Moody's Investors Service has downgraded to A3 from A1 the rating on Madison Local School District's (OH) outstanding general obligation debt. Concurrently, a negative outlook has been assigned to the district. The A3 rating and negative outlook apply to $23.9 million of outstanding rated debt.

The outstanding rated bonds are secured by the district's general obligation unlimited tax pledge. The downgrade to the A3 rating reflects the district's very narrow General Fund cash reserves which are projected to deteriorate to below $30,000 at fiscal year-end 2013. Also incorporated in the rating is the district's moderately-sized, stagnant tax base located in northeast Ohio (GO rated Aa1/stable outlook); its socioeconomic profile which approximates state income indices; the district's challenged election history; and its above average debt profile with below average principal amortization. The negative outlook reflects the district's forecasted negative General Fund cash balance trends, with reserves likely to be tremendously pressured in the near term absent new voter approved operating revenues.

• Moderately-sized tax base favorably located near employment centers in the Cleveland metro area
• Socioeconomic characteristics approximate to state levels

CHALLENGES
• Limited voter support for new local operating levies
• Narrow General Fund cash reserves with future annual operating deficits projected
• Elevated direct debt profile with below average principal amortization

OUTLOOK
The negative outlook reflects our expectations that the district's finances will remain challenged over the near term due to low cash reserves and projected future operating deficits. Uncertainty exists in regards to future state funding levels and the district's ability to achieve new voter approved operating revenues. Without significant revenue enhancements, it is likely that the district will face tough expenditure decisions to maintain adequate cash reserves.

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