OREANDA-NEWS.  Fitch Ratings has affirmed the following Columbus City School District, Ohio (the district) unlimited tax general obligation (ULTGO) bond ratings at 'AA+':

--\$259.8 million general obligation (GO) school facilities construction and improvement refunding bonds, series 2006;
--\$5.2 million GO school facilities construction and improvement bonds, series 2007;
--\$13.8 million GO school facilities construction and improvement bonds, series 2008;
--\$70.1 million GO school facilities construction and improvement bonds, series 2009.

The Rating Outlook is Stable.

SECURITY
The bonds are a general obligation of the district, payable from a voter-approved debt millage that is adjusted without limitation to yield sufficient revenue to pay debt service.

KEY RATING DRIVERS

VIBRANT AND DEEP ECONOMY: The city's growing economy benefits from the stabilizing presence of various levels of government, Ohio State University (OSU), notable healthcare institutions, and financial services. Unemployment is low, but income levels are weak.

AMPLE BUT CYCLICAL RESERVES: Financial reserves are strong, but expected to decline to more moderate levels before a new operating levy is approved by voters in the near to medium term.

HISTORICAL STRONG VOTER SUPPORT VULNERABLE: The district historically has enjoyed strong voter support for new levies and bond authorizations but is vulnerable as evidenced by the sound defeat of a Nov. 2013 new levy and bond authorization.

MANAGEABLE LONG-TERM OBLIGATIONS: Debt levels are moderate to high and should remain fairly stable given average amortization and no pending debt issuance. Carrying costs inclusive of debt service, pension and OPEB are affordable.

RATING SENSITIVITIES

VOTER APPROVAL OF NEW LEVY: The rating is sensitive to shifts in fundamental credit characteristics including continued strong reserve levels which are contingent upon the district receiving voter approval of a new tax levy in the near to medium term.

CREDIT PROFILE
Columbus City School District is located in Franklin County and serves the city of Columbus (rated 'AAA' by Fitch) and a number of surrounding townships. While the district's population continues to increase, student enrollment has declined about 6% since 2010. Enrollment appears to have stabilized in 2013 and 2014. Nonetheless, competition from charter schools is considerable with enrollment increasing by 10% during the 2013-14 school year.

VIBRANT AND DEEP ECONOMY
The Columbus area economy has been historically strong, anchored by the presence of state and federal government, and Ohio State University. Employment in the greater Columbus area is diverse with major employers representing government, insurance, manufacturing, banking and medical sectors. Unemployment rates as of November 2014 in the city and county were 3.7% each, which compares favorably to the state and national rates of 4.5% and 5.5%.

Assessed value within the district stabilized in 2014 after declining slightly in 2013 and by a more significant 7.4% in 2012, a result of the six-year reappraisal. Fitch expects that AV will remain relatively flat for the next few years. The tax base is not concentrated as the top taxpayers make up approximately 5% of total AV. Wealth levels, as measured by per capita personal income are below-average at 86% and 78% of state and national levels, respectively.

STRONG RESERVES AFFORD FINANCIAL FLEXIBILITY
Financial performance generally has been sound, characterized by maintenance of strong but cyclical reserves. The district typically builds up general fund balance following the passage of a new operating millage, then draws down some reserves before requesting voter approval for another millage. This pattern is common to Ohio school districts and underscores the importance of voter support to financial health. The district depends on new levies in part because existing millage rates cannot be adjusted above voted levels for tax base declines, and does not benefit from tax base increases.

Primary support for operations comes from property taxes, which provide 53% of general fund revenues, followed by state foundation aid, which comprises 35%. Under the new state school funding formula, unrestricted state aid increased by 2.1% from fiscal 2013 to fiscal 2014 and is projected to increase by 7.7% in 2015.

Following two years of modest deficits (0.49% and 2.4% of spending in 2012 and 2013, respectively), in fiscal 2014 (year-end June 30), the district recorded a \$64.5 million net operating surplus after transfers. The surplus was primarily the result of an increase in property taxes and state aid and continued cost containment efforts. The fiscal 2014 unrestricted general fund balance remained ample at 41.2% of spending, representing significant cushion available to carry the district through until the next new millage request most likely in 2016.

Officials report that through Dec. 31, 2014 total revenues and expenditures are under budget by approximately 2.5% and 2.6%, respectively but are projected to be on budget at the end of the fiscal year. The October 2014 five-year (2015-2019) cash forecast, which Fitch views as conservative, projects balanced operations through 2015 with a small \$2.8 million (0.3% of spending) deficit in 2016 increasing to a \$81.3(8.9% of spending) deficit in 2019 without offsetting action. Cash balances remain positive through 2018 with a negative \$34 million balance projected in 2019, without consideration of any new property tax levies.

Fitch expects the district to seek a timely referendum for a new tax levy in order to prevent projected deficits and negative cash balances in the out-years. Fitch is concerned that the district could face voter resistance as a result of the after effects of a state attendance audit as discussed below.

VOTER SUPPORT CRUCIAL TO FUTURE FINANCIAL HEALTH
Favorably, all of the district's operating millages are continuous and do not require renewal. However, like most Ohio school districts, the district is still dependent on voter approval for new millages, to accommodate increased costs.

Historically, voters have shown strong support for the district's operating millages and debt authorizations. Prior to a November 2013 referendum, the last four operating millages had passed on the first attempt and voters had not rejected a millage since 1990. Voters also showed strong support for large bond authorizations in 2002 and 2008.

However, in Nov. 2013, voters by a large majority (70%) defeated a new levy and bond authorization. Fitch believes a contributing factor to the defeat was the negative publicity surrounding a state audit of student attendance data. While there were no financial repercussions to the district, concerns were raised about the strength of internal controls and community support has been compromised leaving voter support for new levies and bond issues questionable. Management is working to restore community support through improved systems to monitor data gathering and reporting and some administrative turnover.

MANAGEABLE LONG-TERM OBLIGATIONS
The district's debt burden is moderate to high at \$2,749 per capita and 5.5% of market value. Debt burden should remain fairly stable as there are no pending plans to issue new debt and amortization is average.

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 district's contributions are statutorily determined and fall short of actuarially-based levels. Although system-wide funded ratios for both plans are weak (as adjusted by Fitch to reflect a 7% return assumption), at 60.3% for OHSERS and 61.3% for OHSTRS at June 30, 2013, the state has implemented reforms intended to improve plan funding over time.

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 inclusive of debt service and retirement benefits are an affordable 10.5% of the district's total government spending, although they would be higher if pension payments were actuarially-based.