Fitch Affirms New Albany-Plain Local School District, OH's ULTGOs at 'AA+'; Outlook Stable

Fitch Ratings has affirmed the following New Albany-Plain Local School District, Ohio (the district) bonds at 'AA+':

--Approximately $2 million unlimited tax general obligation (ULTGO) bonds series 2000.

The Rating Outlook is Stable.

SECURITY

The bonds are voted obligations of the district, to which it has pledged its full faith and credit and its unlimited ad valorem taxing power.

KEY RATING DRIVERS

CURRENTLY SOLID FINANCIAL PROFILE: The district's conservative budgeting practices have resulted in historically strong fund balance levels, despite growth-related pressures.

ESCALATING BUDGETARY IMBALANCE: A failed November 2014 levy has exacerbated a structural operating imbalance that has emerged over the past several years. The district has proposed substantial cuts to its operating budget over the next two years, but Fitch is concerned about remaining flexibility once these cuts are made. The district lacks any meaningful way to independently raise general fund revenue without voter approval.

HIGH WEALTH LEVELS, STRONG ECONOMY: The local economy benefits from very high wealth levels, as well as the robust employment opportunities in the Columbus regional economy. The district's wealthy tax base posted solid growth for fiscal 2015.

RAPID POPULATION, ENROLLMENT GROWTH: The district's population has nearly doubled over the past 10 years, which has translated into very rapid enrollment growth. The district expects more stable enrollment growth going forward, which Fitch believes is reasonable given slowing overall population growth.

MANAGEABLE LONG-TERM LIABILITIES: Overall debt levels are very high per capita, but considered low as a per cent of district market value. District carrying costs are manageable and expected to remain so given average principal amortization, no current borrowing plans, and largely predictable pension contribution rates.

RATING SENSITIVITIES

MAINTENANCE OF STRONG RESERVES: The maintenance of the current rating and Outlook is dependent on elimination of the current structural imbalance and continuation of substantial reserve levels. Failure to right-size operations, either through voter approval of new levies or meaningful spending reductions, will likely result in negative rating action.

CREDIT PROFILE

New Albany-Plain Local School District is located in northeast Franklin County, about 14 miles from downtown Columbus (Fitch rated 'AAA'; Outlook Stable). The district has experienced rapid growth, with the district's 2014 population of 20,200 and enrollment of 4,732 representing cumulative gains of 90% and 180%, respectively, since 2000.

HEALTHY RESERVES; GROWING STRUCTURAL IMBALANCE

The district's general fund has historically maintained very large reserves to provide a cushion against rapid enrollment growth. A defeated (55%-45%) ballot initiative in November 2014 for a 6.9 mill continuous levy has exacerbated a structural imbalance between ongoing revenues and expenditures in the district's general fund that emerged in fiscal 2012.

The district's cash-basis forecast for fiscal 2015 (year-end June 30) shows a $6 million deficit; management has indicated that results so far are tracking marginally better than projections. If the deficit is realized on a GAAP basis, it would reduce the unrestricted general fund balance to $17.2 million, a still strong 28.6% of projected general fund spending, down from $23.2 million (or 41.4%) at fiscal 2014 year-end.

The structural imbalance is largely due to the district's stagnant revenue environment: property tax increases can only occur through voter referenda. Because the district is considered very wealthy, per pupil foundation allowances from the state are minimal. Given the recent failed millage election and marginal growth in state aid revenue, the district has struggled to keep growth-pressured expenditures aligned with revenues. Positively, the district's two existing levies are permanent, eliminating renewal risk.

The district has identified over $7.7 million in budget cuts to be implemented through fiscal 2016 to correct the structural imbalance, representing a substantial 17% of the total general fund budget. These cuts include both layoffs and attrition (including a 15% reduction in teaching staff), large increases in kindergarten and grades 9-12 class sizes, and elimination of programs.

However, the district's state-mandated cash-basis five-year forecast shows these cuts being largely offset by salary step increases (on average, 6% increase in fiscal 2015 followed by 3% increases in fiscals 2016 and 2017). The district has agreed to provide labor units these pay hikes over the next three years to remain competitive. The forecast shows deficit spending driving reserves below the district's 30 day ending cash balance policy by fiscal year 2017. While Fitch has traditionally viewed these forecasts as conservative, the planned salary hikes will limit management's options for cost cutting over the near term.

Fitch believes that expenditure flexibility will be limited beyond the implementation of these cuts in fiscal 2016, highlighting the importance of voter approval of additional operating millages. The district's large reserve levels provide a fairly substantial cushion to absorb near-term deficit spending, and it remains to be seen if the proposed draconian budget cuts will galvanize support for the district's return to the ballot in November 2015.

AFFLUENT SERVICE AREA, STRONG ECONOMY

The regional economy is strong, with the Columbus metropolitan area anchored by business services and financial activities as well as the state government and Ohio State University. Unemployment in Franklin County was low at 3.6% in December 2014, below state (4.7%) and national (5.4%) averages.

District residents are very affluent, with median household income approximately twice the state and national averages. Market value per capita is very high at $467,000. The district's tax base posted solid 5% growth for fiscal 2015. Its five-year financial forecast shows incremental growth going forward, an assumption Fitch views as reasonable given current development activity.

MANAGEABLE LONG-TERM LIABILITIES

The district's rapid growth has resulted in ambitious capital spending and elevated per capita overall debt levels ($8,262); however, debt as a percentage of market value is low at 1.8%, underscoring the affluence of the district's tax base. The district opened a new facility for grades 1-8 in fiscal 2015, which alleviated enough of its capacity issues to meet expected enrollment growth through fiscal 2020. Fitch believes that overall debt levels will remain manageable given average amortization (41% in 10 years) and current lack of borrowing plans.

The district contributes to the Ohio School Employees Retirement System (OHSERS) and the Ohio State Teachers Retirement System (OHSTRS), both multiple-employer defined benefit pension plans. The district's annual contributions to OHSERS and OHSTRS covers other post-employment benefits (OPEB) as well. The state's required contributions fall short of actuarially-based levels, resulting in chronic underfunding in both systems. Fitch expects recent legislative changes requiring increases in employee contributions to provide the district with fairly predictable contribution rates over the near term. Total carrying costs related to debt service and retirement benefits were a manageable 15.8% of the district's fiscal 2014 total governmental spending, although that figure would be larger if pension payments were actuarially-based.

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 Global Insight, National Association of Realtors, and Zillow.

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980888

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