Fitch Rates Columbus City School District, Ohio's $16MM GOs 'AA'; Outlook Stable

2008-11-18 02:19:02 -

Fitch Ratings assigns an 'AA' rating to the Columbus City School District, Ohio's (the district) $16.0 million school facilities construction and improvement bonds (general obligation [GO]), series 2008. The bonds are expected to sell via negotiation the week of November 24. Proceeds will be used to retire outstanding bond anticipation notes which financed school construction projects. Fitch also affirms the

'AA' rating on the district's approximately $362.0 million of outstanding GO debt. The Rating Outlook is Stable.
The 'AA' rating reflects the district's improved financial strength, the recent strong voter approval of an increased expense millage rate, and the area's diverse economy. Credit concerns include the weaknesses in the district's fiscal 2007 audit, adequate although improving academic performance, significant future capital needs, and the district's dependence on continued voter authorization to increase millage rates sufficiently to maintain balanced financial operations. While Fitch notes the district's strong history of voter approval on millage rate increases, any failure to obtain a rate increase could lead to downward pressure on the rating.
With an estimated population of 576,603, the district serves approximately 77% of the city of Columbus (rated 'AAA' by Fitch), the capital of Ohio. While the district's population continues to increase, student enrollment has declined an average of 3% annually over the last five years and is projected by the district to continue at a similar rate in the future. Official's report that a combination of competition provided by charter schools and voucher programs and movement of families outside the district have contributed to the declines. Fitch believes that continued improvement in academic performance will be important to minimizing or reversing the declines. The area economy has historically been strong, anchored by the presence of the state government and The Ohio State University (OSU). While recent layoffs at the state along with the contraction of the financial and transportation sectors slowed employment growth and have led to an increased unemployment rate of 6.2% in September 2008 from 4.9% a year prior, it is still on par with the state and national averages.
As is common in Ohio school districts, financial operations have been volatile. The state's property taxation system allows for minimal if any growth in revenue from existing levies, thereby necessitating that districts periodically ask voters for millage rate increases. Commonly, districts pass increases every few years which produce surpluses before drawing down reserves until a new increase is passed. The cyclical nature of reserves coupled with higher than anticipated expenditure increases in fiscal 2003 and fiscal 2004 led to a total general fund balance of negative $31.4 million, equal to -5.2% of spending, and an unreserved fund balance of negative $58.3 million, equal to -9.7% of spending.. The district implemented more than $50 million of expenditure reductions at the end of fiscal 2004 including reducing staff levels by 670 positions. These reductions coupled with the passage of an increased millage rate in 2004 led to three consecutive years of surpluses. Audited fiscal 2007 results show a $74 million surplus increasing the unreserved fund balance to $35.7 million, equal to 6.3% of spending while unaudited fiscal 2008 results show a minimal drawdown. District voters authorized an additional 7.85 mill increase with a strong 63% approval rate in November 2008. The additional permanent operating and bond millage is projected to generate an additional $77 million annually. With this authorization, the district has passed six out of the last six operating rate increases illustrating the area's strong voter support of the system. While the district will not require additional voter support for several years. However, the district will continue to rely on periodic voter authorized millage increases to remain financially solvent.
Overall debt for the district is currently moderate at $2,059 per capita and 3.78% of market value. The district is in the middle of a 15 year master facilities plan to address the district's aging infrastructure and modernize its facilities. The $1.3 billion cost estimate for the plan has not been revised recently, and Fitch believes it may be conservative. As a participant in the state's Accelerated Urban Assistance Program, the state will provide nearly 30% of funding for the program. District voters authorized $391.9 million of borrowing to finance the first two segments (out of seven) of the plan in 2002. An additional $164 million was authorized by voters in November 2008 to finance the third segment. While the district's debt is expected to increase, Fitch believes the debt burden will remain manageable as the district attempts to stagger issuance to minimize the impact on taxpayers.
Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework'.) At this time, Fitch is deferring its final determination on municipal recalibration. Fitch will continue to monitor market and credit conditions, and plans to revisit the recalibration in the first quarter of 2009.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww ... Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.


Fitch Ratings, New York

Rachel A. Barkley, 212-908-0514

Amy R. Laskey, 212-908-0568

or

Media Relations:

Sandro Scenga, 212-908-0278

Email: mailto:sandro.scenga@fitchratings.com