Fitch Affirms Indian Valley Local School District, OH's ULTGOs at 'AA-'; Outlook Stable
--Approximately \$2.3 million unlimited tax general obligation (ULTGO) bonds series 2005 at 'AA-'.
The Rating Outlook is Stable.
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
STABLE FINANCIAL PROFILE: The district's stable financial profile is characterized by solid reserves, strong liquidity, and prudent cost management.
LIMITED REVENUE FLEXIBILITY: Similar to most Ohio school districts, Indian Valley is dependent on voter approval to maintain adequate property tax levies to supplement state funding. Voters recently approved a five-year extension of one of the district's two voted levies and the district has a largely favorable history of levy renewals.
CONTINUED STATE AID IMPROVEMENTS: State aid represents the vast majority of district revenue. As a property-poor area, the district is projected to continue experiencing solid state aid growth under the governor's proposed biennium budget.
LIMITED RURAL ECONOMY; BELOW-AVERAGE INDICATORS: The district's economy is predominantly rural in nature with limited enrollment and population and below average income levels. The district's tax base recently benefited from a state-wide change in the assessment of agricultural property.
STABLE ENROLLMENT: District enrollment has remained relatively flat over the past several years and management does not expect material changes over the near- to mid-term.
MANAGEABLE LONG-TERM LIABILITIES: The district's debt profile is characterized by below average carrying costs, a modest debt burden and average amortization. Debt levels should decline as the district has no future borrowing plans.
STABLE CREDIT PROFILE: The rating is sensitive to shifts in fundamental credit characteristics, including the district's stable enrollment trend and maintenance of solid reserves. The Stable Outlook reflects Fitch's expectation that such shifts are not likely.
Indian Valley Local School District serves a rural area in Tuscarawas County, located in east central Ohio, about 90 miles south of Cleveland. The district's current enrollment and population of approximately 1,900 and 10,658, respectively, has remained fairly stable over the last several years.
STATE AID GROWTH ABETS SOLID RESERVE LEVELS
District revenue flexibility is very limited as the district is dependent on voters for property tax increases. The largest source of general fund revenue is state aid (nearly 62% of unaudited fiscal 2014 general fund revenue). District finances have improved incrementally since fiscal 2008 as slow tax base growth offset state cuts to K-12 education. As a property-poor, low-wealth district, the district has benefitted significantly from a recent state-wide overhaul of the school funding formula. The phase-in of this revenue increase is expected to raise annual unrestricted state aid a cumulative \$1.2 million by fiscal 2017 (representing a 13% increase over cash-basis fiscal 2014 unrestricted state aid).
Improving state aid, conservative budgeting, and stable enrollment contributed to a large general fund surplus in unaudited fiscal 2014, which increased unrestricted reserves to \$2.6 million (17% of spending). The district continues to slowly restore previously reduced expenditures, providing staff with their first raises in three years in fiscal 2014. The district retains a sound degree of expenditure flexibility, with currently low class sizes that can be adjusted within applicable state requirements and without union approval.
The October 2014 five-year (fiscals 2015-2019) cash forecast, which Fitch views as conservative, projects a sizable \$639,000 surplus in fiscal 2015 as the state continues its phase-in of increased aid. Management reports that year-to-date fiscal 2015 performance is tracking better than projections. If a surplus were to materialize in this amount on a GAAP basis, unrestricted general fund reserve levels would rise to \$3.2 million, a strong 20.1% of projected fiscal 2015 general fund spending. Ending cash balances remain positive through the duration of the district's five-year forecast, with the district conservatively projecting deficit spending in the outyears.
CONSISTENT VOTER SUPPORT FOR LEVIES
While voter support has historically been weak for new levies, voter support for the district's two renewal levies has been mostly consistent. The district's 5 mill operating levy was renewed in November 2013 with 67% voter approval. The renewed levy generates about \$585,000 annually for the general fund, about 4% of general fund revenue. The renewed levy has been in place since at least 1991. The district's only other voted levy, a 3.4 mill emergency levy, expires in 2016 and generates about \$600,000 annually. Overall, the district's reliance on the two renewal levies is fairly limited, as they only account for a small portion of overall district revenue. The district does not anticipate adding any new levies to the ballot in the near future.
LIMITED DISTRICT ECONOMY
The district is fairly isolated in rural eastern Ohio. Its economy is fairly limited and its tax base is dominated by a burgeoning natural gas presence and agricultural entities. Fitch does not anticipate the recent oil price volatility to have a significant impact on the district's tax base. AV has increased 8.7% cumulatively over the last five years due in part to higher revaluation of agricultural land. Management expects district enrollment to remain stable over the next several years.
County unemployment rates have historically been above state and national levels, peaking at 11% in 2009, and steadily improving since then. As of November 2014, the county recorded an unemployment rate of 4.0%, well below the 4.5% state rate and 5.5% national rate and down from 6.3% a year earlier. County employment increased by 2.4% over the same time period, outperforming both the state and national growth rates.
Income levels are low, with district per capita money income at 77% and 71% of state and national averages, respectively. Median household income levels are higher, but also below state (90%) and national (82%) levels.
MIXED DEBT PROFILE
Fitch considers overall debt levels to be moderate at 4% of district market value and low at \$1,866 per capita. Levels should remain stable as no future borrowing is planned. Principal is amortized at an average rate with 54% of principal retired within 10 years.
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 cover 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, although funded levels should improve due to recent changes made by the state. 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 are an affordable 13.1% of the district's total governmental budget.