NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the 'AA-' rating on the following Akron-Summit County Public Library District, OH (the district) general obligation (GO) bonds:
--Approximately $3.2 million, series 2005;
--Approximately $24.5 million, series 2011.
The Rating Outlook is Stable.
The bonds are voted general obligations of the district secured by a levy of ad valorem property taxes, without limitation as to rate or amount, on all taxable property in the district.
KEY RATING DRIVERS
LIMITED PURPOSE: As a single purpose entity the district has limited operating risk.
STABLE FINANCIAL OPERATIONS AND RESERVES: While the district's use of cash accounting somewhat limits transparency of fiscal operations, general fund reserve levels are adequate and some flexibility exists as a result of built-in budget contingency.
STRONG COMMUNITY SUPPORT: On-going financial stability is reliant on continued voter support for the renewal of the operating property tax levy. The district has a strong history of voter support as evidenced by the renewal and increase for six years of the levy by a wide voter margin in May 2015.
DIVERSE AREA ECONOMY/MIXED SOCIO-ECONOMIC INDICATORS: A growing service sector has led to a more diverse and stable economy that historically had been manufacturing-based. Summit County's socio-economic profile is characterized by average wealth levels, a stable population, and unemployment rates comparable to state and national levels versus weaker levels for the city of Akron.
PRUDENT MANAGEMENT PRACTICES: The district's long-standing management team has proven its ability to conservatively budget and control expenses in times of state aid reductions.
MANAGEABLE DEBT LEVELS: The district's debt levels are low and should decrease given no additional borrowing plans and rapid amortization.
SUBSTANTIAL DECLINE IN STATE REVENUES: A weakening state economy could result in a decline in state funding which would pressure the district's finances without an increase in the local millage since around one-half of district revenues are derived from the state. Fitch views this as unlikely given Ohio's healthy financial position and a trend of increasing the state's public library funds which is forecasted to continue in 2016 and 2017.
Located in northeastern Ohio, about 35 miles south of Cleveland, the district serves a population of approximately 377,000. The service area includes 70% of Summit County's (LTGOs rated 'AA+' by Fitch) tax base and wholly encompasses the cities of Akron (LTGOs rated 'AA-' by Fitch) and Fairlawn.
The district operates its main library and nine branches in the City of Akron and also operates eight branches in the suburban communities of Green, New Franklin, Norton and Tallmadege; the villages of Mogadore and Richfield; and the townships of Bath and Northfield Center. In 2014, utilization of district services continued to be strong but declined slightly from 2012 high levels due to a 15% decrease in hours of operation as a result of lower state funding.
STABLE FINANCIAL OPERATIONS AND RESERVES
Pursuant to accounting procedures prescribed by the State Auditor, the district is on a two-year audit cycle and reports on a modified cash basis, somewhat limiting financial transparency. The last audit was for the period ending Dec. 31, 2013.
Revenues of the district are reliant on state revenue from the Public Library Fund, totaling approximately 55% of general fund revenue. In 2014, state funding from the Public Library Fund was down by approximately $400,000. Management reports that funds have slowly increased in 2015 and the trend is expected to continue in the state's 2016/2017 biennial budget.
Property taxes, which comprise 41% of general fund revenue, are derived from a five-year renewable 1.4 mill tax rate levy. Renewal risk is mitigated by a history of strong voter approval for renewing levies, indicating local support for the programs, resources, and services that the district provides. The levy was successfully renewed for six years (through 2021) and increased by 0.5 mills in May 2015 by a wide margin - 70% voter approval. The increase will contribute an additional $3.7 million annually starting in 2016. The extra funds will provide the district with flexibility to fill staff positions, do maintenance projects, add programs, and restore some of the reduced service hours. The debt service levy is in place until the maturity of the bonds (Dec. 31, 2020).
General fund reserve levels have been fairly stable since 2010. For 2013, on an audited cash basis, the district recorded a small deficit of $518,000 (2.2% of spending) due primarily to lower state funding. The unrestricted general fund balance totaled $3.6 million or 15.5% of spending, compared to 17.8% in 2012. On an unaudited cash basis, 2014 ended with a small surplus and an unrestricted fund balance of $3.8 million or 17.2% of spending.
For 2015, the district has budgeted for $24.75 million in general fund appropriations with no use of cash reserves. The budget includes a 4% or $1 million contingency, which is not expected to be utilized. Through June, results are tracking to budget.
The district remains vulnerable to adverse economic conditions which could lead to reduced state funding. However, district management is conservative, budgeting for a contingency each year. Although budgeted, the contingency is not part of planned spending. The contingencies were 5.6% and 5.5% of the 2013 and 2014 budgets, respectively, neither of which was expended. As evidenced by past practices, Fitch expects management to reduce operating expenditures if necessary to obtain balanced operations and maintain adequate reserve levels.
DIVERSE SERVICE AREA/MIXED SOCIO-ECONOMIC CHARACTERISTICS
Manufacturing to some extent still dominates, but the local economy has diversified with a growing service sector with major employers in healthcare, government, and polymer research and science. Summit County is also home to a number of corporate headquarters including The Goodyear Tire and Rubber Co. (senior unsecured rating 'BB-' by Fitch), Bridgestone Americas Tire Operations, and FirstEnergy Corp. (senior unsecured rating 'BB+' by Fitch).
The March 2015 county unemployment rate of 5.5% remains comparable to both state and national levels of 5.4% and 5.6%, respectively. County per capita money income levels are slightly above the state and comparable to the national average. Conversely and reflective of an urban area, the city of Akron has weaker socio-economic indictors. Unemployment rates are higher, income levels are lower with above average poverty levels, and population continues to decline.
MANAGEABLE DEBT LEVELS
The district's debt ratios are low, with debt at $1,036 per capita and 1.8% of market value. Direct debt levels should decline given rapid amortization; 100% of debt is amortized in five years. Further, no future borrowing is planned as the renovated and new library facilities, completed in 2008, should satisfy most capital needs for the next several years. Debt service represents an elevated 19.2% of government fund expenses but is not unusual for a limited purpose entity.
The district participates in the Ohio Public Employee Retirement System (OPERS), a multiple-employer, cost-sharing defined benefit plan administered by the state. OPERS reported a funded ratio of 83.8% as of Dec. 31, 2014. Using Fitch's more conservative 7% rate of return, the estimated funded ratio is 75.5%. The district has consistently met its actuarially required contribution for pensions and other post-employment benefits (OPEB). Total carrying costs for pensions, OPEB and debt service are relatively high at 24.8% of government fund spending, but manageable.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com,and National Association of Realtors.
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
Dodd-Frank Rating Information Disclosure Form