CHICAGO – The Holland School District’s sharp and unexpected enrollment decline illustrates the widespread credit challenges many Michigan districts face, says Moody’s Investors Service.

Declining enrollments, stagnant state aid, and a limited ability to increase revenues challenge the K-12 sector, Moody's said in its weekly outlook, published Oct. 12.

The Holland district, rated A1, reported a 174-student drop in enrollment by the state reporting deadline last Thursday, Moody’s said. The decline is nearly double what the district budgeted for in its current fiscal year and translates into a revenue loss of $591,000.

“The enrollment decline is not only credit negative for the district, but reflects the widespread credit challenges that continue to face Michigan school districts,” Moody’s said in the piece authored by analyst David Levett. “Such pressures have led us to downgrade 44 Michigan school districts this year.”

Holland’s six consecutive general fund operating deficits have been driven primarily by declining enrollment and the resulting loss in state revenue under Michigan’s per-pupil funding system.

“Although officials are still analyzing this year’s enrollment figures, the district’s long-term trend of enrollment declines is attributable to significant competition from charter schools and an aging population,” Moody’s wrote.

Similar struggles persist across the state as public schools compete for students and their associated funding, creating unpredictability for districts that adopt budgets in June or July ahead of the start of the new school year when enrollment levels are clearer.

“Even districts that plan for declines may miss the mark on the magnitude of those declines,” Moody’s said.

The population of school-age children is also shrinking, further fueling the challenges, with the state’s under-18 population falling an estimated 13% from 2000 to 2012, according to data from the US Census Bureau.

“The state’s funding structure, demographic trends and liberal enrollment policies create an unpredictable and competitive environment for districts,” Moody’s noted.

Of the 145 Michigan school districts with more than $25 million outstanding debt, 114 experienced enrollment declines between 2009 and 2013, wrote Michael Craft, a managing director at Lumesis, in the firm’s DIVER weekly report that featured a piece on Michigan school districts.

Excluding Detroit schools, the average decline was 6.5%. Both school districts with deals on the Ipreo calendar for this week have experienced enrollment declines over the last five years: Hartland is down 1.1% and Otsego lost 2.3%. Eleven districts experienced greater than 20% declines over the period from 2009 to 2013, Craft wrote.

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