Moody’s: At current pace, Yeshiva U. will run out of money in 2015


Yeshiva University is at risk of running out of unrestricted cash in the near-term future, Moody’s Investors Service warned.

Moody’s has downgraded Y.U.’s credit rating several times over the last three years, including on March 5 to B3, indicating a high credit risk.

In a report released March 21, Moody’s said that deep and growing operating deficits are likely to continue due to “poor financial oversight and high expenses”; much of Y.U.’s cash and investments are tied up in restricted funds the university cannot use for operating expenses; and banks may not extend credit to the troubled university.

“The negative outlook reflects the risk that Yeshiva will deplete its available unrestricted liquidity before management is able to execute a successful financial turnaround,” Moody’s new report said.

Only 14 percent of the $1.2 billion the university had on hand in 2013 is free from donor restriction and could be used for operating expenses, according to the report. Unless there is a change in operations, the report said, the university will run out of money by the end of 2015.

The Moody’s report, which was first publicized by the Forward on Tuesday, called Y.U.’s business model “untenable.” Last year marked the sixth consecutive year of operating deficits, and Y.U.’s operating margin excluding gifts dropped in 2013 to -42 percent. Seven years ago, the operating margin was at -6 percent.

“The severity and long duration of Yeshiva’s operating deficits are primarily due to weak financial management and the board’s unwillingness or inability to act,” the report said. “Historically ineffective internal controls and limited transparency contributed to an inability to identify and correct problems.”

The report faults the board for failing to hold leadership accountable. Through a spokesman, Y.U. President Richard Joel declined to comment.

Y.U. has taken several steps in recent months to improve the university’s finances. Last month, the modern Orthodox university confirmed that it was selling 10 apartment buildings in the vicinity of its campus in the Washington Heights section of Manhattan that could net the school $250 million. The board also has approved exploration of a voluntary retirement program, the Moody’s report said.

“The university’s near-term financial viability depends on substantial and swift actions,” Moody’s said.

The report cited several reasons for high costs at the university: maintaining separate men and women’s campuses, upgrading equipment at the Albert Einstein College of Medicine in the Bronx; and the university’s high-cost educational model. Meanwhile, tuition revenue has stagnated as Y.U.’s competitors eat into the school’s core market for students. 

With debt crisis looming, Jewish service groups are on alert


Jewish service groups are telling their constituents to be on guard for a possible government shutdown or slowdown after Aug. 2, when the United States is scheduled to hit its debt ceiling.

What that means is not yet clear: The government isn’t saying what it will stop paying for or which debts it will halt payment on.

Moody’s, one of the three pre-eminent credit-rating agencies, said the crisis could affect not only the AAA rating of the U.S. credit risk—the best offered by the agency—but also the ratings of nations that have loans guaranteed by Washington. It named Egypt and Israel.

Democrats, Republicans, the U.S. House of Representatives, the Senate and the White House have deadlocked over a formula that would raise the limit the U.S. can take out in loans while shaping a longer-term formula to tamp down the deficit.

The White House says that as of next Tuesday, it will not have the money to fully fund government, which means that anything from government paychecks to defense spending to social services could come to screeching halt. For Jewish service groups, housing grants that help maintain Jewish homes for the elderly could stop paying out, Medicaid money that funds services for the vulnerable could dry up and the Social Security checks that help the Jewish elderly make ends meet could stop coming.

“We are sending out guidance to federations and Jewish social service agencies to make sure they are aware of the situation and to act accordingly with a message that they should stand by” for further guidance as the deadline looms, said William Daroff, the Washington director for the Jewish Federations of North America.

Daroff said the “game of chicken in Washington could have an impact on the most vulnerable.”

“We are most worried about Medicaid payments that go to Jewish nursing homes and Jewish family services,” he said. “The people who will be most affected are the most vulnerable of our population—the people who are suffering most because of the recession.”

The effect won’t be felt immediately on Aug. 3, according to Rachel Goldberg, director of aging policy for B’nai B’rith International. Instead, its effect will become apparent as the Obama administration chooses what to cut.

“No one is going to be happy with the choices made,” she said.

There could be a ripple effect on the economy. If millions of elderly Americans don’t get their Social Security checks directly deposited after Aug. 2, then mortgages and rents due could be affected.

Likewise, said Mark Olshan, the director of B’nai Brith’s Center for Senior Services, if the Department of Housing and Urban Development fails to send out subsidies to homes for the elderly, the institutions will have to dip into reserves immediately.

“That eats up future moneys,” he said.

The principal division between the parties is over revenue—whether or not to raise taxes as part of a recovery package. Democrats want some tax hikes, while Republicans want only cuts for now.

It’s a division that seeps into the Jewish groups. The Reform movement and B’nai B’rith International back plans that include increased taxes. The Jewish Council for Public Affairs, the umbrella body for Jewish policy groups, last week wrote to Congress to oppose the cuts-only Cut, Cap and Balance Act backed by the Republicans.

On Tuesday, the JFNA wrote to the president and congressional leaders appealing to them not to gut discretionary spending—the allocations that states use to fund services that provide food, shelter and medicine to the needy, as well as Medicaid. The letter also appealed to the parties to leave alone charitable tax deductions, which have been targeted by Democrats.

Yet as the crisis looms, Goldberg said, it becomes harder to advocate for the whole social services package that Jewish service groups once favored.

“We want to protect Medicare and Medicaid,” she said of the programs that respectively subsidize health care for the elderly and the poor. “But we don’t want to keep pressing for that and end up with default. Everyone is struggling with how hard to push.”

Goldberg said that cuts that do not immediately affect Jewish services may have ancillary effects one or two weeks into the crisis. The government could authorize funds for HUD to pay institutions, she said, while cutting back government salaries.

Another consideration is whether a deal forged after a cutoff in funds would be retroactive, Daroff said.

With the sides continuing to disagree on the best way out of the crisis, no one is sure what may happen.

The looming crisis drew Muslim, Christian and Jewish clergy to the Capitol on Tuesday to press for a resolution.

“The stiffening of the ideological lines is really alarming,” said Rabbi David Saperstein, who directs the Reform movement’s Religious Action Center. “The people who fall through the cracks are very often the people in our pews. When you cut the safety net out from under, it’s the elderly and the hungry and the disabled.”

Moody’s: Israeli loan guarantees will be affected by U.S. review


Moody’s said loan guarantees for Israel would be included in its review of its AAA rating of U.S. bonds ahead of a possible deficit crisis.

The credit rater said it was reviewing U.S. bonds for possible downgrade “given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on U.S. Treasury debt obligations.”

In addition to U.S. institutions affected, Moody’s said in its July 13 release, “Bonds issued by the governments of Israel and Egypt that are guaranteed by the U.S. government were also placed on review for possible downgrade.”

The reference was to the bonds the two governments issue backed by U.S. loan guarantees, and not to Israel Bonds, the development securities that are not rated.

The Obama administration and the Republican-led U.S. House of Representatives are in negotiations over the terms of raising the debt ceiling. Republicans until now have resisted tax increases while pressing President Obama to accept greater cuts in spending.

The credit review could come as soon as this week, ahead of an Aug. 2 deadline to raise the debt ceiling.

Moody’s, along with Fitch and Standard & Poor’s, is one of the three leading credit raters.