By Ann Marie Galvan
City College’s financial outlook was upgraded from “negative” to “stable” after an evaluation from Moody’s Investors Service, an independent credit rating company, which also reinstated the College’s A1 bond rating. State funds and “operating surpluses” thanks to “one-time revenues, wage concessions, and staff reductions” are credited for the upgrade, according to Moody’s revised report.
Moody’s assesses credit risk, and their ratings calculate the likelihood of default and the potential of financial loss to creditors. Moody’s is one of three large credit rating companies, and it even rates countries.
“The rating that we get allows City College to save some tax dollars,” said City College Board of Trustees member Alan Wong. “It will also make us more competitive for bonds and there is evidence for accreditation.”
City College took out bonds in 2001, 2005, and an $845 million bond in 2020. The company’s rating reflects that City College is a “low credit risk” with stable operations.
“A better rating means a lower interest rate for the taxpayers,” said John Rizzo, vice president of the Board of Trustees for City College. With a lower interest rate the bonds will be paid off faster, which means less money over time from taxpayers, Rizzo said.
In 2021, City College’s bond rating was downgraded to Aa3 from A1 with a steady “negative” financial outlook. Moody’s rationale for the poor rating was the “district’s failure to address a structural budget” and its “continual reliance on one-time revenues and interfund borrowing” to cover operating expenses.
Since then, the board has been working to address City College’s financial stability, and a press release from July summarizes the actions they’ve taken, which include eliminating structural deficit spending, developing a financial plan to eliminate negative balances, and a “reduction in total college salary and benefit costs.”
“The layoffs were a part of that,” Rizzo said. “We had too many ongoing expenses. That’s what the state was telling us. That’s what our auditor was telling us. Ninety-two percent of our budget was salary and benefits. There’s not much else to cut when it’s that high.”
In May, the Board of Trustees voted to layoff 38 full-time staff and over 100 part-time faculty in order to resolve the budget deficit. AFT 2121, the City College faculty union, said that the layoffs were unnecessary after creating an alternative budget of college finances, but the board voted 5-1 in favor of the cuts.
“Salaries were taking over 90 percent of our operating budget. So we couldn’t do other things either to meet accreditation standards. That’s why this difficult decision had to be made,” said Brigitte Davila, president of the City College Board of Trustees.
The stable Moody’s rating is good news for City College’s upcoming accreditation assessment period next year, and Davila said that the Accrediting Commision for Community and Junior Colleges (ACCJC) will consider it. “They’re looking at all of it. They’re looking at where we’re heading in the future. They want to see that we are not just deficit spending.”
Currently, City College is classified “at-risk” for accreditation and is on enhanced monitoring by the ACCJC. The validity of the ACCJC reports have been hotly contested in the past, and in 2015 the San Francisco Superior Court found that the committee had broken state law in “four ways” during the 2012-2013 City College accreditation crisis by denying the college due process rights. Some faculty have claimed that the accreditation revocation was even based on falsified data.
“It’s really good for accreditation, which is coming up next year, because this is an independent verification that our finances are in good shape,” Rizzo said. He added that City College is meeting many of the other financial milestones that the accreditation board looks at including reserve funds for building maintenance, a fund for technology supplies, and a budget for professional development for staff and faculty.
City College also has a reserve fund for emergencies that exceeds standards, he said. The state of California and the ACCJC currently require a 5% reserve, with plans to make this number even higher. Rizzo said that City College’s reserve fund is currently at 8% or 9%. “If you don’t have the required reserve fund, or if you have less than the required amount, then you’re not financially healthy,” Rizzo said.
Ultimately, Rizzo is optimistic about City College’s financial outlook and next year’s accreditation assessment. “We’re looking pretty good for accreditation right now. I expect a pretty drama-free accreditation period.”