OREANDA-NEWS. Fitch Ratings has assigned the following program rating based on the Ohio School District Credit Enhancement Program to Hamilton City School District, OH's (the district) unlimited tax general obligation (ULTGO) program qualified bonds:

--\$77,325,000 (est.) various purpose ULTGO school refunding bonds, series 2015 'AA'.

In addition, Fitch assigns an underlying rating of 'AA-' to the series 2015 bonds.

The Rating Outlook is Stable.

The bonds are expected to sell via negotiated sale on or about March 10, 2015. Proceeds will be used to currently refund a portion of the district's ULTGO tax refunding bonds, series 2005 and to advance refund a portion of the district's ULTGO bonds, series 2007, for net present value savings of approximately \$5 million or 7%.

SECURITY

The bonds are voted general obligations secured by the levy of an ad valorem tax on all taxable property within the district without limitation as to rate or amount.

KEY RATING DRIVERS

STABLE AND DIVERSE ECONOMY: The economy is diverse among higher education, healthcare, government and manufacturing. Additionally, the district benefits from its close proximity to Cincinnati and Dayton. Income indices are below state and national levels.

STABLE ENROLLMENT: District enrollment has grown modestly over the last several years and management does not expect material changes over the near- to mid-term.

HIGHLY RELIANT ON STATE FUNDING: State funding represents the majority of district revenue. As a property and income poor district, it is projected to continue experiencing solid state aid growth under the governor's proposed 2016-17 biennium budget, but has to work through the legislative process before final determination.

CONTINUOUS PROPERTY TAX LEVIES: Property tax levies are continuous and do not require renewal. No new voted levies have been put on the ballot since 1997 and none are projected or required. Positively, the district has taxing capacity to increase the levy given that the current effective rate is under the voted rate, resulting in stable property tax revenues despite declines in assessed valuation.

SATISFACTORY FINANCIAL PROFILE: The district's finances are characterized by adequate cash balances and reserves, and prudent cost management.

MANAGEABLE LONG-TERM OBLIGATIONS: The district's overall debt levels are moderate and should decline given no future debt plans, average amortization and projected stabilizing assessed values. Carrying costs inclusive of debt service, pension and other post-employment benefits (OPEB) are manageable.

STRONG PROGRAM ESSENTIALS: The series 2015 bonds qualify for the Ohio School District Credit Enhancement Program (state enhancement program), which is characterized by stringent requirements and strong program mechanics.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The underlying rating is sensitive to shifts in fundamental credit characteristics, including the district's stable enrollment trend and maintenance of adequate cash reserves. The Stable Outlook reflects Fitch's expectation that such shifts are not likely.

PROGRAM RATING: The program rating is sensitive to changes in the state's 'AA+' GO bond rating on which the program rating is based, as well as changes in the statues, regulations, or administrative procedures governing the program.

CREDIT PROFILE

Hamilton City School District is located in Butler County in southwest Ohio, approximately 25 miles from downtown Cincinnati and 30 miles from downtown Dayton. The district's population, estimated at 62,897, has remained stable since 2000. Enrollment for 2014-15 totals approximately 9,611, an increase of 7.4% since 2005-06. The enrollment increase is a reflection of open enrollment and the district's strong reputation. Enrollment is expected to remain stable as the city is built-out.

STABLE AND DIVERSE ECONOMY
The district economy is diverse, composed of higher education, healthcare, government, and manufacturing. It also benefits from its close proximity to Cincinnati and Dayton which provides numerous employment opportunities. In addition to the county and district, the largest employers include Fort Hamilton Hospital (1,020 employees), Community First (healthcare-650 employees) and a campus of Miami University (370 employees). The unemployment rate for the city has historically been higher than those of the state and U.S. but the trend reversed in 2014. In December 2014 the city's unemployment rate was 4.3%, below the 4.7% state rate and 5.4% national rate, and down from 6.8% a year earlier. City employment increased by 2.9% over the same time period, outpacing the state and U.S. rates and the city's 0.2% labor force growth.

DECLINING AV/BELOW-AVERAGE SOCIOECONOMIC INDICATORS
The district's assessed valuation (AV) has declined by approximately 16% since 2010 as a result of a drop in residential value and increased foreclosures during the recession. A sexennial revaluation was completed in 2014 (for 2015 valuation) with AV expected to stabilize going forward.

