CHICAGO – Four Ohio school districts were downgraded after Fitch Ratings reviewed 12 districts in the state under revised criteria.
One district was dropped two notches: Berea City School District, lowered to A-minus from A-plus.
Columbus City School District was downgraded to AA from AA-plus, New Albany-Plain Local School District to AA from AA-plus, and Solon City School District to AA-plus from AAA.
One district – Hamilton City School District – won an upgrade. It was raised to AA from AA-minus.
The rating agency affirmed seven ratings: the AA rating of Fairfield City School District; the AA-minus ratings of Allen East Local School District, Mechanicsburg Exempted Village School District, and South Point Local School District; the A-plus rating of Claymont City School District; and A-minus ratings of Cleveland Municipal School District and Toledo City School District.
The actions reflect Fitch's revised criteria for U.S. states and local governments with a more focused consideration of a credit's revenue framework including growth prospects and independent legal ability to raise revenues.
"Fitch believes the funding method for school districts in Ohio present challenges to district financial operations," analysts Arlene Bohner and Laura Porter wrote. "Strict legal restrictions on revenue-raising and an inability of property tax revenues to capture economic growth to keep pace with rising expenditures contribute to the weak assessment of revenue framework for most Ohio school districts."
Ohio districts typically build up reserves and then draw on them over time to support operations before requesting additional funds from voters which is a risky practice given the volatility of economic cycles.
"This analysis, along with the weak revenue framework, drove the majority of the rating changes," Bohner and Porter wrote.
The Columbus downgrade impacts $185 million of debt. The rating considers "the district's weak revenue framework, offset by its sound reserves, expenditure controls, and moderate long-term liability burden," Fitch wrote.
Berea's downgrade impacted $6.7 million of debt. "Fitch expects that the district's natural revenue growth will be stagnant and that it has very limited flexibility to increase local revenue sources independent of voter approval," Fitch said.
Solon's downgrade from AAA impacts $2.6 million of debt. New Albany's downgrade impacts $2 million of debt.
Hamilton's upgrade impacts $72 million of debt. The AA rating "reflects the district's moderate long-term liability burden and solid revenue growth prospects linked to a state education funding environment favoring districts with enrollment profiles similar to Hamilton City's," Fitch wrote.
