NEW YORK - Moody's Investors Service said it has downgraded to A1 from Aa3 the general obligation bond rating for La Mesa-Spring Valley School District, Calif.

The outlook on the rating is negative.

The downgrade is based primarily on the district's deteriorating cash deficit and ongoing operating imbalance. The district's cash deficit is substantial, entails multiple external borrowings within the fiscal year to fund operations and has progressively worsened.

The district's weak cash position is of particular concern given the challenging environment for California school districts, one characterized by continued state cash deferrals and funding cuts.

The district's ongoing imbalance between revenues and expenditures has depleted reserves and threatens to do so further if insufficiently resolved.

The A1 rating incorporates the district's current access to local government rather than market sources for liquidity, favorable debt profile, location within the San Diego metropolitan area and moderately large property tax base.

The negative outlook reflects the uncertain ability and willingness of the district to enact solutions sufficient to achieve fiscal balance -- on both a cash and GAAP basis -- in order to reduce reliance on external sources for liquidity and avoid further operating draws on reserves.

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