Fitch Rates Columbus City School District, Ohio's $306MM Refunding GOs 'AA'; Affirms Outstanding.

CHICAGO -- Fitch assigns an 'AA' rating to the Columbus City School District, Ohio's (the district) $305,580,000 School Facilities Construction and Improvement Refunding Bonds (General Obligation - Unlimited Tax), Series 2006, which will sell on September 28, 2006 in a negotiated underwriting led by JPMorgan. Fifth Third Securities, Inc. is serving as financial advisor. The current interest bonds will pay interest each June 1 and Dec. 1, beginning June 1, 2007, and mature Dec. 1, 2007-2026. Capital appreciation bonds will accrue interest which is payable at maturity. Current interest bonds with maturities after Dec. 1, 2016 are subject to optional redemption. The bonds are a full faith and credit obligation of the district, secured by unlimited ad valorem taxes. District voters authorized the refunded issues on Nov. 5, 2002. Bond proceeds will advance refund outstanding general obligation debt used to finance school construction projects under the State of Ohio Accelerated Urban Assistance Program. Fitch also affirms the 'AA' rating on $50.9 million of outstanding general obligation (GO) debt. The Rating Outlook is Stable.

The 'AA' rating is based on the district's growing and diverse economic base, improved management practices which will increase operating efficiency, and an affordable debt burden. The Columbus Board of Education has committed additional human and financial resources to increase academic performance; it has improved financial accountability and efficiency and created a capital facilities plan that complements educational reforms. Although student academic performance has improved in the last few years, the administration faces the challenge of maintaining strong community support as it initiates a comprehensive upgrade of its facilities. The strong tax base, combined with increased state aid support, has improved the district's financial performance and liquidity. Debt levels are moderate and increased borrowings will not outpace the district's capacity to meet debt service.

With a population of 566,157, the district serves most of Columbus, the capital of Ohio. Having a tax base that has grown 4.9% annually in the last decade, the district experienced limited economic volatility due to a diverse mix of industry and government. Per capita income of Columbus residents approximates the state and national averages. The unemployment rate in Columbus equaled 5.1% in July 2006, compared with 5.8% for the state and 5.0% for the nation.

The district's general fund, after implementing Government Accounting Standards Board (GASB) 34 standards in fiscal 2002, produced shortfalls in the three fiscal years ending June 2004. With successful passage of a property tax levy in 2004, the general fund rebounded with a $16.3 million surplus, producing a general fund ending balance of negative $15.0 million (negative 2.3% of expenditures) in fiscal 2005. Increased state revenue support (2.2% growth per student in fiscal 2006) has complemented the expanding local property tax base and spending discipline to aid financial improvement. The district will need to extend its local tax levies in the near future through voter affirmation. Under the Ohio school finance system, districts usually need to draw from reserves until voters approve the renewal of property tax operating levies. Systemic changes to budgetary management and purchasing in the Columbus district have increased financial flexibility and lengthened the period between voter-approved operating levies. Since 1986, voters have approved five of the last six operating levy initiatives and both bond elections.

District voters authorized $391.9 million of borrowing in November 2002 to meet the first two segments of the seven-segment capital program. Totaling $1.3 billion, the plan anticipates state support for 30% ($394.8 million). The remaining $551.0 million of additional bond authorization necessary to complete the capital program will depend on taxpayer satisfaction with the district's academic achievements, the pace of construction, and the financial capacity to absorb additional financing charges. The district's direct debt represents $682 on a per capita basis and 1.3% of property market values; overall debt totals $1,210 per capita and 2.4% of property market values. Additional borrowing against the remaining current authorization, assuming no tax base or population growth, would increase the overall debt to $2,118 per capita and 3.8% of property market values.

The district's capital program will modernize its facilities and expand its academic potential, but its size will require a measured pace of debt issuance. Both the growing economy and sizable state support will offer financial resources to meet the costs of such an undertaking, but continued academic progress is key to securing voter support for additional debt. The administration has increased the number of academic programs to address deficiencies and implemented stronger financial controls to develop more budgeting flexibility. Labor contracts with administrative staff expire February 29, 2008 and will expire for the teaching staff June 30, 2008, as labor relations remain in satisfactory condition. As the district anticipates continued weak economic conditions, strong budgetary control will be necessary. District voters passed an operating levy in the fall of 2004 which supported a budgetary surplus in fiscal 2005 (June 30 year-end), but the district's continued financial success will depend on strong budgetary spending control and improved academic performance.

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