SAN FRANCISCO — Moody's Investors Service warned Monday that California's expected mid-year budget cuts could result in further school district downgrades.

"Those likely to experience rating downgrades are districts that entered the current fiscal year with comparatively weak reserves and thin year-end liquidity positions," said Moody's analyst Dari Barzel in a report released Thursday.

Moody's said the mid-year budget cuts are all but certain as the state continues to defer district funding from one year to the next, creating cash-flow and budget problems.

It said districts will be especially hard hit this year by the cuts because of weak revenue growth amid stagnant or declining property tax revenues.

Barzel said the downgrades will likely be limited since most districts are prepared and the rating agency has already cut ratings on 21 school districts this year, of which 15 still carry a negative outlook.

Last month, Fitch Ratings also warned of potential fiscal pressure on school districts because of the mid-year cuts.

Gov. Jerry Brown signed a budget in June that achieved balance partly by assuming revenue would come in $4 billion higher than previously forecast. Since revenues have fallen too far below budget assumptions, spending cuts will be triggered to education and other services if the Legislature lets them stand.

According to the state's Legislative Analyst's Office forecast, California will likely be forced to impose a first tier of "trigger" cuts and three-fourths of a second tier of cuts because revenues could come up short.

The LAO said the combined cuts would total $2 billion with $1.4 billion mainly hitting K-12 schools.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.