The city of Butler’s bond rating was downgraded for the second time this year due in part to the delayed completion and opening of the Marriott Springhill Suites in the Centre City project.

The lowered bond rating means the city would face higher interest rates if it needed another bond issue and those bonds would be less appealing to investors due to the high risk.

S & P Global Ratings recently lowered the rating on the city’s 2015A and 2015B general obligation bonds by two levels from BBB, which signifies medium grade investment bonds, to BB+, which signifies noninvestment grade junk bonds.

S & P also placed Butler on credit watch with negative implications.

In June, S & P lowered the rating from A, which indicates good to medium grade investment bonds, to BBB.

“The downgrade reflects our views of the city’s very weak liquidity due to its guarantee of a line of credit for the (city) redevelopment authority, exposing it to non-remote contingent liabilities accounting for over 25 percent of its general fund revenues.

“It also reflects our view that the city’s current liquidity is very thin and will not be able to withstand this liability,” according to S & P.

Butler borrowed $2 million and guaranteed the loan for the hotel project. The money will be repaid with a state Redevelopment Capital Assistance Program grant, but the state won’t release the grant money until the hotel is completed.

At the Redevelopment Authority of the city of Butler meeting this week, the hotel developer said the work will be done Nov. 1.

The authority agreed to begin making the loan payments on Dec. 7. It has been making payments on the interest, officials said.

Completion of the hotel has been delayed several times since construction began in November 2015 and the estimated project completion has been moved to November 2017 from August 2017.

“Furthermore, we believe the city lacks any credible plans to finance this obligation should there be any funding disruptions or if there is no extension by the bank on the line of credit,” according to S & P. “To date, the city has not appropriated any funds from its budget for this liability and failed to plan the payment of the loan prior to its maturity on Sept. 7, 2017. Although the loan was extended to Dec. 6, 2017, it was processed after the payment date and not in advance as was done previously.”

“Once RCAP grant is paid, then the loan will be paid, then there will be no liability on the city or authority,” Mayor Tom Donaldson said.

He said he is disappointed that construction has taken longer than expected, but the end is in sight.

“There’s very little (work) left to do. They’re still on track to open the first of November. I’m disappointed it took this long,” Donaldson said. “The Marriott is a first-class hotel. It will be a great asset to downtown. Hopefully we’ll have it open before the Christmas parade.”

“Our bond rating went down twice this year on account of this hotel,” said Councilman Michael E. Walter, the director of accounts and finance.

However, the hotel wasn’t the only factor in the bond rating.

The Centre City parking garage and the city’s pending employee contracts affected the rating, he said.

Contract negotiations with unions representing the police department, fire department and the clerical, parks and street department employees are ongoing, Walter said.

“We’re negotiating them right now. Hopefully the contracts will come out in such a way that is fair to all parties concerned,” Walter said.

The 2015A bond is $565,000 and the 2015B bond is $6.2 million. The 2015A bond is taxable and the 2015B bond is non-taxable. Both were taken out for the Centre City parking garage.

The city has been making the interest payments and will begin making full payments next year, Donaldson said.

If the city can’t repay the bonds, the only options are raising the debt service tax or parking fees, he said.

Those payments will come from the guaranteed payments of a little more than $100,000 a year the developer will pay for leasing 50 parking spaces a day in the garage for $5.50 a day, he said.

Even if everything goes as planned, S & P isn’t likely to raise the city bond rating until its overall financial health improves, Donaldson said.

Walter said the city won’t need any bond issues in the near future.

“Hopefully, by the time we do, everything will be OK and the bonds will be more desirable to buy,” Walter said.