NEW YORK--(BUSINESS WIRE)--As part of its continuous surveillance effort, Fitch Ratings takes the following rating action on Kettering City School District, OH's (the district) unlimited tax general obligation (ULTGO) bonds:
--$16.9 million ULTGO bonds, series 2003, downgraded to 'AA-' from 'AA';
--$1.5 million ULTGO bonds, series 2004, downgraded to 'AA-' from 'AA';
The Rating Outlook is Stable.
RATING RATIONALE:
--The downgrade to 'AA-' reflects erosion in financial reserves and Fitch's expectation that the constrained operating environment will make meaningful improvement in reserves difficult.
--Uncertainty regarding future state funding may further pressure the district's financial position.
--Concerns about financial flexibility are somewhat offset by strong voter support for levies, including the recent approval of a new levy.
--The debt burden is moderate with no future debt plans in the near term.
--The local economy shows signs of stabilization.
KEY RATING DRIVERS:
--Continued voter support will be needed to maintain adequate reserve levels.
--The ability to reduce expenditures in light of additional declines in assessed value (AV) or reductions to state funding will be essential to maintaining satisfactory financial flexibility.
SECURITY:
The bonds are secured by a voter-approved debt service millage, outside general operating millage, that is adjusted to yield sufficient revenue to pay debt service payments.
CREDIT SUMMARY:
Kettering City School District is located 70 miles southwest of Columbus and four miles south of Dayton in Montgomery County. While the city has been negatively affected by an overall decline in employment in the area, the overall effect was diminished due to the diversity of the employment base and unemployment remains on trend with that of the state and nation, declining to 9.3% as of November 2010 from 10.7% in November 2009. The district's largest employers include Kettering Medical Center and Reynolds & Reynolds. County per capita income is 100% and 90% of the state's and nation's, respectively.
The district relies on property tax revenue for approximately 65% of general operating revenues which continues to present challenges as AV has declined in fiscals 2008 through 2010. The fiscal 2010 decline was attributed to two appeals and a building demolition; no further appeals are expected. In fiscal 2011, there was a slight (1.5%) increase in AV. The tax base is moderately concentrated, as the top two taxpayers make up more than 5% of the base, and has some exposure to the automotive industry. General Motors shuttered and sold a plant in the district to Industrial Realty Group who has recently reached an agreement with an 'anchor tenant.', This is expected to bring approximately 1 thousand to 2 thousand jobs back to the district. Other major employers in the area appear stable. Enrollment has been stable over the past five years at approximately 7,500 students.
Revenues declined 6.2% in fiscal 2010 due to decreases in tax revenues associated with the drop in AV. Expenditures in fiscal 2010 increased by 3.3% due mostly to salary and wage increases. In November 2010, the district passed a 4.9 mil operating levy to address this imbalance and alleviate some of the pressures associated with the AV declines. The levy, which officials estimate will result in a 5% increase in property tax revenue in fiscal 2012 (the first full fiscal year of implementation), will expire in five years; there is an additional 4.9 mil levy which expires in 2012. Additional cost saving measures implemented by the district include renegotiating the two major labor union contracts to eliminate wage increases over the next year, as well as the closure of one school building. Unreserved general fund balance decreased in fiscal 2010 to 2.5% of annual expenditures from 7.5% at the end of fiscal 2009. With the passage of the operating levy, management expects a small surplus on a cash basis for fiscal 2011 and 2012, assuming no further cuts to state funding.
The district's overall debt burden is moderate at $2,118 per capita and 3.1% of market value; there are currently no plans for additional debt. The district contributes to the School Employees Retirement System (SERS) and the State Teachers Retirement System (STRS) to fund both pension and other post employment benefits. Both SERS and STRS are cost-sharing, multiple-employer defined benefit pension plans. The district's fiscal 2010 combined SERS and STRS payments were 8% of general fund spending.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc., IHS and Global Insight
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 16, 2010;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 8, 2010.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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