With the cost of the Duck River Dam skyrocketing due to some unforeseen geological concerns at the site, Standard & Poor’s has lowered its outlook on the Cullman Utilities Board’s debt from “stable” to “negative.”

Following a full-scale engineering study over the past several months, the utilities board received word that the total cost of the project is expected to jump from $70 million to approximately $110 million due to less-than-favorable geology and higher flood standards than originally anticipated.

To cover the shortfall, officials are preparing some larger-than-expected rate increases for customers in the coming years.

Considering the surprising jump in cost, financial rating agency Standard & Poor’s took another look at the situation and decided to downgrade the debt issues.

“The negative outlook reflects the board’s significantly higher debt needs for the completion of the Duck River reservoir project than what management previously anticipated,” S&P analyst Alexander Vargas said in a statement.

Though the outlook on debt service has been lowered, S&P did not lower the utility board’s current ‘A’ rating.

The analysis goes on to note  the “potentially rapid increase” in debt service requirements for fiscal year 2015 could further stress already thin coverage levels for the city’s water system.

The downgrade is largely centered on the lingering uncertainty over the project’s exact cost, which will not be known until it goes out to bid next year. Vargas noted that further developments could improve — or worsen — the agency’s outlook on the city.

“Should financial metrics including debt service deteriorate from its historically good levels, we could lower the rating,” S&P wrote in its report. “Conversely, should DSC levels remain adequate throughout the completion of the Duck River reservoir project, we could revise the outlook back to stable.”

Cullman city clerk Wes Moore said the revision wasn’t much of a surprise, and essentially means S&P will be watching the situation over the next few years to see how the city proceeds.

“The thing is, it just came out higher than anyone anticipated,” Moore said. “I think it’s something they’ll watch, and they could change it back depending on how it goes.”

City council president and utilities board member Garlan Gudger, Jr. agreed the updated outlook “makes sense” under the circumstances.

“They just need to wait and see to make sure it will balance,” he said.

The dam project has been in the works for more than a decade, after being permitted by the U.S. Army Corps. of Engineers than subsequently delayed by environmental challenges that have since been resolved. Once complete, the project will create a 640-acre lake with a 32-million-gallon-per-day capacity in northeast Cullman County, which will work in conjunction with the area’s current sole major water source Lake Catoma.

Trent Moore can be reached by e-mail at trentm@cullmantimes.com, or by telephone at 734-2131, ext. 220.