OREANDA-NEWS. Fitch Ratings has assigned the following ratings for Topeka Unified School District No. 501 Shawnee County, Kansas (the district) general obligation (ULTGO) unlimited tax bonds:

--$33 million GO series 2016 bonds 'AA'

In addition, Fitch has affirmed the following ratings:

--$118.2 million GO refunding and improvement bonds series 2014A and 2014B at 'AA'.

The Rating Outlook is Stable.

SECURITY

The bonds are direct obligations of the district and are payable by its unlimited ad valorem tax pledge.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: The district's financial profile is a positive credit factor characterized by large reserve levels and a consistent record of conservative budgeting practices.

STABLE AND DIVERSE ECONOMY: The regional economy is anchored by state government, several hospitals, and small manufacturing, which has supported low city and county unemployment rates. Income levels are below average.

STABLE ENROLLMENT: District population is expected to continue to grow at a modest, manageable rate, resulting in stable enrollment trends after mild declines in prior years.

MANAGEABLE DEBT BURDEN: The district's overall debt levels are high relative to taxable market value; however the district has no future borrowing plans. Recent new debt issuance including the current issue is expected to meet the district's capital needs for the next decade and beyond. Total carrying costs are moderate due to lack of required pension payments and minimal, capped other post-employment benefit obligations.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the district's healthy financial profile. Maintenance of solid reserves and stable financial operations are key credit considerations given the significant reliance on state aid.

CREDIT PROFILE

The district, population 98,368 encompasses 36 square miles and serves most of the city of Topeka, the state capitol. District K-12 enrollment of 14,169 for 2015 has remained relatively stable since its peak in 2010.

SOLID FINANCIAL RESERVES

Conservative budgeting of enrollment coupled with close expenditure management enabled the district to maintain stable general fund operations. Fiscal 2014 ended with a large $3 million general fund surplus, which increased available general fund balance to $12.7 million, 15.1% of spending. The district has maintained solid financial reserves following modest planned general and other fund drawdowns in fiscal 2012 and 2013 related to capital projects.

Unaudited fiscal 2015 results indicate a slight $531,971 draw on reserves. The district's available general fund balance is expected to be $12.25 million or 14.5% of spending, coupled with a $2.9 million unrestricted reserve in the special education fund and $8.1 million available in the capital outlay fund. The reserves provide significant cushion against potential state funding changes or other budgetary stresses.

The sizable reserves somewhat mitigate the district's high dependence on state funding, over 67.7% for 2014. Fitch expects stable enrollment trends and conservative budgeting will enable the district to maintain sizable reserves.

The district levies local taxes at 30% of general fund expenditures (the maximum without voter approval) for its annual local option budget and eight (also the maximum) mills for capital outlay. Voters recently approved increasing the maximum levy to 33% in fiscal 2015. The district has not had to increase the levy above 30% in the fiscal 2016 budget however the excess capacity provides the district with additional budgetary flexibility. Instructional salaries and benefits are the primary expenditures, which the district has been able to successfully manage to maintain stable financial operations.

MANAGEABLE DEBT BURDEN

The district's overall debt is high but manageable at $2,866 per capita and 7.1% of 2015 market value. No additional debt is expected because the current $33 million issuance is the final borrowing under the $143 million voter approved facility renovation plan. The plan will satisfy the district's capital needs for the next decade and beyond. Amortization is low with 28% of outstanding principal paid within ten years.

Under the state school funding formula, the district expects state aid to cover approximately 49% of annual debt service. The state funding amounts are subject to legislative change but existing funding rates for outstanding debt have been historically maintained.

The district's carrying costs are expected to remain low if the state continues to makes all employer pension contributions on behalf of the district. The district participates in the state pension plan administered by the Kansas Public Employees Retirement System (KPRS). Pension contributions are susceptible to future funding changes by the state given KPERS's low plan funding rate and large unfunded liability. Additionally, the other post-employment benefits (OPEB) are expected to remain minimal given the cap.

STABLE ENROLLMENT AND TAX BASE

Topeka's leading employers include several corporate headquarters, small manufacturing and significant retail centers. The Topeka regional economy proved resilient during the recent economic downturn largely based on the state capital and several medical facilities. Fitch expects district population and enrollment trends to continue to be flat, as they have over the past decade.

Tax base values increased by 2.1% in 2015 after modest declines from 2011 through 2014. Similarly, City building permit activity improved a slight 2.1% in 2015. Given the largely developed nature of the district, Fitch does not expect significant tax base growth. The market value per capita is low at $40,000, reflective of the significant tax exempt government property. While the district does not receive any tax revenues or payments in lieu of taxes for the tax exempt properties, it benefits from the state education funding formula, which incorporates property valuation and income levels.

City and county unemployment rates remained well below national averages through the recent downturn. The city's December 2015 3.9% unemployment rate compared favorably to the nation's 4.8%, although it exceeded the state's very low 3.6% rate. Per capita income is notably lower than the state (at 81%) and nation (77.8%), and the poverty rate is elevated.