A global credit rating agency has revised its credit outlook for the University of Maine System from stable to negative for the second time in a decade, citing a bungled search to replace the Augusta campus president, declining enrollment numbers and millions of dollars in anticipated budget deficits.
The university system’s outlook slipped from “stable” to “negative,” though the ratings agency S&P Global affirmed its underlying “AA-” rating, according to a report the board of trustees’ finance committee included in its Wednesday meeting agenda.
“The rating and outlook revision reflect our view of Maine’s lagging social capital and demographic trends,” S&P said in its report, which came as the university system issued a series of revenue bonds totaling $122.7 million last month. Credit ratings play a major role in determining the interest rate a borrower will have to pay.
The university system’s bonds were issued to help finance projects like the expansion of a University of Southern Maine residence hall and parking garage in Portland, the newly opened $78 million engineering and design center at the flagship Orono campus and an energy project there, said Ryan Low, the system’s treasurer and vice chancellor for finance and administration.
Though S&P touted the University of Maine System’s “solid finances,” it cited turnover among campus leadership as part of the reason for its lowered credit outlook.
“We believe there is elevated management and governance risk with some uncertainty about implementation of current and future strategic initiatives at a time when the system already faces enrollment and financial operational challenges,” the ratings agency wrote.
In addition to the bungled attempt to fill the University of Maine at Augusta president’s role, the seven-university system also saw the departure of two other campus presidents over the past year, with Glenn Cummings stepping down as president of the University of Southern Maine and Edward Serna leaving his post leading the University of Maine at Farmington.
It’s not the first time the university system has seen its credit outlook lowered. S&P changed its outlook to “negative” in 2015 for identical reasons, citing unstable leadership and declining enrollments and tuition revenues.
Low pointed out that S&P had kept the University of Maine System’s credit rating the same, at AA-, and that the agency had praised the system’s fiscal responsibility.
The revised credit outlook “barely” affected the university system’s ability to borrow money for the most recent round of bonds, and the system had been able to secure loans at 4.5 percent interest, less than one percentage point more than what the system would have been able to find if it had a “stable” credit outlook, Low said.
“It’s not a big headline, in the scheme of things,” he said.
The university system has spoken about its challenges “openly and publicly for quite some time,” Low said.
The revised negative outlook is a “chance to address some of those challenges that are noted,” he said. “We feel like the changes that we’re doing are absolutely addressing those negatives. I feel very confident about these investments we’re making.”
The university system has been embroiled in controversy since May, when it was revealed that Michael Laliberte, the candidate selected to lead UMA, had been the subject of votes of no confidence at his previous institution, a state university in New York.
The College Senate at the State University of New York-Delhi accused him of “enabling a culture of disrespect and hostility” and being fiscally irresponsible during his six-year tenure as president.
The chair of the search committee for the UMA president’s position, a system trustee, was aware but did not share that information with other committee members. Laliberte later withdrew from the job ahead of his Aug. 1 start date, but the university system will be on the hook to ensure he’s paid at least $235,000 annually — his $205,000 salary plus a $30,000 housing allowance — over the three-year life of his contract if he doesn’t find a comparable position.
Faculty at the University of Maine in Augusta, University of Southern Maine and University of Maine in Farmington cast votes of no confidence against Chancellor Dannel Malloy following the search debacle.