Moody's Investors Service said it downgraded to A2 from A1 the rating of South Whittier Elementary School District, Calif.'s general obligation bonds outstanding in the approximate amount of $19.2 million.

The ad valorem bonds are secured by the district's unlimited property tax pledge. The negative outlook has been removed.

The downgrade primarily reflects the district's extremely narrow liquidity brought on by state funding deferrals, declining enrollment and deficits in earlier years. While the district's financial position is expected to improve slightly due to increasing enrollment and a reduction in apportionment deferrals from the state, the district's liquidity is expected to remain narrow, limiting its financial flexibility. The rating also incorporates the district's growing tax base and manageable debt burden.

The GO 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. 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 general obligation bonds.

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