OREANDA-NEWS. Fitch Ratings has affirmed the following Parma City School District, Ohio (the district) ratings:

--$1.3 million outstanding special obligation TANs, series 2005, at 'A+';
--$7.4million outstanding certificates of participation (COPs), series 2006, at 'A';
--Implied unlimited tax general obligations at 'A+'.

The Rating Outlook is Stable.

SECURITY
The series 2005 TANs are special obligations of the district, secured by a dedicated 1.0 mill permanent improvement tax levy. The series 2006 COPs are secured by lease payments from the district, subject to annual appropriation but are paid from the revenues of a 2.0 mill permanent levy.

KEY RATING DRIVERS

STABILIZING ECONOMY: The local economy has stabilized over the past few years due in large part to General Motor's (GM) continued investment in the Parma plant. Health care, higher education facilities and government sector employment add additional stability. Tax base contraction should moderate given a recent county-wide reappraisal.

MIXED VOTER SUPPORT FOR TAX LEVIES: Parma, like all Ohio school districts, is dependent on voter support for operating and capital funding. Renewal levies have received strong voter support. However, new tax levies have not passed on the first ballot historically, adding financial uncertainty.

DECLINING ENROLLMENT: The district has reported sustained declines in enrollment numbers. Continued decreases in the student body may result in decreases in state-aid and could negatively pressure the rating.

ADEQUATE PLEDGED REVENUE COVERAGE: Pledged revenues from a dedicated levy for the 2005 TANs provide adequate debt service coverage. Coverage on the COPs from a separate, dedicated levy is strong but subject to annual appropriation.

MANAGEABLE LONG-TERM LIABILITIES: The district's debt profile is characterized by modest debt levels which should continue to decline given no capital plans, above-average amortization, and manageable pension and other post-employment benefits (OPEB) costs.

RATINGS DIFFERENTIAL: The TAN rating is on par with the implied ULTGO based on the security provided by a pledged permanent levy that provides adequate coverage of debt service payments. The COP rating is one notch lower due to annual appropriation risk.

RATING SENSITIVITIES

VOTER SUPPORT REMAINS KEY: Continued voter support for renewal and new levies remains key to financial stability. Failure of voters to support renewal and new levies in the medium term could decrease financial flexibility and put downward pressure on the rating.

CREDIT PROFILE
Located in Cuyahoga County (LTGO bonds rated 'AA+'; Outlook Stable), the district is comprised mainly of Parma City (rated 'AA-'; Outlook Stable) and includes Parma Heights and Seven Hills.

District enrolment has been declining over the last several years and currently totals approximately 10,921, a decrease of 16.3% since 2007. The district has been losing between 100 and 150 students per year due in large part to charter school competition. Management projects enrollment will stabilize between 10,000 and 11,000 students in the coming years but Fitch believes, given the trends, that the district is still vulnerable to declines.

ECONOMIC STABILIZATION; SOME AUTOMOTIVE CONCENTRATION

The local economy is primarily anchored by a GM (IDR of 'BBB-' Outlook Stable) stamping plant, the largest employer with approximately 2,382 workers. Operations at the facility are stable. The revitalization and expansion of the Shoppes at Parma, a mixed retail and office park, is scheduled for completion in 2017 and signals private sector confidence in the local economy. Three health care facilities, a community college and other government sector employment lend stability to the area.

Parma city's labor force and employment numbers remained fairly flat from September 2014 to September 2015. The year-over-year unemployment rate decreased to 4.7% from 5.3% as employment increased 1.2%. September 2015 unemployment rates were above the state (4.3%) and below the national rate (5.1%). District median household income exceeds the county (111%), is comparable to the state (99%), and slightly below national (92%) averages.

CONTRACTION IN ASSESSED VALUATION

The tax base has contracted over the last few years with 2014 assessed value totaling $2 billion, remaining relatively flat (0.25% decrease) compared to 2013 but declining 20% since 2009. Fitch believes the tax base has stabilized given the most recent decline in fiscal 2014 was primarily due to a county-wide triennial revaluation of residential property. The tax base is diverse, with the top 10 taxpayers comprising only 4% of assessed value. Total residential property tax collections are strong, averaging 100% over the last three years.

ADEQUATE RESERVE LEVELS BUT FUTURE BUDGETARY PRESSURE EXISTS

Primary support for operations comes from property taxes, which provide 66% of general fund revenues, followed by state foundation aid at 30%. The general fund has reported operating surpluses after transfers for the past four years, aided by the implementation of a 10 year tax levy in 2011.

Fiscal 2014 resulted in a surplus of $3.6 million (audited fiscal year end June 30). The surplus led to an increase in the unrestricted general fund balance to 15.4% of spending from 13.5% at the end of fiscal 2014.

Fiscal 2015 audited results are not yet available. On an unaudited cash basis, the district recorded a $6.4 million deficit and ending cash balance of $4.8 million, or 3.2% of expenditures. The large deficit in fiscal 2015 is primarily due to salary increases and one-time back pay requirements for new labor contracts.

The district's October 2015 five-year (fiscal 2016-2020) cash-basis forecast projects smaller deficits in 2016 and 2017 due to increased state aid and expense control. Ending cash balances remain positive through 2017 with a $4 million cash deficit projected in 2018, increasing to a $37.8 million deficit in 2020 (22.9% of expenditures).

The forecast does not include revenues from new or renewal tax levies. The district will need voter support for a levy renewal in 2016 and a new levy in November 2017 in order to relieve budget pressure and provide financial flexibility. Historically, renewal levies have passed; however, new levies have not been as successful. Ongoing support by the voters of new and renewal levies is a key credit factor within the context of a state-wide school financing structure and failure to secure voter approval may negatively pressure the credit.

Over the last few years, the district has made significant expenditure cuts, including consolidating buildings, reconfiguring grade levels, restricting the school day, reducing full time staff, increasing employee health care contributions and reducing other post-employment benefits (OPEB). The district has also identified several other cost cutting measures that may be implemented if they face financial pressures.

FAVORABLE DEBT PROFILE
The district's debt profile is positive, with below average debt per capita and debt to market value of $1,085 and 2.1%, respectively. Fitch expects debt levels to decline given no additional borrowing plans and all debt retired in 10 years. Positively, the continuing, permanent improvement millage supporting the TANs and COPs will remain in place beyond final repayment of those debt obligations (in 2015 and 2017), providing an ongoing source of funding for capital.

The district contributes to the School Employees Retirement System (SERS) and the State Teachers Retirement System (STRS) to fund both pension and OPEB. Both plans are cost-sharing, multiple-employer defined benefit plans and the district consistently pays its statutorily required contribution to both plans. STRS's funding level is weak at 69% (estimated by Fitch at 64% when adjusted to a 7% rate of return). Fitch considers carrying costs to be fairly low with debt service, pension and OPEB claiming 11.6% of government funds spending.