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Denair Unified Downgraded After Solvency Scare

Denair Unified School District, Calif., narrowly avoided insolvency and a state takeover in mid-December with steep cuts, but still saw a bond downgrade from Standard & Poor's over lowered attendance and weakening finances.

S&P gave a one-notch downgrade to A from A-plus to the district's underlying general obligation bond rating.

The school board approved severe cuts on Dec. 14 that included a 10% reduction to the superintendent's $120,000 salary, 18 teacher layoffs and the closure of a charter school, according to the Modesto Bee.

The rating agency also gave the district, located in central California, a negative outlook on Dec. 21 based on analysts' assessment of the continued uncertainty associated with the district's finances because of budget reductions it expects to implement as part of a recovery plan.

"To the extent the district is challenged to implement components of its recovery plan, which could cause available general fund reserves to deteriorate beyond levels projected in the first interim report, we could lower the rating. We, however, recognize that by implementing budgetary adjustments effective for fiscal 2013, the district has responded to its budget situation quickly," said Standard & Poor's credit analyst Daniel Zuccarello.

To the extent the district successfully implements the additional budgetary adjustments needed to maintain balanced operations and improved reserves that are consistent with state-mandated levels, Standard & Poor's could revise the outlook to stable over the outlook's two-year period, Zuccarello said.

Analysts cited the city's access to the broader employment centers of Turlock and Modesto, income levels and moderate overall debt with no additional debt plans as positives.

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