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1 I m Elizabeth Reich, the City of Dallas Chief Financial Officer. Thank you for taking the time to consider an investment in the City of Dallas. The following presentation is available in audio/visual format at: 1

2 When we set out to create this presentation, we wanted to provide information to enable your investment decision. We hope the format works, and helps you to get to know the City of Dallas better. Thanks very much for taking the time with us. 2

3 As a potential investor in the City of Dallas, I trust you already know that we have a very strong economy. Let me take a few minutes to tell you more about our city, and our economy. 3

4 The City of Dallas is the urban core, and largest city of the nation s fastest growing metropolitan economy, and 4th most populous metropolitan area, with 7.23 million residents. If the government of the City of Dallas were a corporation, it would be number 785 on the Fortune 1,000 list. 4

5 Dallas is the hub of business in North Texas. 38 percent of all businesses headquartered in DFW, that employ more than 1,000 people globally, are based in the city. 5

6 In addition to the many headquarters and large publicly traded companies located in Dallas, we are home to over 19,000 micro businesses, and a quarter of all small businesses in DFW are in Dallas. 6

7 As the largest city in the metro area, Dallas is home to about 1.3 million people who find that living here is easy. We have diverse neighborhoods and housing options, parks, entertainment, shopping, and the largest contiguous urban arts district in the nation. 7

8 Visitors come to the City of Dallas for a variety of personal, and business related reasons. Of the 26 million annual visitors to the city, over 80 percent are leisure visitors, while 6 percent are meeting and group attendees, making Dallas a top 10 convention destination in the US. 8

9 We re proud of our transportation options, particularly, city owned Dallas Love Field Airport. Celebrating 100 years this year, Love Field now handles almost 200 daily flights, for over 30,000 passengers. Since the Wright Amendment Reform Act went into effect on October 13th, 2014, there s been an 18 percent increase in flights, and 60 percent increase in passenger traffic. 9

10 Several major corporations chose Dallas as their new home in Zale Corporation, a subsidiary of Signet Jewelers, announced the relocation of its corporate headquarters and repairs centers to the Cypress Waters Development, where it joined Mr. Cooper, formerly Nationstar Mortgage, Meritus Homes, UWorld, the Delta Companies, CoreLogic, OneSource Virtual, and Toyota Industries Commercial Finance, as major corporate tenants. Jacobs Engineering, a Fortune 500 Global Construction and Engineering firm, relocated its corporate headquarters from out of state, to downtown Dallas. The corporate headquarters joins the regional office at Harwood Center. Prologis finished construction of an online fulfillment center at Mountain Creek Business Park for Ulta, a retailer of cosmetics and other personal care products. And, chewy.com opened its largest distribution center nearby. Several new facilities opened at the International Inland Port of Dallas, including for Amazon and American Textile, Pioneer Frozen Foods, Thermo Fisher Scientific, and FedEx Supply Chain. 10

11 Downtown Dallas momentum continued with city council approval for public, private partnership on the rehabilitation of several downtown buildings, and downtown continues to add a growing mix of new residential units, hotel rooms, and retail space. Nearby, uptown, in Victory Park, both added new apartment towers, and office buildings. As you can see, Dallas is thriving. 11

12 Let s move on to the financial status of the city. 12

13 This strong economy I ve just been describing is translating into increased revenues from all sources. 13

14 Property tax base value rose 7.18 percent in FY 2018, to billion dollars, from billion in

15 New construction has more than tripled over the last four years. New construction value rose 30.7 percent in FY 2018, to 3.3 billion dollars, from 2.5 billion in FY While increasing values of existing property are fueling some of our property tax growth, these strong new construction figures show that we are also growing, and becoming a larger, more dynamic economy. 15

16 Another example of how our city is growing is our steady increase in revenue from sales taxes. Sales tax revenue is projected to increase 3.8 percent in FY 2018, to million, from million in FY Although we believe the tremendous year over year growth from the last several years will diminish, we will still have positive sales tax growth, that we project is sustainable. 16

17 Now, I d like to take a few minutes to tell you about our budget and our priorities. 17

18 In Dallas, we believe in serving with empathy, done through ethical behavior in the spirit of excellence, with equity for all. The City of Dallas is committed to service first, in everything we do. As a local government, we don t produce tangible products that can be sold in a store front, or placed in an online cart. Instead, our product is service. Our FY budget of over 3 billion dollars is dedicated to delivering a wide range of services to meet the needs of residents, 365 days of the year. We ve charged every employee with serving the citizens of Dallas as efficiently and effectively as possible, and with a sense of urgency. Our primary product is service, as I said, and our tax payers and residents expect us to deliver. We built our budget on 6 strategic priorities. In March of 2017, the city council held its annual planning meeting, where it determined these strategic priorities. As 57.3 percent of our budget, our investment in public safety includes increased wages for first responders, increased pension contributions, improvements to the 911 system, additional 911 dispatchers, and enhanced ambulance service. Our budget also funds important services that make a city attractive to long time and new residents, businesses, and visitors, such as clean neighborhoods and parks, safe water, libraries, arts, and more. For example, our code compliance department will be forming a new team to focus on difficult, substandard structures, and illegal land use cases. There s more funding for street maintenance, libraries, and four new community based 311 agents. Those are our informational agents in the community. Dallas Animal Services will pick up more loose dogs. The city s also increasing its commitment to seniors, those experiencing homelessness, and to refugees and immigrants in Dallas. 18

