Fitch Ratings affirms the 'A+' long-term rating on approximately $63.2 million of outstanding combined revenue bonds issued by El Paso County Community College District (EPCCD, or the district).
The Rating Outlook is Stable.
RATING RATIONALE:
-- The 'A+' rating primarily reflects the district's consistently positive operating results, a satisfactory financial cushion, and a manageable debt burden.
-- Counterbalancing credit factors include EPCCD's relatively high exposure to state and federal funding and enrollment volatility, which is not uncommon for community colleges;
-- Gains in military personnel and civilians in El Paso resulting from the 2005 Base Realignment and Closure Process (BRAC) are anticipated to support EPCCD's future growth.
KEY RATING DRIVERS:
-- Continued generation of break-even to positive operating results, despite state appropriation reductions and unpredictability in federal aid programs;
-- Maintenance of balance sheet resources at or near current levels.
SECURITY:
-- Combined revenue bonds are secured primarily by mandatory fees charged to all students. Mandatory fees include pledged tuition and building use fees, and interest earnings.
CREDIT SUMMARY:
EPCCD consistently generates a positive operating margin. For fiscal 2010, EPCCD's operating margin equaled 2.6%, driven primarily by support at the state and federal levels for enrollment. Enrollment at EPCCD, as at many community colleges, has grown in recent years, moving in tandem with an increase in local unemployment rates. Over the past three years, total headcount increased by approximately 15.2% to 29,909 in fall 2010. While management expects enrollment growth to continue, Fitch recognizes that the countercyclical nature of enrollment at community colleges may affect future student demand for EPCCD.
EPCCD has historically received considerable support from the federal government due to the district's below-average income levels. Reliance on federal aid increased significantly in fiscal 2010, to 41.2% of total operating revenue, largely as a result of a 25% increase in Pell Grant recipients from the prior year. Although significant reliance on Pell Grants revenue is not uncommon for community colleges, Fitch will closely monitor any adverse changes to this discretionary program and EPCCD's ability to absorb any declines without significantly affecting financial performance or student demand.
Reductions in state appropriations in the 2010-11 biennium were mitigated through a mixture of expense management and revenue enhancement. Expenditure growth was largely constrained through maintaining position vacancies. On the revenue side, the district benefited from modest growth in taxable assessed value (TAV), which increased funding from maintenance and operations (M&O) ad-valorem taxes, and additional student-generated revenues stemming from enrollment growth and a 6.8% tuition increase for residents.
Reductions in appropriations for the 2012-13 biennium have been addressed through further budgetary restraint, tuition and fee increases (12.6%) and a proposed increase in the M&O property tax rate. The proposed property tax rate increase (to approximately $0.11 per $100 tax valuation) would still provide EPCCD with considerable financial latitude under the $.15 cap. Despite the increase in the tuition rate effective summer 2011, EPCCD will continue to be priced well below area four-year public institutions, affording it continued pricing flexibility.
Contingent upon the approval of the Department of the Army, EPCCD plans to create a new on-base campus at Fort Bliss. The new campus will expand the district's ability to support the continued arrival of troops and their family members related to the U.S. Department of Defense's 2005 BRAC recommendations. If approved, the expansion, which is the district's only significant near-term capital project, will be initially funded through unspent bond proceeds.
Pending the success of the first phase, EPCCD anticipates funding subsequent phases of the project through the issuance of revenue bonds. Fitch does not expect the additional issuance to pressure the rating given the district's manageable 3.5% debt burden and adequate levels of available funds. As of Aug. 31, 2010, available funds (defined by Fitch as cash and investments not permanently restricted) totaled $56.1 million, covered fiscal 2010 operating expenses ($170.1 million) by 33%, and debt ($67.2 million) by 83.5%.
The district was established in 1969, is governed by an elected seven-member board of trustees, and currently has five campuses located throughout El Paso County. In addition to maintaining its dual credit initiatives for high school students and early college high schools on EPCCD campuses, EPCCD has expanded its online learning presence over the past three years, growing distance delivered seat count by approximately 42%, to 6,746.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
'Revenue-Supported Rating Criteria' (June 20, 2011);
'Fitch Affirms El Paso County Community College District, Texas' Combined Fee Revs at 'A'; Outlook Stable' (July 22, 2009);
'College and University Rating Criteria' (Dec. 29, 2009).
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
El Paso County Community College District, Texas
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=43414
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Contacts:
Fitch Ratings
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Alexander Vaisman,
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Secondary Analyst
Angela Guerrero,
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Associate Director
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Committee
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Douglas J. Kilcommons, +1-212-908-0740
Senior
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cindy.stoller@fitchratings.com