TEXT - Fitch affirms Kettering CSD, Ohio GOs
Feb 6 - Fitch Ratings affirms the following rating on Kettering City School District, Ohio (the district): --Approximately $2.4 million unlimited tax general obligation bonds, series 2003, at 'AA-'. 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 DEMONSTRATED VOTER SUPPORT; SOLID FLEXIBILITY: The district's revenue base is primarily supported by property taxes. Fitch views favorably the demonstrated voter support for both continuous and renewal property tax levies, which together with expenditure flexibility, should allow the district to maintain a solid financial cushion. DIVERSIFYING ECONOMY; AVERAGE INDICATORS: The city's tax and employment base continues to diversify away from its manufacturing base and income levels are comparable to the national average. The city's unemployment rate is below average but regional employment and labor force activity continues to trail the state. MANAGEABLE LONG-TERM LIABILITIES: The district has no debt or capital plans which will help keep the district's debt ratios at an average level. Pension and OPEB costs are manageable, and Fitch views positively the forward funding of other post-employment benefits (OPEB) via the state plan. CREDIT PROFILE Kettering City School District is located approximately 70 miles southwest of Columbus and four miles south of Dayton in Montgomery County. The district is the 33rd largest (of 613) in terms of enrollment, serving approximately 7,100 students. ADEQUATE FINANCIAL PERFORMANCE The district's history of strong demonstrated voter support is a key credit strength. The district is dependent on property taxes for 66% of its revenues (in 2012), and Fitch views positively the fact that only 11% of the district's operating revenues require voter renewal. Nevertheless, the reliance on voter support for tax increases and renewals creates cyclical operating performance. Since 2009 voters have renewed one five-year levy, made another levy permanent, and approved one new renewal levy that increased revenues by $6.1 million or 7.4%. The district plans to seek voter approval in May 2013 for an additional levy to generate $7 million or 8.5% of 2012 general fund revenues annually. State funding sources total 29% of operating revenues in 2013. The governor's 2013-2015 proposed education budget holds districts harmless from 2012, which was flat compared to 2011, but the proposal is subject to legislative revisions. Management has controlled expenditures largely through attrition, reducing the workforce by approximately 10% over the past six years, and Fitch believes meaningful expenditure flexibility remains. The district reported positive operations in 2011 and 2012, yielding an unrestricted fund balance of $7 million or an adequate 8.6% of 2012 spending. The district's 2013 budget is balanced and includes an additional reduction of 12 full time equivalents (approximately 1% of workforce) as well as a $2.5 million fund balance draw. Absent any offsetting factors in 2013, the unrestricted fund balance would decline to a still adequate 5.7% of spending. Fitch accepts some level of reserve volatility due to the inherent reliance on voter support for renewed and additional revenues. Fitch views the district's 2013-2017 forecast as conservative. School districts are required by the state to prepare five year forecasts without including the benefit of renewal levies. The forecast shows the continuation of deficit operations, increasing through 2017. Fitch expects generally stable operating performance and maintenance of adequate reserve levels given the district's history of voter support and prudent cost management. DIVERSIFYING BASE STILL RECOVERING The Dayton area economy is slowly improving after a decade of job losses through 2010 and population contraction of 9% since 2000. The area's traditional manufacturing base in automobile parts and assembly was devastated by the recession and there has been no sustained rebound in manufacturing jobs. The region has established itself as a hub for aerospace research and development, and Wright-Patterson Air Force base, which employs approximately 26,000 civilian and military personnel, provides some stability to the local economy. The city of Kettering's employment and labor force performance continues to trail the state but unemployment rates remain below state and national averages. The October 2012 unemployment rate moderated to 6% from 7.8% the year prior, compared to the state's (6.3%) and nation's (7.5%). Major district employers include Kettering Medical Center (employing 3,100 in 2012); GE Money (1,700); and The Reynolds & Reynolds Company (1,250), an automotive retailing supplier. Assessed valuation appears to have stabilized after declining 9.7% from its pre-recession peak in 2008, with overall market value down more notably (21%) over the same period. The district's top taxpayer Dayton Power and Light Company represents a somewhat concentrated 6% of TAV but is a generally stable employer. Wealth and income indicators are roughly equal to state and national averages. MANAGEABLE DEBT PROFILE The district's overall debt profile is average at $2,088 per capita and 3.3% of market value. Fitch expects these ratios to improve as the district has no debt or capital plans. Debt service represented a moderate 8.3% of general and debt service fund spending in 2012. 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 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 $7.4 million or 9.2% of 2013 budgeted spending. The district's overall carrying costs for debt service, pension, and OPEB in 2013 represents a below average at 14.9% of governmental fund spending.
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