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TMCNet:  Fitch Rates Princeton City School Dist Board of Education, OH's ULTGO Bonds 'AA+'; Outlook Stable

[July 18, 2014]

Fitch Rates Princeton City School Dist Board of Education, OH's ULTGO Bonds 'AA+'; Outlook Stable

NEW YORK --(Business Wire)--

Fitch Ratings assigns the following rating to Princeton City School District Board of Education, OH's (the district) general obligation (GO) unlimited tax bonds:

--$105,240,000 (est.) GO refunding bonds, series 2014 'AA+'.

The bonds are expected to sell via negotiated sale the week of July 28, 2014. Proceeds from the sale of the bonds will be used to current refund the district's series 2010C (federally taxable-Build America Bonds).

The Rating Outlook is Stable.

SECURITY

The bonds are secured by the levy of an ad valorem tax on all taxable property within the district without limitation as to rate or amount.

KEY RATING DRIVERS

STABLE AND DIVERSE ECONOMY: The economy benefits from its close proximity to Cincinnati and diverse employment opportunities among education, healthcare and manufacturing. Income indices are above state levels and comparable to national averages.

STRONG FINANCIAL PROFILE: The district's financial profile is a positive credit factor characterized by solid reserve levels, active expense management and permanent operating tax levies with strong voter support.

MANAGEABLE LONG-TERM OBLIGATIONS: The district's overall debt levels are high due to recent significant borrowing which will meet the district's capital needs well into the future. Carrying costs inclusive of debt service, pension and other post-employment benefits (OPEB) are manageable.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the district's healthy financial profile. Maintenance of solid reserves is a key credit consideration.

CREDIT PROFILE

The district population of 42,620 encompasses 36 square miles on the northern edge of Hamilton County and includes small portions of Warren and Butler counties. It's location near interstates 71 and 75 provides quick and easy access to downtown Cincinnati which is approximately 15 miles away.

Enrollment has remained fairly stable over the last few years, totalling 5,580 for the 2013/2014 school year. Enrollment may increase slightly with open enrollment implemented for the coming school year.

STABLE AND DIVERSE ECONOMY

The economy is broad and benefits from its close proximity to Cincinnati. Commercial interests comprise 50% of the district's tax base including General Electric Company, United Parcel Service, Ford Motor Company, and Humana Right Service (mail order pharmacy). Additionally, higher education institutions within commuting distance include the University of Cincinnati, Miami University, Xavier University and Wright State University. Unemployment rates are not available for the district. The county (Hamilton) unemployment rate of 5.5% for May 2014 was slightly above the state rate of 5.3% but below the national rate of 6.1%.

The district's high market value per capita of $100,000 partially reflects the strong commercial base; per capita income is 113% and 105% of state and national levels, respectively. Assessed valuation declined 10.9% from 2010 to 2014 due primarily to the phase out of tangible personal property and a 2012 sexennial reappraisal. The district currently projects modest inflationary growth through 2017, which Fitch views as reasonable.

DEMONSTRATED VOTER SUPPORT FOR TAX LEVIES

Property tax revenues represent the largest source of general fund revenue at 62%. Unlike many Ohio school districts, all district property tax levies are permanent with historically strong voter support, providing a relativelevel of financial stability. The most recent levy passed in March 2012 with a 60% approval rating.


HEALTHY RESERVES AFFORD FINANCIAL FLEXIBILITY

Audited results showing ebb and flow of the general fund balance is very common among Ohio school districts given the reliance on voter support for additions to the tax rate. This inherent lack of revenue control is mitigated by the district's comprehensive long-term financial planning and demonstrated ability to maintain high reserves.

For fiscal year 2013 (year-end June 30), on a GAAP basis, the district reported a general fund operating surplus after transfers of $986,000 (1.3% of spending). The unrestricted fund balance totaled $17.2 million or a healthy 23.2% of general fund spending. For fiscal year-end June 30, 2014, on an unaudited cash basis, the district reported a general fund ending cash balance of $16.6 million, slightly better than the forecasted$16.4 million and a strong 24.1% of spending.

District officials have pro-actively managed expenses. Management's implementation of a budget reduction plan, known as 'Plan A' has enabled the district to reduce annual expenditures by a cumulative 10% since 2011.

The May 2014 five-year cash forecast includes additional savings from transportation privatization and budget neutral assumptions for recently expired contracts. Contract settlements outside of the district's expectations could pose risk to the forecast but Fitch believes flexibility to absorb additional costs exists in the build-up of sizeable reserves over the forecast period.

Positive operations through fiscal 2018 lead to cash balances of $30 million or 39.3% of spending in fiscal 2018. Fitch believes projections are reasonable given management's practice of conservative budgeting with actual results proving better than forecast.

ABOVE-AVERAGE BUT MANAGEABLE DEBT BURDEN

Fitch considers the district's overall debt burden moderately high at 5.4% of market value. Amortization is slow with only about 20% of debt retired in 10 years, leaving little flexibility to accommodate future issuance. However, the district has no plans for additional debt as all school facilities are new or have recently undergone major renovations.

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. At June 30, 2013, funding levels for both plans were low at approximately 61% for STRS and 60% for SERS, based on a Fitch estimated 7% rate of return.

Total carrying costs for debt service, pensions and OPEB are affordable at 13.4% of total governmental fund expenditures. The SERS plan has been fully funding its ARC. Pension related costs could rise over time if STRS moves towards full funding of its actuarially required contribution (ARC); the plan funded only 46% of the ARC in fiscal 2013. Contributions to STRS represents 3.2% of the districts fiscal 2013 government fund spending and Fitch believes the district could absorb a moderate increase.

Contact:

Additional information is available at 'www.fitchratings.com'.

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, CoreLogic-Case-Shiller Index, IHS (News - Alert) Global Insight, and 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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=840524

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 (News - Alert) 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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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