Fitch Ratings takes the following rating action on Lincoln Park School District, Michigan (the district) as part of its continuous surveillance effort:
--Approximately $30 million outstanding general obligation (GO) bonds (underlying rating) downgraded to 'BBB+' from 'A-'.
The Rating Outlook is revised to Stable from Negative.
RATING RATIONALE:
--The downgrade of the underlying rating to 'BBB+' from 'A-' reflects a deterioration in the district's financial position and the expectation that fiscal results will remain weak.
--Reserve levels are minimal.
--School enrollment continues to decline, which affects education funding.
--Recessionary pressures and a general economic weakening have contributed to the district's high unemployment rate and below average wealth indicators.
--Since the district dedicates a portion of its overall property tax millage to capital investment, direct debt levels are moderate and manageable and the district has minimal borrowing plans.
KEY RATING DRIVERS:
--Appropriate expenditure cuts will be necessary to manage waning revenues caused by declining student enrollment and reductions in state aid.
--Stabilization and improvement in the general fund balance will be critical to preserving some financial flexibility.
SECURITY:
The bonds are general obligations of the district and are payable as to principal and interest from the proceeds of an annual ad valorem tax, levied without limitation as to rate or amount, on all taxable property within the boundaries of the district.
CREDIT SUMMARY:
Lincoln Park School District is located in southwest Wayne County (limited tax GO bonds rated 'BBB+' with a Negative Outlook by Fitch) about 12 miles outside Detroit and encompasses the city of Lincoln Park. District enrollment has declined at a 2% average annual rate since 2004, attributable largely to students transferring to nearby school districts, as allowed under the state school reform act of 1994. Pursuant to the act, districts may opt for open enrollment. However, the district has chosen to approve only a very limited open enrollment of ninety total students for grades K-4, preventing the ability to offset in-district enrollment losses from the absorption of students from other local areas.
The primary general fund revenue source for the district is state aid, which equaled approximately $28 million or 80% of revenues in fiscal 2009. This revenue source declined about 10% from the fiscal 2008. The continued reduction in enrollment coupled with a cut in state aid funding has led to an operating deficit the last three out of four years. Consequently, the fiscal 2009 general fund balance declined to $451,000 or just 1.2% of spending from $3.96 million or 10% in fiscal 2008. The district is making mid-year expenditure adjustments to its fiscal 2010 budget, including reduction in staff levels, and anticipates ending fiscal 2010 with a break-even general fund balance. The district has recently created a community and school based committee to identify cost-saving measures for the 2011 budget to help offset continuing state aid revenue cuts. This task committee is formulating a proposal to decrease expenditures and to build general fund balance levels.
The district's modest direct debt position is equal to $869 per capita or 1.7% of full market values. Overall debt figures, mainly reflecting the addition of city debt, are also low at $1,406 or 2.7% of full property market valuation. The district is not planning on issuing additional debt in the near future. District boundaries encompass the city of Lincoln Park. Lincoln Park is a mature city with an estimated 2008 population of over 35,300 and has a strong employment base in Detroit and surrounding suburbs. Its proximity to Detroit has made it susceptible to the regional concentration in the weakened automobile manufacturing industry. The district's tax base has grown about 2.5% on average over the last three years, but high subprime mortgage exposure and limited development activity have led to contraction in the tax base and the district expects taxable values to decline about 2% in the next year. The unemployment rate in Lincoln Park is high, increasing to 11.8% as of December 2009 from 8.7% a year ago. Although above the national unemployment rate of 9.7%, the city's unemployment rate remains well below the county and state rates of 15.7% and 14.9%, respectively.
Applicable criteria available on Fitch's web site at 'www.fitchratings.com':
--'Tax-Supported Rating Criteria', dated Dec. 21, 2009;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21, 2009.
Additional information is available at 'www.fitchratings.com'.
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Contacts:
Fitch Ratings
Dana N. Sodikoff, +1-312-368-3215 (Chicago)
Ryan
Greene, +1-212-908-0315 (New York)
Media Relations:
Brian
Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com