This Preliminary Official Statement and the information contained herein are subject to completion or amendment without notice. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. Bonds”) fordebtservicesavings;and(iii)paycostsofissuancetheBonds. Bonds Series2007AassetforthonSCHEDULEI–ScheduleofRefundedattachedhereto(the“Refunded acquisition forfutureCityfacilities;(ii)refundtheCity’soutstandingGeneralObligationandImprovementRefunding facilities; (d)economicdevelopmentprograms;(e)CityHall,serviceandmaintenance (f)land (a) streetandtransportationimprovements;(b)floodprotectionstormdrainagefacilities;(c)parkrecreation Pricing Certificatearehereinreferredtotogetherasthe“Ordinance”)(see“TheBonds–AuthorityforIssuance”). authority to complete the sale of the Bonds through the execution of a “Pricing Certificate” (the Bond Ordinance and ordinance (the“BondOrdinance”)passedbytheCityCouncilofwhichdelegatestocertainofficials the the StateofTexas,particularlyChapters1207,1331,and1371TexasGovernmentCode,asamended, andan by law,onalltaxablepropertywithintheCity.TheBondsarebeingauthorizedpursuanttogeneral lawsof Agent/Registrar isU.S.BankNationalAssociation(see“TheBonds–PayingAgent/Registrar”). payment tothebeneficialownersofBonds.See“TheBonds–Book-Entry-OnlySystem”herein.Theinitial Paying Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent thereof. Principalof,premium,ifany,andinterestontheBondswillbepayablebyPayingAgent/Registrar to denominations of$5,000orintegralmultiplesthereof.NophysicaldeliverytheBondswillbemadeto owners pursuant to the Book-Entry-Only System described herein. Beneficial ownership ofthe Bonds may be acquired in be initiallyregisteredanddeliveredonlytoCede&Co.,thenomineeofTheDepositoryTrustCompany (“DTC”) and willbecalculatedonthebasisofa360-dayyearconsistingtwelve30-daymonths.Thedefinitive Bonds will delivery (the“DatedDate”),willbepayableFebruary15andAugustofeachyearcommencing 15, 2018, Refunding &ImprovementBonds,Series2017(the“Bonds”).InterestontheBondswillaccruefromdateoftheir Texas, DisclosureCounsel for theCity. Counsel’s Opinions”).Certain legalmatterswillbepasseduponfortheCitybyAndrews KurthKenyonLLP,Dallas, Texas andWest&Associates LLP,Dallas,Texas,Co-BondCounselfortheCity(see AppendixC,“FormofCo-Bond approving opinionsoftheAttorney GeneraloftheStateTexasandapproving opinionsofBracewellLLP,Dallas, the Bonds.” * Preliminary, subject to change. Dated Date:DateofDelivery for corporations. discussion oftheopinionCo-BondCounsel,includingadescriptionalternativeminimumtaxconsequences income forfederaltaxpurposes,andtheBondsarenot“privateactivitybonds”.See“TaxMatters”a NEW ISSUE–Book-Entry-Only Proceeds fromthesaleofBondswillbeusedtoprovidefunds(i)financecertainimprovements, wit: The BondsaredirectobligationsoftheCity,payablefromanadvaloremtaxlevied,withinlimitsprescribed The City of Dallas, Texas (the “City”)is issuing its $302,845,000*City of Dallas,Texas,General Obligation It isexpectedthattheBonds willbeavailablefordeliverythroughDTConorabout December12,2017. The Bondsareofferedfordeliverywhen,asandifissued andreceivedbytheInitialPurchaserssubjectto The Bondsaresubjecttooptionalredemptionasdescribed herein.See“TheBonds–OptionalRedemptionof In theopinionofCo-BondCounsel,underexistinglawinterestonBondswillbeexcludablefromgross GENERAL OBLIGATIONREFUNDING&IMPROVEMENTBONDS,SERIES2017 PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER 9, 2017 BIDS DUE THURSDAY, NOVEMBER 16,2017,AT9:00A.M, CST (Dallas, Denton,Collin,RockwallandKaufmanCounties)

MATURITY SCHEDULE&9DIGITCUSIP CITY OF DALLAS, TEXAS CUSIP PREFIX:235219 See ScheduleonPage2 $302,845,000* Due: February15,asshownonPage2 Ratings”-herein See “OtherInformation– S&P: AA-(stableoutlook) Fitch: AA(stableoutlook) Ratings: MATURITY SCHEDULE CUSIP Prefix: 235219 (1)

Maturity Principal Interest Initial CUSIP Maturity Principal Interest Initial CUSIP (February 15) Amount Rate Yield Suffix(1) (February 15) Amount Rate Yield Suffix(1) 2018 $4,195,000 2028 $ 14,330,000 2019 17,560,000 2029 14,330,000 2020 17,475,000 2030 14,330,000 2021 17,385,000 2031 14,330,000 2022 17,305,000 2032 14,330,000 2023 17,240,000 2033 14,330,000 2024 17,180,000 2034 14,325,000 2025 17,130,000 2035 14,325,000 2026 17,075,000 2036 14,325,000 2027 17,020,000 2037 14,325,000

(Interest to accrue from Date of Delivery)

______(1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein are provided by CUSIP Global Services managed by S&P Global Market Intelligence on behalf of the American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. Neither the City nor the Co-Financial Advisors shall be responsible for the selection or correctness of the CUSIP numbers shown herein.

The City reserves the right, at its option, to redeem the Bonds having stated maturities on and after February 15, 2028, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2027, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. (See “The Bonds – Optional Redemption of the Bonds”).

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i For purposes of compliance with Rule 15c2-12 of the United States Securities and Exchange Commission, as amended (the “Rule”), and in effect on the date of this Preliminary Official Statement, this document constitutes an “official statement” of the City with respect to the Bonds that has been deemed “final” by the City as of its date except for the omission of no more than the information permitted by Rule.

This Official Statement, which includes the cover page and the Appendices hereto, does not constitute an offer to sell or the solicitation of an offer to buy in any jurisdiction to any person to whom it is unlawful to make such offer, solicitation or sale.

No dealer, broker, salesperson or other person has been authorized to give information or to make any representation other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon.

The information set forth herein has been obtained from the City and other sources believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as the promise or guarantee of the City’s Co-Financial Advisors. This Official Statement contains, in part, estimates and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates and opinions, or that they will be realized.

The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or other matters described.

THE AGREEMENTS OF THE CITY AND OTHERS RELATED TO THE BONDS ARE CONTAINED SOLELY IN THE CONTRACTS DESCRIBED HEREIN. NEITHER THIS OFFICIAL STATEMENT NOR ANY OTHER STATEMENT MADE IN CONNECTION WITH THE OFFER OR SALE OF THE BONDS IS TO BE CONSTRUED AS CONSTITUTING AN AGREEMENT WITH THE PURCHASERS OF THE BONDS. INVESTORS SHOULD READ THE ENTIRE OFFICIAL STATEMENT, INCLUDING ALL APPENDICES ATTACHED HERETO, TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION.

THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE BONDS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTIONS IN WHICH THE BONDS HAVE BEEN REGISTERED, QUALIFIED, OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF.

All information contained in this Official Statement is subject, in all respects, to the complete body of information contained in the original sources thereof and no guaranty, warranty, or other representation is made concerning the accuracy or completeness of the information herein. In particular, no opinion or representation is rendered as to whether any projection will approximate actual results, and all opinions, estimates and assumptions, whether or not expressly identified as such, should not be considered statements of fact.

Neither the City nor the Initial Purchaser make any representation regarding the information contained in this Official Statement regarding The Depository Trust Company or its Book-Entry-Only System, as such information has been furnished by DTC. CUSIP numbers have been assigned to this issue by CUSIP Global Services, and are included solely for the convenience of the owners of the Bonds. Neither the City nor the Initial Purchaser shall be responsible for the selection or correctness of the CUSIP numbers shown on the inside cover page.

This Official Statement contains “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such statements may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance and achievements to be different from future results, performance and achievements expressed or implied by such forward-looking statements. Investors are cautioned that the actual results could differ materially from those set forth in the forward-looking statements (see “Other Information – Forward-Looking Statements”).

In connection with this offering, the Initial Purchaser may over-allot or effect transactions that stabilize or maintain the market prices of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time.

