Moody’s announced today that the City of Omaha’s General Obligation (GO) Bond Rating will be downgraded from Aaa to Aa1 stable outlook. “The downgrade of the rating to Aa1 is primarily based on persistent under-funding of its pension obligations which is not consistent with the expected financial practices of highly rated cities,” said Moody’s.
Standard and Poor’s Ratings Services, on the other hand, retained a “AAA” long term rating to Omaha’s General Obligation Bonds complimenting the Suttle Administration for its strong financial leadership. “Conservative financial management practices that have led to the maintenance of strong reserves,” according to Standard and Poors. As a result, the City of Omaha’s GO bonds are now considered “split” rated. “Today’s decision by Moody’s is a devastating blow for the taxpayers,” said Mayor Suttle. “We are unhappy with the rating but it didn’t come as a total surprise considering the fact that we have an unresolved pension shortfall. I hope this will strengthen the resolve of all parties to make solving the unfunded pension liability the top priority in labor negotiations.”
The City is currently facing a combined unfunded liability of $794 million as reported to the pension boards this week. The City’s Police & Fire Pension system is facing an unfunded liability of $610 million. The City was encouraged last year when the unfunded liability decreased $52 million as a result of the changes to the police contract. This year’s results, however, were again discouraging. The Police & Fire Pension system’s unfunded liability increased from $573 million to its present level of $610 million, primarily as a result of the unchanged provisions for fire members. Cavanaugh Macdonald, the City’s Actuary, notes “The positive impact of the changes in the pension provisions for police members on the System’s funding is mitigated by the fire members continuing under the prior benefit structure and contribution rates. Without changes in the benefit structure and/or contributions for fire members, the System is still expected to run out of money in the long term.”
The civilian pension also faces an unfunded liability of $184 million. Based on the 2012 Valuation Report received Wednesday, the City’s Actuary projects the system will run out of money in about 20 years. The Actuary stated “This is a very serious situation and action should be taken as soon as possible to address it. The longer action to address the funding shortfall is delayed, the more dramatic the changes will have to be.”
“It is extremely disappointing,” said Finance Director Pam Spaccarotella. “The City of Omaha has worked diligently to improve its financial stability, as noted in the Moody’s and Standard & Poor’s reports, The downgrading of the city’s bond rating by Moody’s will negatively impact the City for years to come.“