Investors pull out of LSU over credit rating worries
Institutional investors, the type that buy bonds issued by state universities, want to earn a profit on their investment, but they also want to get paid back for their initial investment. The riskier the investment is, the greater the rate that they will charge, until it gets to the point where they’re unwilling to invest at all.
Borrowers that are deemed an unsafe risk, as LSU now apparently is, will have to look elsewhere for capital projects funding, or will have to pay unreasonable rates (e.g. junk bonds). This is what happens when their income stream (including state funding) is cut to the point where investors deem them an unreasonable risk.
In other words, the less money they have, the more that they’ll be charged to borrow, exacerbating their fiscal straits, just as happens in the residential mortgage and consumer credit market.
Either that or they won’t be able to borrow at all.
Perhaps LSU can do without a new student health center and new residence halls, perhaps not. However, not every capital need is a matter of choice; some are absolutely necessary, particularly for a state’s flagship university.
The queasiness of these investors is an ominous sign, a clear signal that Louisiana needs to get its fiscal house in order. The effects of Louisiana’s fiscal imprudence on higher education in the state will be felt for many years.
Rome wasn’t built in a day, and neither was LSU.
Recovering from a steadily compounding infrastructure deficit will not be quick and will not be painless. It took Katrina to change our chronic “brain drain” into a “brain gain.” We risk returning to the pre-Katrina position of being unable to keep our best and brightest at home, much less convincing others to join us.
This is no way to run a railroad.