Omaha voters OK $333.4 million of new GO debt

Bloomberg News

Omaha voters approved six general obligation bond measures totaling $333.4 million last week.

Omaha Finance Director Stephen Curtiss told The Bond Buyer the city made it clear to voters that "we have no intention of raising taxes to fund these bonds [and will instead be] using capacity from other retiring bonds."  

The bonds will fund new vehicles and gear for first responders, improve parks, upgrade storm sewers and reduce flood risks, speed up street repairs, complete road projects, and build downtown police and fire stations, as well as expand the city's convention center.

"The approval of this bond issue will not incur any increase in the debt service tax levy rate of the city of Omaha over that levy increase which was approved in 2020," the bond ordinances said.

"We have a long track record of doing that, so our citizens trust these issues," Curtiss said. "We look at it as a referendum on the current administration which is being viewed very positively by the citizens."

City Council member Brinker Harding noted that the largest of the six measures, for $146 million, includes $100 million of funding for the renovation and expansion of the city's convention center, the CHI Health Center Arena.

"We really think that's an important project, because when CHI was originally built, we were very competitive in attracting conventions," he told The Bond Buyer. "And as time has gone on, others have come into the market and have expanded their facilities… [Today,] we're really at a competitive disadvantage."

In the long run, he said, the expanded convention center will generate more revenue than it does today by bringing additional business into Omaha.

The total cost of the convention center project is $200 million, and Harding said Omaha plans to leverage public-private partnerships to cover the remaining costs.

"What's really unique about Omaha and one of the reasons why we have been very successful is… we have an incredible philanthropic community that's been willing to invest in Omaha," he said. "There's a local match from the philanthropic and charitable communities for the additional $100 million. We just did a $400 million renovation of our downtown parks, and I'd say about $350 million of that came from the philanthropic community… That continued interest in investing in Omaha by our partners is something that helps us continue to grow."

There's also a public safety bond for a new police precinct and a new fire station, both downtown — a reflection, Harding said, of a recent influx of new residents into downtown Omaha, due in part to an uptick in multifamily projects and a streetcar project.

With their vote for the bonds, "the citizens of Omaha sent a clear signal that they understand both the projects and the need to keep funding them to keep moving our city forward," he said. "With basically a 70% approval for every one of them, it sends a strong message that people understand how the process works and the importance of having that ability to issue bonds to pay for large capital projects." 

Moody's Ratings rates the city and its limited tax and unlimited tax GO bonds Aa2. The rating agency upgraded the city's special obligation bonds to Aa2 from Aa3 in October, citing its updated cities and counties rating methodology. The outlook is stable. 

S&P Global Ratings rates Omaha AA-plus across the board. The outlook on all ratings is stable.  

"Omaha's general credit characteristics reflect our view of the city's function as a regional economic center supported by strong principal employers, a robust housing market, relative affordability and population growth, which together drive the expansion of the city's major revenue streams, namely property and sales taxes," S&P credit analyst Malcolm Simmons said in a statement. "Omaha's relatively low cost of living and strong business climate continue to make the city an attractive target for firms looking to expand and relocate their operations."

In an Oct. 4 rating action, Moody's pointed to Omaha's consistently strong economic growth and position as the economic and population center of Nebraska. It said the city's financial operations are expected to remain solid and revenue-raising flexibility and revenue performance are likely to remain strong. But the rating agency also noted the city's high liability burden and fixed costs.

"The long-term liabilities ratio exceeds 350% of revenue and the associated fixed costs hover around 20% of revenue, both of which will remain a relative weakness at the Aa2 rating," it said.

The city had roughly $1 billion in debt associated with governmental activities and just over $410 million in enterprise-related debt as of last month.

"One of the relative challenges at the Aa2 rating is a higher long-term liabilities ratio — so not just debt, but retirement liabilities, pensions and things like that," said Ben VanMetre, an analyst in the U.S. public finance group at Moody's. "For Omaha, it's around 350%; nationally, at the Aa2, it's typically closer to 250%. So we do have a higher liabilities ratio in Omaha. 

"On the size of this debt issuance, I think it's important to think about it in the context of the city's bigger credit profile," he added. "The nominal amount of the debt is bigger than what voters approved a couple years ago, so that did go up… [but] looking at all the governmental activities, all the enterprise activities, for the city of Omaha, in 2023, that totaled about $1 billion in revenue. So the $300 million in debt relative to $1 billion in revenue is about 30%." 

VanMetre noted that Omaha structures its debt with a descending debt service schedule, the idea being to create capacity, continue addressing capital needs and continue issuing more debt while managing to wrap that debt around the descending schedule and achieve a level debt service over time. In that way, he said, Omaha has built in some flexibility to issue new debt without tax increases.

Specifically, he said, Omaha's debt service schedule for GO debt puts annual debt service for 2023 and 2024 at around $90 million. Over the next two decades, debt service on existing debt will drop down to about $4 million. 

"These bonds will be issued over the next few years," said Omaha's Curtiss of the $333.4 million approved by voters last week. "We are still working our way currently through previously authorized GO debt."

Omaha has sold various purpose and/or general obligation bonds in the latter part of every year since 2009, according to postings on the Municipal Securities Rulemaking Board's EMMA website.

"We will sell bonds by the end of the year," Curtiss said. "We may however sell more early next year."

At the end of 2023, Omaha had $614 million of general obligation debt outstanding and $1.3 billion of total long-term debt, according to its most recent annual comprehensive financial report.

The city had $459 million of authorized but unissued GO bonds, according to the official statement for its most recent various purpose bond sale in late 2023.

VanMetre said the robust regional economy and strong economic trends are driving revenue growth that counterbalances the city's long-term liabilities ratio and high fixed costs.

"All the governmental revenue and enterprise revenue over the past four or five years has gone from about $800 million to now over $1 billion," he said. The other thing that Moody's is interested in is the predictability of the more economically sensitive revenue streams, sales tax being one of them, he said.

"We did see a temporary dip in sales tax revenue during the pandemic, but that has rebounded very significantly; it's now well above 2019 levels," he noted. "So not only are we seeing overall revenue growth, but we're seeing some good resiliency in what can be economically sensitive revenues."