|[September 25, 2013]
Fitch Rates Dayton City School District, OH's Unlimited Tax Rfdg Notes 'F1+'
NEW YORK --(Business Wire)--
Fitch Ratings has assigned an 'F1+' rating to the following Dayton City
School District OH's (the district) unlimited tax refunding notes:
--$93,450,000 (est.) school facilities construction and improvement
unlimited tax refunding bond anticipation notes (BANs), series 2013B.
In addition, Fitch affirms the following ratings:
--$94,505,000 series 2013A unlimited tax general obligation
(ULTGO)refunding bonds underlying rating at 'A+';
--$93,455,000 ULTGO refunding BANs, series 2013, at 'F1+';
--Limited tax general obligation bonds (LTGO), series 2012 and 2013B, at
--Approximately $14.4 million certificates of participation (COPS),
series 2012, at 'A-'.
In addition, Fitch has withdrawn the 'A+' rating on the district's
limited tax general obligation refunding bonds series 2012A as the bonds
were not sold.
The Rating Outlook on the bonds is Stable.
The series 2013B refunding BANs are expected to sell via negotiation on
or about Oct. 1. Proceeds will be used to refund the currently
outstanding series 2013 refunding BANs.
The BANS to be refunded were sold in April of this year and mature on
Oct. 15. The sale followed the district's entering into an interest rate
swap with the Bank of New York Mellon related to the district's series
2003A bonds pursuant to a 2009 swaption. The 2013B BANs will mature in
October 2014, the effective date of the annual Libor reset according to
the swap agreement.
The series 2013B refunding BANs, series 2013 refunding BANs and ULTGO
bonds are voted general obligation debt of the district secured by an
unlimited ad valorem tax levy outside the 10-mill limitation.
Additional security for the series 2013A ULTGO refunding bonds is
provided by the Ohio School District Credit Enhancement Program (state
enhancement program) which requires the Ohio Department of Education
(ODE) to forward state foundation program payments to the bond registrar
if, prior to the bond payment date, the district has not transmitted
funds sufficient to cover required debt service payments.
The LTGO bonds are non-voted general obligation debt of the district
secured by an ad valorem tax levy within the 10-mill limitation.
The COPS are secured by an obligation of the district to make rental
payments under the lease subject to annual appropriation. The COPS are
additionally secured by a leasehold interest for the benefit of
certificate holders in the leased assets.
KEY RATING DRIVERS
STABLE FINANCIAL PROFILE: As a result of strong fiscal management and
the implementation of significant expenditure cuts, financial operations
have stabilized with the district recording operating surpluses over the
last two fiscal years and the rebuilding of reserves to adequate levels.
STATE-AID DEPENDENT; DEMONSTRATED VOTER SUPPORT: The district is heavily
reliant on state aid. Management reports the financial implications
associated with the new state school funding formula are positive for
the district. The bulk of remaining revenues are from continuous
property tax levies which Fitch views positively in combination with a
history of strong voter support for new levies.
BELOW AVERAGE SOCIOECONOMIC INDICATORS: Socioeconomic indicators are
weak as evidenced by below average wealth and income levels, poverty
levels that are more than double state and national rates, above average
unemployment rates, and poor property tax collection rates.
MANAGEABLE DEBT PROFILE: The district's debt profile is characterized by
below average debt per capita and carrying costs but an elevated debt to
full value ratio. Debt levels should decline as the district has no
borrowing plans and amortization is slightly above average.
MARKET RISK ON (News - Alert) NOTES: Market access risk in the event of annual rollover
of the 2013B refunding BANs is mitigated to some degree by the strong
'AA' rating afforded to prospective refunding bonds by their
qualification for the state enhancement program.
COPS APPROPRIATION RISK: The 'A-' rating on the COPS reflects the annual
appropriation risk inherent in the rental payments to be made by the
district to the trustee and the general creditworthiness of the
district. Fitch believes appropriation risk is elevated by the
non-essential nature of the leased assets, one of which is an
administrative facility and the other is being sublet to a third party.
DECREASE IN FINANCIAL FLEXIBILITY: While the state funding formula
should financially benefit the district and avoid a ballot referendum
for a new property tax levy for the near-to-medium term, declining
property tax collections, and/or additional substantial enrollment
declines could negatively impact the district's financial operations and
result in downward rating pressure.
LEASED ASSET ESSENTIALITY: Fitch believes if one or both of the leased
assets securing the COPs become vacant or underutilized, the district's
incentive to continue to appropriate for annual lease payments would be
The district is located in Montgomery County, 68 miles west of Columbus.
Encompassing 49 square miles the district includes Harrison and
Jefferson townships and portions of the cities of Dayton, Riverside and
Trotwood. The district serves approximately 15,000 students and as
experienced significant declines in enrollment as a result of population
outflow and competition from charter schools. Enrollment is projected to
decline an additional 5.4% by the 2014-15 school year.
The district is highly reliant on state funding which represents about
70% of general fund revenues. The state's current biennium budget
increased K-12 funding and implemented a new funding formula based on a
number of factors including property tax wealth, median income wealth
and enrollment. Given the district's weak property tax base and low
wealth levels, preliminary numbers from the state show the district will
benefit from additional state funds.
