Moody's Investors Service said it has assigned a Aa3 rating to Santa Ana Unified School District, Calif.'s 2012 general obligation refunding bonds in the approximate amount of $19.5 million.

Moody's has also downgraded the rating on the district's outstanding general obligation debt totaling approximately $332.5 million to Aa3 from Aa2 and the district's outstanding lease debt to A2 from A1.

The outlook on all of the district's debt is negative.

The current offering is secured by an unlimited property tax pledge of the district. Bond proceeds will be used to refund the district's general obligation bonds, election of 1999, Series 2002.

The downgrade reflects the recent and projected weakening of the district's financial position. The projected fiscal 2012 and 2013 ending fund balance have declined from historic levels. Moody's anticipates considerable expenditure reductions and several fiscal years will be required to regain budgetary balance and rebuild reserves to historic levels.

The negative outlook reflects the district's limited ability to make expenditure reductions in the current fiscal year should the governor's proposed tax initiative fail, given that negotiations with bargaining units will be required to enact some of the spending cuts.

Additionally, the district has identified approximately $47.0 million in expenditure reductions for fiscal 2014 that may need to be negotiated to maintain fiscal balance, which may be difficult for the district to obtain given the magnitude of the cuts required.

The Aa3 rating reflects the district's large, residential tax base; residents' below-average socioeconomic profile; and modest direct debt burden composed of general obligation bonds and certificates of participation.

The general obligation bonds are secured by the district's voter-approved unlimited property tax pledge. Orange County rather than the district will levy, collect, and disburse the district's property taxes, including the portion constitutionally restricted to pay debt service on general obligation bonds.

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