TEXT - Fitch affirms Ohio's Mohawk Local School District GOs

Tue Jan 29, 2013 3:47pm EST

Jan 29 - Fitch Ratings affirms its rating on the following Mohawk Local
School District (LSD), Ohio (the district) bonds at 'AA-': 

--$500,000 unlimited tax general obligation (ULTGO) various purpose bonds series
2004. 

The Rating Outlook is Stable.

SECURITY 

The bonds are a general obligation of the district, secured by a voter-approved 
debt millage that is adjusted without limitation to yield sufficient revenue to 
pay debt service. 

SENSITIVITY/RATING DRIVERS

STABLE OPERATIONS; LIMITED FINANCIAL FLEXIBILITY: The district has maintained 
its year-end cash balances through expenditure reductions and careful cost 
management over the past two fiscal years. The district has little 
revenue-raising flexibility. 

STATE-AID DEPENDENT: State aid represents a majority of the district's resources
and has been a stable source over the past two years. The implications of a new 
state funding formula are uncertain at present. 

VOTER SUPPORT FOR RENEWAL LEVIES: District voters have consistently supported 
pentennial renewal of the district's income tax levy; however, voters have 
rejected additional tax levies, limiting financial flexibility. 

AGRICULTURAL ECONOMY: The district's economy is rural and limited, dominated by 
agriculture. 

LOW DEBT & OPEB PRE-FUNDING CREDIT POSITIVES: The district's debt ratios are 
below average and the forward funding of other post-employment benefits (OPEB) 
via the state plan are credit positives. 

CREDIT PROFILE

Mohawk Local School District is located approximately 60 miles southeast of 
Toledo and serves sections of Wyandot, Seneca, and Crawford counties. The 
district serves approximately 930 students in the current school year and is 
projecting stable enrollment.

STABLE FINANCIAL OPERATIONS; LIMITED FINANCIAL FLEXIBILITY

District financial operations have been largely stable over the past five years,
with four years of operating surpluses having built up an adequate unrestricted 
fund balance of $945,000 or 11% of spending in fiscal 2012. The district had one
operating deficit in fiscal 2011 ($173,000 or 2% of spending) which was driven 
by technology purchases made with grant money deemed ineligible for this 
purpose.

The district has consistently pursued expenditure savings since 2007, reducing 
total full-time equivalents by 34.5 through fiscal 2013, with an approximate 
savings in aggregate of $2.3 million. Headcount is thin at 84 full-time and 24 
part-time employees in 2013 and management anticipates the need to increase 
headcount by one special education teacher in fiscal 2014. Other expenditure 
initiatives have included adjusting purchased services for savings and achieving
union concessions on health insurance plans including increasing the amount 
employees pay for health insurance. Fitch believes that further expenditure 
adjustments will be challenging for the district given the extensive actions 
already implemented.

DISTRICT DEPENDS ON STATE FUNDING

The district relies heavily on state aid, receiving approximately 52% of general
fund operating revenues from the state. The Ohio legislature repealed the 
Evidence Based Model funding formula and the state currently has in place a 
temporary funding formula in anticipation of a permanent system to be devised at
a later, unspecified date. 

A bridge funding formula provision for fiscal years 2012 and 2013 guarantees 
each school district operating funds equal to the amount of state operating 
funding (excluding state fiscal stabilization money) the district received in 
fiscal 2011 under the Evidence Based Model. It is uncertain how the anticipated 
new formula will impact financial operations of rural districts like Mohawk.

VOTERS SUPPORT RENEWAL MILLAGES

The district imposes a 1% income tax which is renewable every five years and is 
budgeted to provide approximately $1.2 million or 14% of general fund spending 
in fiscal 2013. Voters have shown consistent support for the renewal of the 
district's income tax levy since 1996; however, proposed new money property and 
income tax levies have been consistently voted down in recent years, limiting 
the district's budgetary flexibility. 

Fitch notes that the district is at its state-guaranteed revenue floor of 20 
mills of property taxes for operations, obviating renewal risk typically 
associated with Ohio property tax revenue. Additionally, the district has some 
ability to adjust its unvoted millages administratively for capital uses or 
debt, which would provide some financial flexibility. 

The district's five-year financial forecast, which Fitch believes includes 
conservative and reasonable assumptions, does not show an operational deficit 
until fiscal 2017. Fitch notes that this deficit is driven by the renewal of the
district's income tax levy in 2015, the collection of which ends in 2016 and is 
therefore not included for the full 2017 fiscal year. If renewed, receipt of the
income tax levy would remove this projected deficit. 

LIMITED ECONOMY

The district's economy is limited and predominantly agricultural. Most district 
workers are employed outside of the district. Regionally, the largest employers 
are Vaughn Industries LLC, an electrical contractor, (approximately 425 
employees), County of Wyandot (400), and Wyandot Memorial Hospital (200). 
District unemployment data are unavailable. Unemployment in Wyandot County in 
October 2012 was 6.1%, below state (6.3%) and national (7.5%) averages. Median 
household income is above state (120%) and national (110%) averages. Positively,
assessed value has grown almost 15% since 2008 and is $117 million for fiscal 
2012, largely driven by state changes in valuation of farmland. 

LOW DEBT BURDEN IS CREDIT POSITIVE

The district's overall debt profile is a credit positive, with low debt ratios 
on a per capita ($1,028) and percent-of-market value (1.9%) basis. The 
district's debt service cost in fiscal 2013 is $437,000 or a low 4.7% of general
and debt service fund spending. Amortization is average at 49% in 10 years. 

STABLE PENSION AND OPEB COSTS

The district participates in two state-run cost-sharing multiple-employer 
pension and post-retirement healthcare benefits plans. The teachers' plan is 
somewhat underfunded at 53% (using a 7% discount rate). The state made 
adjustments to retirement system plan designs in September 2012 which Fitch 
believes may benefit plan funding. 

The district is required to make contributions with rates established by the 
state and has annually met the contribution, although this has not always 
equaled the actuarially required contribution. The state is forward-funding its 
OPEB liability, a notable credit positive. Costs for both benefit classes are 
$770,000 or 8.7% of 2013 budgeted spending. 

The district's overall carrying costs for debt service, pension, and OPEB in 
2013 do not represent a significant source of budgetary pressure at 13.4% of 
general and debt service fund spending.
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