Grant Thornton, our independent auditor, has not been engaged to perform and has not performed, since the date of its report included herein, any procedures on the financial statements addressed in that report, nor have they performed any procedures relating to this Official Statement.

ii TABLE OF CONTENTS

CITY OFFICIALS, STAFF AND CONSULTANTS .. IV TABLE 10 – AUTHORIZED GENERAL OBLIGATION ELECTED OFFICIALS ...... IV BONDS ...... 18 SELECTED ADMINISTRATIVE STAFF ...... V CITY FINANCIAL INFORMATION...... 19 CONSULTANTS AND ADVISORS ...... V TABLE 11 – GENERAL FUND REVENUES AND EXPENDITURES HISTORY AS OF 9/30/16 ...... 20 SELECTED DATA FROM THE PRELIMINARY TABLE 12 – MUNICIPAL SALES TAX HISTORY ...... 21 OFFICIAL STATEMENT ...... VI TABLE 13 – FINANCIAL INDICATORS ...... 25 TABLE 1 – SELECTED ISSUER INDICES ...... VII LEGAL MATTERS ...... 26 THE BONDS ...... 1 LITIGATION ...... 26 AUTHORITY FOR ISSUANCE ...... 1 CLEAN AIR ACT AMENDMENTS OF 1990 ...... 28 PURPOSE ...... 1 SEQUESTRATION TRANSPARENCY ACT OF 2012 ...... 29 REFUNDED BONDS ...... 1 REGISTRATION AND QUALIFICATION OF BONDS FOR SECURITY FOR BONDS ...... 1 SALE...... 29 OPTIONAL REDEMPTION OF THE BONDS ...... 1 LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE NOTICE OF REDEMPTION ...... 2 PUBLIC FUNDS IN TEXAS ...... 29 BOOK-ENTRY-ONLY SYSTEM ...... 2 LEGAL OPINIONS ...... 29 PAYING AGENT/REGISTRAR ...... 3 TRANSFER, EXCHANGE AND REGISTRATION ...... 3 TAX MATTERS ...... 30 RECORD DATE FOR INTEREST PAYMENT ...... 4 TAX EXEMPTION ...... 30 BONDHOLDERS’ REMEDIES ...... 4 ADDITIONAL FEDERAL INCOME TAX DEFEASANCE ...... 5 CONSIDERATIONS ...... 30 SOURCES AND USES OF FUNDS ...... 5 TAX LEGISLATIVE CHANGES ...... 31 CITY AD VALOREM TAX INFORMATION ...... 5 CONTINUING DISCLOSURE ...... 32 STATE OF TEXAS TAX CODE ...... 5 CONTINUING DISCLOSURE OF INFORMATION ...... 32 FISCAL YEAR 2018 ADOPTED BUDGET ...... 9 OTHER INFORMATION ...... 34 AD VALOREM TAX DATA ...... 10 RATINGS ...... 34 TABLE 2 – VALUATION, EXEMPTIONS AND GENERAL AUTHENTICITY OF FINANCIAL DATA AND OTHER OBLIGATION DEBT ...... 10 INFORMATION ...... 34 TABLE 3 – TAXABLE ASSESSED VALUATION BY INITIAL PURCHASERS ...... 34 CATEGORY ...... 11 CO-FINANCIAL ADVISORS ...... 34 TABLE 4 – VALUATION AND FUNDED DEBT HISTORY 11 FORWARD LOOKING STATEMENTS ...... 34 TABLE 5 – TAX RATE, LEVY AND COLLECTION CERTIFICATION OF THE OFFICIAL STATEMENT ...... 35 HISTORY ...... 12 MISCELLANEOUS ...... 35 TABLE 6 – TEN LARGEST TAXPAYERS ...... 12

CITY DEBT INFORMATION ...... 13 SCHEDULE AND APPENDICES GENERAL OBLIGATION COMMERCIAL PAPER SCHEDULE OF REFUNDED BONDS ...... S-1 PROGRAM ...... 14 GENERAL INFORMATION REGARDING THE CITY ...... A TABLE 7 – GENERAL OBLIGATION DEBT SERVICE EXCERPTS FROM THE FY 2016 COMPREHENSIVE REQUIREMENTS ...... 15 ANNUAL FINANCIAL REPORT ...... B TABLE 8 – TAXABLE ASSESSED VALUATIONS, TAX FORM OF CO-BOND COUNSEL’S OPINIONS ...... C RATES, DIRECT AND OVERLAPPING FUNDED DEBT PAYABLE FROM AD VALOREM TAXES .... 16 TABLE 9 – INTEREST AND SINKING FUND BUDGET The cover page hereof, this page, the appendices included herein PROJECTION ...... 17 and any addenda, supplement or amendment hereto, are part of the Official Statement.

iii CITY OFFICIALS, STAFF AND CONSULTANTS

ELECTED OFFICIALS

Length of Service as of City Council Term Expires October 1, 2017 Occupation Mike Rawlings June 2019 6 Years, 3 Months Private Equity (Vice-Chairman) Mayor - Place 15 Scott Griggs June 2019 6 Years, 3 Months Attorney Councilmember - Place 1 Adam Medrano June 2019 4 Years, 3 Months Civic Leader Deputy Mayor Pro Tem - Place 2 Casey Thomas, II June 2019 2 Years, 3 Months Teacher Councilmember - Place 3 Dwaine R. Caraway June 2019 Elected May, 2017 3 Months(1) Civic Leader Mayor Pro Tem - Place 4 Rick Callahan June 2019 4 Years, 3 Months Real Estate Broker Councilmember - Place 5 Omar Narvaez June 2019 Elected May, 2017 3 Months Civic Leader Councilmember - Place 6 Kevin Felder June 2019 Elected May, 2017 3 Months Real Estate Broker Councilmember - Place 7 Tennell Atkins June 2019 Elected May, 2017 3 Months(1) Civic Leader Councilmember - Place 8 Mark Clayton June 2019 2 Years, 3 Months Insurance Councilmember - Place 9 Adam McGough June 2019 2 Years, 3 Months Attorney Councilmember - Place 10 Lee M. Kleinman June 2019 4 Years, 3 Months Investor Councilmember - Place 11 Sandy Greyson June 2019 6 Years, 3 Months Community Volunteer Councilmember - Place 12 Jennifer S. Gates June 2019 4 Years, 3 Months Community Volunteer/Registered Nurse Councilmember - Place 13 Philip Kingston June 2019 4 Years, 3 Months Commercial Litigator Councilmember - Place 14 (1) Does not include service from previous, non-contiguous prior terms.

iv SELECTED ADMINISTRATIVE STAFF

Length of Time in Tenure with City This Position as of of Dallas as of Name Position October 1, 2017 October 1, 2017 T.C. Broadnax City Manager 8 Months 8 Months Jo M. Puckett Interim Assistant City Manager 5 Months 35 Years, 9 Months Raquel Favela Chief of Economic Development 5 Months 5 Months & Neighborhood Services Joey Zapata Assistant City Manager 6 Years, 4 Months 23 Years, 4 Months Jon Fortune Assistant City Manager 4 Months 4 Months Majed Al-Ghafry Assistant City Manager 8 Months 8 Months M. Elizabeth Reich Chief Financial Officer 1 Year, 1 Month 1 Year, 1 Month Larry E. Casto City Attorney 1 Year 24 Years, 11 Months Nadia Chandler Hardy Chief of Community Services 4 Months 4 Months Billierae Johnson Interim City Secretary 1 Month 18 Years, 9 Months Craig Kinton City Auditor 10 Years 10 Years Kimberly B. Tolbert Chief of Staff 8 Months 10 Years 3 Months

CONSULTANTS AND ADVISORS

Auditors ...... Grant Thornton LLP Dallas, Texas

Co-Bond Counsel ...... Bracewell LLP Dallas, Texas

Co-Bond Counsel ...... West & Associates LLP Dallas, Texas

Disclosure Counsel ...... Andrews Kurth Kenyon LLP Dallas, Texas

Co-Financial Advisors ...... PFM Financial Advisors LLC Dallas, Texas

Co-Financial Advisors ...... TKG & Associates LLC Dallas, Texas

For additional information regarding the City, please contact:

Ms. M. Elizabeth Reich Mr. Bruce Rideaux Ms. Janice Davis City of Dallas PFM Financial Advisors LLC TKG & Associates LLC 1500 Marilla Street, Room 4EN or 750 North St. Paul St., Suite 540 or 325 North St. Paul St., Suite 2750A Dallas, Texas 75201 Dallas, Texas 75201 Dallas, Texas 75201 (214) 670-3297 (214) 247-7074 (214) 981-9009

v SELECTED DATA FROM THE PRELIMINARY OFFICIAL STATEMENT

This data page was prepared to present the purchasers of the Bonds the information concerning the Bonds, the ad valorem tax revenues pledged to pay the Bonds, the description of the tax base and other pertinent data, all as more fully described herein, and is subject in all respects to the more complete information and definitions contained or incorporated in this Official Statement. The offering of the Bonds to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this data page from this Official Statement or to otherwise use it without the entire Official Statement.

