TEXT-Fitch affirms Columbus City School District, Ohio GOs at 'AA+'
Feb 7 - Fitch Ratings has affirmed the following Columbus City School District, Ohio unlimited tax general obligation (ULTGO) ratings at 'AA+': --$8.6 million school facilities construction and improvement bonds, series 2004; --$268.3 million general obligation (GO) school facilities construction and improvement refunding bonds, series 2006; --$5.7 million GO school facilities construction and improvement bonds, series 2007; --$15.8 million GO school facilities construction and improvement bonds, series 2008; --$72 million GO school facilities construction and improvement bonds, series 2009. The Rating Outlook is Stable. SECURITY The GO bonds are secured by an ad valorem tax to be levied upon all taxable property within the district, without limitation as to rate or amount. RATING SENSITIVITIES STRONG BUT CYCLICAL RESERVES: Financial reserves are strong, but expected to decline to more moderate levels before a new operating levy is approved by voters. Continued sound reserve levels are contingent upon such approval. STRONG VOTER SUPPORT COULD BE VULNERABLE: The district historically has enjoyed strong voter support for new levies and bond authorizations. The effect that recent negative publicity may have on future voter support is unknown. VIBRANT AND DEEP ECONOMY: The city's growing economy benefits from the stabilizing presence of various levels of government, Ohio State University (OSU), notable healthcare institutions, and financial services. Unemployment is low, but income levels are weak. MANAGEABLE LONG-TERM OBLIGATIONS: Debt levels should remain moderate, even if anticipated debt is issued in the near term. Carrying costs for pension, other post-employment benefit (OPEB) and debt service are affordable. CREDIT PROFILE Columbus City School District is located in Franklin County and serves the city of Columbus (rated 'AAA' by Fitch) and a number of surrounding townships. While the district's population continues to increase, student enrollment has declined an average of 2% annually over the last five years and is projected by the district to continue at a similar rate in the future. STRONG RESERVES AFFORD FINANCIAL FLEXIBILITY: Financial performance generally has been sound, characterized by maintenance of strong but cyclical reserves. The district typically builds up general fund balance following the passage of a new operating millage, then draws down some reserves before requesting voter approval for another millage. This pattern is common to Ohio school districts and underscores the importance of voter support to financial health. The district depends on new levies because existing millage rates cannot be adjusted for tax base declines, and do not benefit from tax base increases. Primary support for operations comes from property taxes, which provide 53% of revenues, followed by state foundation aid, which provides 32%. The state of Ohio has announced plans to change the formula for distribution of state aid, beginning with the 2014 biennium. The impact of these changes on the district is currently unknown. However, the governor has said that no district will lose state aid in the first year of the new formula, so districts should have some time to adjust. The district recorded a modest (0.5% of spending) net operating deficit after transfers in fiscal 2012, following three years of healthy net operating surpluses. The fiscal 2012 unrestricted general fund balance remained ample at 33.8% of spending, representing significant cushion available to carry the district through until the next new millage request in 2013 or 2014. Officials project ending fiscal 2013 with a moderate net operating deficit of approximately $49 million, which would leave the unrestricted general fund balance at a still strong 27% of spending. The district's five year forecast shows net operating deficits in fiscals 2014 and 2015 would result in a negative general fund balance, absent a new millage request. VOTER SUPPORT CRUCIAL TO FUTURE FINANCIAL HEALTH Favorably, all of the district's operating millages are permanently continuing. However, the district is still dependent on voter approval for new millages, to accommodate increased costs. In recent years, the district has requested new operating millages every four years, although it did not do so in 2012, four years after the last new millage in 2008. Voters have shown strong support for the district's operating millages and debt authorizations. The last four operating millages have been passed on the first attempt and voters have not rejected a millage since 1990. Voters also showed strong support for large bond authorizations in 2002 and 2008. Fitch believes this strong level of support could be vulnerable given recent negative publicity. The state recently issued a report identifying internal flaws relating to the district's collection of enrollment and attendance data. This raises concerns about the strength of internal controls; however, the district is in the process of hiring a chief information officer to standardize and improve data collection processes. VIBRANT AND DEEP ECONOMY The Columbus area economy has been historically strong, anchored by the presence of state and federal government, and Ohio State University. Employment in the greater Columbus area is diverse with major employers representing government, insurance, manufacturing, banking and medical sectors. Unemployment rates as of November 2012 in the city and county are 5.5% each, which compares favorably to the state and national rates of 6.5% and 7.4%. Assessed value (AV) within the district declined slightly in 2011 and by a more significant 7.4% in 2012, a result of the six-year reappraisal. Fitch expects that AV will remain relatively flat for the next few years. The tax base is not concentrated as the top taxpayers make up less than 8% of total AV. Wealth levels, as measured by per capita personal income in the county are average at 106% and 96% of the state and national levels, respectively. MANAGEABLE LONG-TERM OBLIGATIONS The district's debt burden is moderate at $1,833 per capita and 3.5% of market value. The district may seek voter approval for another $130 million to $160 million of additional debt next fall. Debt burden should remain moderate, even after the anticipated issuance. The district contributes to the School Employees Retirement System (SERS) and the State Teachers Retirement System (STRS) to fund both pension and OPEB. Both SERS and STRS are cost-sharing, multiple-employer defined benefit plans and the district regularly contributes 100% of the annual required payments for each system, although less than 100% was recorded in fiscal 2012 due to a timing issue. Carrying costs are affordable with debt service, pension and OPEB claiming 14% of governmental funds (net of capital projects funds) spending. The debt amortization rate is slightly below average. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors. Applicable Criteria and Related Research: --'Tax-Supported Rating Criteria' (Aug. 14, 2012); --'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012). Applicable Criteria and Related Research: Tax-Supported Rating Criteria U.S. Local Government Tax-Supported Rating Criteria