Moody’s Investors Service on Tuesday downgraded to A3 from A2 the Sulphur Springs Union School District’s $32 million of outstanding certificates of participation, and dropped the district’s issuer rating to A1 from Aa3.

The district is located in an area known as Canyon Country, north of Los Angeles.

The downgrade reflects the district’s weakened financial flexibility as a result of a depletion of its general-fund reserve balance in the current fiscal year, which poorly positions the school for potential state budget cuts in fiscal 2013.

It also reflects the downward trend in year-end liquidity and the district’s reliance on cross-fiscal year note borrowings to maintain a positive general fund cash balance.

Improvements in the tax base in the greater Los Angeles area was deemed a strength by analysts, along with the region’s above-average wealth levels.

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