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Global Credit Research - 19 Nov 2013
New York, November 19, 2013 -- Declining enrollments and a lack of flexibility in budgeting will continue
to place significant stress on the credit quality of school districts
throughout Michigan, says Moody's Investors Service in the
new report "Declining Demographics and Growing Competition Pressure
Moody's notes the distribution of recent downgrades of school districts
in Michigan has shifted to include a larger number of districts further
away from southeast Michigan and Detroit. Moody's expects
credit pressures in these areas to continue.
"Public school districts in metro Detroit and southeast Michigan
have seen particularly large declines in enrollment given the region's
economic and demographic challenges, although many school districts
in other parts of the state have experienced enrollment declines as well,"
says Moody's Analyst Matthew Butler. "Furthermore,
even those districts that have maintained stable or positive enrollment
trends remain exposed to the lack of revenue-raising flexibility
and growing retirement funding obligations."
A majority of Michigan school districts have witnessed steady declines
in enrollment, with 425 of 549 public school districts losing students
in the period 2004 through 2012 when total enrollment declined 13.2%,
according to Michigan Department of Education data.
An increase in charter schools in Michigan has added to the impact of
these demographic shifts, says Moody's. The number
of charter schools operating in Michigan has steadily grown along with
the share of Michigan students enrolled in these schools, with enrollment
increasing more than 60% from 2004 through 2012.
"The combined result of negative demographic trends, enrollment
declines, and a growing charter school presence has resulted in
many more schools competing to serve a shrinking student population,"
says Moody's Butler.
Enrollment declines lead to revenue losses, which the Michigan school
districts have limited flexibility to offset. In Michigan,
individual public school districts are statutorily precluded from seeking
voter support of additional property tax revenue above the portion that
funds their basic allowance.
On the expense side, growing retirement costs will likely take in
a larger share of dwindling resources.
Public school districts contribute to the Michigan Public School Employees
Retirement System (MPSERS), a statewide multiple employer cost-sharing
pension and post-retirement healthcare plan. The rating
agency estimates that the Moody's adjusted net pension liability
across all public school districts in Michigan was $45.5
billion, as of September 30, 2011. This amount is approximately
320% of the General Fund revenues collected by all public school
districts in fiscal 2012, indicating significant exposure to net
For more information, Moody's research subscribers can access
this report at https://www.moodys.com/research/Declining-Demographics-and-Growing-Competition-Pressure-Michigan-Schools--PBM_PBM160319.
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Public Finance Group
Moody's Investors Service, Inc.
100 N Riverside Plaza
Chicago, IL 60606
MD - Public Finance
Financial Institutions Group
Moody's: Negative credit pressures likely to continue for Michigan school districts
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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