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NEW THIS WEEK, November 19, 2018: 

Growth in Public Higher Education Debt Outstanding Outpaces All Other Major Municipal Bond Sectors

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 Growth in Public Higher Education Debt Outstanding Outpaces All Other Major Municipal Bond Sectors

municipal bond credit sectors 10 year debt trend

Public Higher Education Debt Outstanding Has Grown by Over 80% Since 2007 Leading All Other Major Municipal Bond Credit Sectors

by Richard A. Ciccarone

Municipal Bond Credit Sectors — Ten Year Outstanding Debt Trend

Based on municipal bond credit sector medians,  Public Higher Education and Community Colleges registered the biggest increases in long term debt outstanding than any other credit sectors that borrow in the municipal bond market during the period 2007- 2017.  Universities and colleges saw a ten year growth of 85.2%,  the most of all major municipal bond sectors tracked by Merritt Research Services LLC,  an independent municipal data and research company that tracks financial conditions on over 10,000 municipal bond borrowers.  Long term debt attributed to Community colleges followed close behind with an 80.7% growth rate.   The ten year time span used in the comparison included the Great Recession as well as the subsequent recovery years.

Higher education institutions, in general, have incurred higher debt loads for capital improvement programs over the past two decades, triggered by a “keeping up with Jones'” mentality that swept the  board rooms of college administrations.    The wave of more expansive and luxurious campus facilities at competing colleges and universities was motivated in part on the grounds that the shrinking pool of eligible college age potential students required them to provide state of the art facilities.   Private higher education institutions, many of which started their capital programs earlier than public institutions,   ranked fifth in their median debt expansion with a smaller but still robust 39.6% growth rate.

In the case of community colleges, expansion programs heated up as public officials  responded to the demand for lower cost institutions available for families seeking a lower cost option to either reduce the cost leading to a four year degree or a path providing more specific job preparation and training..

On the other side of the debt trend scale, wholesale electric agencies,  also called joint action agencies,  whose primary purpose is to generate or jointly purchase power on behalf of or to resell to mostly local municipal utilities,  saw their outstanding debt loads fall by 23.8% over the past ten years,  the biggest percent drop among all the major credit sectors tracked Merritt database.  Public power borrowers, which also include retail electric utilities, have seen their debt loads and new capital outlay requirements shrink in line with greater reliance on smaller, less expensive generating plants,  more  purchased power from surplus suppliers and conservation efforts.   Since 2007, retail municipal electric utilities lowered their median long term debt outstanding by 5.4%.

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