big budget holes in the wake of economic recession, many states slashed spending, including funding for higher education.
Meanwhile, the schools also face other challenges, including operating expenses that outpace net tuition revenue growth, education cost increases that surpass inflation, growing post-retirement liabilities, and weak market values in endowments, according to S&P.
“We believe balancing these constraints and implementing new strategies to address the affordability issues, revenue diversity, and demographic shifts will be critical to maintaining or strengthening credit quality during the next few years,” S&P said, noting that “the strength of management will be key to short- and long-term credit prospects for the sector.”
The average credit rating for the 146 public universities S&P rates is A-plus with a stable outlook, with only three achieving AAA ratings on their debt -- University of Virginia, University of Texas System and University of Michigan, the report said. (Reporting by Karen Pierog; Editing by Dale Hudson)