19 With Dallas 365, we will drive performance improvement within the organization, and be more accountable to the citizens of Dallas. We have 35 performance measures in our 6 strategic priorities, and we will report quarterly on our progress, beginning in January. 19

20 Our service first budget is focused on fiscal sustainability. It s the first balanced biennial budget we ve ever adopted in Dallas, comprising FY 2018 adopted and FY 2019 planned budgets. Everything that we budget for in the first year, is covered in the second year. We wanted to ensure that city council had before them a set of options that they could approve for the first year, knowing that it would be fiscally sustainable going forward. Our budget also lowered taxes for those 65 and older, or disabled, by increasing the property tax exemption from 64,000 to 90,000 dollars. Council also voted to lower the property tax rate to cents, from cents, per 100 dollars of assessed value. And, in our budget, we re making key investments, such as more pay as you go funding for street maintenance, and for city facilities. 20

21 As part of our commitment to fiscal sustainability, we have committed to growing, and to sustaining the growth, in our general fund reserve. In the chart, you can see the growth over the past few years. It s even more impressive than what you see here, because in FY 12, we actually had less than 100 million dollars in our general fund reserve, and you can see that we re projecting now to be at about 165 million dollars. We re also improving our policy. In our financial management performance criteria, we are asking council to raise our reserve requirement from 30 days to 40 days, and we are seeking to continue to raise that requirement in time, until we reach 60 days. We are committed to fiscal sustainability, and believe that a strong reserve is good protection for the city, and of course for you, as our investors. 21

22 I d like to turn now to pension and OPEB updates. 22

23 As you probably know, the Dallas Police and Fire Pension System, just last year, was projected to be insolvent in less than 10 years. However, we all put in a whole lot of work to ensure that that didn t happen, because our first responders deserve a secure retirement. Working together, we came to agreement with the state legislature, which in May, passed HB That legislation went into effect on September 1st, and according to our actuary Deloitte, with those changes, the Dallas Police and Fire Pension will be 100 percent funded in 39 years. There are several changes that I want to tell you about in the Police and Fire Pension. First, there are changes in contributions. The city s contribution rate is increasing from approximately 30.5 percent of computation pay, to the greater of 34.5 percent of computation pay, or a hard wired amount set forth in the bill, based on certain hiring assumptions. Additionally, the city will contribute 13 million dollars annually to the pension system. The hard wired amounts and additional 13 million are in effect for the first 7 years of the legislation, at which point, our contribution will simply be 34.5 percent of computation pay. The members also, of course, are increasing their contribution from 8 and a half percent, to 13.5 percent. And, as I said, after the first 7 years, those hard wired contributions are not there anymore, but we will be looking to an independent third party actuary to determine whether these changes are sufficient for long term sustainability. Based on that, we may need to adopt further changes to bring the amortization period to within an acceptable number of years. We are very proud that we were able to stabilize the Dallas Police and Fire Pension system. It is incredibly important that our first responders know that they have a pension benefit on which they can rely, and it was important to the City of Dallas, and to our tax payers, to know that we were going to be able to provide that for the first responders, but in a way that made sense for the city and for our tax payers. 23

24 I would like to explain how the pension legislation and other public safety funding issues affect the city budget. With House Bill 38, the city will contribute 151 million to the pension fund this year, and 157 million next year, to secure the retirements of our first responders. These contributions are fully funded in the biennial budget passed by the city this year. We have committed to paying a minimum total contribution to the pension for the next 7 years. That means that if 34.5 percent of computation pay is not enough to reach that minimum contribution, we will make up the difference. Over each of the next 5 years, we expect to contribute a total of 40 million more to the pension fund than the city would ve contributed before the legislation passed. In years 6 and 7, we expect to contribute a total of 30 million more to the pension fund than we otherwise would have. As I mentioned, officers will also be increasing their contribution to the pension system. On a related note, in November of 2016, the city council adopted a Police and Fire Meet and Confer agreement that provides pay raises to gradually increase starting salaries, allows the city to recruit new uniformed employees from other agencies, and includes increases in other types of pay to encourage retention of tenured officers. With this agreement, over 57 percent of officers will receive at least 25 percent pay increase over the 3 year term. We budgeted to hire 250 police officers, and 241 fire fighters this fiscal year. With higher salaries and a stable pension, we believe that s attainable. We also included a contingency reserve in the budget next year, should the police department exceed recruitment goals. 24

25 We also have a pension plan for our civilian employees called the Employee Retirement Fund. In 2017, we had a very positive year for the Dallas ERF. We implemented a second tier in this retirement fund, to address people living longer in retirement. This new tier helps us lower the fund s normal cost by 36 percent, from 20.3 percent to percent. The ERF also had a very positive year in terms of investment; calendar year to date, they re at over 8.5 percent and, in the last year, at over 10 percent. We ve maintained the funded ratio at 77.5 percent and, of course, they got an unmodified clean audit opinion in

