Moody’s Investors Service downgraded the University of Alaska’s credit rating on Wednesday, citing the 41% cut in state funding, largely from Gov. Mike Dunleavy’s $130 million veto.

Calling the reduction an “unprecedented single year cut in state appropriations,” Moody’s dropped the university’s general revenue bond rating from A1 to Baa1.

The new rating represents a three-step drop, meaning it will cost more for the university to finance a variety of projects — bringing the university closer to junk, or non-investment, grade status.

The rating is also the nation’s second-lowest rated flagship university, just above Puerto Rico, according to a Moody’s spokesman.

The report addresses the broader picture at the university beyond the vetoes, including the governor emptying the higher education fund, which produces academic and needs-based scholarships.

“UA's strategic position has been materially impaired by this funding reduction, as well as a cut to the state's financial aid programs, and we expect a multiyear negative impact on enrollment, which was already declining, as well as the competitive position of University of Alaska's research enterprise," the report states.

The report says the university could receive a future upgrade “either through restoration of stronger state support or through strengthening of other funding streams, such as tuition revenue and philanthropy.”

On Monday, the House introduced an amended bill that would restore all of Dunleavy’s vetoes. The state took public testimony in Anchorage, Wasilla and Fairbanks this week.

The committee is scheduled to continue working on the bill Thursday when lawmakers return to Juneau under Dunleavy’s amended proclamation.

UA President Jim Johnsen said in a prepared statement that he was not surprised at the downgrade.

“This is a direct result of the state’s budget cut and demonstrates what we have been saying -- the 41 percent [$136 million] budget cut to the university continues to harm us every day,” Johnsen said via email. “Today’s news just amplifies the impact of the state’s funding cut -- Moody’s downgrade harms our ability to bond or borrow money at favorable interest rates and to be viewed as financially stable.”

Dunleavy’s office did not return an email seeking comment on the downgrade.

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