OREANDA-NEWS. Fitch Ratings affirms the ratings on Maricopa County Community College District, Arizona's (the district) outstanding debt as follows:

--Approximately \$713 million in outstanding GO unlimited tax (ULT) bonds at 'AAA'.

The Rating Outlook is Stable.

SECURITY:
GOs of the district are payable from an unlimited ad valorem tax levied against all taxable property within the district.

KEY RATING DRIVERS

STRONG FINANCIAL PERFORMANCE: Conservative, proactive financial practices and revenue raising flexibility have allowed the district to offset much of the effect of recent counter-cyclic enrollment declines and continue its trend of positive operating margins. Fitch expects the district will maintain a strong financial position given its ample tuition rate flexibility and property tax levy capacity.

SIZEABLE BALANCE SHEET RESOURCES: The district maintains a stable and strong level of unrestricted reserves, well above the minimum required by policy.

POSITIVE TAX BASE, ECONOMIC TRENDS: Further, modest strengthening of the local economy is marked by continued improvement in employment, development activity, and sales tax metrics. Assessed valuation (AV) has begun to realize modest, positive traction after a period of sizeable recessionary declines. Fitch anticipates a similar pace of economic recovery over the near term and believes long-term prospects are positive, given the area's history of attracting businesses and residents.

FAVORABLE DEBT PROFILE: Overall debt levels are moderate. Capital needs have been addressed through the implementation of a large GO bond program over the past 10 years. Carrying costs are manageable despite the rapid pace of amortization.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the district's strong financial position and revenue-raising flexibility, which serves to mitigate some of Fitch's concerns regarding recent enrollment declines. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely over the near term.

CREDIT PROFILE
Maricopa County is the economic and population center of Arizona, encompassing Phoenix and surrounding suburbs within its large, roughly 9,000 square mile boundary. Its population base of 4.1 million residents has continued to expand at a rapid annual average pace of about 2% since 2000, making it the fourth most populated county in the U.S. The district is one of the largest providers of higher education in the United States, offering coursework at multiple facilities throughout the county and serving 226,400 predominately local students. Local income/wealth levels exceed the state by about 10% and are generally comparable to the nation.

MODERATELY PACED ECONOMIC RECOVERY ONGOING
The large and fairly diverse economy continues to recover since the low point of the Great Recession, which saw one of the most severe housing market collapses in the U.S. Unemployment edged down to 5.3% in February 2015 from 6% the year prior, balanced against 3% labor force growth over the same time period. Education/health care, professional/business, and leisure/hospitality service sectors have led much of the county's recent employment growth. The county is also poised to realize further growth in the near term from a number of high-profile business expansions either underway or anticipated (Apple, State Farm, Northern Trust, Microsoft). Further improvement in home values (median home value in the Phoenix metro area rose to \$195,000 in fiscal 2015 or about 15% year-over year) and an active multi-family construction market in downtown Phoenix also contribute to Fitch's expectations of continued modest economic expansion over the near term.

TAX BASE GAINS
The district has begun to realize modest tax base growth after a period of sizeable tax base decline (fiscals 2011-2014) that was largely attributable to minimal new construction and significant home value declines. Primary assessed valuations (PAV), which lag market values by two years and from which the district's operating revenue is determined, fell by a cumulative 36% from the prior peak of \$49.7 billion in fiscal 2010.

AVs regained modest, positive traction with a nearly 5% gain in fiscal 2015 and are projected to add another 3% in fiscal 2016; new construction and tax base appreciation contributed about equally to the respective year's gains. Top 10 taxpayer concentration remains modest at 6% of the total.

Fitch believes further tax base growth is likely given the aforementioned development and business investment trends, but will be similarly moderated in light of the recent change to the property assessment process. Proposition 117, which was approved by Arizona voters in November 2012 as a constitutional amendment, now tempers prior years' steep tax base swings. Annual increases in existing property assessments are limited to 5% beginning in fiscal 2016 (2014 real property valuations), excluding the increase associated with any new construction.

