Omaha, Struggling with Pensions, Loses AAA Rating

CHICAGO -- Omaha, Neb. was dinged twice last week, losing its prized AAA rating from Standard & Poor’s and seeing a negative outlook revision from Moody’s Investors Service due to the city’s large unfunded pension obligation.

The city lost its Aaa rating from Moody’s in September 2012.

Standard & Poor’s downgraded Omaha’s general obligation debt to AA-plus from AAA, and the city’s certificates of participation and lease revenue bonds to AA from AA-plus. The downgrade reflects S&P’s recently released local GO criteria, which consider a credit’s debt and contingent liability profile.

Moody’s affirmed its Aa1 rating on the city. The ratings action comes ahead of the sale of $24 million of general obligation bonds.

“The revision of the outlook to negative reflects the continued pressures posed by the magnitude of Omaha’s unfunded pension liability, both nominally and as a percentage of operating revenues; the habitual underfunding of the pension plans’ actuarially determined annual required contributions; and the limited ability to reduce pension costs or willingness to raise revenues to cover pension costs,” Moody’s said in the ratings report.

The city’s unfunded pension liability totaled $799 million in fiscal 2012, up from $742 million in 2011, according to Moody’s.

S&P outlined Omaha’s strengths, including a strong and diverse economy and strong management, but said the city’s debt and contingent liabilities profile is weak. Analysts noted management’s efforts to address its pension liability, but said the reforms were not sufficient to address the weak funded positions of the plans. “We believe the unaddressed exposure to these largely unfunded pension obligations could lead to accelerating payment obligations over the medium term,” S&P wrote.

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Nebraska
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