S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Private Elementary And Secondary Schoolsstrong operating performance, until the 1990s and2000s, when performance was more strained. Thus,most medical schools have a higher degree of unrestrictedequity than most colleges and universities.The chief focus of the income statement is operatingperformance and revenue diversity, as well as anunderlying Profit and Loss analysis of the variouscomponents of the income statement.While the analytical approach is similar, some ofthe financial characteristics of medical schools arevery different from other colleges and universities.For example, revenues from faculty practice plans,research grants, and state capitalization programscan result in much greater revenue diversity for smallmedical schools than for similarly-sized colleges anduniversities. Medical schools affiliated with hospitals,or those classified as state institutions, often derivean especially small portion of their revenues fromstudents and tuition. Tuition discounting is usuallynot a concern for medical schools.While these other revenue sources help to insulatemedical colleges from fluctuations in studentenrollment, they may be vulnerable to change themselves.For example, financially strapped state governmentscan reduce state support, forcingpotentially large increases in tuition rates.Faculty practice revenues, mirroring reimbursementpressures on other health care providers andinstitutions, are often strained, with costs exceedingrevenues. Payments for graduate medical educationor residency programs can also come under pressureif the affiliated hospitals, with which the medicalschools partner, face weak operating results. Whenpayments under affiliation agreements decrease,often it is reimbursement for graduate medical educationthat suffers the most. Most payments underaffiliated contracts are multi-year in nature, providingsome revenue stability, but renegotiations canprove difficult in a weak environment. Most standalonemedical schools are not heavily leveraged, butfew also have the large endowments seen at othercolleges and universities. ■Private ElementaryAnd Secondary SchoolsThe universe of rated private primary and secondaryschools, although still relatively small,encompasses a diverse group of educational institutionswhose operations and characteristicsresemble colleges and universities more closelythan traditional elementary and high schools. As aresult, in rating private primary and secondaryschools, Standard & Poor’s Ratings Servicesassesses operational indicators similar to thoseused in rating colleges and universities.A key element in the rating is demand, measuredby such factors as enrollment, the number of applicants,the percentage accepted, matriculation rate(percentage of students offered admission whoattend the school), and student quality. Institutionalcharacteristics, such as the curriculum offered andwhether a particular institution is a boarding orday school, also are important considerations.Financial factors, management, and legal provisionsgenerally, but not always, modify the rating. A highendowment can considerably offset weakerdemand. Most debt sold by private schools issecured by a GO pledge, so legal provisions bearless weight for debt ratings in this area.Independent schools, while facing many of thesame challenges as colleges and universities, operatein an environment vastly different from that of highereducation institutions. For example, independentprimary and secondary schools generally draw froma smaller, more regional market—particularly if theyonly offer day school programs—than do colleges,which may receive enrollment applications fromacross the country. In addition, independent schoolstypically are smaller than their public school counterparts,which receive local support and property taxrevenues. Given the high tuition levels, a significantnumber of students attending such schools are affluent,which further limits the potential applicant pool.Tuition is an important element in the financialprofile of independent schools, and in general, privateprimary and secondary schools have considerablyless revenue diversity than colleges anduniversities. However, with student charges alreadyrivaling those of colleges and universities, thepotential for additional increases may be limited.More and more tuition increases are being matchedby rising financial aid costs. Although most of theschools make significant amounts of financial aidavailable to help offset the high tuition cost,Standard & Poor’s believes that local economicfluctuations may be more likely to affect parents’decisions to send their children to private primarywww.standardandpoors.com191