- Although enrollment at community colleges has been declining for about a decade, property tax revenue and state funding have kept their operations stable, according to a recent report from Moody's Investors Service shared with Education Dive.
- Operating revenue growth at community colleges rose to 1.4% in the 2018 fiscal year from 0.9% the year before. Those gains were largely from increasing property tax revenue spurred by economic growth.
- Those trends helped keep community colleges' median operating cash flow margin at 11.7% for the second-straight fiscal year, despite median expenses outpacing revenue growth.
Community colleges typically experience enrollment losses when the U.S. unemployment rate is low. That's largely why two-year institutions have posted steady declines in student headcounts as the country recovered from the Great Recession.
Last year was no different; their full-time enrollment during the fall of 2018 was down 1.6% year-over-year, according to Moody's. Yet increasing property tax revenue, which outpaced growth in government appropriations, has provided two-year institutions with a critical windfall.
Enrollment at the Wisconsin Technical College System, for instance, slid 20% between 2010 and 2017, reflecting nationwide trends, Wisconsin Public Radio reported. But revenue from local property taxes kept its budget stable.
However, community college funding varies widely, said Susan Fitzgerald, associate managing director at Moody's, in an interview with Education Dive. While some don't receive property tax revenue, others benefit from the "three-legged stool" of tuition revenue, property taxes and state support, she said.
"Those tend to be the most stable of the credits because of the diversity of the revenue streams," she added. Institutions that got revenue from property taxes posted a median operating growth of 1.7% in the 2018 fiscal year, compared to a median decline of 0.3% for those that didn't.
In all, operating revenue grew for two-thirds of community colleges during that period. And more than one-third achieved growth in excess of the inflation rate, Moody's analysts noted.
Property tax cuts can be costly for colleges, especially as some have begun to rely more on the funds.
Nebraska's community colleges, for example, receive about half (51%) of their funding from property taxes, up from 39% in the midst of the Great Recession. That's helped keep tuition prices stable as the state's share of the budget narrowed, though it runs the risk of angering taxpayers, the Lincoln Journal Star reported.
In Texas, community colleges receive about 40% of their funding from property taxes, while state appropriations have declined since the 1980s, The Texas Tribune reported.
That's why when Texas passed a bill to clamp down on growth in property taxes earlier this year, it exempted community college districts out of concern that institutions would have to raise tuition to offset the loss.
Moody's analysts point to several other bright spots for community colleges. In the 2018 fiscal year, median total cash and investments reached $44 million, up 34% from four years ago. Moreover, the median return on cash and investments was up slightly for the period and colleges' days of cash on hand rose by 20%.