OREANDA-NEWS. 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 $1.1 million general obligation (GO) bonds, series 2002;
--Approximately $9.4 million GO bonds, series 2006;
--Approximately $10.3 million GO bonds, series 2008.

The Rating Outlook is Stable.

SECURITY
The bonds are backed 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 wealth levels.

BASIC AID DISTRICT: As a basic aid district, local property tax generated revenues of Carmel USD (approximately $42 million in fiscal year 2015) are well in excess of the state's minimum funding guarantee (approximately $15 million in 2015). As such the district is insulated from state funding volatility.

STRONG FINANCIAL POSITION: The district's finances remain very strong.

TAX BASE CONTINUES TO GROW: Taxable assessed value (TAV) continues strong growth, with an increase of over 5% in fiscal 2014 followed by a nearly 7% gain in fiscal 2015. TAV growth is attributed to home turnover in the district.

MODERATE DEBT LEVELS: The district's overall debt burden is expected to remain moderate. Pension costs will likely climb over the next several years, subject to future state legislative action, to address substantial unfunded liabilities.

RATING SENSITIVITIES
The rating is sensitive to any material shifts in the district's strong financial position. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE
Carmel USD 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 2015, the district served a population of approximately 24,000 and had average daily attendance (ADA) of 2,384 versus a 2014 ADA of 2,370. Future ADA is projected to remain flat.

STRONG FINANCIAL POSITION

The district's financial position remains very strong. The district maintains reserves for economic uncertainties at 5% of expenditures, exceeding the state mandated minimum of 3%. Additionally, board policy has established a basic aid reserve of no less than 10% of the differential between property tax revenues and the district's revenue limit as defined by state formula.

With a fiscal 2015 unrestricted fund balance of $15.8 million (32% of spending), a separate 'Special Reserve for Capital Outlay Fund' in the amount of $7.2 million, and a basic aid reserve of $9.2 million, the district has significant financial resources in the event of unanticipated revenue loss. A large degree of expenditure flexibility also contributes to the district's strong financial position. The unrestricted general fund balance is projected to remain unchanged at the end of fiscal 2016.

BASIC AID DISTRICT

The district is one of few school districts in California to qualify for basic aid, where 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. This status reduces vulnerability to state funding changes but increases vulnerability to TAV changes. Locally generated tax revenue in fiscal 2015 was nearly 64% 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 (9.1% and 7.5% respectively for 2014), district area rates are much lower. According to state data, Carmel's unemployment rate was 2.4%. TAV per capita in the district was a very high $635k in fiscal year 2015. Per capita income within the district is more than twice the state and national averages.

MODEST DEBT BURDEN

The high debt per capita in fiscal year 2015 of $6,875 reflects a large seasonal (and thus non-resident) population. Debt to market value (TAV) is low at 1.1% and is more reflective of the district's overall leverage. The district amortizes debt at a rapid pace, with 68% of debt retired within the next 10 years. The district is currently assessing capital needs, but does not anticipate the need for a bond issuance in the near future. 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 $11.9 million (0.08% of fiscal year 2015 market value). Carrying costs for debt service and retirement benefits are manageable (11.5% of governmental expenditures in fiscal 2015), but are likely to increase over the next several years given pension funding pressures.