PHOENIX - Standard & Poor's revised its outlook to negative from stable on Live Oak School District, Calif. general obligation bonds.

The rating agency on Oct. 1 also affirmed its AA-minus underlying rating on the Santa Cruz County district.

The roughly five-square-mile district serves an estimated 23,000 residents, including much of Santa Cruz and adjoining unincorporated areas.

The district has issued about $20 million of GO bonds since 2003, according to EMMA filings. The district's most recent continuing disclosure filing posted in June 2014 shows that available reserves have dipped for at least two years, falling from 17% percent of total general fund expenditures in 2012 to less than 2% as of the most recent disclosures.

"The outlook change reflects our view of a weakening trend in reserves, even though state funding for grade K-12 districts is improving," said S&P credit analyst Chris Morgan. "Due to the lack of a plan to rebuild reserves and the costs associated with employment contracts that provide for compensation increases through fiscal 2017, we believe that the district's reserves may not return to historically very strong levels.

"The negative outlook reflects our view that the district may have entered a period with good rather than strong-to-very strong reserves," added Morgan, "and stabilization at levels close to the fiscal 2014 and 2015 levels could lead us to lower the rating during the next two years."

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