THE ISSUER ...... The City of Dallas, Texas, is a political subdivision located in Dallas, Denton, Collin, Rockwall and Kaufman Counties operating as a home-rule city under the laws of the State and a charter initially approved by the voters in 1907. The City operates under the City Council/Manager form of government where the Mayor is elected for a four-year term and fourteen City Councilmembers are each elected for two-year terms. The Mayor’s term is limited to two consecutive terms and the fourteen Councilmembers are limited to four consecutive terms. The City Council formulates operating policy for the City while the City Manager is the chief administrative officer.

The City is among the three most populous cities in Texas and among the ten most populous cities in the U.S. The City is approximately 378 square miles in area (see Appendix A – “General Information Regarding the City”).

THE BONDS ...... The Bonds are being issued in the principal amount of $302,845,000* pursuant to the general laws of the State of Texas, particularly Chapters 1207, 1331, and 1371 of the Texas Government Code, as amended, and an ordinance (the “Bond Ordinance” passed by City Council which delegates to certain City officials the authority to complete the sale of the Bonds through the execution of a “Pricing Certificate” (the Bond Ordinance and Pricing Certificate are herein referred to together as, the “Ordinance”). See “The Bonds – Authority for Issuance”.

PAYMENT OF INTEREST …………… Interest on the Bonds accrues from their date of delivery, and is payable commencing February 15, 2018 and on each February 15 and August 15 thereafter until maturity or prior redemption (see “The Bonds – Optional Redemption of the Bonds”).

SECURITY FOR THE BONDS ...... The Bonds constitute direct obligations of the City, payable from a direct and continuing ad valorem tax, within the limits prescribed by the law, on all taxable property within the City in an amount sufficient to provide for payment of principal of and interest on the Bonds (see the “Bonds – Authority for Issuance”).

REDEMPTION ...... The City reserves the right, at its option, to redeem the Bonds having stated maturing on and after February 15, 2028, in whole or in part in principal amounts of $5,000 or any integral multiple thereof on February 15, 2027, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see “The Bonds – Optional Redemption of the Bonds”).

TAX EXEMPTION ...... In the opinion of Co-Bond Counsel, under existing law interest on the Bonds will be excludable from gross income for federal income tax purposes and the Bonds will not be “private activity bonds” (see “Tax Matters” for a discussion of the opinion of Co-Bond Counsel, including a description of alternative minimum tax consequences for corporations (see Appendix C – “Form of Co-Bond Counsel’s Opinions”).

USE OF PROCEEDS…………………. Proceeds from the sale of the Bonds will be used to provide funds to (i) finance certain improvements, to wit: (a) street and transportation improvements; (b) flood protection and storm drainage facilities; (c) park and recreation facilities; (d) economic development programs; (e) City Hall, City service and City maintenance facilities; and (f) land acquisition for future City facilities; (ii) refund the City’s outstanding General Obligation and Improvement Refunding Bonds Series 2007A as set forth on SCHEDULE I – Schedule of Refunded Bonds (the “Refunded Bonds”) for debt service savings; and (iii) pay costs of issuance of the Bonds.

RATINGS …………………………… The Bonds are rated AA (stable outlook), and AA- (stable outlook), respectively, by Fitch Ratings, Inc. (“Fitch”) and S&P Global Ratings (“S&P” and together with Fitch, the “Rating Agencies”). An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organizations and neither the City nor the Issuer make any representation as to the appropriateness of the ratings (see “OTHER INFORMATION – Ratings”).

PAYMENT RECORD ...... The City has never defaulted in the payment of its debt.

BOOK-ENTRY-ONLY SYSTEM ...... The definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee of DTC, pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof.

Principal of and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds thereof (see “The Bonds – Book-Entry-Only System”).

PAYING AGENT/REGISTRAR ...... The initial paying agent/registrar is U.S. Bank, National Association.

EXPECTED DELIVERY DATE ...... Expected delivery date is on or about December 12, 2017.

vi TABLE 1 – SELECTED ISSUER INDICES

Taxable General Ratio of Fiscal Assessed Per Capita Obligation G.O. Tax Debt Year Estimated Valuation Taxable (G.O.) Tax Debt to Taxable % of Ended City (TAV)(2) Assessed Tax Debt(3) Per Assessed Total Tax 9/30 Population(1) (In Thousands) Valuation (In Thousands) Capita Valuation Collections 2012 1,207,420 $ 81,993,746 $ 67,908 $ 1,666,007 $ 1,387 2.03% 98.63% 2013 1,213,600 83,681,722 68,953 1,691,185 1,394 2.02% 98.22% 2014 1,232,360 87,251,522 70,800 1,547,228 1,255 1.77% 98.14% 2015 1,244,270 93,138,211 74,854 1,700,336 1,367 1.83% 98.23%(4) 2016 1,257,730 100,318,937 79,762 1,774,890(5) 1,411 1.77%(5) 98.20%(4) 2017 1,270,170 110,523,000 83,758 1,632,596(5) 1,239 1.48%(5) N/A

______(1) Source: North Central Texas Council of Governments. (2) Source: Certified Tax Rolls. (3) Represents general obligation debt, excluding accreted interest and tax increment financing district bonds, payable from ad valorem taxes. (4) As of September 30, 2016. (5) Excludes the Bonds, includes the Refunded Obligations. Preliminary, subject to change.

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vii THE BONDS

AUTHORITY FOR ISSUANCE

The Bonds are being issued pursuant to the general laws of the State of Texas (the “State”), particularly Chapters 1207, 1331, and 1371 Texas Government Code, as amended, and the Bond Ordinance passed by the City Council and the Pricing Certificate authorized therein (together, the “Ordinance”).

PURPOSE

Proceeds from the sale of the Bonds will be used to provide funds to (i) finance certain improvements, to wit: (a) street and transportation improvements; (b) flood protection and storm drainage facilities; (c) park and recreation facilities; (d) economic development programs; (e) City Hall, City service and City maintenance facilities; and (f) land acquisition for future City facilities; (ii) refund the City’s outstanding General Obligation and Improvement Refunding Bonds Series 2007A as set forth on SCHEDULE I – Schedule of Refunded Bonds attached hereto (the “Refunded Bonds”) for debt service savings; and (iii) pay costs of issuance of the Bonds.

REFUNDED BONDS

A portion of the proceeds from the sale of the Bonds will be used to refund the outstanding debt obligations of the City listed on SCHEDULE I hereto (the "Refunded Obligations"). The principal and interest due on the Refunded Bonds are to be paid on the scheduled interest payment dates and the respective maturity or redemption dates, as applicable of such Refunded Bonds, from funds to be deposited pursuant to a certain Escrow Agreement (the "Escrow Agreement") between the City and U.S. Bank, National Association (the "Escrow Agent"). The Ordinance provides that from the proceeds of the sale of the Bonds received from the Initial Purchasers, together with other lawfully available funds of the City, if any, the City will deposit with the Escrow Agent the amount necessary to accomplish the discharge and final payment of the Refunded Bonds on their respective maturity or redemption dates, as applicable. Such funds will be held by the Escrow Agent in a special escrow account (the "Escrow Fund") and will be used to purchase obligations authorized by Chapter 1207, Texas Government Code, as amended (the "Securities").

Grant Thornton LLP, a firm of independent certified public accountants, will deliver to the City, on or before the settlement date for the Bonds, its verification report indicating ·that it has verified, in accordance with the Statement on Standards for Consulting Services established by the American Institute of Certified Public Accountants, the mathematical accuracy of (a) the mathematical computations of the adequacy of the cash and the maturing principal of and interest on the Securities, to pay, when due, the maturing principal of, interest on and related call premium requirements, if any, of the Refunded Bonds. Grant Thornton LLP relied on the accuracy, completeness and reliability of all information provided to it by, and on all decisions and approvals of, the City. In addition, Grant Thornton LLP has relied on any information provided to it by the City's retained advisors, consultants or legal counsel. Grant Thornton LLP was not engaged to perform audit or attest services under AICPA auditing or attestation standards or to provide any form of attest report or opinion under such standards in conjunction with this engagement.

By the deposit of the Securities and cash, if necessary, with the Escrow Agent pursuant to the Escrow Agreement, the City will have defeased all of the Refunded Bonds in accordance with law. It is the opinion of Co-Bond Counsel that as a result of such defeasance and in reliance upon the report of Grant Thornton LLP, the Refunded Bonds will be outstanding only for the purpose of receiving payments from the Securities and any cash held for such purpose by the Escrow Agent and such Refunded Bonds will not be deemed as being outstanding obligations of the City payable from taxes nor for the purpose of applying any limitation on the issuance of debt.

