DALLAS — Moody’s Investors Service has shifted its outlook on Dallas’ Aa1 rating to negative based on the city’s weakening economy and narrowing budget reserves, the agency said.

The change in outlook is the first rating action since Moody’s downgraded the city from Aaa in June 2003. A negative outlook could precede another downgrade, or the city could return to stable if conditions improve over the next year to 18 months.

The new outlook comes in advance of a $330 million general obligation bond sale that includes about $170 million of refunding debt.

The negotiated deal is set for pricing tomorrow through senior managers Bank of America Merrill Lynch and

Ramirez & Co.

Standard & Poor’s maintained a stable outlook on its AA-plus rating on the new bonds and existing debt, noting, “The Dallas metropolitan statistical area has been less affected in areas such as layoffs, foreclosures, and major tax revenue declines compared to other comparably sized cities.”

Dallas’s new-money bonds include $5.7 million from $543.5 million of GOs approved by voters in 1998 and $123.2 million from a 2006 authorization totaling $1.35 billion. With the sale, Dallas will have $610.3 million of unissued bonds from the 2006 election.

This week’s bonds will be issued as Series 2010A — a combination of refunding and capital improvement bonds — and $61.2 million of Series B Build America Bonds. The city will also issue $23 million of combination tax and revenue certificates of obligation to purchase equipment and build a police substation.

Officials are considering creating a GO commercial paper program in fiscal 2011 that would provide an interim funding mechanism for the remainder of the approved projects. It would then periodically refund the notes with authorized long-term debt.

Dallas has a population of 1.3 million and serves as the seat of triple-A rated Dallas County. It is the nation’s eighth-largest city, having seen steady growth for more than 20 years. While the housing slump has affected the city, the metro region barely experienced the housing bubble that affected other regions of the country.

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