Fitch Downgrades Claymont City School District, OH's ULTGOs to 'A+'; Outlook to Negative

NEW YORK--(BUSINESS WIRE)--Fitch Ratings takes the following rating action on Claymont City School District, OH's (the district) unlimited tax general obligation (ULTGO) bonds as part of its continuous surveillance effort:

--$3.3 million ULTGO bonds, series 2006 downgraded to 'A+' from 'AA-'.

The Rating Outlook is revised to Negative from Stable.

RATING RATIONALE:

--The downgrade to 'A+' from 'AA-' reflects three years of operating deficits and depletion of financial reserves. Poor property tax collections and lack of voter support for new levies have further constrained financial operations, and the ability to restore any meaningful level of reserves will be difficult.

--The Outlook revision to Negative from Stable reflects Fitch's expectation that uncertainty regarding future state funding, which the district is highly reliant on, may further pressure the district's already strained financial position.

--Meaningful measures to reduce expenditures have not been taken despite weak revenue performance and potential reductions in state aid.

--The local economy remains weak as evidenced by high unemployment and foreclosures and below average income levels.

--Debt burden is modest with no future capital plans in the near to medium term.

WHAT COULD TRIGGER A DOWNGRADE:

--The district's inability to successfully implement cost cutting measures and restore adequate reserve levels in light of expected reductions in state aid and weak property tax collections;

--Continued lack of voter support for new levies.

SECURITY:

The bonds are secured by a voter-approved debt service millage, outside general operating millage, which is adjusted to yield sufficient revenue to pay debt service payments.

CREDIT SUMMARY:

Claymont City school district serves the city of Uhrichsville and village of Dennison in Tuscarawas County and is located within 60 miles of Akron. Enrollment over the last five years has been fairly stable with small declines projected over the next few years. The district is largely residential and continues to experience a weak local economy. One of the district's largest employers, Twin City Hospital, has had financial problems and approximately 19% of the hospital staff was cut with measures underway to stabilize and improve the financial performance. Unemployment in Tuscarawas County as of November 2010 was 9.7%, an improvement from the 11.9% recorded in October 2009 but still higher than the state and national levels. Taxable assessed value declined in fiscal years 2009 and 2010 and increased by only $200,000 in fiscal 2011. In addition, tax collections have been historically poor, totaling only 88% in fiscal 2009. County per capita income levels are below average at 82% and 75% of the state and U.S. levels, respectively.

The district relies heavily on state revenue which comprises approximately 75% of general fund operating revenues. As a result, Fitch believes that the district will experience continued pressure on its financial position as state support is expected to decline. Over the last five years, the district has cut its budget by $1.6 million through attrition but has not initiated any other expenditure cuts such as layoffs or furlough days. District management is currently reviewing future expenditure reductions but will not take any actions until release of the state budget in mid-March. Compounding the uncertainty of future state support, voters strongly defeated a new 6.1 mill emergency levy in November 2010 which would have generated $900,000 annually and relieve some financial pressure. The district plans to put the levy back on the ballot in November 2011. In addition, a 1% income tax levy was also rejected in 2008. Fitch believes revenue growth is limited and regaining an adequate financial reserve position will be difficult.

While revenues increased by 1.8% in fiscal 2010 due to a slight increase in open enrollment tuition and contract services, expenditures increased by 1% due to negotiated salary and wage increases. Following three years of operating deficits, the district fully expended its reserves in fiscal 2010. For the year ended June 30, 2010, the general fund unreserved balance totaled a negative 0.2% of spending down from 4.2% of spending just two years earlier. Results through January show the district close to budget for fiscal 2011. On a cash basis, the general fund balance for fiscal 2011 is estimated to be $3 million.

The district's overall debt burden is modest at $274 per capita and 0.8% of full value. There are no future debt plans and no major capital needs in the near to medium term. The district contributes to the School Employees Retirement System (SERS) and the State Teachers Retirement System (STRS) to fund both pension and other post employment benefits (OPEB). Both SERS and STRS are cost-sharing, multiple-employer defined benefit pension plans. In July 2010 the district negotiated two-year agreements with teachers and staff with a 0% increase in wages and benefits.

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, LoanPerformance, Inc. and IHS 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.

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

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