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Research universities’ credit in jeopardy from budget pressures

Increasing pressure on federal research funding will hurt the credit ratings of research universities, especially those with less-established records that will likely have a harder time securing federal research grants, Moody’s Investor Services suggested in a recent weekly credit outlook report.

In 2013, the across-the-board sequestration cuts slashed federal research funding by 5 per cent, and that figure will decline further in 2014 and ensuing years, according to Moody’s 14 November analysis. Even if a budget deal is reached in Washington, the firm expects flat funding at best over the medium term.

On average, universities rely on federal sources for 68 per cent of research funding, with the National Institutes of Health and National Science Foundation representing the two largest sponsors, respectively, Moody’s said. It noted that research universities saw research spending decline for the first time in more than a decade in fiscal year 2012. Specifically, there was a 0.5 per cent median drop, and sequestration only exacerbated this decline. Based on preliminary results, Moody’s estimated an even larger 1 per cent median decline in fiscal year 2013.

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