The Rating Outlook is Stable.
The bonds are an unsecured general obligation of the university, payable from all legally available funds.
KEY RATING DRIVERS
GENERALLY STABLE DEMAND: While enrollment has fluctuated somewhat over the past five years, NJCU's market position remains sound. Enrollment growth has resumed since fall 2011, reflecting continued local demand and NJCU's affordability relative to peers. Graduate enrollment, which was softening at Fitch's last review, has rebounded.
BALANCED OPERATIONS GENERATE ADEQUATE COVERAGE: Despite a challenging state funding environment in
SLIM BUT IMPROVING RESOURCE LEVEL: Balance sheet resources are fairly limited, providing only modest coverage of operating expenses and debt, but continue to improve due to cash-positive operations.
HIGH DEBT BURDEN: NJCU has a high debt burden, which is typical of public universities in
BALANCED OPERATIONS: Failure to maintain generally breakeven-to-positive operating margins, whether due to enrollment volatility, reduced state funding, or expense pressures, would negatively pressure the rating. Fitch expects the university to manage effectively through potential revenue or funding fluctuations.
ADDITIONAL DEBT: Given NJCU's already-high debt burden, Fitch expects careful planning related to expected additional debt issuance. New carrying costs materially in excess of recently increased revenues available to pay debt service, or a substantial increase in debt burden, could trigger a negative rating action.
Opened in 1929, and granted university status in 1998, NJCU is a four-year coeducational public university located in
GENERALLY STABLE ENROLLMENT; MODERATE GROWTH EXPECTED
Total FTE enrollment increased over the last two years to 6,226 in fall 2013, driven primarily by a rebound in graduate enrollment. Graduate program enrollments had declined in fiscal 2011 due largely to weak demand for graduate education programs. Programmatic changes, including new business and educational technology programs, and relaxation of testing requirements for some programs have helped rebuild graduate enrollment. NJCU reports no uptick in attrition related to this strategy.
Undergraduate enrollment has been generally steady for several years. First-time freshman admissions were down slightly in fall 2013, which the university attributes to a strategy to improve long-term retention through tighter admissions standards. Importantly, NJCU maintains strong ties with several community colleges from which it accepts the majority of its transfer students.
WEAKER STATE SUPPORT PUSHES BURDEN TO STUDENTS
Total state appropriations have been fairly stable in recent years. However, state appropriations continue to decline as a percentage of NJCU's operating revenue, from 37.7% in fiscal 2009 to 32.7% in fiscal 2013. In recent years, an increasing share of appropriations has been for fringe benefits, which reduce the amount available for operations. State appropriations for operations, while lower than historical levels, have been flat since fiscal 2012 and are expected to be flat for fiscal 2015 as well.
As a result of this state funding environment, NJCU's financial performance has become somewhat more dependent on tuition and fees and is therefore more sensitive to changes in enrollment. This may pressure NJCU somewhat given its mission of affordability and the relative price sensitivity of its students, but Fitch expects that the university will continue to manage its enrollment and operations effectively.
BALANCED OPERATIONS GENERATE ADEQUATE COVERAGE
The university has maintained balanced operations, with a five-year average operating margin of 0.6% despite the aforementioned weak state operating support. Fiscal 2013 operations generated a positive 3.9% operating margin. While fiscal 2014 results may not be as strong, management projects at least breakeven performance on a full accrual basis.
The fiscal 2015 state budget is expected to leave operating appropriations flat; revenue growth will therefore likely come from student fees. Given recent tuition increases and its commitment to affordability, NJCU is moderating its tuition increase for fall 2015 to about 1.9%. As a result, net student fee growth will be driven primarily by enrollment growth.
In addition to student fee growth, management of expenses contributed to strong fiscal 2013 results. Expenses have been held effectively flat since fiscal 2012 largely through efficiency cuts and administrative vacancies. Expense pressures, primarily related to personnel costs and including collective bargaining agreements, will likely temper fiscal 2014 results, but Fitch believes that structural expenses will remain manageable.
BALANCE SHEET RESOURCES REMAIN SLIM
Despite improvement in recent years, the university's balance sheet resources remain slim. Available funds (defined by Fitch as cash and investments less restricted non-expendable and certain restricted expendable net assets) provide limited coverage of operating expenses and debt of 33.1% and 31.2%, respectively. This level of available funds, however, has improved from 20.8% of expenses and 23.2% of debt in fiscal 2009 due to consistently positive cash margins.
HIGH DEBT BURDEN AND ADDITIONAL DEBT PLANS
NJCU's debt burden is high, with maximum annual debt service (MADS) of 8.2% of operating revenues. However, this is typical of
NJCU intends to finance a new academic building on its developing West Campus in the next one to two years. While financing plans are still being determined, the university instituted a student facilities fee in fiscal 2012. The fee is expected to be sufficient to pay the increased debt service associated with the proposed financing. Fitch considers this a prudent management practice and expects the university's debt burden to remain high but manageable.
Related to the West Campus project, the university is also pursuing an agreement with a developer to construct and manage a student housing facility, which will increase the small number of beds currently available for NJCU students. While key details are not yet determined, the project and any related debt are expected to be non-recourse to the university. Fitch notes, however, that there likely would be some risk to the university, either reputational or monetary, if the project encountered problems. Fitch will continue to monitor the university's plans for additional debt and the development of the off-balance sheet facility.
Additional information is available at 'www.fitchratings.com'
'U.S. College and University Rating Criteria',
'Fitch Downgrades New Jersey GO & Appropriation Ratings; Outlook Negative',
Source: Fitch Ratings
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