CHICAGO - An affluent suburb of Indianapolis is eyeing double-digit water and sewer rate increases to raise coverage levels of its outstanding water and sewer bonds.

The mayor of Carmel, a small growing city adjacent to Indianapolis, warned that the water and sewer utility is facing a "revenue shortfall" because rates aren't high enough, according to a report in the Indianapolis Business Journal.

The city last raised rates in late 2011.

Since then, it has dipped into its other funds to cover some water and sewer costs, according to Standard & Poor's.

The possible rate increase comes two weeks after Standard & Poor's downgraded the city's water and sewer debt. It lowered $30.6 million of outstanding sewer bonds two notches, to A-minus from A-plus.

The junior-lien water bonds were hit with a four-notch downgrade, to BBB from A-plus. The unenhanced rating on the senior-lien water bonds, which were issued in 2008 by the Indiana Bond Bank, were lowered three notches, to BBB-plus from A-plus. The senior- and junior-lien water debt totals just under $200 million.

The downgrades reflect declining debt-service coverage and low liquidity, S&P said in the ratings release.

"The rating could face new downward pressure if the utility's financial position were to weaken beyond its already-thin coverage and low liquidity levels," S&P analyst Gregory Dziubinski said.

The sewer system serves roughly 16,000 residents in Hamilton County outside Indianapolis. The water system services 29,000 customers.

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