Global Credit Research - 29 Jul 2013
$21.5M debt affected
DALLAS COUNTY COMMUNITY COLLEGE DISTRICT, TX
Community Colleges (Revenue-Backed)
NEW YORK, July 29, 2013 --Moody's Investors Service has affirmed the Aa1 rating on Dallas County Community
College District's (DCCCD) $21.5 million of fixed rate Revenue Financing System Refunding Bonds, Series 2006.
For information on the college's general obligation bond rating, please see Moody's report dated July 29, 2013. The
rating outlook is stable. The rating reflects the college's sizeable enrollment and operations, prime location in a
demographically robust county, and relatively strong unrestricted financial resources..
The Aa1 rating reflects the college's sizeable enrollment, location in the demographically vibrant Dallas-Fort Worth
metropolitan service area, large and consistently positive operations and cash flow, and demonstrated willingness
to leverage available expense flexibility.
The stable outlook is based on the expectation that DCCCD's operations will remain healthy due to strong
management and fiscal practices despite projected enrollment declines as the economy improves and the
resulting challenge to grow revenue.
The revenue bonds' security is provided by a senior lien on Pledged Revenues, which
include student tuition and fees. The district is required by the rate covenant to collect revenues equal to 1.25
times annual debt service. There is no debt service reserve fund. Fiscal 2013 pledged revenues of $21.5 million
provide ample 7.4 times coverage of principal and interest of $2.9 million. The fiscal 2012 coverage ratio was 7.0
All of the college's debt is fixed rate. Of DCCCD's $400.3 million total rated debt, nearly all
are GO and only $21.5 million are revenue bonds.
Enrollment at DCCCD is expected to decline approximately 2.5% in fall 2013 from the district's enrollment peak of
45,388 FTEs in fall 2012. The state of Texas as a whole is experiencing a 3% enrollment decline across
community college's as the economy improves and prospective students return to the labor market. The college is
faced with the cyclicality of enrollment with higher enrollment typically occurring when the economy is soft and
jobs are not easily available. DCCCD already experienced a slight decline in enrollment in spring 2013. While the
college will be challenged to stabilize enrollment in the near-term, we expect management will maintain stable
operating performance through prudent expense management and revenue increases unrelated to enrollment
DCCCD's positive operations and solid cash flow are expected to continue as a result of managements forward
looking and conservative budgeting process. Total operating revenues declined in FY 2012 to $387.1 million from
$405.7 million the prior year. This is attributable to a $10 million decline in state revenues, $1.5 million decline in tax
revenues, and an increase in scholarship aid. To offset the 4.6% revenue loss, the district reduced operating
expenses by 9.4% through voluntary retirement incentives, reduced faculty formula pay, and reductions in travel
expenses. Management's swift and prudent fiscal actions resulted in improved operations in FY 2012 relative to
FY 2011, with operating margin increasing to 6.2% from 1.2%, and operating cash flow increasing to 17.3% from
12.%. The district benefits from a diversified revenue stream that insulates it from total revenue declines when one
revenue source is challenged. Operating revenue is derived from property taxes (40.5%), state appropriations
(28.2%) and student charges and auxiliaries (20.9%).
To bolster total revenue in light of declining state appropriations and slower enrollment growth in FY 2013 (ending
August 31) and beyond, district Board of Trustees approved a two-cent tax increase, and the college implemented
a tuition increase of $7 per credit hour. These actions will result in additional revenue of $38.3 million in FY 2013.
Additional tuition increases in FYs 2014-2016 will culminate with $55.8 million of additional revenue in FY 2016.
State appropriations are projected to decrease slightly in FYs 2014 and 2015, however the decrease in
appropriations is more than offset by the projected increase in tax revenues.
In FY 2013, the district levied $0.95 per $1,000 of assessed valuation, $0.80 for maintenance and operations
(M&O) and $0.17 for debt service. The current levies are well below the voter approved maximum of $1.60 per
$1,000 for M&O and statutory cap of $5.00 per $1,000 for debt service, providing the district with ample revenue
flexibility. Management expects a 4% increase in the tax base for FY 2014.
DCCCD's unrestricted financial resources and liquidity are very strong relative to other community colleges in the
state. Board-adopted policy requires the district to maintain no less than four months and no more than six months
of budgeted operating expenses in unrestricted reserves; reserves in excess of four months of budgeted
expenses may be utilized for one-time capital projects. Unrestricted net assets have nearly recovered to their prerecession peak to $185.1 million in FY 2012 compared to $186.3 million in FY 2009. The district maintained $204.4
million of unrestricted monthly liquidity in FY 2012, which equates to a strong 221 days cash on hand.
The district has approximately $86 million of deferred maintenance that it plans to address over the coming years.
None of the projects exceed $5 million. The district has also identified needed renovations to science, technology,
engineering, and math facilities that total $25 million, and an additional $95 million of capital to improve the districts
arts facilities. The district may issue debt for some of these projects within the next five years, but timing and debt
amounts have yet to be finalized.
The district's chancellor of nearly 28 years will retire in December, 2013 when his contract expires. The chancellor
will stay with the district until his replacement is hired. The district's foundation president left in fall 2012, and
management expects the new chancellor to play a vital role in hiring the next foundation president.
The stable outlook reflects the district's location in the demographically and economically vibrant Dallas-Fort Worth
metropolitan service area, with a substantial revenue base supported by diverse revenue streams, which insulate
the district from shifts in the state economy, tax base, and student market. The stable outlook is further supported
by the prudent fiscal management of the district's finances as evidenced by strengthening operations in light of
A substantial growth in financial resources absent additional debt issuance, sustained improvement in operating
margins or cash flow.
Additional revenue debt issuance without commensurate financial resource growth, failure of district to control or
cut expenses if there is a sustained decline in enrollment, decline in financial resources or significant deterioration
of operating margins could negatively pressure the rating.
(FY 2012 financial data, fall 2012 enrollment data)
Full-Time Equivalent Enrollment: 45,388 students
Net Tuition per Student: $1,770
Educational Expenses per Student: $8,264
Average Gifts per Student $5
Total Cash and Investments: $218.2 million
Total Direct Debt: $395.7 million
Total Comprehensive Debt*: $400.3 million
Expendable Financial Resources to Direct Debt: 0.48 times
Expendable Financial Resources to Operations: 0.52 times
Monthly Days Cash on Hand: 221.4 days
Operating Revenue: $387.1 million
Operating Cash Flow Margin: 17.3%
Three-Year Average Debt Service Coverage: 1.3 times
Reliance on Tax Revenue (% of Moody's Adjusted Operating Revenue): 40.5%
Reliance on Government Appropriations (% of Moody's Adjusted Operating Revenue): 28.2%
State of Texas Rating: Aaa stable
* Comprehensive Debt includes direct debt, operating leases, and pension obligation, if applicable.
General Obligation Bonds: Series 2008, Series 2009, Series 2010, Series 2010 (refunding): Aaa
Revenue Bonds: Series 2006: Aa1
The principal methodology used in this rating was Moody's Approach for Evaluating Community Colleges
published in December 1999. Please see the Credit Policy page on www.moodys.com for a copy of this
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory
disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class
of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance
with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating
action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in
relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where
the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner
that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for
the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating
outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal
entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for
each credit rating.
Public Finance Group
Moody's Investors Service
Jenny Lin Maloney
Moody's Investors Service