2008-06-27 23:51:12 -

- During the course of routine surveillance, Fitch Ratings has downgraded Canton City School District, Ohio's (the district) approximately $43 million in outstanding general obligation (GO) bonds to 'A-' from 'A'. The Rating Outlook remains Stable.

The downgrade reflects the district's challenged local economy, which has continued to struggle with manufacturing employment losses, a weakened financial profile, exacerbated by

the lack of voter support for additional property taxes, and sustained enrollment declines, as the district manages competition from charter and community schools. The Stable Outlook reflects the district's prudent financial management and controls, which has eliminated yearly shortfalls through deliberate cost cutting measures, and improved academic performance, as well as its minimal capital needs and low debt levels.

General fund balances, on a generally accepted accounting principles (GAAP) basis, have been negative for the past several years. The district's cash balances have improved and GAAP results evidence dramatic reductions in expenditures, largely due to the elimination of clerical and pedagogical staff. Nonetheless, the district's GAAP-based total general fund balance equaled negative $7 million, or negative 7.6% of spending, in fiscal 2007 (June 30 year-end). Due to the district's current financial profile, the Ohio State Auditor has assigned a 'fiscal caution' status to the district.

In the last three fiscal years, the district reversed its deficit spending and produced moderate surpluses, but still must continue to cut spending in the near term to eliminate its accumulated deficit. Additionally, the district suffers from reduced electoral support, as the past two attempts for an additional operating levy have failed. The Ohio School Foundation Funding Program provides a stable revenue source through unrestricted grants-in-aid which have averaged roughly 59% ($55.8 million) of total revenues since fiscal 2005.

Although still remaining somewhat weak relative to other Ohio school districts, Canton City Schools has improved its academic performance as measured by the Ohio Department of Education's school report card, moving to 'Continuous Improvement' in the 2006-2007 school year from 'Academic Watch' in 2004-2005. Academic improvement, combined with fiscal discipline, provides some stability for the district and its credit quality.

As is typical in the region, the manufacturing sector has declined as a major sector for employment during recent years. Unemployment rates for the City of Canton have historically been above county, state, and national figures. The 2007 unemployment rate of 7% for the city is the lowest it has been in a decade during which the unemployment rate was as high as 9.8% in 2002. The district benefits from increasing employment in the health care sector, as some of its major employers are non profit hospitals currently in expansion mode. The city's population has also decreased annually by an average rate of 0.4% since 2000. Additionally, per capita income in 2006 ($15,860) was 70.1% of Stark County, 67.4% of the state, and 63.4% of national figures.

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Fitch Ratings
Eric Espino, 212-908-0574 (New York)
Melanie A.J. Shaker, 312-368-3143 (Chicago)
Media Relations:
Christopher Kimble, 212-908-0226 (New York)