STRONG FINANCIAL PROFILE AND SOLID RESERVES MAINTAINED
The district benefits from some revenue diversity, thus providing it with significant financial stability and revenue-raising flexibility. Property taxes for operations and debt service are the district's largest revenue source, equaling just over half of fiscal 2014 revenues (followed by tuition and fees at about 17%). The district's operating levy is limited to a 2% increase year-to-year (excluding gains from new property), although the ability exists to levy its unused or 'banked' capacity from the past in future fiscal years if needed.

State appropriations have been sharply reduced since 2008 due to the state's own budgetary imbalance and contributed a low 1% or \$8 million in total revenues in fiscal 2014. As such, Fitch believes the district has lost some of its revenue diversity and is increasingly reliant on its two, key revenue streams of property tax and tuition.

Tuition and fee increases have been implemented periodically in recent years, although tuition rates remain very affordable as compared to averages across the spectrum of community colleges nationwide. Student enrollment as measured by full-time student equivalents totaled 78,460 in fiscal 2014, which was down by about 3.5% from the year prior and consistent with moderate enrollment decline over the last three fiscal years. Further erosion may be slowing however as some of the campuses currently report stabilizing enrollment trends according to management. Fitch believes prospects for future enrollment gains remain positive despite counter-cyclicality to an improving economy given the county's ongoing, rapid population growth.

The district maintains its strong, stable financial profile. Better than average expenditure flexibility afforded most community colleges has also enabled this position. The district's use of largely part-time, non-tenured faculty allows management to better respond to evolving enrollment trends. The district regained momentum after an uncharacteristic, modestly negative -1.4% fiscal 2013 operating margin to generate a positive 2.2% operating margin in fiscal 2014, comparable to historical trends. The unrestricted fund balance grew by \$4.1 million to \$164.1 million (roughly 23% of general operational spending), well in excess of the district's minimum reserve policy of 8% of general fund revenues. In practice, the district maintains reserves well above this stated minimum, which is consistent with the district's high-grade rating.

The \$774 million fiscal 2015 general operating budget featured increased property tax revenues from the year's tax base growth, adoption of the 2% property tax levy increase, and a \$3 per credit hour tuition rate increase. Non-recurring spending was addressed with the budgeted use of fund balance, which must be included in the next year's spending according to state statute. Management is currently projecting some budgetary savings year-to-date despite a modest 1% year-over-year enrollment decline. A similarly-sized \$3 million addition to reserves is anticipated by year-end, which Fitch believes is reasonable given the district's historical financial performance.

MODERATE DEBT BURDEN AND CARRYING COSTS
The district's debt profile is favorable despite prior implementation of a sizeable capital program that primarily relied on tax-supported debt. The large \$951 million 2004 bond authorization (now exhausted) was designed to meet the district's capital needs for roughly 10 years; its use has been elongated somewhat. Management has no immediate debt or GO bond authorization plans, but will likely initiate some pay-go spending in the near term for its smaller capital needs. Overall debt levels are moderate and approximate \$1,900 on a per capita basis or 2.2% of market value. Rapid principal amortization of the district's GO debt at 91% in 10 years is a credit positive.

Pension and other post-employment benefit (OPEB) liabilities are through the Arizona State Retirement System (ASRS), which is a cost-sharing, multiple employer plan (CSME). The district is one of the larger participating employers in ASRS. Plan contributions are statutory, but also based on actuarial assumptions. The district consistently contributes 100% of the annual pension/OPEB cost (equaling \$39 million in fiscal 2014), although the pension's funded position remains below-average. The overall ASRS funded position at year-end fiscal 2014 held fairly steady at about 75% or an estimated 68% using the Fitch-adjusted 7% discount rate. Carrying costs for debt service, pension and OPEB remain moderate at 13.6% of total fiscal 2014 operating/non-operating expenditures despite the rapid pace of amortization and should remain manageable given the declining debt service schedule.