At hearing, OPS officials seek ability to issue bonds to fund pension plan

February 17, 2018

LINCOLN — Omaha Public Schools officials say the district could come out better financially — and make the pension plan healthier — by issuing between $219 million and $252 million worth of bonds.

Toward that end, they and their supporters on Wednesday urged the Nebraska Retirement Systems Committee to advance a proposal authorizing a new type of bond, called “pension obligation bonds.”

OPS board member Lou Ann Goding said the bonds would be paid off as part of the district’s general fund budget and without raising property taxes.

“They would be paid for through budget cuts, not additional revenue,” she said. “This would basically be a restructuring of long-term debt.”

State Sen. Brett Lindstrom of Omaha introduced the proposal as an amendment to his Legislative Bill 548. As originally written, the bill would have merged the Omaha and state school employees retirement plans, but that was met with strong opposition from many sides last year.

Lindstrom said pension obligation bonds would save OPS millions of dollars over the next 30 years and make budgeting more stable.

Such bonds, which have been used in other states, also would shore up the district’s underfunded pension plan.

“If we do not solve this problem now, we will make the problem worse and ultimately cost my constituents and the taxpayers of Omaha more money,” he said.

District estimates show that the plan is $882 million short of what will be needed to pay promised benefits into the future. A recent actuarial study concluded that the total could be cut to about $698 million using bonds of the size OPS is considering.

“There is likely to be some significant savings, potentially millions of dollars,” said David Kramer, an attorney working with OPS.

Goding said OPS expects that it could issue bonds at 4.5 percent to 5 percent interest and use the proceeds to make an immediate infusion of money into the pension plan.

Once in the plan, the money would start earning interest. State retirement officials expect a 7.5 percent rate of return over 30 years, while the state investment officer calculates a 6.6 percent return.

The proposal would not require voter approval for the new type of bonds, a provision that Sen. Mike Groene of North Platte questioned.

Kramer said voter approval is needed for other bonds because they increase tax levies. These would be paid off with the district’s existing general fund levy, he said.

If the proposal does not win legislative approval, the same dollars would have to be used to make the additional contributions required by state law to shore up the pension fund, Goding said.

OPS made an additional contribution of $12.8 million last year. The annual required contributions are projected to keep increasing, from an estimated $18.7 million this year up to a peak of $45.4 million in 2041, she said.

Sen. John Stinner of Gering, a banker, questioned whether OPS would come out ahead by paying interest on bonds. He said the bonds would eliminate the need for additional contributions for only a limited number of years.

Kramer said district officials are convinced that there would be savings.

“If the math of issuing bonds cost the school district more money between now and 2043, the school district wouldn’t advocate for the bonds,” he said.