BRADENTON, Fla. – A small Kentucky municipality's bond rating is sinking under the weight of a city-owned water park.
Somerset saw its general obligation bond rating dropped to Baa2 from Baa1 on Monday, because of park subsidies totaling $7.6 million since 2007, according to Moody's Investors Service.
The financial support from the city's general and sanitation funds was for SomerSplash Waterpark, which opened in 2006 with six water slides and other attractions, including a "lazy river" for tubing and a wave pool.
"The downgrade to Baa2 reflects the further deterioration of the city's financial reserves and consecutive operating deficits that result, in part, from ongoing and substantial general fund subsidy of its water park," said Moody's analyst Kenneth Surgenor.
The hit to the city's GO rating - the second in less than a year that Moody's attributed to the park - affects $11.7 million in rated debt. The outlook remains negative.
Somerset, about 75 miles south of Lexington in Pulaski County, has 11,300 residents.
Although it is a small municipality, Moody's said its operations are "unusual" because the city owns a 155-mile-long gas pipeline that connects eastern Kentucky gas fields to major interstate pipelines.
The pipeline provides "substantial" margins that have heavily subsidized general operations of the city to the extent that tax revenues cover only half of expenses, Surgenor said.
The Gas Department is an enterprise fund that is self-supporting, and does not receive revenues from the general fund, according to the city's 2015 audit.
In fiscal 2015, the general fund received $2.7 million from the Gas Department and $3.1 million from the Water Department, representing 46.5% of general fund revenues.
"Despite the support, the general fund continues to operate in a structurally imbalanced environment," Surgenor said. "A significant decline in enterprise support could jeopardize the city's ability to maintain debt payments without a reduction in city services or a commensurate increase in taxes."
Moody's said its negative outlook, first assigned in September 2015 when the city's GO bonds were downgraded to Baa1 from A1, reflects the uncertainty from the ongoing support of the water park as well as potential risks surrounding the operations of the Gas Department.
The new downgrade "further considers the city's recent management turnover, its weak socio-economic indicators, and elevated pension obligations," according to Moody's.
City officials did not immediately respond to requests for comment.
Somerset also has $9.35 million in unrated GO loans through the U.S. Department of Agriculture that mature in fiscal 2054.
The proceeds were used to build a 38,966-square-foot building for city administration offices, including the Police Department, the City Clerk's Office, Utility Departments, Human Resources and the Energy Department, according to the official statement.
The city of Hillview, Ky. filed for Chapter 9 bankruptcy in August 2015 after losing a decade-long court battle over a soured land deal that resulted in a $15 million liability.
Hillview, a city of about 8,000 residents near Louisville, withdrew its bankruptcy petition earlier this year after reaching a mediated settlement with Truck America during the Chapter 9 process.
The full amount of the settlement was not disclosed.