Falling college enrollments and a drop in county and state support were cited by Moody's Investors Service for its decision to cut its bond rating for 9,400-student Montgomery County Community College to Aa3 from Aa2.
The downgrade on $54.6 million in revenue bonds sold through Pennsylvania's State Public School Building Authority makes it more likely the college will have to pay higher interest on future borrowings. MCCC "plans to issue $34 million of additional debt within the next year," Moody's analyst Emily Schwarz noted. The new borrowing will boost MCCC's total debt above its annual income -- even though enrollment has fallen in each of the past two years.
Moody's blamed a "30% cut in operating support" from Montgomery County government, which will likely put the college's budget into deficit. That follows a 10% cut in state support last year. The school relies on state and county support for about $4 of every $10 it spends, Moody's noted.
Montgomery County is wealthy and MCCC tuition collection has been rising even with falling enrollment, the report added. But "the negative outlook reflects uncertainty with regard to whether MCCC will be able to adjust to its new funding level and improve its operating margin" by the next fiscal year, the report said. Also:
"Two years of full-time equivalent enrollment declines in fall 2011 and fall 2012 reflect weak demographics for high school graduates in the commonwealth and a return to pre-recession levels after the heightened enrollment growth during the 2008-2009 financial crisis. [Fulltime-equivalent student] enrollment declined 2.4% in fall 2011 and 5.9% in fall 2012."