|[March 20, 2014]
Fitch Affirms Mechanicsburg E. V. Sch. Dist., OH ULTGO Underlying Ratings at 'AA-'; Outlook Negative
NEW YORK --(Business Wire)--
Fitch Ratings has taken the following actions on Mechanicsburg Exempted
Village School District, Ohio's (the district) unlimited tax general
obligation (ULTGO) bonds:
--$6.4 million ULTGO bonds series 2004 and 2012 underlying ratings
affirmed at 'AA-'.
The Rating Outlook on the underlying ratings remains Negative.
The series 2012 bonds also carry a 'AA' program rating based on
enhancement provided by the Ohio School District Credit Enhancement
Program. The Rating Outlook for the Ohio School District Credit
Enhancement Program is Stable.
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.
The Ohio School District Credit Enhancement Program 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
KEY RATING DRIVERS
NEGATIVE OUTLOOK REFLECTS WEAKENED FINANCES, RESERVE DECLINES: The
district's recent operating deficits caused drawn-downs in general fund
balance levels, ultimately resulting in a negative unrestricted fiscal
year 2012 ending balance. The district returned to balanced operations
in fiscal year 2013, resulting in a positive, but very modest
unrestricted ending balance (1.7% of spending). Current projections
indicate surplus operations and continued near-term growth in reserves.
DEPENDENT REVENUE STRUCTURE: The district's revenue structure is heavily
reliant on outside parties including state aid and voter approval for
continuing tax levies. As a result, Fitch expects district finances to
continue to be challenged by potential fluctuations related to these
STABLE ECONOMY; BELOW-AVERAGE INCOME INDICATORS: Local employment has
been stable and unemployment rates remain below state and national
levels. Per capita personal income indicators are below state and
national averages. The district's taxable assessed value (TAV) has held
stable in recent years and grew significantly in fiscal year 2014 due to
MODERATE DEBT PROFILE: Overall debt levels are moderate. Amortization is
average, and no additional debt issuance is currently contemplated.
Total carrying costs, including debt service, pension, and other
post-employment (OPEB) costs are low as a percentage of governmental
FINANCIAL IMPROVEMENT: The 'AA-' rating assumes financial stabilization
and increased reserve levels more in line with prior years. The
district's inability to achieve budget surpluses and build back reserve
levels would likely result in a downgrade to the district's rating.
The district serves a rural area approximately 35 miles northwest of
Columbus that includes the village of Mechanicsburg, OH and two small
townships near the village. Enrollment, estimated at about 900 in 2014,
has been declining since 2010 but is projected to remain stable in the
near term. Recent years have shown stabilization after significant
declines in 2011 and 2012.
FY 2013 FINANCES STABILIZE; LOW RESERVE LEVELS
District finances have been negatively affected by reductions in state
aid and increased general fund spending needs in recent years. Three
years of net deficits resulted in a negative unrestricted fund balance
in fiscal year 2012. The district's general fund unrestricted balance
decreased from $922,000 or 9.8% of spending in fiscal year 2011 to a
deficit of $123,000 (-1.3% of spending) in fiscal year 2012.
Finances stabilized in fiscal year 2013 following significant spending
controls, including wage freezes and a reduction in staffing by 16
positions. The district achieved an operating surplus and the general
fund unrestricted balance increased to a very modest $148,000 or 1.7% of
FINANCIAL IMPROVEMENT PROJECTED
The district's current budgetary cash basis financial forecast indicates
continued financial strengthening. Operating surpluses and increased
ending balances are estimated for the current year and projected for
fiscal year 2015. Ending ash balances are estimated at $483 thousand
for fiscal year 2014 (about 6% of spending), increasing to $876 thousand
in fiscal year 2015 (about 10% of spending). The current forecast
reflects a marked improvement over the district's projections a year ago.
Fiscal year 2014 general fund revenues are expected to grow reflecting
increased state funding and growth in property taxes due to valuation
growth. Projected expenditure decreases reflect labor concessions
including continued wage freezes and reduced health benefit costs due to
a switch to lower cost health insurance now provided by the Stark County
Council of Governments self-insurance program.
Fiscal year 2015 projections assume additional state aid increases,
based on state biennial budget figures, and continued growth in property
taxes. Expenditures also increase, reflecting expected growth in staff
costs under upcoming labor contract negotiations, following two years of
wage compression. Fiscal year 2015 projections show surplus operations
and continued growth in reserves.
DEPENDENT REVENUE STRUCTURE
School districts in Ohio operate in a constrained environment with
property tax revenue growth dependent on new construction and/or voter
approval of increased levies, with potential subsequent voter renewals
required. The district renewed the expiring 1% portion (about $937
thousand in annual revenue) of its 1.5% income tax levy in May of 2011
for five years. In November 2013, the district's permanent improvement
property tax levy was renewed (about $202 thousand annually) and made
The district will seek to renew its emergency tax levy (about $189
thousand annually) for 10 years in the upcoming May 2014 election. In
recent years, new property tax levies and renewals for temporary income
tax and property tax levies have been approved by voters. Property taxes
and income taxes made up about 19% and 17% of general fund revenues,
respectively, in fiscal year 2013.
The district relies on state aid for approximately 50% of the general
fund revenues, which has presented challenges due to recent year state
funding uncertainties. State foundation aid increased by about 6% in
fiscal year 2014 and is projected to increase by 3% in fiscal year 2015,
based on state budget figures.
STABLE LOCAL ECONOMY
Unemployment rates in Champaign County have dropped from a high of over
11.7% in 2009 to 5.8% in December 2013, which is below both state (6.6%)
and national (6.5%) levels. Employment returned to modest growth in 2011
after prior year declines. Local per capita personal income indicators
remain below state and national averages.
The school district is the largest local employer, though many residents
of the district are employed at a Honda (News - Alert) plant in nearby Marysville. All
Accords sold in North America are manufactured at the Marysville plant.
The Honda facility has seen recent expansions, with additional
expansions planned related to production of a new sports car model.
The district's TAV has been stable, with essentially flat performance in
recent years after a decline of 4.9% in fiscal year 2009. TAV increased
significantly in fiscal year 2014 (13.5%) due to revaluation, chiefly
related to the valuation of agricultural properties. The district
expects TAV to remain flat over the near term.
MODERATE DEBT PROFILE
The district's overall fiscal year 2013 debt burden is moderate at
$1,429 per capita and 2.9% of market value. Fiscal year 2013 debt
service as a percentage of governmental spending is also moderate at
about 4.3%. Principal amortization is midrange with about 44% retired in
10 years and the district has no immediate plans for additional debt.
Pensions and other post-employment benefits (OPEB) are provided through
the School Employees Retirement System (SERS) and the State Teachers
Retirement System (STRS). Both SERS and STRS are state administered,
cost-sharing, multiple-employer defined benefit systems. June 30, 2013
funding levels for both plans are low at about 61% for STRS and 60% for
SERS, based on a Fitch estimated 7% rate of return rate of return.
The district's combined fiscal year 2013 pension required contributions,
OPEB payments, and debt service costs as a percentage of governmental
spending are low at about 10.5%. However, 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. The STRS plan has been fully funding its ARC.
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, 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
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