SECURITY FOR BONDS

All taxable property within the City is subject to a continuing direct annual ad valorem tax levied by the City sufficient to provide for the payment of principal and interest on the Bonds, which tax must be levied within limits prescribed by law. The City operates under a charter as authorized by Article XI, Section 5 of the Constitution of the State of Texas. Pursuant to the Texas Constitution and the City’s charter, the City’s ad valorem tax rate may not exceed $2.50 per $100 Taxable Assessed Valuation for all purposes, including payment of debt service and general operating expenses (see “City Ad Valorem Tax Information – Tax Rate Limitation”). Administratively, the Attorney General of the State of Texas will not approve bonds if, as calculated at the time of issuance and based on the then current taxable property values, more than $1.50 of the maximum $2.50 is required for all general obligation debt service, including the bonds being considered for approval.

OPTIONAL REDEMPTION OF THE BONDS

The City reserves the right, at its option, to redeem the Bonds maturing on and after February 15, 2028, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2027, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. If less than all of the Bonds subject to redemption are to be redeemed, the City will select the maturities of Bonds and the amounts thereof to be redeemed. If less than all the Bonds of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Bonds are in Book-Entry- Only form) shall determine by lot the Bonds, or portions thereof, within such maturity to be redeemed. If a Bond subject to redemption (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Bond (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date.

1 NOTICE OF REDEMPTION

Not less than 30 days prior to a redemption date for the Bonds, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to the registered owners of the Bonds to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH PORTION THEREOF SHALL CEASE TO ACCRUE. In the Ordinance, the City reserves the right in the case of an optional redemption to give notice of its election or direction to redeem the Bonds conditioned upon the occurrence of subsequent events. Such notice may state: (i) that the redemption is conditioned upon the deposit of moneys and/or authorized securities, in an amount equal to the amount necessary to effect the redemption, with the Paying Agent/Registrar, or such other entity as may be authorized by law, no later than the redemption date; or (ii) the City retains the right to rescind such notice at any time prior to the scheduled redemption date if the City delivers a certificate of the City to the Paying Agent/Registrar instructing the Paying Agent/Registrar to rescind the redemption notice, and such notice and redemption shall be of no effect if such moneys and/or authorized securities are not so deposited or if the notice is rescinded. The Paying Agent/Registrar shall give prompt notice of any such rescission of a conditional notice of redemption to the affected owners. Any Bonds subject to conditional redemption where redemption has been rescinded shall remain outstanding, and the rescission shall not constitute an event of default. Further, in the case of a conditional redemption, the failure of the City to make moneys and/or authorized securities available in part or in whole on or before the redemption date shall not constitute an event of default.

BOOK-ENTRY-ONLY SYSTEM

This section describes how ownership of the Bonds are to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by The Depository Trust Company, New York, New York (“DTC”), while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The City believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof.

The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the United States Securities and Exchange Commission (the “SEC”), and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC.

DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate for each maturity of the Bonds will be issued, in the aggregate principal amount of such issue, and will be deposited with DTC.

DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). Direct Participants and Indirect Participants are collectively referred to as “Participants”. DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the SEC. More information about DTC can be found at www.dtcc.com.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers.

2 Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the register and request that copies of the notices be provided directly to them.

Redemption notices for the Bonds shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City or the Paying Agent/Registrar, on the payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent/Registrar of each series, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, principal and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Participants.

DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bonds are required to be printed and delivered.

Use of Certain Terms in Other Sections of this Official Statement. In reading this Official Statement, it should be understood that while the Bonds are in the Book-Entry-Only System, references in other sections of this Official Statement to registered owners or bondholders should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book- Entry-Only System, and (ii) except as described above, notices that are to be given to registered owners under the Ordinance will be given only to DTC.

Information concerning DTC and the Book-Entry-Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by, the City or the Initial Purchasers.

Effect of Termination of Book-Entry-Only System. In the event that the Book-Entry-Only System is discontinued by DTC or the use of the Book-Entry- Only System is discontinued by the City, printed Bonds will be issued to the holders and the Bonds will be subject to transfer, exchange and registration provisions as set forth in the Ordinance and summarized under “The Bonds – Transfer, Exchange and Registration” below.

PAYING AGENT/REGISTRAR

The initial Paying Agent/Registrar is U.S. Bank, National Association. In the Ordinance, the City retains the right to replace the Paying Agent/Registrar. The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Bonds are duly paid, and any successor Paying Agent/Registrar shall be a bank, trust company, financial institution or other entity duly qualified and legally authorized to serve as and perform the duties and services of Paying Agent/Registrar for the Bonds. Upon any change in the Paying Agent/Registrar for the Bonds, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Bonds by United States mail, first class, postage prepaid, which notice shall also give the name and address of the new Paying Agent/Registrar.

In the event the Book-Entry-Only System should be discontinued, principal of the Bonds will be payable to the registered owner at maturity upon presentation at the Dallas, Texas corporate trust office of the Paying Agent/Registrar (the “Designated Trust Office”). Interest on the Bonds will be payable by check, dated as of the interest payment date, and mailed by the Paying Agent/Registrar to registered owners as shown on the records of the Paying Agent/Registrar on the Record Date (see “The Bonds – Record Date for Interest Payment” herein), or by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the registered owner. If the date for the payment of the principal of or interest on the Bonds shall be a Saturday, Sunday, legal holiday, or day on which banking institutions in the city where the Paying Agent/Registrar is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or day on which banking institutions are authorized to close; and payment on such date shall have the same force and effect as if made on the original date payment was due.

TRANSFER, EXCHANGE AND REGISTRATION

In the event the Book-Entry-Only System should be discontinued, printed Bonds will be delivered to the owners and thereafter, the Bonds may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender thereof to the Paying Agent/Registrar and such transfer or exchange shall be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. The Bonds may be assigned by the execution of an

3 assignment form on the respective Bonds or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Bonds will be delivered by the Paying Agent/Registrar, in lieu of the Bonds being transferred or exchanged, at the Designated Trust Office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered owner or designee. To the extent possible, new Bonds issued in an exchange or transfer of Bonds will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Bonds to be canceled, and the written instrument of transfer or request for exchange duly executed by the registered owner or duly authorized agent, in a form satisfactory to the Paying Agent/Registrar. New Bonds registered and delivered in an exchange or transfer shall be in any integral multiple of $5,000 for any one maturity and for a like aggregate principal amount as the Bonds surrendered for exchange or transfer. See “The Bonds – Book-Entry-Only System” herein for a description of the system to be utilized initially in regard to ownership and transferability of the Bonds.

RECORD DATE FOR INTEREST PAYMENT

The record date (the “Record Date”) for the interest payable on any interest payment date means the close of business on the last business day of the preceding month.

In the event of a non-payment of interest on the Bonds on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a “Special Record Date”) for the Bonds will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (“Special Payment Date”, which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each owner of a Bond appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice.

BONDHOLDERS’ REMEDIES

The Ordinance specifies events of default with respect to the Bonds. If the City defaults in the payment of principal, interest on the Bonds when due, or if it fails to make payments into any fund or funds created in the Ordinance, or defaults in the observation or performance of any other covenants, conditions, or obligations set forth in the Ordinance, the registered owners may seek a writ of mandamus to compel City officials to carry out their legally imposed duties with respect to Bonds if there is no other available remedy at law to compel performance of the Bonds or Ordinance and the City’s obligations are not uncertain or disputed. The issuance of a writ of mandamus is controlled by equitable principles, and is within the discretion of the court, but may not be arbitrarily refused. There is no acceleration of maturity of the Bonds in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. The Ordinance does not provide for the appointment of a trustee to represent the interest of the bondholders upon any failure of the City to perform in accordance with the terms of the Ordinance, or upon any other condition and accordingly all legal actions to enforce such remedies would have to be undertaken at the initiative of, and be financed by, the registered owners.

The Texas Supreme Court ruled in Tooke v. City of Mexia 197 S.W.3d 325 (Tex. 2006) that a waiver of sovereign immunity in a contractual dispute must be provided for by statute in “clear and unambiguous” language. Because it is unclear whether the Texas legislature has effectively waived the City’s sovereign immunity from a suit for money damages, bondholders may not be able to bring such a suit against the City for breach of the Bonds or Ordinance covenants. Even if a judgment against the City could be obtained, it could not be enforced by direct levy and execution against the City’s property. Further, the registered owners cannot themselves foreclose on the System or sell the System to enforce the pledge of Pledged Revenues to pay the principal of and interest on the Bonds. In Tooke, the Court noted the enactment in 2005 of sections 271.151 through 160, Texas Local Government Code (the “Local Government Immunity Waiver Act”), which, according to the Court, waives “immunity from suit for contract claims against most local governmental entities under certain circumstances.” The Local Government Immunity Waiver Act covers cities and relates to contracts entered into by cities for providing goods and services.

