TEXT - Fitch affirms Kettering CSD, Ohio GOs

Wed Feb 6, 2013 3:55pm EST

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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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