Dallas approves fiscal 2026 budget with public safety funding increase

Bloomberg News

The Dallas City Council approved a fiscal 2026 budget on Thursday that boosts public safety funding in the wake of a voter-approved proposition that triggered a negative rating outlook from Moody's Ratings last year.

The $5.2 billion all-funds "balanced budget" for the fiscal year that begins Oct. 1 includes $1.9 billion in general fund spending and increases the combined police and fire budget by $63.1 million, according to a city statement. Dallas aims to hire 350 police recruits and retain existing officers with the goal of reaching 3,424 officers, the highest number since 2016, it added. 

The adopted budget fails to comply with Proposition U, according to a statement on Thursday by Damien LeVeck, executive director of Dallas HERO, which backed the city charter amendment narrowly approved by city voters last November.

The proposition requires the city to appropriate at least 50% of annual revenue increases to fund public safety pensions, boost police starting pay, and maintain a force of at least 4,000 full-time sworn police officers. 

The group raised objections last week to how the city was implementing the measure in the budget, including the use of limited revenue in calculating year-over-year growth.

"Amendment U requires that all revenue exceeding the prior fiscal year be included, unless restricted by law," LeVeck said in a Sept. 9 memo to Mayor Eric Johnson and the city council. "The city provides no credible accounting or legal analysis to justify its attempt to narrow this definition." 

Most of the city's revenue, including in its enterprise and capital funds, is restricted under state or federal law, leaving only $30.8 million in projected general fund revenue growth applicable to the charter amendment in fiscal 2026, according to a Sept. 5 memo from Dallas Chief Financial Officer Jack Ireland.  

LeVeck's memo also said the city ignored the measure's mandate for additional pension funding above a Texas law requirement and was not increasing police starting pay enough. 

The city's contribution to its public safety retirement system continues a five-year ramp up to reach actuarially determined levels and keep the system solvent to comply with state law. The budget calls for a $225.7 million contribution, which is $20.6 million higher than in fiscal 2025.

Shortly after Proposition U's passage, Moody's, which rates the city's general obligation bonds A1, revised its outlook to negative from stable, citing the measure's expected credit impact, including reducing the city's fiscal flexibility and boosting the Police and Fire Pension System's liability by increasing police starting salaries and the number of officers.

The rating agency said the city's plan to address the charter amendment's mandates will be a "key focus" in future reviews. 

In August, Ireland said the city plans to sell $250 million of GO bonds this fall, marking the second tranche of debt to tap $1.25 billion of bonds voters approved in May 2024. The previous debt issue was rated AA by Fitch Ratings and AA-minus by S&P Global Ratings, both with stable outlooks.

Last October, KBRA revised the outlook on Dallas' AA-plus rating to stable from positive "based on the limited improvement in the city's pension funding metrics to date, which may limit future financial flexibility."