OREANDA-NEWS. Fitch Ratings has downgraded the following New Albany-Plain Local School District, Ohio ratings to 'AA' from 'AA+':

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

-- Issuer Default Rating (IDR).

The Rating Outlook is Stable.

SECURITY

The GO bonds are payable from an unlimited ad valorem tax levied against all taxable property within the district boundaries.

KEY RATING DRIVERS

The downgrade to 'AA' from 'AA+' reflects implementation of Fitch's revised criteria for U. S. state and local governments, which was released on April 18, 2016. The revised criteria place increased focus on the expected pace of revenue and expenditure growth in the absence of management action and the ability of management to independently increase revenue and control expenditures. The 'AA' rating continues to reflect exceptionally strong financial resilience, largely due to high reserve levels, and the district's moderate liability burden.

Economic Resource Base

New Albany-Plain Local School District is located in northeast Franklin County, about 14 miles from downtown Columbus. The regional economy is anchored by business and financial services industries in the metro Columbus area, as well as the state government and Ohio State University. District residents are very affluent, with median household income at more than triple the state level. The district expects enrollment growth to normalize after rapid expansion for more than a decade.

Revenue Framework: 'bbb' factor assessment

General fund revenue growth prospects are limited due to the nature of fixed rate levies, which can only capture assessed value (AV) increases due to new construction. Although the district has no levy renewal risk, it has very limited independent ability to raise revenues for operations without voter approval.

Expenditure Framework: 'a' factor assessment

The limited revenue growth prospects will require ongoing cost control efforts. The district achieved substantial cost savings in fiscal 2016. However, limited expenditure flexibility remains given the recent cuts. Debt and other long-term liability carrying costs are moderate.

Long-Term Liability Burden: 'aa' factor assessment

The long-term liability burden is moderate relative to the resource base and no additional direct debt issuance is planned.

Operating Performance: 'aaa' factor assessment

The district's ample reserves and moderate revenue volatility afford it exceptional gap-closing capacity, despite limited inherent budget flexibility. Management demonstrated considerable fiscal discipline coming out of the downturn in an effort to restore structural balance with no material deferral of required spending while maintaining solid reserve levels, despite enrollment growth pressures and a recent failed levy attempt.

RATING SENSITIVITIES

SOLID RESERVE FUNDING: Continued maintenance of substantial reserves is necessary to offset limited inherent budget control and maintain the current rating level.

CREDIT PROFILE

A recent demographic study commissioned by the district forecasts 11% enrollment growth over the next 10 years. In comparison, student number grew by 32% over the last decade. Local building permit numbers are improving and getting close to pre-recession levels.

Revenue Framework

Ohio school districts operate within a restrictive revenue environment. The district receives most (82%) of its revenues from local property taxes, unlike most school districts in the state.

The bulk of the district's property tax receipts are in turn from two permanent voter-approved fixed rate operating levies which produce fixed amounts of revenues that do not benefit from assessment valuation appreciation (except due to addition of new construction). State aid amounts to just 14% of revenues.

Historically revenue growth has outpaced national GDP due to strong population influx and new levies. However, future natural revenue growth is likely to be limited, as the fixed rate levies only benefit from new construction activities, which are expected to be moderate. As a wealthy district with minimal state support, the expected enrollment gains will not directly translate to significant revenue increases. Voter approval will be required to meaningfully increase revenues.

The district has no meaningful way to independently raise general fund revenue without voter approval. A November 2014 ballot initiative calling for additional operating and capital levies was narrowly defeated. The district does not expect to put another levy request on the ballot in the near term.

Expenditure Framework

The largest expenditure item is personnel, which has been under pressure given growing enrollment and benefit costs.

Fitch expects the natural pace of spending growth to be above that of revenues. The district has implemented drastic cost cutting measures in response to structural imbalance, by reducing employee numbers by one-sixth, increasing class sizes, and eliminating or cutting back programs. Expenditure growth is expected to be under control in the near term due to slower enrollment growth and achieved personnel cost savings with negotiated salary freeze and no step increases through the end of fiscal 2017.

Despite showing the willingness and ability to reduce costs promptly, the district is currently left with more limited but still adequate expenditure flexibility without further impacting service levels or obtaining labor concessions. Helped by revenue improvements above the budgeted level, the district will likely gradually build up expenditure flexibility again and benefits from moderate long-term liability carrying costs.

Long-Term Liability Burden

The district's long-term liability burden for debt and pensions is moderate in relation to its very high personal income levels. The combined burden of unfunded pension liabilities and overall debt is equal to 12% of personal income. No additional direct debt issuance is expected, since there is no need for additional space or significant renovation. The district contributes to the Ohio School Employees Retirement System and the Ohio Teachers Retirement System, both of which have historically been somewhat underfunded. The state required contributions have since caught up and are now actuarially-based. The combined ratio of assets to liabilities for the pension systems is 68.6%, using Fitch's more conservative 7% investment return assumption.

Operating Performance

The district's financial resilience is exceptionally strong. The district has conservatively maintained a strong general fund balance, which serves as a cushion against growing expenditures and stagnant revenues in the absence of additional levies. Even under a stress scenario based on historical results that overstate the district's current exposure to economic cyclicality, the reserve level exceeds the 'aaa' amount without any need for offsetting policy action. Furthermore, Fitch's scenario has yet to factor in a lower cost base and better than expected results achieved in fiscal 2016.

The Fitch Analytical Sensitivity Tool (FAST) result of -3.4% under the -1% national GDP recession scenario is likely an overestimation of revenue volatility as levies are no longer subject to continuous renewal and the levy receipt amounts are largely held constant.

Financial management throughout the recovery has been conservative and proactive, as demonstrated by the recent expenditure reduction measures. After the expiration of a permanent improvement levy in 2009, the district has been using the remaining fund balance and general fund subsidies for capital maintenance without material deferrals. The current 5-year forecast shows positive operating results in fiscal 2016 and 2017 on a cash basis, indicating that the district is building up both financial cushion and expenditure flexibility.