Suttle will push sales tax hike

Omaha Mayor Jim Suttle promised two national credit rating agencies that he will not back away from higher taxes and a garbage fee to address a shortfall in the police and fire pension fund.

In an interview Thursday with The World-Herald, Suttle said he told both agencies — Moody's Investors Service and Standard & Poor's — that he will push the Nebraska Legislature for a half-cent increase in the Omaha sales tax rate to generate revenue for the troubled pension fund.

If the Legislature approves, Omaha voters could see the sales tax measure on a ballot sometime next year.

The mayor also said he will ask state lawmakers to allow Omaha to enact a garbage fee administratively, without voter approval.

Suttle said that, if necessary, he will again look at raising the city's property tax rate.

The mayor is set to find out today whether the credit rating agencies are moving toward upgrading Omaha's bond rating. He and other city officials met with both agencies Wednesday in Chicago.

The decision is important because the city is preparing to issue $18.6 million in general obligation bonds next week for various projects. Omaha also is trying to regain the top-level AAA bond rating it enjoyed with both credit agencies for at least the past 30 years, until it was lowered in 2008. A better bond rating could mean lower borrowing costs for the city.

Suttle said Moody's and Standard & Poor's were both pleased that the city had raised its property tax rate for 2010.

But he said the agencies told him the city must take major steps toward shoring up the police and fire pension fund, which had a $500 million shortfall this year.

The agencies also said the city must double its cash reserves, which now stand at $31 million.

Last year, citing Omaha's pension and other financial problems, Moody's lowered the city's rating for general obligation bonds from AAA to Aa1. Omaha retained its AAA rating with Standard & Poor's.

A city's bond rating is similar to a consumer's credit score. Omaha could pay higher interest rates to borrow money if it has a less favorable bond rating, and that could lead to higher costs for taxpayers.

Suttle said he will pursue all three revenue options to deal with the pension, especially the sales tax hike.

Those options mirror the recommendations of a pension task force report earlier this year.

That group, appointed by then-Mayor Mike Fahey, called on the city to place an additional $15 million a year into the pension fund and said the money should come from a sales tax hike, new garbage fee or higher property taxes.

The task force concluded that a half-cent sales tax increase would generate about $45 million a year, which would easily cover the $15 million in new pension contributions. The city's sales tax rate currently is 1.5 percent.

At the same time, police and firefighters would contribute an extra $15 million annually through reduced pension benefits, according to the task force recommendations.

Officer Aaron Hanson, president of the Omaha police union, said Thursday that while the pension still must be fixed, the financial picture has changed for the better since the task force issued its report.

Hanson said that's because of the turnaround in the stock market. Thus, he said, he hoped the mayor wouldn't push police and firefighters to contribute as much to the fund.

“The task force had a limited window of time to come up with recommendations based on the funding level at that time,” said Hanson, a member of the group. “Things have improved since then.”

Suttle, who is in contract negotiations with the police and fire unions, said he wants to keep the contribution level at $15 million to allow for future ebbs and flows in the economy.

City officials said dealing with the pension shortfall will assure the credit agencies that Omaha is serious about fixing its financial problems and deserves to be at AAA status.

“I really wanted to telegraph a message,” Suttle said of Wednesday's meetings, “that we, Omaha, take these ratings seriously.”

Contact the writer:

444-3100, maggie.obrien@owh.com