On April 1, 2016, the Texas Supreme Court ruled in Wasson Interests, Ltd. v. City of Jacksonville, 489 S.W. 3d 427 (Tex. 2016) that sovereign immunity does not imbue a city with derivative immunity when it performs proprietary, as opposed to governmental, functions in respect to contracts executed by a city. Texas jurisprudence has generally held that proprietary functions are those conducted by a city in its private capacity, for the benefit only of those within its corporate limits, and not as an arm of the government or under the authority or for the benefit of the state. In its decision, the Court held that since the Local Government Immunity Waiver Act waives governmental immunity in certain breach of contract claims without addressing whether the waiver applies to a governmental function or a proprietary function of a city, the Court could not reasonably read the Local Government Immunity Waiver Act to evidence legislative intent to restrict the waiver of immunity when a city performs a proprietary function.

Chapter 1371, as amended, Texas Government Code (“Chapter 1371”), which pertains to the issuance of public securities by certain defined issuers, such as the City, permits the City to waive sovereign immunity in the proceedings authorizing the issuance of the Bonds. Notwithstanding its reliance upon the provisions of Chapter 1371 in connection with the issuance of the Bonds (as further described under the caption “Authority for Issuance”), the City has not waived the defense of sovereign immunity with respect thereto. Because it is unclear whether the Texas legislature has effectively waived the City’s sovereign immunity from a suit for money damages beyond Chapter 1371, Bondholders may not be able to bring such a suit against the City for breach of the Bonds or Ordinance covenants.

Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code (“Chapter 9”). Chapter 9 includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce the Bonds and the Ordinance would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Co-Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Bonds are qualified with respect to the customary rights of debtors relative to their creditors and by general principles of equity that permit the exercise of judicial discretion.

4 DEFEASANCE

The Ordinance provides that the City may discharge its obligations to the registered owners of any or all of the Bonds to pay principal, interest and maturity or redemption price, as applicable, thereon in any manner permitted by law. Under current State law, such discharge may be accomplished either (i) by depositing with the Comptroller of Public Accounts of the State a sum of money equal to the principal of, premium, if any, and all interest to accrue on the Bonds to maturity or redemption or (ii) by depositing with a paying agent, or other authorized escrow agent, amounts sufficient to provide for the payment of the Bonds; provided that such deposits may be invested and reinvested only in (a) direct non-callable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the City adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent and (c) noncallable obligations of a state or an agency or a county, municipality or other political subdivision of a state that have been refunded and that are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. The foregoing certificates may be in book-entry form, and shall mature and/or bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment of the Bonds.

Under current State law, after such deposit as described above, such Bonds shall no longer be regarded to be outstanding or unpaid. After firm banking and financial arrangements for the discharge and final payment of the Bonds have been made as described above, all rights of the City to initiate proceedings to take action amending the terms of the Bonds are extinguished.

There is no assurance that the current law will not be changed in a manner which would permit investments other than those described above to be made with amounts deposited to defease the Bonds. Because the Ordinance does not contractually limit such investments, registered owners may be deemed to have consent to defeasance with such other investments, notwithstanding the fact that such invests may not be of the same investment quality as those currently permitted under State law.

The City has reserved the option, to be exercised at the time of the defeasance of the Bonds subject to redemption, to call for redemption, at an earlier date, those Bonds which have been defeased to their maturity date, if the City (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Bonds for redemption; (ii) gives notice of the reservation of that right to the owners of the Bonds immediately following the making of the firm banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes.

SOURCES AND USES OF FUNDS

The following is an estimated list of sources and uses of funds:

Sources: Par Amount of Bonds $ Net Reoffering Premium/Discount Total Sources of Funds $ Uses: Deposit to Construction Fund $ Deposit for the payment of the Refunded Bonds Costs of Issuance(1) Total Uses of Funds $

______(1) Includes Initial Purchaser’s discount, legal counsel fees, financial advisor fees, rating agencies fees, printing and mailing expenses and other costs of issuance of the Bonds.

CITY AD VALOREM TAX INFORMATION

STATE OF TEXAS TAX CODE

TAXABLE PROPERTY AND EXEMPTIONS . . . Reference is made to the Tax Code, Title I, Vernon’s Texas Codes Annotated (the “Property Tax Code”), for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and, the procedures and limitations applicable to the levy and collection of ad valorem taxes. Excluding agricultural and open-space land which may be taxed on the basis of productive capacity, the Property Tax Code requires property to be appraised at 100% of market value and prohibits application of any assessment ratios.

The value of property is assessed for purposes of taxation as of January 1 of each year (except for business inventory which may be, at the option of the taxpayer, assessed as of September 1). The appraisal of taxable property within the City is the responsibility of the central appraisal districts of Dallas, Collin, Denton, Rockwall and Kaufman counties with respect to City property located within such counties, which are county-wide agencies created under the Property Tax Code for that purpose. Each central appraisal district is required to review the value of property within the appraisal 5 district at least every three years; however, the City may require annual review at its own expense. In practice, each appraisal district reappraises property within its jurisdiction on a rotating basis such that all property is reappraised once every three years. The value placed upon property within each central appraisal district is subject to review by an Appraisal Review Board consisting of members appointed by the Board of Directors of the appraisal district. The City is entitled to challenge the determination of appraised value of any category of property within the City by petition filed with the applicable Appraisal Review Board. Taxpayers may submit individual properties to the Appraisal Review Board for valuation review and equalization; taxpayers may appeal the Appraisal Review Board’s decisions to a state district court.

The appraised value of a residence homestead for a tax year may not exceed the lesser of (1) the most recent market value of the residence homestead as determined by the appraisal entity or (2) 110 percent of the appraised value of the residence homestead for the preceding tax year plus the market value of all new improvements.

Article VIII of the State Constitution (“Article VIII”) and State law provide for certain exemptions from property taxes, the valuation of agricultural and open-space lands at productivity value, and the exemption of certain personal property from ad valorem taxation.

The governing body of a taxing unit, such as the City, at its option may grant: (1) an exemption of up to 20% of the market value of all homesteads with a minimum exemption of $5,000, and (2) an additional exemption of not less than $3,000 of the market value of the homesteads of persons 65 years of age or older and the disabled. Senate Joint Resolution 1 (“SJR1”), passed during the 84th Texas Legislature, proposed a constitutional amendment that allows the Legislature to prohibit a municipality that adopts an optional homestead exemption from reducing or repealing the amount of the exemption. SJR1 was approved by the voters in the November 2015 Constitutional election, Senate Bill 1, which went into effect upon the approval of SJR1, prohibited municipalities from reducing or repealing the amount of their optional homestead exemption that was in place for the 2014 tax year for a period running through December 31, 2019.

In the case of residence homestead exemptions granted under, Article VIII, Section 1-b, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created.

State law and Article VIII, Section 2, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to a maximum of $12,000 depending upon the degree of disability or whether the exemption is applicable to a surviving spouse or children. Notwithstanding the foregoing, a disabled veteran who receives from the United States Department of Veterans Affairs or its successor 100% disability compensation due to a service-connected disability and a rating of 100% disabled or of individual unemployability is entitled to an exemption from taxation of the total appraised value of the veteran’s residence homestead. House Joint Resolution 75 (“HJR75”), passed during the 84th Texas legislature, proposes a constitutional amendment that allows the Legislature to provide for an exemption from ad valorem taxation of all or part of the market value of the residence homestead of the surviving spouse of a 100 percent or totally disabled veteran and who would have had qualified for the full exemption before the law authorizing a residence homestead exemption took effect. The proposition authorized by HJR75 was approved by voters in the November 2015 constitutional election. Therefore, the surviving spouse of a totally disabled veteran who died on or before January 1, 2010 and who would have qualified for the full exemption on the homestead’s entire value if it had been available at that time, will be entitled to an exemption from ad valorem taxation of all or part of the market value of the residence homestead if the spouse has not remarried. The surviving spouse of a deceased veteran who had received a disability rating of 100% is entitled to receive a residential homestead exemption equal to the exemption received by the deceased spouse until such surviving spouse remarries.

A partially disabled veteran or the surviving spouse of a partially disabled veteran is entitled to an exemption equal to the percentage of the veteran’s disability, if the residence was donated at no cost to the veteran by a charitable organization.

