Growing enrollment, conservative budgeting, and responsible financial management earned the University of Massachusetts sound ratings from the three ratings agencies as it prepares to borrow $280 million for new capital projects.
But experts at the agencies cautioned the university system about its high level of debt and thin operating margins, saying any more borrowing without new revenue could spell trouble.
Moody’s Investor Service rated UMass Aa2, Fitch Ratings rated it AA, and S&P gave it AA-.
“I’m gratified to see UMass’ strong financial management and strategic vision recognized by the credit rating agencies,’’ president Martin T. Meehan said in a recent statement.
Rob Manning, the new chairman of the UMass Board of Trustees, heralded the news as “an endorsement of the university’s commitment to maintaining a balanced budget.’’
In addition to funding capital projects, the borrowing will refinance $185 million in existing debt at a lower interest rate, according to the agencies.
Ratings can determine the interest rate schools secure to borrow money and influence their appeal to large donors and its reputation among peer schools.
UMass’s overall budget broke even the past three years, and growing tuition revenue combined with steady support from the state is expected to produce similar results in 2017, the Fitch report said.
UMass benefits from rising application and matriculation rates, something that’s notable in New England, where the number of high school graduates is declining. The university saw a 1 percent growth in enrollment in fall 2016, to approximately 74,500 students.
But the UMass system is not without budget concerns. The UMass Boston campus, in particular, faces a $22.3 million budget gap that has caused a stir on campus.
Administrators last month proposed last-minute cuts to the library that outraged professors and eliminated a number of adjunct professor positions.
UMass Boston administrators chalk its debt up to higher payroll costs. Several large construction projects have also cost more than expected.
Thet university system collects most of its revenue, 37 percent, from tuition, 21 percent from state appropriations, 19 percent from sponsored research, and the rest from other sources, according to the report. UMass has $3.5 billion in long-term debt and an overall budget of around $3.2 billion.
The university has a self-imposed borrowing cap that aims to keep debt payments to no more than 8 percent of its annual budget. It is currently at 8.1 percent, according to Fitch.
Laura Krantz can be reached at laura.krantz@globe.com. Follow her on Twitter @laurakrantz.
