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Moody's: Negative credit pressures likely to continue for Michigan school districts

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 Michigan School."

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 pension liabilities.

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.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Matthew Butler
Analyst
Public Finance Group
Moody's Investors Service, Inc.
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John Dorer
MD - Public Finance
Financial Institutions Group
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Moody's: Negative credit pressures likely to continue for Michigan school districts
No Related Data.

 

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