CONSERVATIVE BUDGETING & COST CONTROLS IMPROVE FINANCES
As a result of continued conservative budgeting and significant
expenditure cuts, including the elimination of approximately 500
positions since 2008, the financial position of the district has
continued to improve. For fiscal 2012 (year-end June 30), the district
reported a general fund operating surplus after transfers of $7.9
million compared to a surplus of $4.3 million in 2011 and a deficit of
$1.8 million in 2010. The unrestricted general fund balance (sum of
committed, assigned and unassigned) at June 30, 2012 totalled $16.8
million or an adequate 8% of general fund spending compared to $8.8
million or 4.1% of spending in fiscal 2011.
At fiscal year-end June 30, 2013, on an unaudited cash basis the general
fund recorded an $8.7 million deficit (3.9% of spending) and an ending
cash balance of $11.2 million compared to a cash balance of $19.9
million at June 30, 2012 and lower than the $14.9 million projected in
the May 2013 forecast. Management reports the difference in the ending
cash balance in the May 2013 forecast versus actual results was due to
the timing of receipt of federal funds rather than an on-going operating
The May 2013 five-year (fiscal 2013-2017) cash-basis forecast projects
annual deficits of $11.4 million (5.3% of spending) for fiscal 2014,
increasing to $21.2 million (9.3% of spending) in 2017. Ending cash
balances remain positive through 2014 with an $8.9 million cash deficit
projected in 2015, increasing to $43.8 million in 2017.
As a result of the new state funding formula and in combination with
lower than projected health costs, the October 2013 5-year forecast is
projected to show improved operations and higher cash balances. Fitch
expects management will continue to conservatively budget and implement
expenditure reductions to maintain reserve levels and manage future
CONTINUOUS PROPERTY TAX LEVIES & STRONG VOTER SUPPORT
Property taxes represent approximately 26% of general fund revenues.
Fitch views positively the continuous nature of the district's property
tax levies which do not require periodic renewal. Additionally, voter
support for new levies has been strong with the last levy approved by
58% of the voters in 2008. Since increased funding from the state will
relieve some future budgetary pressure, the district is not planning to
take a new property tax levy to the ballot in the near term. However,
Fitch believes that in order to sustain stable operations and avoid
future budget gaps, a new property tax levy will be needed by fiscal
year 2017. Property tax collections continue to be exceptionally weak
with a current collection rate of only 84%. Total collections are better
but still weak at 90%.
ECONOMIC RECOVERY CONTINUES; SOCIOECONOMIC INDICATORS STILL WEAK
The area's traditional manufacturing base in automobile parts and
assembly was devastated by the recession but is showing signs of
recovery. 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
stability to the local economy.
Although improving, the city's unemployment remains elevated. For July
2013 the city recorded an unemployment rate of 9.6%, a slight
improvement from the 9.8% recorded in July 2012, but still above the
state and national rates of 7.3% and 7.7%, respectively. Employment and
labor force numbers remain stagnant, declining by 0.3% and 0.4%,
respectively for the same time period.
The district's population of approximately 152,000 has declined by
almost 16% since 2000. Income levels as measured by per capita money
income and median household income are well below state and U.S.
averages. Typical of urban areas, the poverty level is more than double
that of the state and nation. Fitch expects that these economic
vulnerabilities will continue to pressure the district in the
MANAGEABLE LONG-TERM LIABILITIES
The district's debt burden is mixed with debt per capita below average
and debt to full value somewhat elevated at 5.8%. Debt levels should
decline given the slightly above average principal amortization and
minimal future borrowing plans. The district recently completed a major
$628 million capital program that replaced or remodeled 26 schools. Debt
service represents a manageable 8.9% of 2012 general and bond retirement
The district entered into two swaptions in 2009 related to the series
2003A and 2003D bonds, receiving a $9.6 million upfront payment. In
March 2013 the district was able to refund the 2003D bonds and pay the
swap termination fee, recording a small net present value savings.
However, the economics have not yet been positive to do the same for the
The district expects to continue to issue refunding one-year 'rolling'
BANs until the economics are positive or at least break even. At that
time the district plans to terminate the 2003A swap and issue refunding
fixed rate bonds. Fitch's chief credit concern regarding this
transaction is the district's ability to access the short-term market to
roll the BANs. However, this risk is mitigated to some degree by
qualification of prospective refunding bonds in the Ohio School District
Credit Enhancement Program which is rated 'AA' with a Stable Outlook.
The district contributes to the School Employees Retirement System
(SERS) and the State Teachers Retirement System (STRS), both
multiple-employer defined pension plans. The district is required to
make contributions in accordance with rates established by the state and
has annually met the annual contributions, although this has not always
equaled the actuarially required contribution (ARC) for the plan. STRS's
funding level is weak at 56% (approximately 52% when adjusted to a 7%
rate of return). Recently enacted state pension reform measures should
improve the funding ratio over the medium term. Fitch considers carrying
costs to be fairly low with debt service, pension and OPEB claiming
11.5% of government funds spending.
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,
S&P/Case-Shiller Home Price Index, IHS (News - Alert) Global Insight, and National
Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 14, 2012;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 14,
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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