Although the Commonwealth of Virginia currently has the highest possible bond rating, AAA, there is the possibility that it soon may be downgraded to AA+. Moody's Investors Service placed Virginia on the bond watchlist Sept. 4.
Moody's Investors Services, Standard & Poor's and Fitch Ratings all evaluate the financial interactions of the state and then determine its bond's credit-worthiness. High ratings for the Commonwealth mean more funding for capital projects and for the University.
Right now, there are only seven other states that claim a AAA rating from Moody's Investors Services. Fitch Ratings and Standard & Poor's still rate Virginia as AAA.
If the Commonwealth's rating did decrease, the impact on the University is not expected to be too drastic because of the decrease in state contributions to the University.
In the late 1980s, the state contributed 25 percent to the University's budget; in this current budget cycle, the state only will contribute 8 percent.
"Since we now only receive 8 percent of resources from the state, it would appear that the state situation would have minimal impact on the University," University Spokesperson Carol Wood said. "For the first time in U.Va.'s history, state support has declined below private support. Clearly, U.Va. has its donors and private support to thank for being able to continue to maintain its excellence in programs."
Fitch Ratings Senior Director Jason Dickerson explained specifically what the bond ratings meant for the University.
"It means the University can borrow for the lowest possible interest rate," he said. "When the University borrows money for a project, it will cost them less over a long time."
The Commonwealth's placement on Moody's Investors Services' watchlist did not come as a surprise to some members of the Virginia House of Delegates because of the current weak economy.
"We have to be very careful to keep expenditures within the revenue that we have," said Del. Harry Parrish, R-Manassas, House of Delegates finance committee chair.
If the rating was decreased to AA+, it would have the potential to affect the taxpayers because the interest rates on the general obligation bonds, which citizens voted for last fall, would cost more every time they were re-issued. Legislators said they are working hard to remove Virginia from the watchlist.
To be taken off the watchlist, the Commonwealth will have to prove that it can keep its expenditures within its ability to raise funds.
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