26 As I mentioned, we made some changes to the Employee Retirement Fund to lower the normal cost. These changes were approved by the ERF board, by the city council, and by the voters of Dallas, Texas, in November of As you can see on this slide, we ve detailed the changes in the ERF, including eligibility factors, such as age, the multiplier, the cost of living adjustment, and many other factors. All, again, lowering that normal cost and creating a more sustainable plan for our civilian employees. 26

27 In Dallas, OPEB is not a large concern. We eliminated our subsidy of the retiree health plan for employees hired after January 1st of 2010 and we ve continually increased retiree contributions to keep up with medical trends. We ve moved post 65 retirees to fully ensured plans, which use Medicare money for efficiently than self-insured options. And, that alone allowed for a lowering of the claims cost assumption, reduced the liability by 28 percent. While we do have OPEB liability now, we re paying it on a pay as you go basis, and believe that payment is manageable. In the long term, of course our liability will go to zero, because we ve eliminated our OPEB commitments. 27

28 Moving on to this current bond issue, I want to first discuss our ratings from S&P and Fitch. 28

29 As you may know, S&P, and Fitch, recently upgraded their outlook for the City of Dallas to stable. The rating agencies had been concerned, previously, about the potential impact of the pension on our finances. However, when we led the way to securing the pension, the rating agencies took a look at our economy and, of course, what they ve known all along, and what we ve known all along, that is strong, and looked at that pension legislation, and determined that our outlook should be stable. We ve put a couple of points here from the S&P and Fitch reports, which I think speak to exactly why they made the decision that they did. In S&P, they talk about recent changes to our pension plan, also the strength in the local economy, our stable financial metrics, and they do point to that passage of the biennial balanced budget. In Fitch, they re looking, also, at our positive operating performance, strong economic and revenue growth prospects that we ve discussed in this briefing, our solid reserve level, and long term liabilities that they expect to remain a moderate burden, given the reforms. We are proud to have led the way to stabilize the Dallas Police and Fire Pension, and in turn, stabilize our city. We appreciate the rating agencies recognizing our improved financial position with the pension reform, by upgrading our outlook to stable. 29

30 I d like to talk to you about the investment that you re considering right now. 30

31 With this transaction, the City of Dallas will both be obtaining new money, as well as refunding previous bonds. The bonds will sell in a competitive bond sale on November 16th. We ll be funding many projects with these bond proceeds, including street and transportation projects, a major flood protection initiative, parks, economic development, city facilities. 31

32 As you can see in this chart, the City of Dallas has plenty of capacity to issue debt, and because we issue the bonds on a level principle basis, we project we will pay off almost 75 percent of the principle for all of the city s outstanding debt within 10 years. 32

33 We also wanted to show you that the debt service, as a percentage of our general fund budget, is quite stable and manageable within the City of Dallas. Due to rising assessed values and the rapid amortization of the city s existing debt, this bond issue will not require a tax increase and will not take away resources from city services. Later in the presentation, I ll talk with you about our 2017 bond elections, held on November 7th, in which voters in Dallas approved 1,500,000 dollars in projects. Even with that election, our debt will be manageable, and will not require a tax increase. 33

34 As I mentioned, one of the major projects that we will fund with this money is a flood protection project. Let me tell you about Mill Creek. This will provide drainage relief and flood protection to properties in East Dallas and uptown. These properties are valued at 4 billion dollars, and include 5 schools, a major hospital, Baylor, emergency rooms, and of course, streets and freeways. We ve been evaluating the flood protection there since the 1970 s, and it s currently at a 2-year storm level. We ve had flooding in this area in the past, and we ve even had a few deaths. 34

35 With the Mill Creek project, we will be increasing flood protection in this area to the 100-year storm level. We ll be putting in a 30 foot diameter underground, concrete lined tunnel. It ll be 5 miles long, 100 feet below ground. Our construction costs are approximately million dollars. We re funding it through the 2006 and 2012 bond program, and it will take about 5 years to complete this project. 35

36 With this bond issue, we are funding projects from prior bond programs, but I d like to tell you that our future looks bright, and tell you a little bit about our just passed, 2017 bond package. 36

37 On Tuesday, November 7th, City of Dallas voters approved a 1,500,000 dollar bond package, in 10 propositions. Over half of the bond package is for streets and transportation, but over 260 million dollars is also for parks, and we have money in for flood control and storm drainage, as well as public safety facilities, economic development, cultural arts, libraries, and homeless assistance facilities. We believe, with this bond package, we will make the city even more attractive for residents and visitors. 37

38 Again, I m Elizabeth Reich, Chief Financial Officer for the City of Dallas. Along with City Manager T.C. Broadnax, and the rest of our leadership team, we are proud to serve the City of Dallas, and to bring this investment opportunity to you. 38

39 We invite you to read the full official statement to learn more about the City of Dallas and this bond issue. Thank you for joining us today. 39