Standard & Poor's Ratings Services has lowered its long-term rating, underlying rating, and school issuer credit rating on Deer Lakes School District, Pa.'s general obligation bonds to A-plus from AA-minus due to a significant decline in the district's financial position in recent fiscal years and a large decrease in the tax base due to commercial tax appeals that resulted in lower tax revenue, which is the district's major source of revenue.

The outlook is stable.

The rating also reflects Standard & Poor's view of the district's: consistent use of fund balance to mitigate state and federal aid cuts, leading to a decline in the general fund balance position; moderately concentrated tax base, coupled with adequate property wealth levels; and moderately high debt burden, coupled with slow principal amortization.

Factors that Standard & Poor's believes partially mitigate these weaknesses are the district's: mostly residential community, participating in the Pittsburgh metropolitan statistical area's (MSA) deep and diverse economy, coupled with strong income levels; and currently good general fund balance levels despite consecutive drawdowns.

The stable outlook reflects Standard & Poor's view of the district's participation in the diverse Pittsburgh MSA.

It also reflects management's attempts to preserve its fund balance in light of rising pension costs, which are expected to pressure future budgets.

With the limited revenue-raising flexibility due to the ACT 1 legislation and the decrease in the tax base, Standard & Poor's expects that management will make the necessary budgetary adjustments to achieve break-even or better results in the general fund.

Despite the moderate debt levels, with no additional debt plans, Standard & Poor's believes district officials will be able to maintain a manageable debt burden.

A failure to close with positive operations in fiscal 2013 combined with the use of fund balance in fiscal 2014 to balance its budget may put downward pressure on the rating.

However, Standard & Poor's believes that an improved rating will be contingent upon an increase in market value per capita to levels commensurate with the previous rating and management's ability to consistently improve and maintain its fund balance to levels it considers strong.

Deer Lakes School District serves an estimated population of 14,640 in Allegheny County and is located approximately 20 miles northeast of the city of Pittsburgh. Enrollment is 1,929 in fiscal 2012.

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