The city of Butler will be paying more to borrow money after a financial information company knocked down the city's bond rating.

S&P Global released a report Tuesday announcing that it dropped the city's bond rating from “A” to “BBB.”

The company says “A” indicates good-to-medium-grade bonds, while “BBB” indicates medium-grade bonds with “adequate” protection.

The rating applies to the city's series 2015A and 2015B general obligation bonds, which are $565,000 and $6.2 million, respectively.

The 2015A bond is taxable, while the 2015B bond is non-taxable. The bonds were taken out for the Centre City Parking Garage.

“The rate on existing loans won't change, but for future projects the interest might be higher as a result,” said city clerk Mindy Gall.

The rating was lowered based on several factors. S&P Global's report described the city's budgetary performance as “weak,” noting that its general fund operating deficits were $449,000 in 2015 and $346,000 in 2016.

The report called the city's budgetary flexibility “very weak,” and mentioned that the available cash reserve in the 2016 fiscal year was 2.3 percent of operating expenditures, down from 15.3 percent in 2014.

The report's opinion on the city's management was also unfavorable, going from “adequate” to “weak.”

“It is our opinion that though the board receives monthly budget-to-actual reports, given past results, it has not demonstrated its ability to make the necessary budgetary adjustments to address revenue shortfalls through expenditure reductions,” the report stated.

S&P Global said Butler has a “weak economy” and in the last year overall market value dropped by 0.6 percent.

The report also included a profile on Butler's debt and contingent liability. It noted that the city agreed to provide $2 million as a line of credit for the Redevelopment Authority of the City of Butler's 25-percent ownership of the Marriott Springhill Suites. The hotel is expected to open by the fall.

Mayor Tom Donaldson said the city is waiting on a Redevelopment Assistance Capital Program grant that would cover the $2 million. He said he expects the grant will meet the Sept. 7 deadline.

Because of the $2 million debt, S&P Global put a 90-day “credit watch” on the city.

Depending on the resolution of the debt, the bond rating could stay the same or be lowered by one or more notches.

Donaldson likened the rating to a credit rating, and echoed Gall's sentiment that it may have an impact on future loans.

“We'll still be able to get loans, but we probably won't get the sweet interests that we've had in the past,” he said.

Donaldson noted that while there are no major projects the city has currently undertaken, there are still costs the city needs to deal with including police, street and fire equipment, as well as future paving projects.

The report noted that the 2017 fiscal year budget is $8.9 million, and that although revenues have remained flat, expenditures have increased by about 5 percent in the past three years.

“There's been no coherent plan to attract revenue,” said Councilman Michael Walter, who is the director of accounts and finance.

Donaldson said the city needs to put emphasis on its contract negotiations with unionized city employees represented by FOP Lodge 32, IAFF Local 114 and AFSCME Local 757.

Specifically, he said changes need to be made in the city's fire department to save money.

“The system needs to be addressed on how you man this station, how many men you have, how you buy your equipment, what equipment you have (and) how you're going to control overtime,” he said.

The report also spoke of contractual issues.

“The city's three collective bargaining unit contracts expire Dec. 31, which could hinder its attempts at achieving structural balance,” the report stated.

Donaldson said he will make a push for city council members to consider using the city's parking assets to generate revenue.

The idea, according to Donaldson, would be for the city to lease parking to a nonprofit group in exchange for a payment up front and an annual payment based on parking revenues.

The report acknowledged the city's plan to levy a recreation, library and street lighting tax, and that the city expects to gain $109,000 from the Centre City project.

However, the report said these were not enough to address the city's “structural imbalance.”

Walter focused on improving social issues to attract business to Butler.

“To increase revenue, what we have to do is get a hold of the drug problem in town, and eliminate that and get better publicity for the city,” he said.

Walter said the city needs more events such as the Bantam Jeep Heritage Festival.

Donaldson spoke of more extreme measures to get the city out of its financial troubles.

He mentioned Butler being unincorporated so it can become part of Butler Township. He said this would be a “complicated” solution done through a vote.

Donaldson also said he's wary of Act 47, which would declare the city as financially distressed.

“When you got Act 47, now you're paying someone from Harrisburg to tell you how to run your city,” he said. “I'm not in favor of it, but it may be the only option.”