The surviving spouse of a member of the armed forces who is killed in action is entitled to a property tax exemption for all or part of the market value of such surviving spouse’s residences homestead, if the surviving spouse has not remarried since the service member’s death and said property was the service member’s residence homestead at the time of death. Such exemption is transferable to a different property of the surviving spouse, if the surviving spouse has not remarried, in an amount equal to the exemption received on the prior residence in the last year in which such exemption was received.

Article VIII provides that eligible owners of both agricultural land (Section l-d) and open-space land (Section l-d-l), including open-space land devoted to farm or ranch purposes or open-space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section 1-d and l-d-l.

Article VIII, Section 1-j, provides for “freeport property” to be exempted from ad valorem taxation unless the governing body of a taxing entity took action prior to January 1, 1990, to tax such property. Freeport property is defined as goods detained in State for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to exempt freeport property are not subject to reversal. In addition, under Section 11.253 of the Property Tax Code, “Goods-in-transit” are exempt from taxation unless a taxing unit opts out of the exemption. Goods-in-transit are defined as tangible personal property that: (i) is acquired in or imported into the State to be forwarded to another location in the state or outside the State; (ii) is detained at a location in the State in which the owner of the property does not have a direct or indirect ownership interest for assembling, storing, manufacturing, processing, or fabricating purposes by the person who acquired or imported the property; (iii) is transported to another location in the State or outside the State not later than 175 days after the date the person acquired the property in or imported the property into the State; and (iv) does not include oil, natural gas, petroleum products, aircraft, dealer’s motor vehicle inventory, dealer’s vessel and outboard motor inventory, dealer’s heavy equipment inventory, or retail manufactured housing inventory. On December 14, 2011, the City Council held a public hearing to receive comments regarding whether goods-in-transit in warehouses within the City limits should remain subject to taxation by the City, and approved an ordinance establishing that goods-in-transit within the City limits would remain subject to taxation.

6 All real property and certain personal property is taxable property unless exempt by law. With the exception of transportation, insurance and savings and loan intangibles, intangible personal property is not taxable property. Nonbusiness personal property, such as automobiles or light trucks, is exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. State law additionally provides for one motor vehicle owned by an individual and used in the course of the owner’s occupation or profession and also for personal activities of the owner to be exempted from ad valorem taxation.

Article VIII, Section l-1, provides for the exemption from ad valorem taxation of certain property used to control the pollution of air, water or land. A person is entitled to an exemption from taxation of all or part of real and personal property that the person owns and that is used wholly or partly as a facility, device or method for the control of air, water or land pollution.

Under Section 11.24 of the Property Tax Code, the governing body of a taxing unit may exempt from taxation part or all of the assessed value of a structure or archeological site and the land necessary for access to and use of the structure or archeological site, if the structure or archeological site is: (1) designated as a Recorded Texas Historic Landmark under Chapter 442, Texas Government Code, or a State archeological landmark under Chapter 191, Texas Natural Resources Code, by the Texas Historical Commission; or (2) designated as a historically or archeologically significant site in need of tax relief to encourage its preservation pursuant to an ordinance or other law adopted by the governing body of the unit.

The City and the other taxing units within its territory may agree to jointly create Tax Increment Financing Zones (the “Zones”), under which all or a portion of the taxes on increased property values (as determined by the participating taxing units) in the Zones are dedicated to financing public improvements within the Zones.

The City also may enter into tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on their property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years (See “City Exemptions and Abatements”).

Cities are also authorized, pursuant to Chapter 380, Texas Local Government Code (“Chapter 380”) to establish programs to promote state or local economic development and to stimulate business and commercial activity in the City. In accordance with a program established pursuant to Chapter 380, the City may make loans or grant of public funds for economic development purposes; however, no obligations secured by ad valorem taxes may be issued for such purposes unless approved by voters of the City. The City voted general obligation bonds in 2006 and 2012 for the purpose of funding its economic development programs.

ADDITIONAL HOMESTEAD EXEMPTION FOR ELDERLY AND DISABLED . . . Under Article VIII, Section 1-b, and State law, the governing body of a political subdivision, at its option, may grant an exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision. Once authorized, such exemption may be repealed or decreased or increased in amount (i) by the governing body of the political subdivision or (ii) by a favorable vote of a majority of the qualified voters at an election called by the governing body of the political subdivision, which election must be called upon receipt of a petition signed by at least 20% of the number of qualified voters who voted in the preceding election of the political subdivision. In the case of a decrease, the amount of the exemption may not be reduced to less than $3,000 of the market value.

The surviving spouse of an individual who qualifies for the foregoing exemption for the residence homestead of a person 65 or older (but not the disabled) is entitled to an exemption for the same property in an amount equal to that of the exemption for which the deceased spouse qualified if (i) the deceased spouse died in a year in which the deceased spouse qualified for the exemption, (ii) the surviving spouse was at least 55 years of age at the time of the death of the deceased spouse and (iii) the property was the residence homestead of the surviving spouse when the deceased spouse died and remains the residence homestead of the surviving spouse.

TAX RATE LIMITATION . . . All taxable property within the City is subject to the assessment, levy and collection by the City of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt within the limits prescribed by law. Article XI, Section 5, of the Texas Constitution is applicable to the City, and limits its maximum ad valorem tax rate to $2.50 per $100 Taxable Assessed Valuation for all City purposes. Administratively, pursuant to the Attorney General of the State of Texas will permit allocation of $1.50 of the $2.50 maximum tax rate for all General Obligation debt service, as calculated at the time of issuance. Administratively, the Attorney General of the State of Texas will not approve bonds if, as calculated at the time of issuance and based on the then current taxable property values, more than $1.50 of the maximum $2.50 is required for all General Obligation debt service, including the bonds being considered for approval.

A “truth-in-taxation” process is required by State law. The City must annually calculate and publicize its “effective tax rate” and “rollback tax rate”. The City Council may not adopt a tax rate that exceeds the lower of the rollback tax rate or the effective tax rate until it has held two public hearings on the proposed tax rate following a notice of such public hearings and otherwise complied with the Property Tax Code. If the adopted tax rate exceeds the rollback tax rate, the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate.

“Effective tax rate” means the rate that will produce last year’s total tax levy (adjusted) from this year’s total taxable values (adjusted). “Adjusted” means lost values are not included in the calculation of last year’s taxes and new values are not included in this year’s taxable values. “Rollback tax rate” means the rate that will produce last year’s maintenance and operation tax levy (adjusted) from this year’s values (adjusted) multiplied by 1.08 plus a rate that will produce this year’s debt service from this year’s values (unadjusted) divided by the anticipated tax collection rate.

The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. The City does not collect the additional one-half cent sales tax.

7 Taxable sales in the City are currently subject to the maximum 8.25% sales tax (1% of which is the City’s portion) and the City is not eligible to implement the additional sales tax. The collection of the Dallas Area Rapid Transit (“DART”) 1% sales tax precludes the City from increasing the City rate of 1%.

Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates.

COLLECTION OF DELINQUENT TAXES . . . Taxes levied by a taxing unit are a personal obligation of the owner of the property. On January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penalties and interest ultimately imposed for the year on the property. The lien exists in favor of the State and each taxing unit, including the City, having the power to tax the property. The City’s tax lien is on a parity with tax liens of all other such taxing units. A tax lien on real property has priority over the claim of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien. Personal property under certain circumstances is subject to seizure and sale for the payment of delinquent taxes, penalty and interest. At any time after taxes on property become delinquent, the City may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the City must join other taxing units that have claims for delinquent taxes against all or part of the same property. The ability of the City to collect delinquent taxes through foreclosure proceedings may be adversely affected by the amount of taxes owed to other taxing units, adverse market conditions, taxpayer redemption rights, bankruptcy proceedings and other proceedings affecting creditors’ rights, which restrain the collection of a taxpayer’s debt. Federal bankruptcy law provides that an automatic stay of actions by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases, post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court.

TAX ASSESSMENT AND COLLECTION . . . Property within the City is assessed as of January 1 of each year (except for business inventory which may be, at the option of the taxpayer, assessed as of September 1). By September 1 or as soon thereafter as practicable, the City Council adopts a tax rate per $100 of taxable value for the current year. The tax rate consists of two components: (1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service, which combined cannot exceed $2.50 per $100 taxable assessed valuation. Taxes become payable October 1, and become delinquent on February 1 of the following year. The City does not permit split payments or discounts. Notwithstanding the City’s prohibition on split payments, taxpayers 65 years old or older are permitted by State law to pay taxes (without penalty and interest) on homesteads in four installments with the first due on or before January 31 of each year and the final installment due on or before July 31.

Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows:

Cumulative Cumulative Month Penalty Interest Total February 6% 1% 7% March 7% 2% 9% April 8% 3% 11% May 9% 4% 13% June 10% 5% 15% July 12% 6% 18%

After July, the penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent on July 1, a 20% attorney’s collection fee is added to the total tax, penalty and interest charge. Under certain circumstances, taxes that become delinquent on the homestead of a taxpayer 65 years old or older incur interest of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City’s lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due the City and all other taxing entities. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases, post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court.

Additionally, the owner of a residential homestead property that is a person 65 years of age or older is entitled by law to pay current taxes on a residential homestead in installments or to defer the payment of taxes, without penalty, during the time of ownership.

CITY EXEMPTIONS AND ABATEMENTS . . . The City grants an exemption of 20% of the market value of residence homesteads; the minimum exemption is $5,000.

The City grants an additional exemption to the market value of the residence homestead of persons 65 years of age or older or disabled, of $90,000; disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces are granted an exemption of $5,000 to $12,000 dependent upon the amount of disability.

The City has a Public/Private Partnership Program to stimulate economic development. The program was last amended in June 2014 and includes a tax abatement policy as well as other incentives such as Chapter 380 economic development grants. The City’s guidelines governing tax abatement agreements provide for availability of tax abatement for both new facilities and structures, and for the expansion and modernization of existing facilities and structures. Under the City’s current Public/Private Partnership Program guidelines, financial resources of the City may be used as private development incentives for the following categories of eligible projects: (1) Southern Dallas – projects creating or retaining at least 25 jobs or having a minimum investment of $1,000,000 may receive up to a 90% abatement for 10 years on added real estate value and/or up to 50% abatement for 5 8 years on net new business personal property; (2) Northern Dallas – projects creating or retaining at least 100 jobs or having a minimum investment of $5,000,000 may receive up to a 50% abatement for 10 years on added real estate value and/or up to 50% abatement for 5 years on net new business personal property; (3) Central Business District – projects creating or retaining at least 100 jobs or having a minimum investment of $5,000,000 may receive up to a 75% abatement for 5 years on net new business personal property; and, projects that are not in tax increment financing (TIF) district sites may be eligible for tax abatement on real property up to 90% for 10 years; and (4) Non-conforming Projects – projects will be considered on a case by case basis. The amount of property value entitled to tax abatement during fiscal year 2016-2017 was $720,829,169.

Pursuant to an amendment to the tax abatement policy adopted in June 2014, a company may receive temporary abatement of real estate or personal property taxes if certain primary considerations of capital improvements and job creation/retention are met. Additionally, City staff may consider secondary considerations (includes Dallas resident employment, efforts to exceed minimum environmental regulations, wage rates, community activities, target industry projects, and M/WBE participation) in determining the real estate or personal property tax abatement. Projects may also be considered for a combination of both real estate and personal property tax abatement when the combined amount does not exceed 90% of the City taxes on total new improvement value.

The City has created eighteen (18) tax increment reinvestment zones (referred to herein as “Tax Increment Financing Zones”) to provide a means to fund specific improvements within the boundaries of the respective Tax Increment Financing Zones. Bonds are outstanding that were issued to finance project costs in the “Downtown Connection Tax Increment Financing District”, and those bonds are secured by a pledge of tax increment revenues generated within the related Tax Increment Financing Zone. The amount of property value that was “captured increment” in Tax Increment Financing Zones during fiscal year 2016-2017 was $6,952,114,898; however, only ad valorem taxes generated from $6,067,178,056 of such “captured increment” are dedicated to the Tax Increment Financing Zones due to less than 100% participation in certain zones by the City.

Since 1993, through the Historic Preservation Incentive Program, the City has granted tax exemptions for investment in historic structures. To be eligible, a building must be a contributing structure within any city historic district and designated as a historic district or an individual historic landmark. The program is divided into three areas: urban historic districts, revitalizing historic districts and all other areas. Location of the property determines the minimum required expenditures for program eligibility. Last amended by the City Council in 2007, the program was developed to encourage preservation of historic buildings and the revitalization of the historic neighborhoods throughout the City. The exemption amount for historic sites during fiscal year 2016-2017 was $192,024,510.

The exemption amount for freeport during fiscal year 2016-2017 was $1,753,572,563.

Dallas County bills and collects ad valorem taxes for the City pursuant to a contract.

FISCAL YEAR 2018 ADOPTED BUDGET

On September 20, 2017 the City Council voted and approved the City’s $3.1 billion Fiscal Year 2018 Budget (the “2018 Adopted Budget”) for the period beginning October 1, 2017 and ending September 30, 2018. The 2018 Adopted Budget is balanced. The 2018 Adopted Budget is based on taxable assessed values for 2017 and other anticipated sources of revenue. Taxable assessed values for Fiscal Year 2018 increased from Fiscal Year 2017 by approximately 7.18%. Increases in revenue sources enabled the City to adopt a budget which maintains the same service level or greater as the prior year for City services.

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9 AD VALOREM TAX DATA

TABLE 2 – VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT

Real & Business Personal Property: 2016-2017 Market Valuation Established by Central Appraisal District $ 143,787,713,689 Valuation in Dispute 330,841,919 $ 144,118,555,617 Less Exemptions/Reductions at 100% Market Value: Residential Homestead Exemptions $ 9,434,228,121 Homestead Exemptions over 65 3,299,811,103 Disabled Persons Exemptions 376,030,638 Disabled Veterans Exemptions 82,996,355 Agricultural Value Loss 113,036,409 Capped Value Loss(1) 2,135,137,221 Abatements 720,829,169 Freeport Exemption 1,742,845,374 Historic Preservation Exemptions 192,314,854 Other Exemptions 20,237,128 Totally Exempt Parcels 15,475,490,440 $ 33,595,956,812 2016-2017 Taxable Assessed Valuation $ 110,522,598,805 2016-2017 “Captured Increment” in Tax Increment Financing Zones(2) $ (6,067,178,056) 2016-2017 Adjusted Taxable Assessed Valuation $ 104,455,420,749

Net General Obligation Debt Payable from Ad Valorem Taxes (as of 09/30/17)(3) $ 1,632,595,997 Interest and Sinking Fund Cash Balance (Estimated, as of 9/30/17) $ 13,769,804

(1) Effective January 1, 2008, state law limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (i) the most recent market value of the residence homestead as determined by the appraisal entity or (ii) 110 percent of the appraised value of the residence homestead for the preceding tax year plus the market value of all improvements to the residence homestead. Capped Value Loss represents the amount by which appraised values of residence homesteads exceed 110% of the appraised values of such residence homestead for the preceding tax year. (2) The amount of property value that is “captured increment” in Tax Increment Financing Zones during fiscal year 2016-2017 was $6,952,114,898; however, only ad valorem taxes generated from $6,067,178,056 of such “captured increment” are dedicated to the Tax Increment Financing Zones. (3) Excludes the Bonds, includes the Refunded Obligations. The above statement does not include the following bonded debt outstanding as of September 30, 2017: $296,390,000 Civic Center Convention Complex Senior Lien Revenue Bonds secured by a lien on the gross revenues of the Civic Center and certain receipts from the City’s hotel occupancy tax; $2,159,911,000 City of Dallas Waterworks and Sewer System Revenue Bonds (the System) secured by a lien on revenues of the System net of current expenses of operation and maintenance; $226,085,000 Love Field Airport Modernization Corporation General Airport Revenue Bonds secured by a first lien on and pledge of the Pledged Revenues; and $61,747,626 Downtown Dallas Development Authority Tax Increment Contract Revenue Bonds secured by a lien on the tax increment levied by each taxing unit in the zone; $462,916,198 (Series 2009A $74,411,197; Series 2009B $388,175,000; Series 2009C $330,000) Dallas Convention Center Hotel special limited obligations under a nonprofit local government corporation are secured and payable from, among other things, hotel net operating revenues, direct federal government subsidies on Build America Bonds (Taxable Series 2009B), and certain City Tax Revenues.

