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Nearly a decade ago, a pension crisis in the police and fire retirement system put Dallas in a precarious financial position, making the city a national cautionary tale.
The city’s worst years in the past decade were 2016 and 2017, when Dallas had a $528 million deficit amid an exodus of police officers stemming from the pension crisis. The Texas Legislature had to intervene to stabilize the city’s troubled finances.
Things are different now. The city’s net position (the difference between its assets and liabilities) is $4.3 billion in its most recent financial report, seven times greater than the $601 million recorded in 2015.
Financial conditions have improved, and much of the growth in recent years has come from enterprise funds, such as water utilities, through fees and charges, rather than from taxes.
Still, Dallas is vulnerable.
Though property values have grown year after year, so have the costs of paving roads, fixing water lines and picking up trash.
“It’s the issue every mature city faces,” said Sriram Villupuram, a public finance and real estate professor at the University of Texas at Arlington.
School districts across the region are closing campuses and consolidating schools due to declining enrollment. Plano hiked its tax rate this year to offset pressures, in part due to aging infrastructure, a built-out housing market and lagging population growth.
The Dallas Morning News examined 10 years’ worth of financial reports that offer insight into the city’s financial health over time.
Dallas does not have enough cash on hand to pay for all its bills. The city needs just under $11 billion to cover all it owes, and it has $5.7 billion it could access in the short term, according to data from the last fiscal year.
Not all of those bills are due anytime soon, and some of the cash is tied to specific funds, like aviation and permitting, that the city cannot use for other general city services like the police and parks. But the numbers reflect mounting pressures that build in successive budget cycles as Dallas relies on future revenue to cover its costs.
Property taxes make up 57% of Dallas’ revenue. Sales taxes account for 24%. The city of about 1.3 million people added only 55,000 residents in the past decade, limiting financial growth from population gains, and a pension shortfall looms.
To avoid Plano’s fate, city officials adopted the second iteration of ForwardDallas, a land-use guide, to inform what new development could look like. They’ve attempted to modernize their permitting system to speed up construction and are in the process of improving city codes that haven’t changed since the 1960s.
Is the city in trouble?
Last year, Moody’s Ratings downgraded the city’s debt outlook from “stable” to “negative” due to the passage of Proposition U. Voters narrowly approved the ballot measure mandating the city maintain a police force of 4,000 officers and divert half of any new year-over-year revenue into the pension system.
The firm’s assessment said, “the city will face budget challenges,” and the proposition reduces the city’s spending flexibility, which can impact a lender’s confidence in the city’s ability to manage its debt.
Credit rating agencies, such as Moody’s, Fitch Ratings and S&P, place a premium on the city’s flexibility to deploy dollars in times of emergency.
Jack Ireland, the city’s chief financial officer, pointed to a Nov. 14 memo to say otherwise.
In it, Ireland emphasized Dallas received nine bids for the sale of general obligation bonds and 19 for equipment obligations, suggesting investors still want to work with Dallas amid volatility. The bonds and obligations were also handed high marks from credit rating agencies.
“The bond ratings and market interest are a good indicator of our financial health,” Ireland said.
Dallas built its current budget around increasing pension payments to resolve a $3 billion funding gap in the police and fire pension and a $1 billion shortfall in the employees’ retirement fund, which serves non-uniformed city employees.
“Although the additional revenue going to DPFP is positive, the reduced financial flexibility and the expected negative impact to the pension liability is likely to weigh on the credit profile. The city’s plan to incorporate the mandates from Proposition U will be a key focus in future reviews,” Moody’s report said last year.
At the Center for Municipal Finance, public finance experts gathered data from more than 30 of the largest U.S. cities and crafted an index that shows market confidence in a city’s bonds.
“You can almost think of it as like a stock price,” said Justin Marlowe, director of the Center for Municipal Finance at the University of Chicago. If the index increases, investors are more enthusiastic about a city and are willing to pay more for its bonds. “If they’re willing to pay more for its bonds, that means that the yields are going to decrease,” he said.
The average index of all cities was 115.67 as of Nov. 30. Dallas was well above that baseline at nearly 128.56, performing better than other North Texas peers, such as Arlington and Fort Worth.
“What I would take from that is in spite of being put on negative watch, and in spite of some of the warnings that the ratings agencies have put out, the market seems to — at least with respect to the city’s general obligation credit — the market seems still pretty optimistic about Dallas,” Marlowe said.
Dallas has maintained healthy reserves
Several factors offer insight into the city’s financial health. Reserves or funds leftover after the city covers projected annual expenses are one.
In the current budget, Dallas has maintained an unassigned fund balance of $338 million, which includes emergency and contingency reserves the city can deploy to cover costs it did not anticipate. The reserves make up 17% of the general fund.
The city’s financial team expects its reserves could cover over two months of operating expenses. That number will decline, according to Dallas’ five-year forecast. By fiscal year 2030, the city would be able to operate for only 51 days on its reserves.
City law mandates the government maintain between 50 to 70 days of reserve funds. That does not include payments for long-term debt the city has on its books. If reserves drop below the 50-day minimum, the city manager must develop a plan to bring Dallas back into compliance.
