NEW YORK--(BUSINESS WIRE)--As part of its continuous surveillance efforts, Fitch Ratings takes the following rating action on Dayton City School District, OH's (the district) unlimited tax general obligation (ULTGO) and limited general tax general obligation (LTGO) bonds (collectively, the bonds):
--$234 million ULTGO and LTGO bonds, series 2003 A, B and D affirmed at 'A+'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The district benefits from strong proactive management that has undertaken significant expenditure reductions to maintain balanced operations.
--Uncertainty regarding future state funding and poor property tax collections will pressure the district's financial position despite the passage of a new continuing operating levy in 2008.
--While the district had improved academic quality in recent years, continued enrollment and revenue declines limit the district's ability to make future improvements to academic quality.
--The local economy, once heavily dependent on the manufacturing sector, remains weak as evidenced by high unemployment and below average wealth and income levels.
--The debt burden is moderate with no plans for additional capital needs and amortization is above-average.
KEY RATING DRIVERS:
--The district must maintain an adequate level of financial flexibility consistent with the rating level.
--Management's ability to further reduce expenditures in light of reductions in state funding and further revenue weakness while maintaining academic quality may be difficult.
SECURITY:
The series A and D bonds are voted general obligation debt of the district and are secured by an unlimited ad valorem property tax levy outside the ten-mill limitation. The series B bonds are unvoted general obligation debt of the district and are secured by an ad valorem tax levy limited to ten-mills.
CREDIT SUMMARY:
The Dayton area local economy in southwest Ohio remains weak as a result of its significant exposure to the auto sector and the closure and consolidation of General Motors facilities as well as smaller auto parts suppliers. While Wright-Patterson Air Force base employs over 20,000 civilian and military personnel, providing some stability to the local economy, a significant component of Dayton's large urban core suffers from high poverty levels and a weak city per capita income of $17,229, equal to just 69% of the U.S. average. Unemployment is high at 11.8% in November of 2010 and well above the state and national rates of 9.3% and 9.1%, respectively. While home prices have declined only slightly, the area continues to experience high foreclosure and delinquencies. Fitch expects that these significant economic and financial vulnerabilities will continue to pressure the district in the near and medium term.
Dayton City School District serves about 15,000 students, but has seen enrollment decline at an average 2% annually in the past five years due to both population loss and significant charter school competition. The district has proactively addressed enrollment declines by reducing an estimated 1,200 positions since 2002 and has reduced programs and services such as high school busing in its efforts to restore fiscal balance while still focusing on academic quality. While the Ohio Department of Education (ODE) placed the district on 'academic emergency', it was subsequently upgraded to 'continued improvement' in 2007. However, after significant expenditure reductions which impacted the district's academic quality, the ranking was revised downward to 'academic watch' in 2008. Fitch believes that the district will struggle to maintain academic quality while making the necessary cuts to the budget as most discretionary programs have now been pared and budget reductions will likely involve the elimination of academic programs as well as class size adjustments.
Since 2006, the district has used general fund reserves as budgetary cuts were not enough to counter rising educational costs. In fiscal 2007 and 2008, the general fund unreserved balances declined to negatives 2.8% and 0.2% of expenditures and transfers, respectively. While the district has made significant expenditure cuts, fundamental budgetary imbalance persists. At the close of fiscal 2009, the unreserved general fund balance totaled a low $279,000, or 0.1% of total expenditures. While audited fiscal 2010 results are not yet available, cash basis results show a small deficit.
The district's overall debt burden is somewhat elevated at 5.5% of full market value. Amortization is above average with 66% of debt retired within 10 years. Having recently completed a $600 million capital program that replaced 27 schools, the district has no future plans to borrow. The district entered into two swaptions in 2009, which can be exercised by the counterparty beginning in 2013. School district employees participate in one of two state pension cost sharing multiple employer plans. While the district had historically paid 100% of the required contribution, beginning in 2009 actual contributions were less than the required payment.
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
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.