Fitch Ratings this week revised its outlook to negative and affirmed its BBB-plus rating on general obligation debt issued by the Cleveland Municipal School District. The action affects $150.3 million of GOs issued in 2002 and 2004.

The district serves the city of Cleveland — which saw its general obligation debt downgraded to A3 and assigned a negative outlook by Moody's Investors Service last week — and has suffered big drops in its student enrollment over the last several years.

Without changes, the district could face a deficit of nearly $53 million in 2011, according to the district's own five-year forecast.

Fitch analysts said the negative outlook reflects a structural imbalance and lack of reserves. Aggravating the weak fiscal position is declining enrollment and a lack of voter support for operating levies.

School officials are beginning to implement a transformation plan that includes school closures to eliminate the deficit.

"Financial metrics are weak, although the management has taken strong action recently to reduce spending and is well aware of the need to improve financial performance," analyst Melanie Shaker wrote in a report. "Much rides on the district's recently approved transformation plan and the outcome of bargaining unit negotiations."

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