LINCOLN — Omaha’s pension problems — which a state senator said had become “ugly” — got an airing Wednesday before a panel of state lawmakers concerned that the state might have to step in to help troubled cities or counties with unfunded pension debt.
Omaha, along with Douglas County and the City of Lincoln, provided reports about their troubled pension systems during a three-hour public hearing at the State Capitol.
The verbal reports were prompted by a new law passed earlier this year by the Nebraska Legislature so lawmakers would be made aware of local pension troubles and steps being taken to resolve them.
The author of that law, State Sen. Heath Mello of Omaha, said the reports were an important first step in learning how cities and other local governments are managing the issues.
Legislative Bill 759 requires all local governments that provide defined benefit retirement plans to submit a written report about their fiscal health to the Legislature. But operators of pension plans that were less than 80 percent funded could be required to provide a verbal report, as was done for the first time Wednesday.
Omaha officials reported that despite the city’s “serious” pension problems — which include $205 million in unfunded pension debt for the city’s civilian worker plan — they are making progress.
Currently, Omaha has the two pension plans with the lowest funding ratios in the state, 54 percent for the civilian plan and 49 percent for the police/fire pension plan. Eighty percent is seen as a minimum benchmark for a healthy plan.
Al Herink, the city’s comptroller, said the city is attempting to fix its plans via labor negotiations. On Wednesday, the city’s largest civilian employees union agreed to a new contract that calls for a lower-cost “cash balance” pension plan for new employees, similar to the cash-balance plan now provided to state employees.
Concerning the police/fire pension plan, Steve Curtiss, the city’s finance director, said that a combination of concessions by the union and increased contributions from the city should increase the funded ratio of the plan to 80 percent by 2028 and 100 percent by 2035.
Omaha Sen. Jeremy Nordquist, who chaired the meeting as head of the Legislature’s Retirement Systems Committee, said some other states have considered more drastic measures to ensure that local communities don’t go bankrupt due to pension debt.
They include forming intervention teams to help pension-troubled cities and requiring local governments to fully fund pension plans, regardless of other budget obligations.
Nordquist said it appeared from Wednesday’s report that Omaha has established “pathways” to get out of its pension troubles. “It was looking a little ugly there,” he said.
City officials described raising property taxes to solve their pension woes as “the nuclear option.”
Curtiss said the city, in the future, may seek to gradually reduce the restaurant tax, which was adopted in 2010 to help pay off Omaha’s pension debt, but there are no current plans to eliminate the tax.
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