Fitch Affirms Monterey Peninsula Unified School District's (CA) $7.5MM COPs at 'A-'; Outlook Stable

NEW YORK--(Business Wire)--
Fitch Ratings affirms its 'A-' rating on Monterey Peninsula Unified School
District, California's (the district) $7.5 million in outstanding certificates
of participation (COPs), series 2005. The Rating Outlook is Stable.

The 'A-' rating reflects the district's adequate unreserved fund balance, its
low net debt and management's demonstrated ability to reduce spending in the
face of significant declines in state revenue. The rating further reflects a
long-term negative enrollment trend at the district, which limits the growth
potential of its constitutionally protected revenues derived from the state.

The district's financial position is solid after some volatility earlier this
decade, with a projected $8.5 million in unreserved general fund balance at the
end of fiscal 2009, and a budgeted fiscal 2010 year-end unreserved balance of
$7.3 million (8.7% of projected annual spending and transfers out). The district
has budgeted to cut its general fund expenditures by $14 million (13.7% of
fiscal year 2009 [FY09] spending) for FY10 limiting the drawdown of reserves to
a modest $1.2 million and indicating a managerial commitment to cost control.
Despite this use of reserves, the district entered FY10 with an increased
unreserved general fund balance on a budgeted basis.

Fitch notes that the district's fiscal 2010 budget projects a second consecutive
operating deficit in its general fund, driven by two successive years of
double-digit percentage declines in state and federal funding. In FY10 both
non-revenue limit funding from state and federal aid are projected to fall by
approximately 19%. Although Fitch believes management will continue to
demonstrate its willingness to maintain reserve levels in the medium term should
state revenue continue to decline, the magnitude of reductions will be a
challenge. Reserves are also threatened in the long term by reductions in state
revenue limit funding driven by shrinking attendance, which has declined at an
average annual rate of 1.9% per since the beginning of the decade. Declines have
been more modest in recent years.

The district's overall debt burden is a low 1.1% of total 2008 assessed value,
and there are no immediate plans to issue any further debt. The district has a
significant other post-employment benefit (OPEB) liability. As of March 2007,
its total accrued unfunded liability for these costs was $77.7 million. The
district made no contribution to retiring this accrued liability in fiscal 2009.
Management expects to receive another actuarial study of total liability later
this year.

Located on the central coast of California in Monterey County, the district
encompasses the city of Monterey as well as the adjacent communities of Marina,
Fort Ord, Sand City, Seaside, and Del Rey Oaks. Serving an estimated 110,000
residents within 67-square miles, the district's assessed valuation has grown
strongly in recent years. However, the January 2009 valuation is expected to
show a decline, due to lower housing values and available data that indicate
rates of mortgage foreclosures and delinquencies in the county that exceed the
state average. Wealth levels in Monterey County are broadly in line with medians
for California, and the area's economy depends largely on tourist and leisure
attractions, such as Pebble Beach resort and Cannery Row. The district reports
that so far no major taxpayers or employers have announced large layoffs or
significant reductions in activity.

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.

Fitch Ratings, New York
Tom Cowell, 212-908-9130
Amy Laskey, 212-908-0568
Cindy Stoller, 212-908-0526 (Media Relations)
cindy.stoller@fitchratings.com

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