DALLAS — As its tax base shrinks amid the ongoing housing slump, Dallas County will seek savings on its long-term debt and finance improvements to its jail and court facilities with a package of bonds and notes worth a combined $76.5 million this week.
Triple-A ratings from Standard & Poor’s and Moody’s Investors Service are expected to help the offering receive a good reception in a market starved of tax-exempt bonds from Texas.
However, the Dallas County debt is scheduled to price the same week as the North Texas Tollway Authority’s $784 million of revenue bonds, the largest issue from the state this year.
The Dallas County issue includes $31.3 million of Series 2011A unlimited-tax refunding bonds, $1.9 million of Series B limited-tax refunding bonds, and $43.4 million of limited-tax notes.
Siebert Brandford Shank & Co. is senior manager. First Southwest Co. and Estrada Hinojosa & Co. are co-managers. RBC Capital Markets is financial adviser and Vinson & Elkins is bond counsel.
The new bonds will refund a 2001 issue that is callable on August 15. Series A matures serially through 2021. Series B matures next year. The notes mature through 2018. The county expects a 10% net present-value savings from Series A and a 1.9% savings from Series B.
The notes will finance improvements to the Lew Sterrett Justice Center, the George L. Allen Sr. Courts Building, and the County Records Building.
The county, which includes the city of Dallas and 26 suburbs, has a population of about 2.5 million, making it the ninth largest in the U.S. Overlapping debt with the cities comes to nearly $10 billion and $5.2 billion with 16 school districts.
Debt from the Dallas County Hospital District adds about $698 million.
For the county itself, net general obligation debt is considered low at $146 million.
“The county maintains, in our view, a low direct-debt position with debt outstanding equal to less than 0.1% of total assessed value,” Standard & Poor’s analyst Emmanuelle Lawrence wrote in a report. “The debt of more than 50 overlapping entities dramatically affects total debt ratios.”
While analysts expect that revenue streams will remain relatively stable, Dallas County, like other localities across the nation, has faced a declining tax base since the recession began in 2007.
The taxable value of property in the county fell about 3.4% to $157.9 billion in fiscal 2010-11 from $163.4 billion the previous year.
“Although there was approximately $2 billion in new construction in fiscal 2011, the declines in existing properties offset this new growth resulting in the $6 billion overall decline,” according to Moody’s analyst Kristin Button.
“While there are no current plans to raise the tax rate, the county has a demonstrated ability to do so if revenues do not meet expectations,” she said. “Moody’s believes that the depth and breadth of the county’s tax base provides a source of considerable credit strength in revenue raising flexibility, as a 1-cent increase will generate over $1.4 million of additional revenue to the county.”
Analysts pointed out that 95% of the county’s debt will be retired in 10 years.
“With the use of cash on hand to fund capital projects, the county will continue to have a low direct debt burden,” Button wrote. “To accomplish the ongoing pay-go financing, 40 cents of the operating levy has been dedicated to capital initiatives.”
Like other Texas counties, Dallas uses bonds to finance the building of roads and bridges, capital improvements to government facilities, and major equipment purchases. The county is operating on a pay-as-you-go policy, designed to further reduce debt.
About $25 million of this week’s issue will go toward a new infirmary at the Lew Sterrett Justice Center, part of a jail system that has been a chronic source of concern for county commissioners and Sheriff Lupe Valdez. Last year, the Dallas County jail system passed inspection for the first time since 2003.
In 2009, the inspectors working for the U.S. Justice Department noted the lack of an infirmary as a continuing concern. To resolve a federal lawsuit, county officials agreed to have jails monitored by health and sanitation experts every six months.
Construction of the 125,000-square-foot infirmary is expected to cost $36 million, while the total project cost will be about $50 million, according to county officials.
The original plan for the infirmary called for it to be built as an annex to the existing Sterrett justice center near the Trinity River, but the U.S. Army Corps of Engineers raised objections to building so close to the river’s levee. To circumvent those issues, the county decided to build the infirmary inside the Sterrett center, which includes the county’s criminal courts.
In spite of the downturn in property values since 2008, Dallas County’s recession has proven mild compared to those of large urban counties in Arizona, Nevada, and Florida. Real estate in the Dallas-Fort Worth region and throughout Texas never really experienced the bubble that hit other areas, so the decline has not been as severe.
“The property tax base remains, in our opinion, very diverse with the 10 leading taxpayers accounting for just 3% of total assessed valuation,” Lawrence said. “Overall, management expects the economy to continue to diversify and remain resilient, which it demonstrated during previous national economic shifts.”
The county did suffer an unemployment rate of 9% as of February 2011, which is above the state’s 8.2% and the nation’s 8.9%.
The Dallas County Commissioners Court has managed to produce a $9.7 million general fund surplus at the end of fiscal 2009 and $6.7 million in fiscal 2010, according to Standard & Poor’s.
The county receives 62% of its revenue from property taxes and 25% from service charges. Through March, sales tax revenue for cities in the county was running 3.8% ahead of last year.
With the economy gradually improving and debt remaining extremely manageable, the county enjoys stable outlooks from rating agencies.
“Standard & Poor’s does not expect the AAA rating to change within the stable outlook’s two-year parameter because we believe the county will likely remain committed to maintaining its solid financial position and strengthening its reserves,” Lawrence wrote. “We believe the revenue streams will likely remain stable despite the lagging economic condition while the economic base remains large and diverse and direct debt levels remain low.”