Fitch Downgrades Princeton City School District Board of Ed, OH IDR and GOs to ‘AA-‘; Outlook Stable
--
--Issuer Default Rating (IDR).
The Rating Outlook is Stable.
SECURITY
The bonds are secured by the district's full faith and credit ad valorem tax on all taxable property within the district. The bonds are voted unlimited tax general obligations of the
KEY RATING DRIVERS
The downgrade to 'AA-' from 'AA+' reflects the application of Fitch's revised criteria, published on
Economic Resource Base
The school district benefits from its close proximity to
Revenue Framework: 'bbb' factor assessment
The district has limited ability to increase tax revenues without voter approval. Revenue growth will likely remain relatively in line or below the level of inflation based on the current state aid funding formula and limited ability to benefit from improving property tax assessed valuations.
Expenditure Framework: 'aa' factor assessment
The district has benefited from active expenditure management resulting from long term financial planning and ongoing efficiency initiatives. Carrying costs for debt, pension and other post-employment benefits (OPEB) are moderate and the district has adequate financial flexibility to make future expenditure reductions.
Long-Term Liability Burden: 'aa' factor assessment
The district's long-term liability burden including unfunded pension liabilities and overall debt are moderate relative to the resource base. The total burden is equivalent to 15.8% of personal income.
Operating Performance: 'a' factor assessment
Moderate financial resilience through downturns is driven by solid reserves, limited budgetary flexibility and a volatile revenue stream. Positive general fund operations driven by long term financial planning, expenditure reductions and voter support for increased tax rates in fiscal 2012 have resulted in recent increases to general fund reserves.
RATING SENSITIVITIES
Reserve Maintenance: The 'AA-' rating is sensitive to the maintenance of a sufficient reserve position to offset limited budgetary flexibility and notable revenue volatility.
CREDIT PROFILE
The district's population of 42,620 resides within a 29 square mile area located in the northern portion of
Revenue Framework
Property taxes account for over 60% of revenues, followed by state aid at over 30%.
Revenues have been stagnant over the past decade, trending below the rate of inflation. The district's total tax rate for the operating property tax levy was 54.18 mills in fiscal 2015. All of the current operating levies are continuous so they do not require voter renewal. The fixed millage captures the growth driven by new construction; however, only a small portion of the millage, or 4.63 inside operating millage rate can benefit from improved property appraisal values (AV). As a result, the district will likely have to return to voters in the future to increase revenues. State aid to the district is growing at the capped rate of 7.5%. Because of this, state-imposed cap, changes in enrollment will not affect how much aid the district receives in the near term.
Management has some control over miscellaneous revenues. The district has utilized its newly renovated facilities for community rental space through shared joint use agreements for recreation, adult education and other community services.
Expenditure Framework
Fitch expects the natural pace of expenditure growth is likely to slightly exceed the rate of inflation due to labor cost demands although the district has identified areas for potential expenditure reductions.
The largest expense is employee salaries and benefits which account for 70% of expenditures and are managed through labor contracts. The most recent three-year labor agreements, effective
Expenditure flexibility is adequate. Carrying cost for long-term pension and debt are moderate at 20.5% of governmental fund expenditures. The district has demonstrated its ability to cut expenditures when necessary. Through ongoing initiatives, the district reduced total per-pupil expenditures to
The district's finance committee which focuses on continuously improving district operations and reducing costs previously identified over
The district projects that staffing levels will remain consistent in the five year forecast; however; under current labor agreements the district has the ability to make workforce reductions if necessary. The district allows open enrollment; however, lost more students than it gained in fiscal 2016 resulting in a net loss of
Long-Term Liability Burden
The long-term pension and debt liabilities equate to a moderate 15.8% of personal income. Overall debt is 5.4% of market value and the amortization rate is slow with 27.5% of principal paid within 10 years. The last bond referendum, for
The district contributes to the School Employees Retirement System (SERS) and the State Teachers Retirement System (STRS) to fund other pension and OPEB. Both plans are cost sharing, multiple employer defined benefit plans and the district make 100% of its actuarially based annual required payment for the system. The actuarial assets to liability is 74.1% as of
Operating Performance
Fitch believes the district has satisfactory reserves to offset revenue shortfalls in a moderate economic downturn scenario. Fitch believes that the districts inherent budget flexibility is limited given the inability to increase revenues without voter approval. The district would likely have to make expenditure reductions and draw on reserves to maintain stable general fund operations in the absence of a new voter approved levy if revenues weakened.
The district's lack of independent revenue flexibility is mitigated by demonstrated voter support for additional levies. The 2012 levy increase helped stabilize general fund operations. Officials agreed to modest expenditure reductions and school improvements if voters approved the levy increase. The levy increase, along with expenditure reductions, led to an increase in available general fund balances to an ample 54.6% of general fund expenditures in fiscal 2015 from 9% in fiscal 2009, improving the district's ability to withstand a potential economic downturn.
Management reports a
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis and
Applicable Criteria
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879478
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1009997
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1009997
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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Source: Fitch Ratings
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