Fitch Rates Maricopa County Comm. College Dist, AZ Ser 2012 GO ULT Rfdg Bnds 'AAA'; Outlook Stable

AUSTIN, Texas--(BUSINESS WIRE)--

Fitch Ratings assigns an 'AAA' rating to the following Maricopa County Community College District, Arizona's (the district) general obligation (GO) bonds:

--$69.1 million, series 2012.

The bonds are expected to sell competitively on May 8, 2012. Proceeds will be used to refund various outstanding maturities for economic savings and to pay related costs of issuance.

In addition, Fitch affirms the following ratings:

--$671.2 million (pre-refunding) in outstanding GO unlimited tax (ULT) bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY:
General obligations of the district secured by an unlimited ad valorem tax levied against all taxable property within the district.

KEY RATING DRIVERS

STRONG FINANCIAL PERFORMANCE: Management's conservative, proactive financial practices, tax rate increases, and extensive planning efforts have offset much of the effect of assessed valuation (AV) declines in recent fiscal years (2009-2013) and the state's multi-year budget cuts, resulting in solid operating margins. Fitch expects the district will maintain a strong financial position, given its diversified revenue sources, ample tuition rate flexibility, and additional property tax levy capacity.

SIZEABLE BALANCE SHEET RESOURCES: The district maintains a stable and strong level of unrestricted reserves, well above the minimum required by policy.

SOLID DEMAND TRENDS: The district has a large enrollment base; growth trends remain strong due in part to weaker economic conditions and tuition affordability.

TAX BASE DECLINES OFFSET: The district's tax base is diverse and encompasses all of the Phoenix metro area, but has experienced significant multi-year declines since fiscal 2010 due to higher than average declines in home values and minimal new construction. Nonetheless, revenue impacts related to the AV declines have largely been mitigated by the district through increases to its tax levy.

SLOW PACE OF ECONOMIC RECOVERY ANTICIPATED: Although certain indicators suggest modest improvement recently (e.g. unemployment rate), near-term estimates for the Phoenix area economy project a slow pace of economic recovery.

FAVORABLE DEBT PROFILE: Debt levels are modest; principal payout of tax-supported debt is rapid. The district maintains facility and technological capacity for educational delivery despite recent enrollment gains.

CREDIT PROFILE

STRONG FINANCIAL PROFILE AND SOLID RESERVES MAINTAINED
The district benefits from diverse revenue sources, which provide it with significant financial stability and flexibility. Property taxes are the district's largest revenue source, equaling roughly half of fiscal 2011 revenues, followed by tuition and fees at about 15%. State appropriations have declined since 2008 and contributed a modest 5% of total revenues in fiscal 2011.

In fiscal 2011, the district maintained its solid financial position as evidenced by a strengthened operating margin of 11.5%. Budget cuts and spending control despite continued enrollment growth pressures assisted year-end results. State funding for operations remained stable at $45.3 million. The district's board increased its total tax rate to offset the year's 15% AV decline, but chose not to levy its maximum allowable operating property tax levy for the second consecutive year given the district's historically strong financial position, allowing for 'banked' revenue-generating capacity in future fiscal years.

In response to the next fiscal year's $38 million state appropriation cut, a $5 per credit hour tuition increase was implemented in fiscal 2012 along with a 3% property tax levy increase (using about one-fourth of its deferred property tax levy capacity) while maintaining structurally balanced operations. Although enrollment growth was not as robust as originally projected, management reports financial performance will better budgeted expectations on a year-to-date basis. Fitch has confirmed a modest $2.5 million addition to unrestricted reserves, which would bring the unrestricted fund balance to a total of $152.8 million or approximately 22% of general fund spending at year's end, exceeding the district's minimum reserve policy of 8% of general fund revenues. In practice, the district maintains reserves well above this stated minimum, which is consistent with the district's high-grade rating.

The district's working $683.5 million general fund operating budget for fiscal 2013 is relatively flat and structurally balanced without any additional tuition or property tax levy increases. The budget leans heavily on a $15 million budget cut and $9.5 million in internal budgetary reallocations rather than significant revenue enhancements. Additional property tax revenue stemming from new construction is fairly flat and as compared to the prior year, state funding is projected to increase minimally, totaling $8.3 million or a very low 1.2% of general fund revenues. Fitch notes that given the multi-year declines in state funding that have occurred, the district has lost some of its revenue diversity and will have further dependency over the near term on its remaining two, key revenue streams of property tax and tuition.

Future increases to state funding for the district remain uncertain and contingent in part on legislative priorities and growth in state revenues. Nonetheless, Fitch believes the district is well positioned financially even under a scenario of slow economic growth over the near term, given its ample tuition rate flexibility and additional property tax levy capacity.

WEAK ECONOMY BOOSTS ENROLLMENT; TAX BASE DECLINES CONTINUE
The district is one of the largest providers of higher education in the United States despite drawing the majority of its students from a limited geographical area. Operating 10 colleges and two skill centers throughout the county, the district enrolled over 255,000 students in 2011, approximately 70% of whom attend on a part-time basis.

Maricopa County is the nation's fourth most populous county, representing about 60% of the state's population and encompassing the greater metropolitan Phoenix area. Population growth rates exceed those of the nation.
Local economic conditions are weak as the area was substantially affected by a housing market collapse and above-average home value declines as well as employment losses in associated industries. These declines in conjunction with minimal new construction have largely contributed to sizeable secondary assessed valuation (SAV) declines realized in fiscal years 2011-2013 that reduced SAV to pre-2008 levels; a cumulative decline of roughly 50% after many years of strong tax base growth.

Modest economic improvement is evident in the January 2012 unemployment rate of 7.8% that was slightly better than the nation's unemployment level of 8.8% and is down on a year-to-date basis from a high 9.1%. Nonetheless, Fitch believes the area faces a slow-paced recovery given the above-average impact of the housing market and overall sluggishness of the U.S. economy.

Like many community colleges, recent enrollment growth has been rapid in large part due to weak economic conditions. Affordable tuition rates that are relatively low as compared to the state's universities are also attractive in recruiting students. Full-time student equivalents (FTSEs) for fiscal 2011 totaled nearly 85,000, increasing 8% from a year prior. While fiscal 2012 enrollment growth has subsided somewhat as compared to prior years, a solid pace of 3%-5% annual enrollment growth is projected by management over the near term. Fitch believes this is a reasonable assumption given current projections for the local economy.

MODEST DEBT BURDEN
The district's debt profile remains favorable despite ongoing implementation of a sizeable capital program. Voters approved a large $951 million bond authorization in 2004 that was planned to meet the district's capital needs for roughly 10 years. Overall debt levels are modest and approximate $2,100 on a per capita basis or 2.6% of market value. Rapid amortization of the district's GO debt at 88% in 10 years is a credit positive. Management expects to issue the remaining $150 million authorized within the next two years.

The district's pension plan, as well as death, disability and health insurance benefits, is through the Arizona State Retirement System (ASRS or the plan); the district is one of the larger participating employers in ASRS. The district has made 100% of its annually required contribution (ARC) for fiscal years 2009-2011 as directed by the state, which totaled $31.3 million in fiscal 2011. The actuarially funded position for the ASRS plan as of June 30, 2011 is 75.8% using the state's 8% assumed rate of return. However, funding of the state administered program falls just below a satisfactory 70% level based on Fitch's more conservative 7% investment return assumption.

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's report 'Tax-Supported Rating Criteria', this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc, and IHS Global Insight.
Applicable criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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