DALLAS — The Maricopa County Community College District is surrounded by the economic troubles of the Phoenix metro area, but the 10-campus system will still carry top ratings into an upcoming $150 million issue of general obligation bonds.
The deal is expected to price through negotiation the week of May 9 through an underwriting team led by Citi. Co-managers are Bank of America Merrill Lynch, JPMorgan, Ramirez & Co., and Wedbush Securities Inc.
Fitch Ratings said the district presents a strong case for its AAA rating, despite Maricopa County’s flat housing market and persistent economic travails.
“The area economy, which has traditionally been a positive credit consideration, continues to demonstrate weaknesses characterized by high unemployment and above-average home foreclosures and delinquency trends,” Fitch analyst Rebecca Moses said.
But she added that the system, considered the largest community college district in the nation, has a broad and diverse tax base, relatively low GO debt of $588 million, and strong financial management.
“Principal payout of tax-supported debt is rapid, and debt levels and the impact to the tax rate are relatively modest,” Moses wrote. “Despite the loss of capital funding from the state, the district has been able to fund its capital needs through the GO bond authorization while maintaining low debt levels.”
Standard & Poor’s also affirmed the district’s AAA rating. A report from Moody’s Investors Service was pending as of Monday afternoon.
District officials were pleased with the affirmations.
“In uncertain financial times, the district recognizes and appreciates the strong financial ratings the agencies have provided us,” said Debra Thompson, vice chancellor for business affairs.
The district’s board of directors is expected to grant final approval for the GO issue Tuesday evening. The debt is part of a $951.4 million bond program approved by 76% of voters in 2004. In addition to construction and purchase of new buildings for existing campuses, the district has acquired land for future campuses.
“At this point, we are at the peak of this program,” Thompson noted in remarks prepared for Tuesday’s board meeting.
One requirement for the issue is that borrowing costs not exceed 6%, but the deal is expected to price in the range of 3.75% to 4%, according to financial adviser RBC Capital Markets. The bonds, to be issued as Series D, have a maximum maturity of 15 years with an average life expectancy of about 11 years, according to the district’s financial staff.
The district issues bonds on a cash-flow basis rather than a project basis. That means bonds are issued to provide cash flow for dozens of projects for a period of time rather than to fund the completion of particular projects. Any particular project might be funded by one or more series of bonds.
Since the 2004 vote, the district has issued $650 million of GO bonds in three series. “Interest costs on the bonds have been around or below 4% on all three series, due to the district’s outstanding credit rating and a generally favorable interest climate,” according to a staff report to the board.
The next issue, Series E, is expected to be sold in 2013 or 2014, depending on cash-flow needs, according to the report.
Arizona law permits the district to levy a secondary tax to repay GO bonds. So far, the actual tax rate needed to support the debt has come in lower than advertised in a pamphlet for voters in 2004. At 18 cents per $100 of assessed valuation, the owner of a $100,000 home would pay about $18 per year to support the debt, according to the district report. The current projected average, including estimated debt service for Series D and E, is 15.5 cents per $100 of assessed valuation.
On the operations side of the ledger, the district is sharing the pain of other colleges and universities bracing for deep cuts in the latest state budget.
Faced with growing enrollment and declining revenues, the college district last month responded with a combination of spending cuts and a 7% tuition increase to cover operating costs.
The tuition hike, to $76 per credit hour from $71, will be the first since 2008 and is expected to add $12.5 million to revenues. The cost of tuition to attend full time, taking 30 credits per year, will rise from $2,130 to $2,280, officials estimate.
Under the Arizona budget deal worked out between Gov. Jan Brewer and the Republican-controlled Legislature, state funding to Maricopa County community colleges will fall by $38.4 million, or 85%. The district’s preliminary budget for fiscal 2011-12 of $1.4 billion represents a 13% decrease from the current year’s $1.6 billion spending plan.
Property taxes are the district’s largest revenue source, representing about half of fiscal 2010 revenue, followed by tuition and fees at almost 20%.
Maricopa County’s fiscal 2011 property tax base of $381 billion represented a steep 15% decline, followed by another sharp drop of around 20% for fiscal 2012, bringing the Community College District’s secondary assessed valuation closer to pre-2008 levels.
Despite falling property values, the CCD did not use its maximum allowable property tax levy in fiscal 2010 and 2011, providing revenue-generating capacity in fiscal 2012 and 2013, according to Fitch.
“The district’s financial position remains strong, assisted by extensive, multi-year planning efforts and conservative fiscal management,” Moses wrote. “For fiscal 2010, the district had a slightly reduced but still strong operating margin of 9.2% before capital contributions, despite the year’s reduced state appropriation.”
Cuts in the current fiscal year would have been even more severe had voters not approved a statewide sales tax increase last May.
With 10 colleges and two skill centers throughout the county, the Maricopa district enrolled nearly 266,000 students in 2010, about 70% of whom attend part time. Full-time student equivalents for fiscal 2010 totaled just over 78,000, up 12% from the year before. Enrollment growth remains strong in fiscal 2011 at about 7%, with comparable growth expected over the next few years.
Maricopa County is the nation’s fourth most populous county, representing about 60% of Arizona’s population, including Phoenix’s suburbs.
