CHICAGO — Omaha Mayor Jim Suttle Tuesday proposed a trio of tax increases in part to help address a pension shortfall that credit analysts have warned is one of the triple-A rated city’s main challenges.
The tax hikes are part of Suttle’s $676 million all-funds budget for fiscal 2011, including $178 million for capital improvements. The City Council will vote on the spending plan by September.
The budget closes an estimated $33.5 million 2011 shortfall and sets aside $500,000 in a cash reserve, the mayor’s office said. Suttle’s budget would contribute an additional $13 million to the police and fire pension fund, which faces an estimated unfunded liability of $500 million.
Together the city’s public safety and civilian pension funds were underfunded by $765 million as of last year. Omaha also faces an unfunded liability for other post-employment employee benefits of roughly $300 million.
“We face a growing police and fire pension shortfall. Every year we wait, the cost to taxpayers increases,” Suttle told the City Council in his budget presentation Tuesday night. “We must budget for pension reform and to meet the city’s legal obligation to the pension fund. This will send a clear signal that Omaha is serious about addressing the pension shortfall.”
The contribution would be funded mostly through a new 4% tax on dining that would raise an estimated $23.5 million annually, Suttle said. Part of that money would be set aside for tourism advertising to promote Omaha. The increase would boost the city’s restaurant tax to 11%, including state and other local taxes.
The mayor also urged a 9.3% hike in the property tax rate and a $23 increase in vehicle fees. Together the three measures would raise $44 million in new revenue.
The extra property-tax money would go for general fund operations and the vehicle-fee money would be used for street maintenance, according to Suttle. Last year the city raised its property tax 10%.
Moody’s Investors Service has said that one of the city’s strengths is its ability to raise its property tax rate under the state-mandated property-tax rate limit.
Omaha lost its coveted triple-A in October 2008 when Moody’s downgraded it, saying its unfunded pension and OPEB liabilities posed a major challenge to its future fiscal strength. The rating has since been recalibrated to Aaa under the agency’s municipal rating recalibration process. Standard & Poor’s rates the city AAA.
Meanwhile, the council is expected to vote next week on a measure to borrow $37 million to finance an expansion of a Hilton hotel that serves the city’s convention center. The project is expected to be finished by 2012 and would generate an additional $1 million in tax revenue for the city, according to proponents.