Moody’s Investors Service downgraded Lake Tahoe Unified School District, Calif. general obligation bonds to A1 from Aa3, based on weakened finances.

The rating, which applies to about $80 million of the district’s outstanding bonds, has been removed from negative outlook.

“The downgrade primarily reflects the district’s narrow liquidity and weak reserves brought on by state funding deferrals and year-over-year enrollment declines,” analysts said in a recent report.

While the funding environment for the district is expected to improve slightly due to stable enrollment and a reduction in funding deferrals from the state, it will likely take a while to replenish its reserves back to levels consistent with medians, Moody’s said.

The rating also incorporates the district’s moderately-sized tax base, average residential wealth levels, and a management debt burden, which Moody’s considers to be above average.

The district is located on the California side of the Lake Tahoe Basin, and provides primary and secondary education to over 3,800 students in the city of South Lake Tahoe and portions of El Dorado County.

“The general obligation rating also reflects the strength of the voter-approved, unlimited property tax pledge securing the bonds and the well-established levy and collection history for the debt service levy,” analysts said. “This supports the credit quality of these bonds, somewhat offsetting the risk of any future financial weakness.”

The county, rather than the district, levies, collects, and disburses the district’s property taxes, including the portion constitutionally restricted to debt service on GO bonds.

Moody’s could further drop the district’s rating if there is a protracted decline in reserves, continued narrowing of liquidity, or significant deterioration in socioeconomic measures.

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