Dallas wants to change how it borrows money for capital projects, cutting bank fees while allowing higher interest charges if the city needs more time to repay investors.
The City Council will consider the proposal October 14. It would let Dallas keep up to $350 million in short-term loans outstanding at once, the same limit as its existing program. Approval would not mean Dallas immediately borrows $350 million.
The city says the change could save more than $1.3 million annually. But the proposal also removes a bank-provided backup source of repayment money. Dallas could extend repayment deadlines instead, at interest rates that could reach 9%.
How Dallas borrows the money
Commercial paper is the financial name for short-term IOUs sold to investors. These IOUs are called notes. Dallas uses the money to pay contractors as capital-project bills arrive. It later sells longer-term bonds to repay those investors, according to the agenda materials.
For example, Dallas could borrow $10 million to pay construction bills, then replace that short-term loan with bonds repaid over several years. That example illustrates the process, rather than a specific project in the proposal.
Selling bonds to repay the IOUs changes the repayment schedule. It does not erase the debt. Property taxes ultimately support repayment.
The proposed ordinance limits eligible projects to those approved in the May 2024 bond election and future bond elections. It also allows Dallas to borrow for related interest and program expenses.
What happens if Dallas needs more time
Under the current program, a bank provides backup money to repay investors if Dallas cannot sell new notes to replace loans coming due. Dallas still has to repay the bank.
The replacement program would eliminate that bank arrangement. Investors would rely on Dallas’ ability to repay them, with an option for the city to extend repayment.
New notes would initially come due within one to 90 days. Dallas could extend repayment, but each note would have to come due no later than 270 days after issuance.
The extra time carries a cost. The ordinance sets minimum annual interest rates of 7%, 7.5% or 8% for specified credit ratings. The actual rate would depend on the ratings and market interest rates. The ceiling is 9%, or the legal maximum if lower.
The ordinance allows repayment extensions and says an extension alone would not count as a default. Dallas would still owe the money. Failure to repay the loan amount when ultimately due would constitute default.
Dallas promises its best efforts to sell bonds to repay extended notes. It could also use legally available city money if the financial firms selling its notes cannot find buyers. The agreements do not require those firms to supply their own money.
The $855,000 is not the whole borrowing bill
Agenda Item 26-3045A, listed as Item 30, seeks authorization for up to $855,000 in program costs from the Debt Service Fund.
The attached Schedule I breaks that amount into $732,000 in setup costs and $41,000 annually for three years. Setup costs include payments to lawyers, financial advisers, rating agencies and other providers.
Dallas would also pay interest on money it actually borrows. The firms that sell the notes, called dealers, would charge an annual fee of 0.05% on the notes each firm places, calculated for the days outstanding.
At a constant $350 million balance for a full year, those dealer fees would total $175,000, before interest. That calculation illustrates the fee, rather than predicting how much Dallas will borrow.
The city’s October 9 memo projects annual savings exceeding $1.3 million. It does not show the calculation or explain how setup costs, dealer fees and investor interest affect that estimate.
The existing credit agreement charges a 0.32% annual bank fee. Applied to the $350 million credit line, that equals $1.12 million. The reviewed documents do not explain how Dallas calculated savings above that amount.
What taxpayers still need to know
A September 22 city presentation shows no unpaid loan balance for this borrowing program in a table labeled September 30. Because the briefing came before month-end, that table does not confirm the October 12 balance or identify projects currently using the loans.
The same table lists about $1.983 billion owed on Dallas’ general obligation bonds, which rely on property taxes for repayment. That amount does not include future interest.
The proposed budget book lists $1,313,778 in actual commercial-paper payments and fees for fiscal year 2025 and a $1.9 million forecast for fiscal year 2026. Those combined figures do not show interest alone, and the forecast is not a final spending total.
Dallas’ adopted property tax rate includes 19.03 cents per $100 valuation for debt repayment. Its September forecast assumes that rate stays unchanged. The proposal does not show what higher extension rates would do to that forecast.
The Dallas Express previously reported on spending restrictions after Dallas projected a General Fund shortfall. This proposal covers capital borrowing and its repayment costs.
If council members approve the replacement program, Dallas expects it to take effect November 10. The existing bank credit agreement expires November 27.
