Moody’s affirms rating but downgrades City’s rating outlook
Moody’s Investors Service (Moody’s) has affirmed the Aa1 rating of the City of Dallas’ $1.6 billion outstanding Moody’s-rated utility revenue bonds. However, Moody’s changed the rating outlook from “stable” to “negative.” Despite language in the City Charter stating that all receipts and revenues from Dallas Water Utilities constitutes a “separate and sacred fund,” Moody’s cited the system’s direct and possibly indirect exposure to unfunded pension liabilities as the reason for the outlook change.
The downgrade is primarily based on the city’s exposure to increasing unfunded pension liabilities. Ongoing economic growth and healthy revenue trends and the legal ability to implement pension benefit changes that reduce accrued liabilities continue to support a high investment-grade rating. The downgrade recognizes that despite legal ability to make changes, a number of steps are required to achieve needed pension reforms.
Moody’s based its actions on concerns about the Dallas Police and Fire Pension System’s unfunded liabilities, threats of insolvency due to significant write-downs in its investment portfolio, and increased employee withdrawals from Deferred Retirement Option Plan account. The downgrade only affects the City’s general obligation debt.