LIBA voices support for LB 992, says City’s increasing reliance on COPs “credit card” is cause for concern

(LINCOLN, NE) – Today, the Board of Directors of the Lincoln Independent Business Association (LIBA) announced its support of LB 992, which places limits on the amount of debt Nebraska municipalities can acquire through the use of installment contracts and accompanying certificates of participation (COP) bonds. The bill, introduced by State Senator Laura Ebke, would establish a maximum amount of debt for such contracts and bonds at $25 million, and would require any political subdivisions with outstanding debt above that threshold to pay it down before using the mechanism for additional purchases.

“Each time the City reaches into its pocket to place an additional purchase on what amounts to little more than an easy-to-use credit card, the taxpayers get stuck paying the bill with interest without being given the opportunity to weigh in,” said Coby Mach, President and CEO of LIBA.

In 2001, the City’s total debt from COP bonds was $1.4 million.[1] Today, that debt has grown to more than $41.6 million.[2] Over the years, the City has racked up this debt with various small projects, and some larger purchases – the largest of which has been the City’s decision to purchase and renovate the Experian Building, totaling more than $15 million in principal bond obligations to date.[3]

“The use of COP bonds diminishes the voice of the taxpayers who would otherwise have a direct say in these types of expenditures through initiatives for general obligation bonds. LB 992 curbs the City’s continued reliance on COP bonds and will protect Lincolnites from the use of these bonds for the types of larger projects taxpayers should have a say in,” Mach explained. Mach went on to note that LIBA was glad to see the Lincoln Journal Star Editorial Board join in criticizing the City’s use of COP bonds when it wrote that, “[b]orrowing with certificates of participation is becoming a habit… [and] [t]he city needs to get its habit under control.”[4]

In addition to the purchase of the Experian Building, the City of Lincoln has used installment contracts and coordinating COP bonds to complete both public improvement and city beautification projects. Notably, the City has used $2.5 million to install art and landscaping along the entry corridor from the airport into downtown, has used more than $4 million to repair and construct sidewalks, has used $1.5 million to construct a new clubhouse at Holmes Lake Golf Course, and has used more than $14 million on streetlights.[5] Each of these COP bonds has a different fixed rate, ranging from 1.6% to about 3.7%, and each has different terms of repayment, ranging from 13 to 22 years.

The full text of Senator Ebke's LB 992 is available here -->
http://nebraskalegislature.gov/FloorDocs/Current/PDF/Intro/LB992.pdf 

 

[1] Editorial, 12/4: Borrowing becoming a habit. Lincoln Journal Star Editorial Board, Lincoln Journal Star (December 4, 2015), available online at http://journalstar.com/news/opinion/editorial/editorial-borrowing-becoming-a-habit/article_bc3b3fe9-ad39-5176-a9d1-d3ac39469888.html.

[2] Editorial, 12/4: Borrowing becoming a habit. Lincoln Journal Star Editorial Board, Lincoln Journal Star (December 4, 2015), available online at http://journalstar.com/news/opinion/editorial/editorial-borrowing-becoming-a-habit/article_bc3b3fe9-ad39-5176-a9d1-d3ac39469888.html.

[3] City's costs grow at former Experian campus. Nancy Hicks, Lincoln Journal Star (Oct. 25, 2013), available online at http://journalstar.com/news/local/city-s-costs-grow-at-former-experian-campus/article_96116d2d-b8d1-5925-b6e3-e057194e9c28.html. The total of $15 million included here is based on the $13 million reported in the article referenced herein, as well as an additional $2.15 million spent to repair the roof in the fall of 2015.

[4] Editorial, 12/4: Borrowing becoming a habit. Lincoln Journal Star Editorial Board, Lincoln Journal Star (December 4, 2015), available online at http://journalstar.com/news/opinion/editorial/editorial-borrowing-becoming-a-habit/article_bc3b3fe9-ad39-5176-a9d1-d3ac39469888.html.

[5] The applicable section of the City budget book that details the outstanding debt is available online here: http://lincoln.ne.gov/city/finance/budget/pdf/misc14-16.pdf. The relevant information begins on page 12 and continues through the following pages. On pages 12 and 13, you’ll see the projects and the initial principal amounts, as well as the outstanding amounts in the far right-hand column. Pages 14 and 15 have the principal payment amounts owed annually, and 16 and 17 have the interest payments – all are over a 6 year period in this book, but some have obligations that extend beyond that time frame. It is worth noting that the amounts included in this book do not include the additional $9.4 million the Council authorized about a month ago for the purchase of new fire trucks, more investment in fiber, and repairs to the roof of the Experian Building.