Texas city financial condition rankings

In our latest review of the financial conditions of the 20 largest cities in the United States, Dallas ranked 17th among the 20 cities. This ranking is based on our bottom-line “Taxpayer Burden” measure, which represents each taxpayers’ share of city unfunded debt. Dallas has accumulated over $6 billion in bills above and beyond assets available to pay bills, leading to a $16,900 bill facing city taxpayers, on average

For a city like Dallas, these results are a bit of a red flag. Dallas and its sister Texas cities (as well as the state as a whole) had a significant tailwind over the last decade from a massive increase in oil and related commodity prices, at least until the last year or so. One should have expected the relatively robust economic results in Texas and its major cities to result in relatively strong government fiscal positions. This is certainly not the case in Dallas.

So, why did this happen? Clues are to be found in the city’s annual financial reports. Looking at the income statement (the “Statement of Activities,” in state and local government accounting), it appears that Dallas successfully kept expenses below income tax, fee, and grant revenue consistently over the last decade. This is a good result compared to many other state and local governments, but perhaps not that surprising in light of the Texas economy.

However, our “Taxpayer Burden” is more of a balance sheet bottom-line, representing the current consequences of longer-term debt accumulation (including unfunded retirement benefit promises) in excess of liquid assets. In 2015, the impact of that longer-term accumulation arrived in the city’s balance sheet, as new accounting standards revealed a large net pension liability, and the city’s “unrestricted net assets” (akin to a measure of capital, in the private sector) flipped from roughly $400 million (positive) in 2014 to $5 billion (negative) in 2015. In light of its favorable economic background, perhaps Dallas could have been putting a little more money in the bank.

From 2002 to 2014, crude oil prices rose from $20 a barrel to over $100 a barrel, albeit not without some wild swings before and during the financial and economic crisis of 2007-2009. But after peaking in June 2014 at about $106 a barrel, crude oil prices have fallen sharply, averaging roughly $40 per barrel in recent months.

When the tide goes out, the saying goes, you find out who has been swimming naked. Cities in Texas like Dallas, and the state government, bear watching closely. Signs that some of the chickens may be coming home to roost have arisen in recent stories about the city’s pension plans for police officers, with indications that retirements have been accelerating due to concern about the city’s pension plans. We will be looking at this issue more closely in coming weeks.