District per-capita money income is below average at 78% and 72% of state and national averages, respectively. Poverty levels are elevated at 23%, compared to 15.8% for the state and 15.4% for the U.S. In addition, Hamilton lags behind the nation in terms of higher education attainment with 15% of Hamilton residents attaining undergraduate degrees compared to 29% for the nation.

HIGHLY RELIANT ON STATE FUNDING
The largest source of general fund revenue is state aid (approximately 74% of audited fiscal 2013 general fund revenue). Classified as a property-poor, low-wealth area, the district has benefitted from a state-wide overhaul of the school funding formula implemented a few years ago. Unrestricted state aid increased by 7.3% in fiscal 2014 and 9.8% in fiscal 2015. Under the governor's proposed 2016-17 biennium budget, the district is forecasted to benefit significantly; state simulations show a 10% increase in both fiscal 2016 and 2017.

Property tax revenues account for approximately 23% of total general fund revenues and have remained stable despite declines in AV; the district has flexibility to increase the levy given the current effective rate is under the voted rate. Positively, all levies are continuous and do not require renewal and no new levies are needed or are being considered in the future. The district has not had an operating levy on the ballot since November 1997 when a 3.3 mill levy was defeated.

SATISFACTORY FINANCIAL POSITION

The district uses a cash basis of accounting, which has analytical limitations compared to GAAP accounting. Improving state aid, conservative budgeting, and stable enrollment have contributed to fairly stable operations and adequate reserve levels.

For the fiscal year-end June 30, 2013, on an audited cash basis, the district recorded a general fund operating deficit after transfers of \$1.2 million (1.6% of expenditures). The deficit was expected and was a result of the elimination of federal stimulus funds. The ending general fund cash balance and unrestricted reserves totaled \$9.2 million or an adequate 11.6% of general fund spending. The preliminary audit for year-end June 30, 2014, shows a surplus of \$2.3 million and an unrestricted general fund balance of \$11.5 million or 14.4% of spending. Management is currently projecting a cash balance of \$15.5 million or 19% of expenditures for year-end June 30, 2015.

Fitch believes the district will continue to report balanced operations and stable reserve levels given a history of strong budgetary controls.

DECLINING BUT POSITIVE CASH BALANCES PROJECTED

The October 2014 five-year cash forecast projects surplus operations through fiscal 2016. Deficits of \$2.3 million (2.5% of spending), \$4.8 million (5% of spending), and \$7.1 million (7.3% of spending) are projected in 2017, 2018 and 2019, respectively. Despite the expected deficits, positive ending cash balances are projected for each year of the forecast period, ending with \$1.7 million or a weak 1.7% of spending in 2019. Fitch believes actual results will be considerably better as the projections are conservative, with small state funding increases in fiscals 2016 and 2017 and no increases in the following two years. If the governor's proposed biennial budget is adopted, the district's operations should benefit from a significant increase in cash balances through the forecast period.

MANAGEABLE DEBT BURDEN

Fitch considers the district's overall debt burden moderate at 4.3% of market value. Debt levels should decline as the district has no plans for future borrowing and amortization is about average with 53% of debt retired in 10 years. Additionally, the district has accumulated \$5.3 million from permanent improvement levies for capital improvements and repairs.

The district contributes to the School Employees Retirement System (SERS) and the State Teachers Retirement System (STRS) to fund both pension and OPEB. Both SERS and STRS are cost-sharing, multiple-employer defined benefit plans. The district's required contributions are statutorily determined and fall short of actuarially-based levels. Based on a 7% rate of return, Fitch-estimated system-wide funded ratios at June 30, 2013 for both plans were weak at approximately 60.3% for SERS and 61.3% for STRS. 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 14.1% of the district's total governmental fund spending.

STRONG PROGRAM ESSENTIALS

The 'AA' program rating is based on the qualification of the series 2015 bonds for participation in the state enhancement program.

Participation requirements are stringent, including 2.5x coverage of maximum annual debt service (MADS) by unrestricted state foundation aid on proposed bonds and any outstanding obligations covered by the program. Fiscal 2015 estimated state foundation aid to the district is 7x the MADS for debt to which state aid is pledged.

Program mechanics are strong. Ohio law requires the Ohio Department of Education to forward to a bond paying agent or registrar state foundation payments otherwise due to a participating school district if, prior to the bond payment date, the district has not transmitted funds sufficient to cover a required debt payment.