Plans for a new downtown parking garage have been flattened.

The city parking authority Wednesday night approved a tentative agreement for the developer of the Centre City project to build a 75-space surface lot instead of the previously proposed 225-space garage.

The lot, which will be on the corner of South McKean and East Cunningham streets, will not be open to the public, but instead will be reserved for guests of the new 75-room Marriott Springhill Suites hotel to be built next door.

The authority said the proposal for a flat lot is a safe, cost-saving measure.

“This agreement is a tremendous victory for the taxpayers of Butler,” said authority treasurer Jeff Smith.

The original plan for the 225-space garage left a projected shortfall of more than $100,000 per year in revenue that would have required increased parking rates or other measures, Smith said.

The surface lot is expected to generate about $15,000 per year for the authority.

J.S. Capitol Construction is the developer of the Centre City project, which includes most of the block surrounded by South Main, South McKean, East Jefferson and East Cunningham streets.

The project also features a new Rite Aid Pharmacy under construction on Main Street.

Authority Chairman Jim Chiprean and Smith met with Jeff Schmitz, the owner of J.S. Capitol, earlier this month to discuss parking for the hotel, which had its financing approved last month.

Smith said the group discussed three space options: the previously proposed 225-space garage, a smaller 150-space garage, and the flat surface lot. Both garage plans offered parking for the public and hotel guests.

The largest garage carried an estimated price tag of $4.5 million while the smaller structure was estimated to cost $3 million.

The flat lot is estimated to cost $450,000.

“Everyone involved quickly reached the same conclusion on which one was the best for the city,” Chiprean said.

Financing for the flat lot is estimated at 6 percent interest over 20 years through a conventional loan, Smith said. Annual interest would be about $12,000, while the annual principal payment would be about $22,500. The monthly payments on the project would be about $2,900.

A garage would have been financed by a bank bond loan through PNC Bank, which was approved by council last year. Smith estimated the annual principal payments on the 150-space and 225-space garages to be $150,000 and $225,000, respectively.

The authority would be on the hook for monthly payments of more than $13,000 and $19,000 for the two garages.

J.S. Capitol will pay the authority $4 per space for a daily rate on the lot. It will only pay for spaces used, meaning there is no guarantee how much money the authority will receive from the developer.

The proposed per-space rate for the garages was $6, as discussed at city council meetings last year.

Smith used a 50 percent occupancy rate scenario for the hotel to predict revenues for each option.

With a 50 percent occupancy rate, the flat lot would be projected to have a revenue of about $55,000 per year. The garages would have annual revenues of about $105,000 and $127,000.

Deducting the annual payments for each option, Smith estimated the flat lot would earn the authority about $15,000 per year. The garages would have losses of $63,000 and $115,000 that the authority would need to make up through rate increases or other measures.

The figures include a $5,000 annual maintenance cost for the flat lot and a $10,000 cost for the garages.

While the lot may be less of a burden for city taxpayers, it will result in a loss of parking downtown for the public.

The authority had more than 150 parking spaces in the block before the development of the Centre City project. It originally planned to replace those spaces through the parking garage.

While that option is being bypassed, Chiprean said that is an issue the authority can look to solve through additional parking lots.

“I’m already looking at other properties in that area,” he said.

Chiprean said the authority already has rented additional spaces from the Covenant Church and bought additional lots next to the city building.

Smith said there are still other options for the authority to add parking downtown.

“People look at this as the last swing to put a parking downtown,” Smith said. “In reality, there are other spaces for surface lots.”

Smith added a garage could always be developed on the lot later if the project develops economic growth in the area.

“This gets the hotel project under way without any other risk,” Smith said of the flat lot.

J.S. Capitol will build the parking lot then sell it to the authority, likely with about a 10 percent fee to its construction cost.

Smith said the developer recommended the flat lot, but was fine with any of the options as long as the hotel had its parking.

The authority board members discussed the pros and cons of the idea. While a concern over losing the spaces downtown was present, the financial relief from the initial proposal prompted each board member to vote for the flat lot.

City property owner Joe Gray expressed concerns to the board about the proposal.

“This means (numerous) spaces will go away downtown,” he said. “How do you compensate the businesses that relied on that parking?”

Gray, a board member of the city redevelopment authority, which will be a 40-percent owner in the hotel, called the move “short-sighted” and said it didn’t express faith in the overall project.

“You’re betting on the project to fail rather than succeed,” he said.

Mayor Tom Donaldson told the board he favors the surface lot option.

“I feel uncomfortable spending $5 million on a parking garage,” he said. “We want the hotel to succeed, but we don’t want the taxpayers to be left with an anchor around their necks.”

The mayor said after the meeting that the city is not in a position financially to risk millions of dollars on a parking garage.

“The city just doesn’t have extra money to spend,” he said. “And there are a lot of places in the city to park.”

Councilman Kathy Kline, who also attended at the meeting, agreed with Donaldson.

Smith said the parking is the final hurdle the developer needs to clear before it can begin construction on the hotel. He guessed the developer would break ground sometime after the board ratifies the agreement at next month’s meeting.

J.S. Capitol was approved for a $3 million bank loan from NexTier Bank in August. The new Rite Aid is set to open next month.