Saving Alaskans’ Oil Checks Pushes University Toward Fiscal Emergency

(Bloomberg) -- The University of Alaska may declare a type of financial emergency that would allow it to usher in extraordinary cutbacks after the state slashed funding so deeply that it could imperil the system’s accreditation and trigger bond-rating downgrades.

The system, whose three universities serve more than 26,600 students, says it will need to cut $200 million in response to Governor Michael Dunleavy’s veto of $130 million in funding, according to the motion that regents will review Monday. The university system said even shuttering one of its campuses wouldn’t eliminate the shortfall it faces.

Saving Alaskans’ Oil Checks Pushes University Toward Fiscal Emergency
Saving Alaskans’ Oil Checks Pushes University Toward Fiscal Emergency

The university’s regents are set to vote on whether to declare a financial exigency, an extremely rare step that would allow it to quickly slash services and fire employees. Tulane University took that step in 2005 after its city of New Orleans was devastated by Hurricane Katrina, allowing the private college to fire faculty members with tenure, according to the American Association of University Professors. Chicago State University also did so in 2016 after its funding was affected by a long-running impasse over the Illinois budget.

The pressure on the University of Alaska is a result of the Republican governor’s decision last month to roll back funding to balance the budget, allowing him to avoid enacting new taxes or reducing the annual dividend checks that residents receive from oil production in the state.

Saving Alaskans’ Oil Checks Pushes University Toward Fiscal Emergency

The decision may have consequences for bondholders, given that the response could determine whether the university’s credit rating is downgraded. Moody’s Investors Service warned it may lower its A1 rating on $319 million of university bonds in light of the budget cuts, noting they could cause enrollment to decline.

The Northwest Commission on Colleges and Universities told state lawmakers in a July 7 letter that the cut in state funding could hurt “student success” and therefore jeopardize the universities’ accreditation.

Gabriel Serna, a professor at Michigan State University who researches higher education finance, said both the scope of the budget cuts and how quickly they were enacted is rare. It’s notable that the state is cutting back as others boost funding, he said.

“This is unprecedented,” he said.

©2019 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.