CHICAGO — The Omaha City Council this week approved a 2010 budget that raises property taxes 10% — most of which will go toward debt service on the city’s convention center — and includes financing for a new downtown baseball stadium.
The $662 million all-funds budget includes a $280 million general fund budget.
The property tax increase comes after years of warnings by city officials that the $200 million Qwest Center, which operates as a convention center and an arena, is not generating enough revenue to pay off its debt. Part of the problem is that the city must begin making principal payments on the center in 2012, boosting debt service by more than $8 million annually. Without action the debt service fund will be depleted by then, said the city’s new mayor, Jim Suttle.
More than half of the revenue that will come from the property tax increase is earmarked for the convention center’s debt, while the rest will go into the city’s general fund. Bonds on the Qwest Center are currently paid off with a combination of sources, including a seat tax, parking revenue, and state sales tax revenue.
Suttle, who took office in July, also pushed for the property tax increase as a way to restore Omaha’s triple-A bond rating. Moody’s Investors Service downgraded the city to Aa1 from Aaa in October 2008. Standard & Poor’s maintains a AAA rating on the city.
“Bond rating agencies are asking, 'Does Omaha have the political will to get its financial house in order?’ ” Suttle said during a recent budget presentation to the City Council. “We must take action now to resolve the Qwest Center debt to secure our long-term fiscal future and set the city on track to restoring our triple-A bond rating.”
The increase will also help stanch shortfalls stemming largely from the city’s falling sales tax revenue, which makes up 45% of the city’s general fund revenue. Omaha’s sales tax revenue has “fallen like a rock” over the last year, said City Council chief of staff Warren Weaver.
“The [budget] process was extremely difficult because of the magnitude of the issues to deal with,” he said. “We’ve had a significant drop in our sales tax, and that’s such a big portion of our total revenues, that when those dropped, that caused a significant problem for everybody.”
Sales tax revenue is expected to total just under $122 million in 2010, down from $128.1 million in 2009, according to the mayor’s office.
The 2010 budget also includes financing for a $140 million NCAA World Series baseball stadium to be built adjacent to the Qwest Center in downtown Omaha. The ballpark will be financed with private donations and public money, including a new hotel-motel tax, a car rental tax, and Keno funds. Stadium revenues will also go first toward debt service.
The city this summer sold $65 million of lease revenue bonds to finance the ballpark and next spring plans to sell another $45 million.
The City Council approved the new stadium in June after the National Collegiate Athletic Association and College World Series Inc. agreed to hold the Men’s College World Series in the stadium for the next 26 years. The city has hosted the tournament since 1950 and estimates the event’s accumulated revenues at $515 million through 2018.
State Sen. Brad Ashford this week announced he would sponsor a bill that would allow Omaha’s new stadium, as well as a $25 million ballpark being built in nearby Sarpy County, to take advantage of the “turn-back” tax, in which state sales tax generated at certain venues, such as the Qwest Center, are “turned back” to the local municipality.
Under Ashford’s proposal, the two new baseball stadiums would also be allowed to use the turn-back tax to help with financing.
Altogether, the city expects to sell $92 million of bonds in 2010, according to budget documents.
This week the council approved three new bond issues. The city plans to sell $28 million of refunding and new-money general obligation bonds, including some taxable Build America Bonds, as well as $5 million of special tax revenue redevelopment bonds to finance a redevelopment plan in downtown Omaha, and $2.2 million of tax allocation bonds for a riverfront development.
