DALLAS — Dallas drew another downgrade en route to a $227 million bond sale next week.
Standard & Poor's on Feb. 4 joined Moody's Investors Service in lowering the city's general obligation rating one notch as analysts cited growing pension obligations.
S&P dropped the rating to AA from AA-plus, while Moody's lowered its Aa1 rating to Aa2 on Oct. 27. Outlooks are stable.
"The GO debt downgrade is due to the city's rising pension liabilities and lack of a sufficient plan to address them in the near term," said Standard & Poor's analyst Jennifer Garza. "The stable outlook reflects our view of the city's consistent financial performance and economy, which is supported by very strong management."
Fitch Ratings took a more positive view of the city's finances, affirming its AA-plus rating with a stable outlook.
"The city's debt and pension plans place a moderate burden on the tax base," Fitch analyst Rebecca Meyer wrote. "Fitch expects ongoing pension reforms to improve pension funding in the medium term. Near term debt plans are manageable."
The GO downgrades affect about $1.7 billion of debt.
S&P also lowered its rating on the Dallas Convention Center Hotel Development Corp.'s 2009 bonds to A from A-plus. Those bonds were issued as Build America Bonds to develop the 1,000-room Omni Hotel that opened in 2011.
Moody's cited the combined effect of the pension obligations and large infrastructure needs. The city debt policy allows a maximum debt burden of 4% of the tax base. Dallas has stayed below that target over the years, Moody's said. The city has $687 million of authorized but unissued debt.
Dallas officials recently wrote down assets to market values for its three pension funds, the Employees' Retirement Fund, the Police and Fire Pension Fund and the Supplemental Police and Fire Pension Plan, which raised the reported level of unfunded liabilities. As of the 2014 valuation reports, the city's total unfunded actuarial accrued liability for the ERF rose to $536.6 million, while the Police and Fire Pension hit $1.3 billion. The Supplemental Police and Fire was $14.7 million underfunded, according to Moody's.
In the Fitch analysis, the debt and pension burden is "moderate."
"Fitch expects ongoing pension reforms to improve pension funding in the medium term," Meyer wrote. "Near term debt plans are manageable."
Dallas has recorded four straight years of tax base growth amid new development and a strong real estate market. Declining oil prices have not shown any obvious impact in the Dallas market this year.
The ninth most-populous city in the U.S. and third in Texas behind Houston and San Antonio, Dallas has seen modest growth in its estimated population of 1.3 million, analysts said. By contrast, the surrounding metropolitan area has grown by more than 30% since 2000.
In the Dallas Independent School District, which overlaps most of the city, voters approved a record $1.6 billion bond issue Tuesday.
Within the city limits, the labor force has continued to expand while unemployment decreased, analysts said. The unemployment rate as of July 2015 was 4.2% which was below the state and national levels of 4.6% and 5.6%, respectively.
"Given the urban nature of the city, Dallas demonstrates socioeconomic indicators that are below national medians," Moody's said.
The 2013 American Communities Survey pegs the median and per capital family incomes at 70.3% and 97.4% of national levels, respectively.
