Standard & Poor's Global Ratings downgraded Dallas' general obligation rating to AA- from AA, citing concerns about the city's police and fire pension plan.
The city's AA rating had been on watch at S&P since Dec. 29 because of the funding challenges at the Dallas Police & Fire Pension System.
Due to a combination of poor plan design and investment decisions, the $2.1 billion pension fund is projected to become insolvent in 2030, absent any changes to benefits or contributions,
While the pension fund and city are working on a series of reforms to present to the Texas Legislature, it is uncertain what the Legislature will approve, S&P noted in its downgrade report Wednesday.
To protect its liquidity after a record $523 million in withdrawals from its deferred retirement option plan over three months, the pension fund board voted Dec. 8 to temporarily suspend DROP withdrawals. A hearing Jan. 17 could decide whether lump-sum withdrawals might once again be permitted.
On Dec. 29, the pension fund board lifted the suspension on monthly withdrawals and on Jan. 12 unveiled a revised withdrawal policy for members with outstanding DROP balances, which is subject the review by an actuary and Dallas County District Court.
Moody's Investors Service and Fitch Ratings downgraded Dallas' credit rating last year on the police and fire pension fund concerns.
The pension plan's funding ratio is estimated around 36%.