Dallas Police Department officers in 2022. Moody’s Rankings said the negative rating outlook for Dallas reflects the expected credit impact of voter-approved Proposition U, including reducing the town’s fiscal flexibility and boosting the Police and Fire Pension System’s liability by increasing police starting salaries and the variety of officers.
Bloomberg News
Voter approval of a Dallas public safety spending measure sparked an outlook revision to negative from stable for the town’s rankings by Moody’s Rankings.
Proposition U requires the town to appropriate a minimum of 50% of annual revenue increases over the previous yr to fund public safety pensions, boost police starting pay, and maintain a police force of a minimum of 4,000 full-time sworn cops in comparison with about 3,100 currently.
The measure, which was placed on the Nov. 5 ballot via a signature campaign, passed with 50.47% of the vote, based on unofficial results.
Moody’s said the negative outlook reflects the expected credit impact of the measure, including reducing the town’s fiscal flexibility and boosting the Police and Fire Pension System’s liability by increasing police starting salaries and the variety of officers.
“Although the extra revenue going to (the pension fund) is positive, the reduced financial flexibility and the expected negative impact to the pension liability is more likely to weigh on the credit profile,” Moody’s said in a report released Thursday. “Town’s plan to include the mandates from Proposition U might be a key focus in future reviews.”
There was no immediate comment from the town in regards to the motion taken by Moody’s. A Dallas spokesperson provided information sent to the town council that said the fiscal 2025 budget allocated greater than 100% of year-over-year general fund revenue growth to police and fire initiatives and that the administration believes the town is already in compliance with Proposition U, which amends the town charter.
Town council adopted a plan in September that ramps up contributions to the Dallas Police and Fire Pension System, which is just 39% funded, with a $3.2 billion unfunded liability, to actuarially determined levels over five years to comply with a Texas law aimed toward keeping the retirement system solvent.
Moody’s called additional contributions to the Dallas public safety and worker retirement systems “a positive step.”
“Nonetheless, the increased contributions usually are not expected to fulfill the tread water level and the plans’ money flow stays very weak,” the report said. “If investment returns lag plan targets or if other plan assumptions usually are not met, the town might want to contribute much more (absent profit changes), which is able to further restrict financial flexibility. Given the economic strength, revenue growth will help the town balance budgets but large expenditure cuts could also be obligatory.”
Together with the outlook change, Moody’s affirmed the town’s A1 general obligation, Aa2 waterworks and sewer system, A2 tax increment contract, and Baa1 hotel revenue bond rankings.
Kroll Bond Rating Agency on Oct. 30 revised the outlook on Dallas’ AA-plus GO rating to stable from positive, citing “the limited improvement in the town’s pension funding metrics to this point, which can limit future financial flexibility.”
Ahead of an April Dallas GO bond sale, analysts at S&P Global Rankings and Fitch Rankings warned the town could face downgrades if its pension funding troubles usually are not addressed. The debt was rated AA-minus by S&P and AA by Fitch, each with stable outlooks.