Fitch Ratings said it has downgraded to A from A-plus King City Union School District, Calif.'s $893,000 general obligation (GO) series 2007B and $3.7 million GO series 2007C.

The rating outlook is stable.

The GO bonds are secured by an unlimited ad valorem tax on all taxable property within the district.

The downgrade reflects a downward shift in financial flexibility due to the loss of Quality Education Investment Act (QEIA) state funding.

During a time of state fiscal distress, the district maintained passable financial performance. The improving state funding environment is expected to strengthen finances in the near future.

The A rating and stable outlook reflect Fitch's expectation that structural balance will be regained in fiscal 2014 and reserves will be maintained at the reduced level.

The local economy is heavily concentrated in the agriculture and food processing industries. Economic indicators are below average.

Large state deferrals have led to declines in general fund cash levels. The governor's fiscal 2014 state budget, if adopted, would reduce deferrals and thus improve the district's cash levels.

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