DALLAS — Moody’s Investors Service has shifted the outlook on Dallas County’s triple-A rating to stable from negative, citing surpluses in recent years and a low debt burden.
Dallas County Judge Clay Jenkins, the top administrative official in Texas’ second most populous county, sought to restore the stable outlook after Moody’s put 160 local governments under review for possible downgrade last July. The action came as Moody’s reviewed the triple-A credit rating of the United States for possible downgrade in the wake of Standard & Poor’s decision to lower U.S. credit to AA-plus.
Exposure to a possible U.S. downgrade came through the Dallas County Hospital District, which issued $705 million of Build America Bonds in 2009 for the $1.3 billion Parkland Hospital replacement that is scheduled for completion in 2014. Moody’s does not rate the DCHD’s debt.
Dallas County retains a stable outlook on its AAA rating from Standard & Poor’s, as does the hospital district. Fitch Ratings rates the DCHD AAA with a stable outlook.
“The change in the outlook to stable is based on newly presented information that provides clarification of the relationship between the county and the county hospital district,” Moody’s analyst Kristin Button wrote.
The ratings affect $164 million in outstanding general obligation debt from the county. The bonds are secured by ad valorem taxes levied on property within the county, which overlaps with the hospital district, Dallas and several other cities and school districts.
Last year’s credit crisis came as Republicans in Congress refused to raise the U.S. debt ceiling and threatened to force a default on U.S. debt. The debt ceiling was raised before a default, but the standoff led to S&P’s downgrade. Republicans are threatening to create another showdown in advance of the November elections.
According to Article IX of the Texas Constitution, once a hospital district is created, it is solely responsible for indigent care, and the county is not legally allowed to support the operations or debt service of the hospital district, or to provide indigent care services apart from the district, according to Moody’s.
Even if the hospital were to close or enter into bankruptcy, the district remains intact with its own separate and distinct tax rate and can only be dissolved by a majority of voters in the district, analysts noted.
“Although the hospital district is a component unit of the county, the relationship is not typical of most component units where there is the potential for financial support from the primary government if necessary due to stress at the component unit,” Button wrote. “County commissioners appoint the district board members, approve the budget, and set the tax rate, essentially serving in an oversight role only which we believe is a unique and specific trait to Texas counties.”
