Moody's Investors Service said it has downgraded to Aa2 from Aa1, the city of Omaha, Neb.'s general obligation unlimited tax debt (GOULT) rating.
Moody's has also downgraded the rating on city's outstanding lease revenue bonds to Aa2 from Aa1, and the rating on the city's special tax general obligation limited tax (GOLT) bonds to Aa3 from Aa2. Post-sale, the city will have $490 million in GOULT, $126 million in lease revenue, and $37.5 million in special tax GOLT bonds outstanding. The outlook is stable.
Concurrently, Moody's has assigned the Aa2 rating to the city's $28.7 million various purpose and refunding bonds, Series 2014A and $42.6 million general obligation refunding bonds, Series 2014B. Proceeds of the Series 2014A bonds will finance the acquisition of equipment and various improvements to streets, sewer, and facilities as well as refund certain outstanding indebtedness assumed by the city as a result of annexation of four sanitary and improvement districts (SID). Proceeds of the Series 2014B bonds will refund the city's outstanding Series 2004, 2006, 2007, 2008 GO and various SID bonds for estimated savings of 10% of refunded par. Debt service on the bonds is secured by the city's general obligation unlimited tax pledge.
The downgrade to the Aa2 rating reflects the city's high fixed costs for pensions, other post-employment benefits (OPEB), debt-service and other personnel expenses. These costs are not expected to moderate in the near future.
The rating reflects the city's satisfactory reserve position, while acknowledging the potential expenditure pressures facing the city's operations from growing unfunded pension and OPEB liabilities, employee salary increases related to unsettled contracts, and significant future capital needs.
The Aa2 rating also incorporates the strong regional economy with institutional presence, low unemployment, and ongoing growth in property valuations. The city's lease revenue bonds are secured by lease revenue payments, and the Aa2 rating reflects the unconditional general fund obligation to make lease payments that are not subject to annual appropriation.
The special tax GOLT bonds are secured by a 2.6 cent limited property tax and general fund pledge to use all legally available revenues for debt repayment, if needed. The Aa3 rating reflects the limited property tax levy available for debt service and is one notch below the city's GOULT rating. The city is currently utilizing 1.59 cents of the 2.6 limit.
The stable outlook reflects the city's solid financial track record, strong management team, and growing taxbase that may withstand some future budgetary pressures.
