Dallas restrains budget ahead of $293M bond sale
Dallas is gearing up for a $293 million bond sale as its economy gradually recovers from the COVID-19 pandemic.
The deal, pricing competitively on Oct. 14, includes $190 million of tax-exempt general obligation bonds, $78 million of taxable GO refunding bonds, and $25 million of equipment contractual obligations.
PFM is financial advisor on the sale.
"The city of Dallas has seen significant interest for its competitive sales in the past and, along a similar vein, we expect strong demand for this sale," PFM Director Bruce Rideaux said. "The city’s financial profile remains sound, adhering to disciplined, forward-looking financial management practices with healthy reserves and liquidity — attractive qualities for investors."
Proceeds will refund existing debt for net present value savings and finance projects throughout the city, including public works updates, and finance equipment purchases.
With this issue, Dallas will have $2.06 billion limited tax GO bonds and notes outstanding.
“The long-term liability burden currently represents a moderate 14% of personal income,” according to Fitch analyst Steve Murray. “Recent pension reforms to both the civilian and uniform plans have reduced the combined total liability by roughly 40%. These reforms, in conjunction with continued economic growth, are expected to keep the long-term liability burden within the current range.”
General fund revenues for the fiscal year that ended Sept. 30 were expected to fall nearly $50 million, leaving them 3.5% below the $1.438 billion originally budgeted.
Sales tax revenues of $309.3 million for FY ‘20, are $16 million or 5% below the originally budgeted amount.
Dallas responded to the pandemic with spending reductions of nearly $35 million. Administrators plan to eliminate the remaining $15 million gap through a combination of measures, including applying for federal assistance for coronavirus-related expenses.
At its Sept. 23 meeting, the Dallas City Council approved the upcoming bond sale and no increase in the $1.437 billion general fund budget for the 2021 fiscal year.
For the new fiscal year, sales tax receipts are budgeted at $296 million, or nearly 10% below the prior year. Property tax revenues are budgeted at $825 million, up 5% from fiscal 2020 due to a comparable increase in taxable assessed value.
General fund spending will rise $28 million or 1.8% from fiscal 2020 to $1.56 billion. Amid controversy over police funding, the budget provides increased public safety pension contributions as the primary spending drivers.
The city will receive about $323 million in federal pandemic assistance, led by roughly $234 million in Coronavirus Aid, Relief and Economic Security (CARES) Act proceeds and an estimated $54 million in airport grants.
Despite the economic straits, Dallas held onto its credit ratings for the upcoming deal. S&P Global Ratings affirmed its AA-minus rating with a stable outlook, and Fitch Ratings retained a stable outlook on its AA rating. Kroll Bond Ratings Agency provides the highest rating of AA-plus with a stable outlook.
“Measures taken to control costs in response to the pandemic include a furlough of approximately 500 non-essential employees, a hiring freeze on non-essential workers, curtailment of non-essential spending, deferral of capital projects and the evaluation of cash transfers,” KBRA analyst Lisa Vanderperre said. “As a result of these and other expenditure control efforts, as well as the reimbursement to the general fund of approximately $36 million from a portion of the $234 million in CARES Act funding received by the city, fiscal year-end 2020 general fund expenditures are projected to be $69.3 million under budget.”
Dallas’ capital improvement budget for fiscal year 2021 comes to $869 million, including $394 million for general purpose capital improvements and $475 million for enterprise funds capital improvements.
In 2017, voters approved a $1.05 billion general obligation bond referendum for capital projects, and city officials expect to use that through 2023. The city has issued $291.5 million of the authorization and expects to issue $178 million in this fiscal year and next.
As in other cities, budget discussions were contentious as stress over the pandemic-fueled shutdowns and conflict over numerous police shootings of Blacks across the country roiled city hall.
“Addressing the systemic issues in policing practices that have led to unrest and racial division within our community have the greatest potential to transform and unite our city,” City Manager T.C. Broadnax said in his budget presentation to the council. “Although the relationship between communities of color and law enforcement has been difficult for years, recent events have heightened our awareness of the historical and current challenges that manifest in community distrust, anger, and grief. The opportunity to restore the public’s trust and rebuild the relationship with our residents is here and now, and our actions must be swift and rooted in inclusion, equity, and justice.”
To ease the stress on police, the city is planning to use more civilians in office jobs to keep sworn officers on the street. With rising unemployment in the city and a wave of evictions on the horizon, officers are expected to face even more pressure.
“We ask them to stand in the gaps in our systems — from housing to employment to health care — a role for which they are not equipped,” Broadnax’s budget presentation said. “This continual expansion of responsibility perpetuates a cycle of over-policing and under-resourcing in our most marginalized communities. It also prevents other more qualified individuals from addressing the unique needs of our diverse residents. This year’s budget begins to refocus the Dallas Police Department on enhancing safety and promoting justice for all residents. Building on prior initiatives, it also recognizes we cannot arrest our way out of violent crime and redirects resources to alternative solutions that reduce harm and increase safety in our neighborhoods.”
The city recently settled two large lawsuits concerning police pay that former Mayor Mike Rawlings warned had the potential to bankrupt the city. In 2018, $62 million of GO bond proceeds and bond premium were used for the settlement of a lawsuit regarding pay for uniformed police officers. In January 2019 the courts gave final approval to a $173 million settlement announced in 2018, related to police and fire pay that dated as far to the 1980s. The city again used GO bond proceeds to settle legal claims.
With a population of about 1.3 million, Dallas includes some of the nation’s wealthiest neighborhoods and some of its poorest.
The economic slump combined with the work-from-home adjustments related to the COVID-19 pandemic have led some businesses to downsize their office space. The ride-hailing service Uber, which was developing a near-downtown campus before the pandemic, recently put a large share of its office space on the market.
As a major convention city, Dallas is also suffering a loss of revenue from visitors and a halt in sports and entertainment events.