DENVER -- Moody's Investors Service downgraded Jefferson County School District, Colo., general obligation debt to Baa1 from A because of the tax limitations imposed by Amendment 1.

Amendment 1, passed last year by the state's voters, limits tax and spending increases to the rate of the Denver-Boulder Consumer Price Index. If local governments want to raise either taxes or spending above the Denver rate, the increases must be approved by a vote of the people.

Jefferson schools, which serve a heavily residential outlying area of Denver, were in the process of refinancing $111 million of outstanding, non-insured debt. Investors aware of the situation said that Moody's interest was unusual because Jefferson did not request a rating opinion -- but got one anyway.

Moody's analyst Ditmar Kopf said he learned about the refunding and issued a press release several weeks ago warning of the ratings change. Because of Amendment 1, Moody's considers all Colorado public debt limited obligation debt, not general obligation.

"Our responsibility is to try to retain existing ratings. I wouldn't call it aggressive. It's something we always try to do to keep bondholders informed." Kopf said in a phone interview

Kopf said in his report that legal uncertainties and fiscal constraints remain in the state. A lawsuit involving the Littleton public schools that challenges Amendment 1 requirements could have statewide implications, Kopf said.

Jefferson has about $450 million of debt outstanding. The $111 million in refunding bonds represents the district's uninsured debt. The district expects to its $325 million annual budget to shoulder a 7% deficit.

Kopf noted that the district has limited revenue raising ability under the state's school finance act, which form operating tax rate for sets a uniform operating tax rate for school districts. Jefferson has been trying to offset the deficit by implementing fees. and deferring base and seniority salary increases. The district expects to lose $5 million in state revenue. offset by $2.2 million in revenue from the changes.

While noting that the county's economy has been stable and growing, Kopf said that difficulties could arise from cutbacks in the defense industry, completion of public works projects in Denver, such as the new airport, baseball field, road construction, and private apartment and home building.

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