NIU and three other Illinois universities saw a downgrade in their credit ratings on Monday because of their “high reliance on the State of Illinois for operating funding,” according to a report issued by Moody’s Investor Services.

Moody’s is a New York City based company that ranks the creditworthiness of borrowers using a standardized ratings scale that measures expected investor loss in the event of a default.

NIU was downgraded from an A3 to a Baa1. A Baa1 rating, while low among municipal bonds (bonds issued by local government or government entities like NIU), is still considered to be bonds suitable for prudent investment, said Lei Zhou, Associate Professor of Finance.

“Credit rating matters because borrowers have to pay higher interest rates when their ratings are lower,” Zhou said. “However, the downgrade would not have significant impact on NIU immediately if the university does not have any plan to issue new bonds in the near future. … In the long run, it could raise the borrowing cost for NIU if the rating stays low or gets downgraded further.”

NIU’s credit rating was last downgraded in 2013 due to similar heavy reliance on state funds to operate, according to a 2013 Northern Star article. Other schools affected include Eastern Illinois University, Governors State University and Northeastern Illinois University.

“Coming on the heels of last week’s news that Moody’s downgraded the outlook for the state of Illinois, it comes as no surprise that they have done the same for NIU and most other public universities in the state,” said Alan Phillips, Vice President of Administration and Finance in a statement.

NIU’s posed decrease in state funding and declining enrollment also contributed to the downgrade, according to the report issued by Moody’s.

On Feb. 18, Gov. Bruce Rauner proposed a $29.3 million cut to NIU’s state allocation, a cut the university has prepared for with an interim budget of $389 million — down 9 percent from Fiscal Year 2015’s $426.5 million budget. NIU has seen a steady drop in enrollment since 2009, from 24,424 to 20,130 students in 2015, according NIU Institutional Research.

NIU’s credit rating will continue to downgrade with significant decline in state appropriations and further deterioration of the state’s credit quality, according to the report issued by Moody’s.

The service downgraded the credit rating of State of Illinois on Oct. 22.

“At the heart of this is the ongoing uncertainty due to the current state budget impasse, an issue that is beyond our control,” Phillips said in his statement. “We were also pleased that Moody’s recognizes that NIU is working diligently to improve its financial health by launching efforts such as program prioritization.”

Rauner is set to meet with lawmakers on Nov. 18 to discuss the budget.

“Moody’s maintains a negative outlook for NIU, meaning that the rating is likely to be downgraded more if conditions do not improve,” Zhou said. “If the rating gets downgraded by three more notches, NIU’s bonds would be classified as ‘junk bonds,’ making them ineligible investment for many institutional investors like pension funds and insurance companies. That would spell big trouble for the university.”