Fitch Ratings said it has downgraded Marion County School Board, Fla.'s $99.5 million certificates of participation to A from A-plus and the implied general obligation rating to A-plus from AA-minus.

The rating outlook is revised to negative from stable.

The COPs are payable from lease payments made by the district, subject to annual appropriation of the school board under a master lease purchase agreement. The district is required to appropriate funds for all outstanding leases on an all-or-none basis. In the event of a non-appropriation, the district must surrender possession of all leased facilities under the master lease to the trustee for disposition by sale or re-letting of its interest in the facilities.

The downgrade of the implied GO to A-plus reflects the substantial erosion of the district's reserves and concomitant loss of financial flexibility as a result of ongoing fiscal imbalances which have yet to be adequately addressed. Depletion of remaining federal stimulus funds and a failed referendum for an additional operating tax levy magnify the pressures upon operations.

The outlook revision to negative is based on Fitch's expectation that finances will weaken further over the near term as management grapples with a persistent budgetary deficit relying almost exclusively on additional cuts in spending.

The one-notch rating difference between the implied unlimited tax GO and the COPs recognizes the non-appropriation risk inherent in the COPs structure. Master lease provisions including an all-or-none appropriation requirement, a leasehold interest on a significant number of essential schools and reliance upon COPs financing serve to mitigate the potential for non-appropriation.

Since fiscal 2008, the district's tax base has fallen by 31%, including a 6% drop in the present fiscal year, reflecting the severe slide in housing values.

District debt levels are modest and are expected to remain so given the absence of any plans to issue new debt and rapid amortization of existing bonds.

The district's economic base remains somewhat limited and exhibits below-average levels of income and high unemployment.

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