Fitch Rates Parma City School District, Ohio's $11MM TANs 'AA-'; Outlook to Positive.

CHICAGO -- Fitch Ratings assigns an 'AA-' rating to Parma City School District (the district), Ohio's $11 million tax anticipation notes, series 2005 (special obligations), and revises the Rating Outlook to Positive from Stable. The Outlook revision signifies stronger financial management practices. The notes are scheduled to sell on a negotiated basis on or about July 13 through A.G. Edwards & Sons, Inc. Proceeds will finance electrical system and fire alarm upgrades and interior and exterior improvements to various school facilities. The notes are a special obligation of the district, secured by a voter-approved 1.0 mill ad valorem property tax levy. Fitch also affirms the 'AA-' rating on the district's outstanding limited tax general obligation (GO) debt and special obligation tax anticipation notes.

The 'AA-' rating reflects the school district's dedicated revenue stream for note repayment, strong fiscal management, diversified economic base, and low debt burden. The Positive Outlook reflects improved financial performance achieved despite the periodic need to seek additional voter-approved levies, strong internal funding of the capital program, and reduced reliance on debt given capital levy passage.

In the 2003-2004 school year, the district improved its state academic report card rating to 'effective,' the second highest achievement category, from 'continuous improvement,' the third highest rating. This improvement, coupled with new financial management and a renewed focus on teacher training and curricula development, enabled the district to pass a dual-purpose 5.9 mill levy in May 2005 to finance both general operating costs and capital improvements, providing increased financial flexibility.

Located eight miles southwest of downtown Cleveland and within Cuyahoga County (GO debt rated 'AAA' by Fitch), Parma City School District encompasses the cities of Parma (GO debt rated 'AA-' by Fitch), Parma Heights, and Seven Hills. The district is the 10th largest Ohio school district in terms of enrollment, with a 2004-2005 enrollment of 13,326. Enrollment growth has stabilized, growing 0.2% annually in the past five years.

Steady growth in economic development has produced a 3.5% annual gain in the property tax base since 1994. The district is primarily residential with a notable manufacturing sector. General Motors Corp. is the district's largest employer (3,000 employees), as well as the largest taxpayer (1.3% of assessed valuation). However, the service sector has grown at a faster pace and is relatively larger (based on the county's figures), employing 34.6% of the population compared to 13.9% for manufacturing. Four out of the top five employers are in education and health care. The district's per capita income levels approximate state and national averages.

In fiscal 2004 (June 30 year-end), the district's total general fund balance improved to $21.3 million, or 18.5% of spending, from a negative $308,000 (negative 0.4%) in 1999. While steady revenue growth of 4% annually in that period helped rebuild fund balance, management also restrained spending by reducing positions primarily through attrition. Voter-approved property tax levies facilitated progressively improving fiscal performance: passage of the most recent current expense levy in May 2005 will provide ample financial flexibility for the next several years before the need to seek additional levies.

The district's consistent use of internal resources to fund capital projects and stable enrollment has led to a low direct debt burden equal to $357 per capita and 0.6% of full market value. Modest issuance by overlapping entities brings the overall debt level to a low $922 per capita and 1.6% of full market value.

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