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Rating Update:

MOODY'S DOWNGRADES TO A1 FROM Aa3 THE RATING OF MAPLE HEIGHTS CITY SCHOOL DISTRICT'S (OH) $55.7M OUTSTANDING GENERAL OBLIGATION DEBT AND DOWNGRADES TO A2 FROM A1 THE RATING OF THE DISTRICT'S $3.3M OUTSTANDING CERTIFICATES OF PARTICIPATION

11 Oct 2010

Primary & Secondary Education
OH

Opinion

NEW YORK, Oct 11, 2010 -- Moody's Investors Service has downgraded to A1 from Aa3 the rating on Maple Heights City School District's (OH) $62.4 million of outstanding rated general obligation bonds and downgraded the certificates of participation to A2 from A1. The general obligation bonds are secured by the district's general obligation limited and unlimited tax pledge, and the certificates of participation are secured by lease payments made by the district that are subject to annual appropriation, pursuant to a lease purchase agreement, related ground lease, and trust indenture.

RATINGS RATIONALE

The A1 rating reflects the district's declining financial position, well above average debt burden paid out at a very slow rate, and declining property value putting pressure on the heavily dependent property tax revenues. The A2 rating on the certificates of participation is based on the annual appropriation security as well as the district's general obligation credit rating.

DECLINING GENERAL FUND BALANCE WITH LIMITED PROSPECTS TO REVERSE TREND

Following two consecutive years of operating deficits, the district's general fund balance had declined to a narrow (GAAP-basis) $2.8 million, or 7.6% of revenues, at the end of the 2009 fiscal year. The district's operational deficits were not as large as originally budgeted, due to prudent expenditure reductions. Historically, employment and benefits related expenses have accounted for 80-85% of total expenditures. The district continues to look at additional expenditure reductions to keep expenditures in line with revenue trends.

For fiscal year 2010, the district originally projected a further reduction in general fund balance (non-GAAP basis) to $2.5 million, from $4.3 million at the end of fiscal 2009. Unaudited numbers provided by the district show this decline to be greater than anticipated, with a (non-GAAP) balance closer to $1.5 million. The primary reason for this variance is the forecasting of health insurance expenditures. Originally the district budgeted for $3.8 million in expenditures due to claims and administration costs, but the actual number ended closer to $4.8 million.

Regarding federal aid money, Maple Heights City School District will receive $900,000 through the Federal Education Jobs program, to be spent over the next two years. The district will also receive $600,000 through the Race to the Top program, to be spent over the next four years. While the Federal Education Jobs money will help alleviate some pressure on the general fund, the Race to the Top money is required to go to new programs and will not be available to fund existing expenditure items. In the Five-Year Forecast submitted to the State of Ohio in May 25, 2010, the district had projected a general fund balance of -$0.5 million for the end of fiscal 2011. Due to some further expenditure reductions and better than expected revenue performance, the district now believes the year-end balance will be $1.0 million, which is a narrow 2.6% of General Fund receipts.

MID-SIZED, PRIMARILY RESIDENTIAL TAX BASE REALIZING MODEST DECLINES

The district's medium-sized $1.2 billion tax base has been stagnant in recent years, with a -1.0% average annual growth rate for the past five years. Some of this decline is attributable to Ohio's phasing out of tangible personal property, though the larger northeastern Ohio area continues to struggle with the effects of the economic downturn. The mature, largely residential tax base (approximately 75% of assessed value of real property) is located in close proximity to Cleveland (A1/stable). Unemployment numbers in the district, which is coterminous with the City of Maple Heights, approximate the Ohio state average at 10.2%. While population declines have continued, with a loss of 9.5% between 2000 and 2008, student enrollment has been relatively stable averaging a 0.19% decline over that same time period. Resident wealth indices are below both state and national medians, with per capita income and median family income registering at 88.9% and 97.1% of state medians respectively. The full value per capita of $44,053falls below the state median of $62,496 as well. Following the 2008 passage of a bond referendum and operating levy renewal, there have been no plans made to return to the voters as of yet.

ABOVE AVERAGE DEBT BURDEN WITH A SLOW AMORTIZATION SCHEDULE

The district has considerably above average direct debt burden and overall debt burden, at 5.4% and 7.0% of full valuation, respectively. The debt has a very slow repayment schedule, with only 17.9% paid back within 10 years. This is well below the Ohio state median of 49.4%. The majority of the district's debt is related to a $105 million project to construct new school buildings for the district. The project is on-schedule, with the pre-kindergarten through 8th grade building set to open next summer, followed by the high school in the summer of 2012. The project was undertaken through the Ohio School Facilities Commission, and represents the only planned capital improvements for the district at this time. The district does not have any variable rate debt, and is not a party to any swap agreements.

What could move the rating down:

* Deterioration of the narrow general fund balance

* Further decline of property values leading to pressured property tax revenues

What could move the rating up:

* Consecutive years of operational surplus bringing reserves in line with higher rating category

* Revival of the local economy to help offset declining trends in the district's tax base

KEY STATISTICS

Maple Heights unemployment rate, June 2010: 10.2% (State of Ohio: 10.4%)

2010 full valuation: $1.15 billion

2010 full value per capita: $44,053

Direct debt burden: 5.4%

Overall debt burden: 7.0%

FY 2009 General Fund balance (GAAP Basis): $2.8 million (7.6% of General Fund revenues)

FY 2009 General Fund balance (Non-GAAP Basis): $4.3 million (11.8% of General Fund revenues)

1999 Median Family Income: $48,580 (97.1% of state and 97.1% of US)

1999 Per Capita Income: $18,475 (88.9% of state and 86.5% of US)

Long-term debt outstanding: $59.0 million

The principal methodology used in rating Maple Heights City School District, OH was General Obligation Bonds Issued by U.S. Local Governments rating methodology published in October 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of maintaining a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Ryan Walters
Analyst
Public Finance Group
Moody's Investors Service

Henrietta Chang
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
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MOODY'S DOWNGRADES TO A1 FROM Aa3 THE RATING OF MAPLE HEIGHTS CITY SCHOOL DISTRICT'S (OH) $55.7M OUTSTANDING GENERAL OBLIGATION DEBT AND DOWNGRADES TO A2 FROM A1 THE RATING OF THE DISTRICT'S $3.3M OUTSTANDING CERTIFICATES OF PARTICIPATION
No Related Data.
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