Moody's Investors Service said it has downgraded DeKalb County School District, Ga.'s $222.9 million in outstanding general obligation debt to Aa3 from Aa2 and revised the outlook to stable from negative.

The bonds are secured by the district's unlimited ad valorem tax pledge.

Concurrently, Moody's has also downgraded $162 million in outstanding certificates of participation (COPs) to A1 from Aa3. The COPs are secured by the district's annually-appropriated rental payments to the Trustee, with additional security provided by a lien on and security interest in the financed facilities from Georgia Municipal Association, Inc. to the Trustee.

The downgrade reflects the district's projection of negative fund balance in fiscal 2012, which is expected to remain negative in fiscal 2013 despite a tax rate increase and budgetary cuts.

Additionally, the downgrade reflects the absence of plan to replenish reserves and Moody's belief that the district will remain challenged to increase reserves in the near term due to limited revenue raising flexibility following a tax rate increase in fiscal 2013 and a significant reduction in staff over the last several years, which we believe may limit the district's ability to reduce expenditures in the near term.

The Aa3 rating also incorporates the district's sizable tax base with above average socioeconomic factors and manageable debt burden.

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