Moody’s Investors Service downgraded the rating on Fort Worth’s roughly $680.8 million of outstanding parity limited tax debt to Aa2 from Aa1 on Tuesday, citing the Texas city’s high unfunded pension liabilities and fixed costs.
The ratings agency also assigned an Aa2 underlying rating to a $165.2 million general purpose refunding and improvement bonds issuance planned for later this month. Fitch Ratings gave the bonds an AA+ rating on Wednesday.
“We anticipate growing pension liability and fixed cost burden as a percentage of operating revenues will continue to be a challenge for the city, which is reflected in the downgrade,” Moody’s said in its ratings report Tuesday.
Under Moody’s calculations, Fort Worth’s unfunded pension liabilities totaled roughly $2.5 billion as of Sept. 30, the end of its fiscal year 2015, due in large part to inadequate city pension contributions. The city’s required fixed costs — which include annual pension, other post-employment benefits and debt service payments — totaled 33.3% of its operating fund revenues that year. The Fort Worth Employees’ Retirement Fund has about $2 billion in assets.
Moody’s outlook for Fort Worth remains stable. A pension task force continues to explore ways to address the city’s growing pension liabilities, and state legislation passed last year requires the city to produce a plan to address its liabilities in late 2017, the ratings report noted.
Moody’s downgraded Dallas and Houston in October and March, respectively, also over pension concerns.