Fitch Releases Updated Rating Guidelines for Public Colleges.Business Editors In a report released this week, Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. updated its guidelines for public colleges and universities to reflect changes in higher education higher education Study beyond the level of secondary education. Institutions of higher education include not only colleges and universities but also professional schools in such fields as law, theology, medicine, business, music, and art. and the implementation of new accounting rules. For most public colleges and universities, June 30 is the end of their fiscal year. For schools with revenues of at least $100 million, new reporting requirements will affect the format of financial statements for fiscal 2002. 'Users of public college and university financial statements should not be alarmed when three months from now they see significant operating losses operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. on the audited statements for fiscal 2002,' said Pam Clayton, senior director, Fitch Ratings. For most public schools, state appropriations represent a significant level of funding for operating costs operating costs npl → gastos mpl operacionales . One of the major changes in the reporting format dictated by GASB GASB Governmental Accounting Standards Board 34 and 35 is that state appropriations will appear as non-operating income. As a result, when calculating net operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. , the operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. will generally far exceed the operating revenues operating revenue Revenue from any regular source. Revenue from sales is adjusted for discounts and returns when calculating operating revenue. Compare other revenue. . In the report, Fitch identifies various ratios that will be affected by the change and the adjustments that it will make in calculating ratios with the new format. The report also updates the previous guidelines to reflect changes that have occurred in higher education during the past decade. Prior to the 1990s, public schools could rely on funding from the state as their primary source of funding for operations. As a result, the stability of state funding and enrollment were two key factors in rating public colleges and universities. 'The review of state appropriations, revenue diversity and enrollment trends will remain paramount in the rating analysis,' said Jason Dickerson, senior director, Fitch Ratings. 'However, the assessment of a school's creditworthiness Creditworthiness The condition in which the risk of default on a debt obligation by that entity is deemed low. Creditworthiness Eligibility of an individual or firm to borrow money. now must include more focus on fundraising prowess, off balance sheet financings for auxiliary facilities, distance education efforts, enrollment by adult learners, and the pressure to increase dollars generated by research,' Dickerson added. In January 2002, Fitch stated that its outlook for the higher education sector was positive. While state funding for most public colleges and universities has been reduced or will be reduced in the next year, most schools today operate with strong balance sheets, demonstrated fundraising abilities, and a positive demographic environment. 'These traits should allow most public colleges and universities to maintain their financial position for the long term,' added Clayton. A copy of 'Rating Guidelines for Public Colleges and Universities (Including GASB 34 and 35)' dated July 9, 2002 is available on Fitch's web site, 'www.fitchratings.com,' by clicking on 'Sectors,' scrolling to 'U.S. Public Finance,' clicking on 'Health Care and Higher Education,' and then accessing 'Criteria Reports'. For other Fitch Ratings reports related to higher education, please see 'Off Balance Sheet Student Housing Project Financings,' dated May 2, 2002 'Higher Education and the Recession: Questions to Consider,' dated January 31, 2002 and 'The Role of Endowments in the Rating Process' dated July 27, 2001. These reports are also available on Fitch's web site by accessing 'Criteria Reports' under 'Health Care and Higher Education'. |
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