A billion dollars of debt.
The City of Omaha will pass that milestone sometime next year as it writes fresh IOUs for its massive sewer overhaul and the north downtown baseball stadium.
By the end of 2010, Omaha will owe $2,318 for every man, woman and child. That's four times as much as the city's total debt per capita in 1996, before the city's borrowing began to take off.
Omaha's rising debt is the reason that Mayor Jim Suttle is proposing a property tax hike next year — the first increase in the city's property tax rate since the 2002 budget year.
Suttle said Omaha needs more money to make its scheduled payments on the money it has borrowed for past projects, such as the Qwest Center Omaha.
If approved by the City Council, the rate increase would mean an extra $24 a year in property taxes on a house valued at $100,000.
Is the tax hike a sign that Omaha's debt has become too large?
City officials say no, and others agree. Moody's Investor Service last fall called Omaha's debt “above average, yet manageable.”
But there's no question that the city is borrowing far more than it used to and more than some other cities.
In a local professor's study of municipal debts in 14 cities, including Minneapolis, Kansas City, Atlanta and Des Moines, Omaha's debts ranked higher than all but two or three — no matter which debt comparison was used.
“Obviously, there's been a substantial debt increase,” said Kenneth Kriz, who studies city finances at the University of Nebraska at Omaha. Unlike the federal government, which has seen its national debt soar because of annual budget deficits, Omaha has borrowed to invest in permanent civic improvements.
The city's debt resembles a family taking out a second mortgage to build an addition, while the national debt is closer to using a credit card to buy groceries.
City Councilman Chuck Sigerson said the borrowed money has improved the city's quality of life and has provided amenities that Omaha needs to be competitive, while spreading out the payments over several decades.
He said he is not concerned that the Qwest Center, the north downtown ballpark and other efforts have caused the city's debt per resident to quadruple since the mid-1990s.
“We're four times the city,” Sigerson said. “You couldn't have all this without taking on some debt.”
Omaha officials are wrestling with a number of other financial matters: slumping sales tax revenue, budget cuts, Suttle's proposed entertainment tax and the looming shortfall in the police and fire pension fund.
The city's debt isn't directly related to any of those thorny matters. For example, the proposed entertainment tax is intended to finance basic city services, not repay the Qwest Center bonds.
But it's also fair to say that the city would have more flexibility in dealing with those other matters if it hadn't borrowed as much — just as a too-hefty mortgage can limit a family's spending options. Had Omaha borrowed less over the years, a larger portion of its property tax revenue could be used for city operations instead of debt payments, perhaps eliminating the need for other taxes or budget cuts.
There's no guarantee that Omaha would have retained its AAA bond rating, which Moody's rating service took away last year, if the city's debt had been smaller. Moody's analyst concluded that Omaha's debt burden was “relatively high” but could be handled.
Omaha's rating was hurt more by its pension fund shortfall and its undersized cash reserves — two topics that the city hasn't yet addressed. The rating service did say, however, that Omaha would have a better chance of regaining its AAA status if its debt level were more in line with other top-rated cities.
Regardless of the size of its overall debt, the big matter for Omaha is how to meet its annual payment obligations.
Not all the billion-dollar debt is supported by property taxes or will be repaid by Omaha residents. The new baseball stadium, for example, relies partly on taxes on hotel rooms and car rentals. Sewer improvements will be covered by higher utility fees on users both in Omaha and outside the city limits. And, ideally, hotel revenues will pay off the $109 million debt for the city-owned Hilton Omaha hotel across the street from the Qwest Center.
In contrast, Omaha property owners are on the hook for a large share of the $206 million owed on the Qwest Center itself, which voters approved in 2000. For years, city officials have been talking about the day when the Qwest Center bills — and those for the city's other efforts to spur development along the riverfront and elsewhere — begin to come due.
Now, that day is just about here.
At current tax rates, city officials project, Omaha soon won't have enough money to cover the required debt payments. Projections suggest that the funds might barely make it through 2011.
Suttle's proposed tax increase would bring in about $6 million a year. It would need to remain in place for at least a decade.
The projected shortfall in the debt fund was left for Suttle by his two predecessors, Hal Daub and Mike Fahey, as well as the City Council members who served alongside them. Both former mayors took steps to keep property taxes low, postponing the time when Omahans would have to pay for the Qwest Center.
Daub championed the Qwest Center project and told voters that the new facility would not cause the property tax levy to rise, but some of the financial assumptions he used didn't pan out. During his last year in office, after voters approved the project, Daub and the City Council dropped property tax rates sharply, including reductions for the debt service and redevelopment funds.
After Fahey defeated Daub, he and the City Council increased property taxes slightly in 2002, then left them unchanged until now. Suttle served on the council from 2005 until he was elected mayor in May.
Fahey avoided a tax increase for the Qwest Center debt by refinancing the bonds and putting off principal payments until 2012. He also deferred other projects that would have added to the city's bond debt, and he lobbied the state for added money to help repay the Qwest Center debt.
The growing property tax base brought in extra money without the need for a change in the tax rate.
“We consciously were putting this off as long as we thought we could,” said Carol Ebdon, who was Fahey's finance director and remained in the job under Suttle until last Friday. “Nobody wants a tax increase.”
Sigerson agreed with that sentiment — but isn't convinced that it has to happen this year.
Ebdon said a delay in raising the tax rate will mean a bigger increase a year from now.
“I'm not shutting the door,” Sigerson said. “But I'll have to be sat down and shown that there is no other way. I don't want to raise them early just for convenience.”
Contact the writer:
444-1114, paul.goodsell@owh.com
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