OREANDA-NEWS. Fitch Ratings has taken the following actions on Mechanicsburg Exempted Village School District, Ohio's (the district) unlimited tax general obligation (ULTGO) bonds:

--$6.3 million ULTGO bonds series 2012 underlying rating affirmed at 'AA-'.

The Rating Outlook on the underlying rating is revised to Stable from Negative.

The series 2012 bonds also carry an 'AA' program rating based on enhancement provided by the Ohio School District Credit Enhancement Program. The Rating Outlook for this program is Stable.

SECURITY
The bonds are payable from the levy of an ad valorem tax on all taxable property within the district without limitation as to rate or amount.

The Ohio School District Credit Enhancement Program requires the Ohio Department of Education (ODE) to forward state foundation program payments to the bond registrar if, prior to the bond payment date, the district has not transmitted funds sufficient to cover required debt service payments.

KEY RATING DRIVERS

STRENGTHENED RESERVES: The Outlook revision to Stable from Negative is due to consecutive years of net general fund operating surpluses after transfers that have substantially increased unrestricted reserves, countering prior year deficits. Current forecasts indicate continued fund balance growth through at least fiscal 2017.

DEPENDENT REVENUE STRUCTURE: The district's revenue structure is heavily reliant on both state aid and voter approval for continuing tax levies. As a result, Fitch expects district finances to continue to be challenged by potential fluctuations related to these revenue sources.

STABLE ECONOMY? BELOW-AVERAGE INCOME INDICATORS: County income levels are below average, although employment has been stable and unemployment rates remain below state and national levels. Taxable assessed value (TAV) grew significantly in fiscal 2014 due to revaluation, but is expected to remain flat in the near term.

MODERATE DEBT PROFILE: Overall debt levels are moderate. Amortization is average, and no additional debt issuance is currently contemplated. Total carrying costs, including debt service, pension, and other post-employment (OPEB) costs are low as a percentage of governmental spending.

RATING SENSITIVITIES
STATE AID DEPENDENCE: The district is vulnerable to changes in state aid, which can vary as a result of enrollment fluctuations and any charter school competition in the district. The introduction of charter schools or enrollment declines due to other factors may decrease state aid and place negative pressure on the rating.

VOTER SUPPORT OF SCHOOL DISTRICT LEVIES: Continued voter support for new and renewal levies is key to financial stability. Changes in patterns of voter support could affect the rating.

CREDIT PROFILE
The district serves a rural area approximately 35 miles northwest of Columbus that includes the village of Mechanicsburg, OH and two small townships near the village. Enrollment, estimated at about 914 in 2015, has been declining since 2010 but is projected to remain stable in the near term.

IMPROVED FINANCES; SUSTAINED FUND BALANCE GROWTH
District finances have been positively affected by increases in state aid and conservative expenditure management, which have restored prior-year unrestricted fund balance deficits to a positive position.

Fiscal 2014 general fund revenues grew 4.6%, reflecting increased state funding and growth in property taxes due to valuation growth. Expenditures decreased 6.5%, reflecting labor concessions including continued wage freezes and reduced health benefit costs due to a switch to self-insurance. The district added $1.2 million to fund balance after transfers, growing unrestricted reserves to $1.4 million or 17.5% of spending.

Unaudited fiscal 2015 results include additional state aid increases and income tax revenue growth, culminating in a 3.5% increase in total revenues. Expenditures grew due to a salary increase, following two years of wage compression. Despite this increase, the district was able to add an additional $1.4 million to fund balance, increasing unrestricted reserves to $2.8 million or a healthy 35.1% of general fund expenditures.

The district's current budgetary cash-basis financial forecast indicates continued near-term financial strengthening. Operating surpluses and increased ending balances are projected to continue into fiscal 2017. The forecast reflects future salary and fringe benefit increases and conservative expenditure assumptions. Fitch expects cash basis performance to be consistent with historical GAAP results.

DEPENDENT REVENUE STRUCTURE
School districts in Ohio operate in a constrained environment with property tax revenue growth dependent on new construction and/or voter approval of increased levies, with potential subsequent voter renewals required. District voters approved three recent tax levies, including the 2014 emergency tax levy, for 10 years (about $195,000 annually). Property taxes and income taxes subject to voter renewal, when combined, made up about 15% of general fund revenues in fiscal 2014.

The district relies on state aid for approximately 50% of general fund revenues. State foundation aid increased by 10.4% in fiscal 2014 and an additional 7.7% in fiscal 2015. Management expects slight increases into fiscal 2016. The funding formula is dependent on a variety of inputs, including total enrollment and the number of charter school students. While the district currently faces no direct charter school competition, some students have opted to enroll in online education programs. Approximately 3.3% of state aid revenues are designated as charter school appropriations.

STABLE LOCAL ECONOMY
Unemployment rates in Champaign County have dropped from 5.8% in 2013 to 4.1% in December 2015, below both state (4.6%) and national (4.8%) levels. County per capita personal income indicators remain below state and national averages.

The school district is the largest local employer, although many residents of the district are employed at a Honda plant in nearby Marysville. All Honda Accords sold in North America are manufactured at the Marysville plant. The Memorial Medical group has announced plans for a new $8 million medical office building in Champaign County.

The district's TAV increased significantly in fiscal 2014 (12.9%) as the result of revaluation, chiefly related to the valuation of agricultural properties. The district expects TAV to remain flat over the near term.

MODERATE DEBT PROFILE
The district's overall fiscal 2016 debt burden is moderate at 2.2% of market value or $1,250 per capita. Principal amortization is rapid with about 63.7% retired in 10 years. The district has no immediate plans for additional debt.

Pension benefits and OPEB are provided through two state-sponsored cost-sharing multiple-employer defined benefit pension plans, the Ohio School Employees Retirement System (OSERS) and the Ohio State Teacher Retirement System (OSTRS). Using GASB 68 reporting, the assets-to-liabilities ratio for the district's portion of the plan is 74.2% as of June 30, 2014. Using Fitch's more conservative 7% rate of return, the estimated ratio is 68.5%. The district funded 100% of its contractually required contribution in 2015.

Carrying costs for debt service, pension contributions, and OPEB amounted to a low 11.4% of governmental fund spending in fiscal 2015. OPEB is provided through the two state-run pension programs and are funded on a pay-go basis.