|[April 02, 2014]
Fitch Affirms Carmel Unified School District, CA's GOs at 'AAA'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has affirmed the 'AAA' rating on outstanding unlimited tax
general obligations (ULTGO) bonds of the Carmel Unified School District
(the district) as follows:
--Approximately $2.0 million general obligation (GO) bonds, series 2002;
--Approximately $9.7 million general obligation (GO) bonds, series 2006;
--Approximately $10.4 million GO bonds, series 2008.
The Rating Outlook is Stable
The bonds are secured by an unlimited ad valorem tax pledge on all
taxable property within the district.
KEY RATING DRIVERS
WEALTHY ECONOMIC PROFILE: The district's local economy is anchored in
high-end tourism and characterized by low unemployment and very high
BASIC AID DISTRICT: As a basic aid district, its locally-generated
revenues are well in excess of the state's minimum funding guarantee. As
such it is insulated from state funding volatility.
STRONG FINANCIAL POSITION: The district's finances remain very strong
despite some use of reserves to fund both operations and one-time
TAX BASE CONTINUES TO GROW: Taxable assessed value (TAV) declined in
only one fiscal year 2011 before returning to growth in fiscal year
2012. Growth in fiscal 2014 brought TAV to a new high. The district
expects continued growth of 3 - 4% annually, consistent with current and
MODERATE DEBT LEVELS: The district's overall debt burden is expected to
remain moderate. Pension costs will likely rise over the next several
years, subject to future state legislative action, to address
substantial unfunded liabilities.
The rating is sensitive to shifts in fundamental credit characteristics
including the district's strong financial position. The Stable Outlook
reflects Fitch's expectation that such shifts are highly unlikely.
Carmel Unified School District serves the beach community of Carmel and
unincorporated portions of Pebble Beach, Carmel Valley, and Big Sur. The
district is located 54 miles south of San Jose in northern Monterey
County. As of 2014, the district serves a population of 23,000 and had
enrollment of 2,356.
STRONG FINANCIAL POSITION
The district's financial position remains very strong, despite multiple
years of general fund draws that have mostly been driven by one-time
capital projects. Four consecutive years of general fund draws are
projected to lower unrestricted general fund balance from $23.3 million,
or 59% of general fund spending, in fiscal year 2011 to $11.9 million,
or 26% of spending, in fiscal year 2014.
The district's second interim report conservatively estimates total
ending balance in fiscal year 2016 of about $11.4 million, or a still
very strong 25.8% of spending. This represents fund balance draw-downs
of about $10.2 million in fiscal year 2014 and $512k in fiscal year
2015. The large draw in fiscal year 2014 is driven by a $7.3 million
transfer out of capital and deferred maintenance funds. The district
expects to balance general fund operations without non-recurring sources
in fiscal year 2016, which Fitch considers reasonable given the
district's conservative revenue growth projections and large degree of
unutilized expenditure flexibility.
BASIC AID DISTRICT
The district is one of few school districts in California to qualify for
basic aid, whre locally generated tax revenue per student exceeds what
the state guarantees per revenue limit. Unlike the majority of school
districts in the state, the district's primary revenue source is
property tax revenue, which makes them less vulnerable to state funding
changes but more vulnerable to TAV changes. Locally generated tax
revenue in fiscal year 2013 was nearly 66% higher than what would have
been guaranteed to the district under the state's revenue limit formula.
WEALTHY LOCAL ECONOMY
Monterey County employment is concentrated among the tourism,
governmental, and agricultural sectors, and the Carmel area is
especially dependent on leisure and tourism. While county and state
unemployment rates are high (11.0% and 7.9% respectively for December
2013), district area rates are much lower. According to state data,
Carmel's February, 2014 unemployment rate was 2.4%. TAV per capita in
the district is a very high $571k in fiscal year 2014. Per capita money
income within the district is over twice the state and national averages.
The district's TAV declined by about 5% in fiscal year 2011.
Valuation returned to growth in fiscal year 2012 and has experienced
7.6% total TAV growth from the decline in fiscal year 2011 through
fiscal year 2014, and reached a new high in fiscal year 2014. The
district expects 3 - 4% TAV growth per year over the near-term, a
projection that is based on the assessor's estimates. Fitch believes
that these projections are reasonable given the district's active
housing market and historical/current trends.
MODERATE DEBT BURDEN
The high debt per capita in fiscal year 2014 of $7,169 reflects a large
seasonal (and thus non-resident) population. Debt to market value is low
at 1.3% and is more reflective of the district's overall leverage. The
district amortizes debt at an average pace, with 54% of debt retired
within the next 10 years. The district is currently assessing capital
needs, which appear to be manageable and would most likely be funded
through combination of pay-go and local grants. Fitch does not expect
the district's debt profile to change over the near-term.
The district participates in two state-sponsored employee pension plans
and is likely to face ongoing increases in contribution rates to address
substantial unfunded liabilities.
Funding for the California State Teachers Retirement System (CalSTRS) is
a particular concern, as statutory contribution rates remain well below
the level required to amortize existing obligations. The district offers
other post-employment benefits (OPEB) but its unfunded OPEB liability is
very low at approximately $12.1 million (0.1% of fiscal year 2014 TAV)
as of the most recent valuation on June 1, 2013. Carrying costs for debt
service and retirement benefits are manageable (11.9% of governmental
expenditures in fiscal 2013) but are likely to rise over the next
several years given pension funding pressures.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS (News - Alert) Global Insight, National
Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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