Fitch U.S. Muni Surveillance: Canton, Ohio's LTGOs Affirmed at 'A+'.

NEW YORK -- In the course of routine surveillance, Fitch Ratings has affirmed the 'A+' rating for the city of Canton, Ohio's (Canton, or the city) approximately $10.5 million in series 1998 (pension refunding), 1999 (various purpose improvement), and 2001 (radio communication systems improvement) limited tax general obligation (LTGO) bonds. The Rating Outlook is Stable.

The 'A+' rating reflects the city's low debt burden, diversity in revenue sources, and its proactive financial management. Credit risks include a challenged local economy, as well as weakened financial flexibility. The key rating driver will be the city's ability to manage anticipated declines in key revenue sources, especially the income tax, with expenditure reductions, while stabilizing reserves at or near current levels.

Canton is located in northeastern Ohio. The city's 2007 population of 78,319 has declined slightly (3.1%) since 2000, reflecting a loss of manufacturing jobs. Canton's economy has diversified in recent years though, with growth in the health and education sectors.

Canton has been able to limit its direct property-tax-supported debt burden (a low $353 per capita and 0.8% of market value) due to the statutory dedication of a portion of income tax collections for various capital purposes, as well as the use of enterprise system revenues to cover debt service on certain LTGO bonds. Overall debt levels, reflecting significant issuance by the Canton City School District (rated 'A-' by Fitch) are more moderate at $1,054 per capita and 2.3% of market value. The income tax also limits reliance on the property tax, which is constrained by various statutory growth restrictions. In fiscal 2007 (the latest audited data available), the income tax provided 57.1% of general fund revenues, while property tax revenues provided 6.7%.

While the local economy has diversified in recent years with the growth of employers such as Aultman Hospital partially offsetting job losses at manufacturers such as steelmaker Timken, there has been an overall decline in the employment base. The city does report continued private and public investment in major economic development projects, but market value growth has weakened since more robust levels near the turn of the century. The most recent economic declines weakened income tax collections, with fiscal 2008 revenues estimated to have been down approximately 3% since 2007.

While financial operations for the city have weakened slightly in recent years, overall performance remains sound. The city reports general operating fund cash balances at the end of 2008 were lower than anticipated, and lower than historical levels. Conservatively, Canton adopted an interim budget for the first three months of 2009 to judge the impact of actual fourth-quarter 2008 tax revenues, and the success of an employee buyout initiative. The city is also pursuing approximately $2.3 million in cash flow note borrowings to enhance the short-term liquidity cushion in the general fund. While an additional decline in income taxes is anticipated for 2009 (similar to the 2008 levels), Fitch expects the city to adopt a conservative fiscal 2009 budget that will leave unreserved general fund balances near the fiscal 2007 level of $8.4 million, or 14% of total spending. Any unexpected declines in financial flexibility could lead to negative rating pressure.

Note: Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework'.) At this time, Fitch is deferring its final determination on municipal recalibration. Fitch will continue to monitor market and credit conditions, and plans to revisit the recalibration in the first quarter of 2009.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.