The Government Finance Officers Association has said healthy reserves represent 12% to 15% of annual general fund spending.
“Dallas has for several years been well above that threshold, which is unique for cities that tend to have a much harder time carrying fund balance levels at 15% or more for the similar reason that there’s just a lot of other demands on spending that tend to suck up that ability to keep reserves,” said Marlowe, with the Center for Municipal Finance.
What to watch out for
This year, Dallas’ track record of maintaining its properties — or lack thereof — has garnered ample attention, especially as mounting repair issues at the city’s headquarters at 1500 Marilla St. have many debating whether the building has reached its shelf life.
A city’s history of deferred maintenance is often an indicator of its financial health. Delayed repairs mean the city is kicking the can down the road and relying on future spending to address maintenance, and Dallas, which manages more than 500 buildings, has a laundry list of needs for properties like Fair Park and the Kalita Humphreys Theater.
Villupuram, the financial expert, said current financial data may not capture how much a property’s value depreciation, as there may be hidden costs that have not been accounted for.
City staff told council members this year that Dallas was investing half of what it needs to save its buildings from deteriorating. Much of the assessment is based on reports prepared about eight years ago that covered only 220 properties.
Dallas set aside money in the current budget to determine the cost of replacement, day-to-day repairs and deferred maintenance. It’s the city’s policy to use its operating funds for daily needs, and bonds are used for new investments and major maintenance, such as a complete system replacement and extending the life of infrastructure.
Challenges ahead
Over the past decade, Dallas, like other big cities, has grown more reliant on outside help from the state and the federal government. Operating and capital grants made up 11.7% of the city’s total revenue in fiscal year 2024. About a decade ago, those grants made up 6.5%.
This matters at a time when the federal and state governments are at odds with cities.
City officials reworked programs that didn’t align with federal executive orders issued by President Donald Trump, hoping to avoid losing federal funding for affordable housing and infrastructure development. The city received about $305 million in federal grants over the past three years and has projects worth $980 million in the pipeline, including grants from federal agencies such as the U.S. Environmental Protection Agency, Department of Transportation, Housing and Urban Development and Department of Justice.
Recently, Gov. Greg Abbott called on the Texas Department of Transportation to ensure counties and cities remove “any and all political ideologies,” including symbols and flags, from the streets. All attention turned to the rainbow crosswalks in Oak Lawn — a symbol of LGBTQ representation and inclusion — and crosswalks in South Dallas that had “Black Lives Matter” written on them. The city had 30 days to comply, and a day before the deadline, Tolbert asked for an exemption. The state is still reviewing the request.
“Despite the challenges, the cities are resilient,” said Josh Goodman, part of Pew Charitable Trust’s state fiscal health project.
In Dallas, revenues have grown primarily due to rising property values, and higher tax bills for residents have grabbed the attention of state lawmakers.
In 2019, Texas lawmakers set a cap on how much extra revenue local governments could glean from property taxes without asking voters.
Cities cannot increase property tax revenue by more than 3.5%, and if they do, they’ll need voter approval. In Austin, residents recently rejected a tax rate hike.
Dallas has consistently reduced its tax rate. It’s popular politically, and the city has had no choice but to remain aligned with the 3.5% statewide cap. In the years since the state law went into effect, the city has foregone about $133 million in revenue that it would have collected if it had maintained its tax rate. That’s money that could pay for accessibility upgrades at City Hall about 13 times over or pay for most of the money city staff estimated to repair its two-level underground parking garage.
Still, state lawmakers earlier this year pushed to reduce the cap from 3.5% to 1%. The Senate and the House passed their own versions of the bill but failed to reach a compromise.
Another bill, HB 46, sought to rein in the city spending, and it was so critical that City Manager Kimberly Bizor Tolbert sat through hours of testimony in August, flanked by two council members, the chair of the city’s economic development corporation and Ireland, Dallas’ chief financial officer.
The bill, which failed to advance, would’ve mandated that cities limit their expenses to a rate based on inflation and population growth. If the city’s revenues from all sources — including enterprise funds that are not tied to taxes — exceeded that rate, they would need two-thirds of the city’s voters to approve increasing expenses.
“The intent is to limit unchecked local spending,” Ireland said at the hearing in August. “The practical effect will impose limits that undermine control of our central services and restrict our ability as cities to support the state’s broader economy.”
The new normal
In September, the City Council approved a $5.2 billion budget that included heavy investments in police and fire services and street maintenance. It led to the closure of three aging community pools, the combination of four city departments that addressed housing-related issues, and the shutdown of the Skillman Southwestern library. City officials also cut and reallocated dozens of vacant positions.
The revenue gap is projected to grow to $83 million next year, 4% of the city’s anticipated general fund revenue.
It’s unlikely these conditions will let up.
“The federal government is largely unwinding its partnership with big cities,” Marlowe said.
That includes affordable housing, financing, and transportation.
Meanwhile, cities now have to address homelessness and behavioral health, as well as promote their own international trade to attract international economic development. This comes at a time when the cost of services, including wages and materials, has risen astronomically.
“These are all sorts of things that cities haven’t historically had to do, but now they do,” Marlowe said. “It’s a very difficult time to say, well, we need to scale back into less when the demand for services is growing a lot.”