Wayne State’s financial problems prompt Moody’s to change outlook to ‘negative’

Old Main at Wayne State University
Old Main at Wayne State University. Photo by Steve Neavling.

As Wayne State University continues to struggle with declining enrollment, school officials are spending cash reserves at an alarming rate.

As a result, Moody’s Investors Services has assigned a negative outlook for Wayne State. 

“The revision of the outlook to negative reflects the incremental weakening of Wayne State University’s fundamental credit through the spend down of financial reserves and multi-year decline in enrollment,” the report states. “The outlook also incorporates our expectation that the university’s ambitious strategic plan will place additional pressure on operations and financial reserves.”

In late 2014, Standard and Poor’s also downgraded its outlook for Wayne State to negative.

Rendering of the Mike Ilitch School of Business.
Rendering of the Mike Ilitch School of Business.

Despite the downgrade, the university continued to spend money and create more debt. The university, for example, plans to chip in about $24 million to what was supposed to be a gift – the $59 million Mike Ilitch School of Business, according to an exclusive interview with William Decatur, vice president of finance and business operations, treasurer and CFO. About $14 million likely will come from bonds, which could cost more in interest rates because of the outlooks of the two leading bond-rating companies.

Wayne State may be on the line for even more money, but university officials have declined to release the gift agreement between the school and Ilitch. Motor City Muckraker has filed a Freedom of Information Act request for the records.

In June, the university approved an average 4.1% tuition increase for students.

The university administration has not informed the Board of Governors that Moody’s changed the school’s outlook, according to University of Michigan law professor Dana Thompson, a member of the Board of Governor.

“Wayne State University President Roy Wilson and his administration did not inform the Board of Governors that Moody’s credit outlook for the University was revised from stable to negative in June 2016,” Thompson wrote to Motor City Muckraker. “I am concerned that the Administration did not inform the Board of this development because a negative credit outlook means the University’s credit rating could be lowered in the future and a lower credit rating could cause the University to pay higher interest rates on future debt.”

Thompson added: “This could have negative consequences on our future borrowing. We all are working to ensure that Wayne State succeeds but the administration needs to inform the Board on these serious matters.”

WSU President Roy Wilson
WSU President Roy Wilson

When Wayne State dropped math from graduation requirements in June, the Board of Governors learned about it from the media.

In the past five years, Wayne State’s enrollment has fallen more than 10%, from 30,510 in 2009 to 27,222 in 2015.

Decatur, who came on board in April 2015, said he expects enrollment numbers to begin increasing this fall.   

“We believe we are turning around,” Decatur said. “Historically Wayne State has drawn its students from the metro area. We are starting to expand that search. We are trying to reach students throughout Michigan and outside of the state.”

Another concern of Moody’s is the Wayne State University School of Medicine, which faces accreditation problems because of numerous violations, including a drop in minority enrollment. The medical school’s deficit also reached $30 million this year.

“We expect the School of Medicine to lose money this year, but we expect it to be back on track next year,” Decatur said.

Decatur acknowledged there is “no silver bullet,” but he said the university must reign in spending and increase student enrollment.

“We are working on these challenges,” he said. 

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Steve Neavling

Steve Neavling lives and works in Detroit as an investigative journalist. His stories have uncovered corruption, led to arrests and reforms and prompted FBI investigations.