CHICAGO — Lincoln, Neb., would partner with the University of Nebraska to build a $344 million arena on a stretch of blighted rail yard west of downtown under a plan that will go before the city’s voters in May.

A tax increase targeting the city’s bars, restaurants, hotels, and car rentals would back a big chunk of the debt financing the new development. The bonds would also feature a pledge of the triple-A rated city’s full faith and credit.

The publicly financed side of the development includes the new arena as well as new roads, parking lots, and an outdoor festival space. The privately financed piece of the plan features a new hotel as well as retail, residential, and office space.

“This would be the largest single public project that the city has undertaken,” said Lincoln finance director Don Herz.

In advance of the plan, the city has partnered with the University of Nebraska to form a joint public agency to issue the bonds.

The agency — which consists of Lincoln’s mayor, a member of the City Council, and a member of the university’s board of regents — would own the arena and rent it to the city.

The city in turn would rent it to the university, which would have its Huskers’ basketball teams play there for the next 30 years starting in 2013.

The City Council on Feb. 8 approved ballot language asking voters on May 11 to consider a $25 million general obligation bond issue that would provide a piece of the $344 million borrowing.

Though the voters are only considering a small piece of the financing, if the issue is defeated the city has agreed to abandon its plans, Herz said.

If voters approve the plan, the joint agency expects to head to market over the following 30 to 45 days with new city ordinances authorizing the limited sales tax increase in hand.

“We have a fairly aggressive timeline,” Herz said.

Ameritas Investment Corp. is the city’s financial adviser. Lincoln-based Gilmore & Bell PC is bond counsel.

Lincoln traditionally issues its debt competitively, and is “heading in that direction” for the arena borrowing as well, according to Herz.

City officials plan to meet soon with analysts from Moody’s Investors Service and Standard & Poor’s, both of which assign triple-A ratings to the city’s GO debt.

Under the current finance plan, the joint agency would issue $200 million this year — using a portion of the proceeds to fund a debt-service reserve fund — followed by $120 million of bonds in 2012.

A final series of $24 million would be issued in 2013 when the arena and new hotel are scheduled to open, Herz said.

The arena bonds would likely be paid off over a 25- to 30-year period, Herz said. The city plans to make interest-only payments for the first several years, he added.

Lincoln is lending its full faith and credit pledge to the debt, which would be a direct obligation of the new joint agency. Of the $344 million borrowing, only $24 million would be issued directly by the city, adding to its modest $125 million GO debt portfolio.

Another $30 million of the debt is expected to be issued as taxable economic recovery zone bonds, according to Herz.

To pay off the debt, the city would raise the sales tax rate on bars and restaurants by two percentage points, pushing the rate to 9% from the current 7%, and by four percentage points on hotels and car rentals.

Other revenue sources backing the debt include arena and parking revenue and so-called turn-back taxes, which are sales taxes collected by the state and given back to the city.

The development would be located in a newly created tax increment financing district, and TIF revenue is also expected to help pay back debt.

The arena is expected to cost $181 million, with roads costing $29 million and parking another $36 million, along with additional spending on environmental remediation, site preparation, and utilities. Nearly $50 million would be used to acquire, relocate, and redevelop the rail tracks that currently crisscross the area.

“The idea is to have the hotel open when the arena opens, as well as a fair amount of private development,” Herz said. “The goal is to have the arena open by the fall of 2013 for the first basketball game of that season.”

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