Fitch Ratings downgraded California’s Santa Clarita Community College District to AA from AA-plus and revised the outlook to negative from stable.

“The downgrade to AA for outstanding GO debt and AA-minus for outstanding commercial paper is based on the significant operating deficit projection for fiscal 2012, which stems from the district’s inability to offset deep cuts in state funding for community colleges,” according to the Fitch report.

The district plans to issue $35 million of general obligation bonds this month.

Proceeds will be used to refund a portion of the district’s 2006 certificates of participation and finance the construction of a student services-administration building.

The Fitch downgrade affects $141.7 million of outstanding GO bonds. Concurrently,

Fitch downgraded $33.4 million of outstanding COPs to AA-minus from AA.

The GOs are general obligations of the district, payable solely from the proceeds of ad valorem taxes, without limitation as to rate or amount.

The COPS are limited obligations secured by lease rental payments for the use of certain district properties, subject to abatement.

They are additionally supported by the district’s covenant to budget and appropriate lease payments.

The negative outlook reflects uncertainty associated with the district’s fiscal 2013 budget and management’s plans for restoring balance, according to Fitch analysts.

Further state revenue cuts, in combination with ongoing cost pressures, will challenge the district’s ability to maintain adequate reserves in fiscal 2013.

State revenues, which provide nearly two-thirds of the school district’s general fund support, declined sharply in fiscal 2012.

The potential for greater cuts exists if state voters turn down a proposed tax increase in November 2012.

The district has little ability to raise revenues and faces rising cost pressures related to employee salaries and benefits, despite recent reductions in enrollment.

The district benefits from its access to and participation in the broad Los Angeles regional economy, and appears to be on the path to recovery.

Management’s inability to implement significant recurring solutions to the school district’s budget gap in fiscal 2013 would likely result in additional negative rating action, analysts said.

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