Community colleges with revenue-backed debt largely controlled expenses in the 2019 fiscal year as enrollment and income flagged, according to a new report from Moody's Investors Service.
Median operating revenue and expenses grew by 0.5% and 0.1%, respectively, across the sector. The ability to keep revenue and expenses aligned will be key as community colleges address pandemic-related challenges, the analysts contend.
Two-year schools are also staring down enrollment declines and potential decreases in state support.
Like other public institutions, community colleges have been investing in online learning and bracing for shrinking state support because of the pandemic. Yet the Moody's report asserts two-year schools "have a track record of adapting to market fluctuations."
Diversified funding sources can help. Community colleges that received property tax revenue saw median revenue growth of 0.6% in the 2019 fiscal year, compared with a decrease of 0.9% among those that didn't.
That's in part because property tax revenue increased 28.3% over a recent five-year period while net tuition revenue fell 0.5% during that time. And property taxes may be less vulnerable to the pandemic. Robert McClelland, a senior fellow at the Urban-Brookings Tax Policy Center, wrote in a June blog post that property tax revenue remained relatively stable during the last economic downturn.
Much of the growth in property tax revenue Moody's observed was driven by Texas community colleges, which receive about 40% of their funding from that source, The Texas Tribune reported last year. A new law, however, requires community colleges to obtain voter approval before increasing property tax rates by more than 8% a year.
California could head the other direction. Voters will decide on a ballot measure this November that would significantly raise property taxes for businesses and potentially give more money to community colleges.
Income from tuition revenue could be more variable. One preliminary report found that community college enrollment is down 7.5% year-over-year this fall. However, higher education experts have noted it took about a year after the Great Recession's onset for colleges to see enrollment upticks.
While Moody's found the sector's liquidity is "solid," pension liabilities add another wrinkle. When including pension and other post-employment benefits, the median debt of colleges Moody's analyzed increases from $29 million to $69 million. Community colleges with high levels of pension liabilities will be more at risk to economic disturbances, the report notes.