10 TABLE 3 – TAXABLE ASSESSED VALUATION BY CATEGORY

Taxable Assessed Value for Fiscal Year Ended September 30, 2012 2013 2014 Amount % of Amount % of Amount % of Category (Millions) Total (Millions) Total (Millions) Total Commercial Property $ 30,984 37.79% $ 32,736 39.12% $ 35,103 40.23% Residential Property 38,722 47.23% 38,368 45.85% 39,126 44.84% Business Personal Prop. 12,288 14.99% 12,578 15.03% 13,023 14.93%

Total $ 81,994 100.00% $ 83,682 100.00% $ 87,252 100.00%

Taxable Assessed Value for Fiscal Year Ended September 30,

2015 2016 2017

Amount % of Amount % of Amount % of Category (Millions) Total (Millions) Total (Millions) Total Commercial Property $ 38,665 41.51% $ 44,387 44.25% $ 47,661 43.12% Residential Property 41,462 44.52% 42,706 42.57% 49,203 44.52% Business Personal Prop. 13,010 13.97% 13,226 13.18% 13,659 12.36%

Total $ 93,138 100.00% $ 100,319 100.00% $ 110,523 100.00%

______Source: Certified Tax Rolls.

TABLE 4 – VALUATION AND FUNDED DEBT HISTORY

Ratio of Fiscal Taxable Per Capita General G.O. Tax Debt Year Assessed Taxable Obligation Tax Debt to Taxable Ended Estimated Valuation Assessed (G.O.) Per Assessed 9/30 City Population(1) (TAV)(2) Valuation Tax Debt(3) Capita Valuation 2012 1,213,550 $ 81,993,746,356 $ 67,565 $ 1,666,007,336 $ 1,373 2.03% 2013 1,221,800 83,681,721,883 68,491 1,691,184,734 1,384 2.02% 2014 1,232,360 87,251,522,141 70,800 1,547,227,904 1,255 1.77% 2015 1,244,270 93,138,210,535 74,854 1,700,336,063 1,367 1.83% 2016 1,257,730 100,318,936,973 79,762 1,774,890,086 1,411 1.77% 2017 1,270,170 110,522,598,805 83,758 1,632,595,997(5) 1,239 1.48%(5)

______(1) Source: North Central Texas Council of Governments. (2) Source: Certified Tax Rolls. (3) Represents general obligation debt, excluding accreted interest and tax increment financing district bonds, payable from ad valorem taxes. (4) As of September 30, 2016. (5) Excludes the Bonds, includes the Refunded Obligations. Preliminary, subject to change.

11 TABLE 5 – TAX RATE, LEVY AND COLLECTION HISTORY

Fiscal Interest Year and Ended Tax General Sinking Current % Current % Total 9/30 Rate Fund Fund Tax Levy Collections Collections 2012 $0.7970 $0.5379 $0.2591 $653,490,158 97.78% 98.63% 2013 0.7970 0.5439 0.2531 666,943,324 97.53% 98.22% 2014 0.7970 0.5601 0.2369 695,394,630 97.52% 98.14% 2015 0.7970 0.5646 0.2324 725,312,607 97.62% 98.23% 2016 0.7970 0.5646 0.2324 779,953,151 97.65% 98.20% 2017(1) 0.7825 0.5601 0.2224 863,783,198 97.79% 98.35% 2018(1) 0.7804 0.5580 0.2224 923,327,744 N/A N/A

______Source: Office of Financial Services. (1) Unaudited as of November 5, 2017. Preliminary, subject to change.

TABLE 6 – TEN LARGEST TAXPAYERS

2016-2017 % of Total Taxable Assessed Taxable Assessed Name of Taxpayer Nature of Business Valuation Valuation Oncor Electric Delivery Co Electric Utility $ 772,833,510 0.70% Northpark Land Partners Developer 667,809,720 0.60 AT&T Corporation Telecommunications 597,650,405 0.54 Texas Instruments Manufacturer 539,499,643 0.49 Southwest Airlines Air Transportation 481,751,612 0.44 FM Village Fixed Rate LLC Apartments 471,339,010 0.43 Walmart Stores Inc Retail 420,067,973 0.38 Galleria Mall Investors LP Developer 348,728,750 0.32 Post Properties Inc. Real Estate/Developer 330,499,640 0.30 Teachers Insurance and Annuity Assoc. Insurance 298,459,590 0.27 $ 4,928,639,853 4.46%

______Source: Dallas County Tax Office.

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12 CITY DEBT INFORMATION

BOND PROGRAMS . . . A $642.0 million bond program was authorized by voters in November 2012. Following the issuance of the Bonds, $51,396,000 of the 2012 voted authorization will remain to be issued at a future date. A $1.35 billion bond program was authorized by the voters in November, 2006. Following the issuance of the Bonds, $66,045,000 of the 2006 voted authorization will remain to be issued at a future date.

2017 BOND PROGRAM . . . At an election held on November 7, 2017, voters approved a capital bond program which includes $1.050 billion of capital projects allocated among 10 propositions: streets and transportation, parks and recreation, flood protection and storm drainage, library facilities, cultural arts facilities, public safety facilities, City Hall and other City facilities, economic development, homeless assistance facilities, and Fair Park.

BONDED DEBT LIMITATION . . . Chapter 1331, Texas Government Code, as amended, provides that total bonded debt payable from ad valorem taxes may not exceed 10% of City’s taxable assessed valuation. The City’s total bonded debt payable from ad valorem taxes including the Bonds described herein, is 1.77% of the City’s taxable assessed valuation.

Article XI, Section 5, of the Texas Constitution is applicable to the City and limits its maximum ad valorem tax rate to $2.50 per $100 assessed valuation for all City purposes. Administratively, the Attorney General of the State of Texas will not approve bonds if, as calculated at the time of issuance and based on the then current taxable property values, more than $1.50 of the maximum $2.50 is required for all general obligation debt service, including the bonds being considered for approval.

OTHER OBLIGATIONS . . . The City has no material noncancellable lease obligations. The City has certain unfunded liabilities as described in the Notes to the City’s September 30, 2016 Basic Financial Statements (see “Appendix B”). For information about pension plans and post-employment benefits, also see “City Financial Information – Pension Plans” and “City Financial Information – Other Post-Employment Benefits.”

DOWNTOWN DALLAS DEVELOPMENT AUTHORITY . . . In 2005, the City created the Downtown Dallas Development Authority (the “Authority”) in connection with the City’s redevelopment of certain areas of downtown Dallas. To that end, the City, the Authority, and the board of directors of Reinvestment Zone Number Eleven, City of Dallas, Texas (the “Zone”), entered into an agreement pursuant to which the Authority issued tax increment contract revenue bonds to facilitate the redevelopment objectives of the Zone, such bonds to be secured by the tax increment revenues collected within the Zone. The Authority has issued two series of bonds, one series in 2006, the other series in 2007, which were outstanding in the aggregate principal amount of $61,747,626 on September 30, 2017. Such bonds were issued with respect to the redevelopment of the “Mercantile Bank complex,” which is located on property within the Zone, as a multi-family housing and retail development. In connection with the issuance of such bonds by the Authority, the City and the Authority agreed, should there occur a deficiency in the moneys available from the collection of tax increment revenues within the Zone to pay debt service on the Authority’s bonds, that the City would consider, on an annual basis, appropriating moneys from the General Fund to the Authority in an amount sufficient to fund any such deficiency in such fiscal year. Under the terms of this agreement, the City is under no obligation to appropriate such funds. No such appropriation has been needed or sought by the Authority. At the current time, collections of tax increment revenues within the Zone substantially exceed projections of tax increment revenues that were anticipated to be generated within the Zone.

DALLAS CONVENTION CENTER HOTEL DEVELOPMENT CORPORATION… In 2008, the City, pursuant to Subchapter D of Chapter 431, Texas Transportation Code, as amended, created the Dallas Convention Center Hotel Development Corporation (the “Hotel Development Corporation”), a nonprofit local government corporation, to accomplish certain governmental purposes of the City, primarily the financing of the costs for the acquisition of land and development, construction, furnishing and equipping and opening a four-star, full-service convention center headquarters hotel project (“Convention Center Hotel”) in order to promote economic development and to stimulate business and commercial activity in the City. The Convention Center Hotel was designed and constructed pursuant to a development agreement between the Hotel Development Corporation and Matthews Holdings Southwest Inc., the developer, and a design/build guaranteed maximum price contract between the Hotel Development Corporation and Balfour/Russell/Pegasus, the design/builder. The Convention Center Hotel is being managed and operated by Omni Hotels Management Corporation, the hotel operator, pursuant to a hotel operating agreement and a room block and meeting space agreement. The Hotel Development Corporation in August 2009, issued Hotel Revenue Bonds ($74,411,197.20 Hotel Revenue Bonds, Series 2009A, $388,175,000 Hotel Revenue Bonds Taxable Series 2009B (Build America Bonds-Direct Payment) and $17,235,000 Hotel Revenue Bonds, Taxable Series 2009C) pursuant to a trust indenture (the “Hotel Trust Indenture”), the proceeds of bonds have been used to acquire land for the hotel site, finance the costs to design, construct, equip, furnish and open the convention center hotel project, fund 34 months of capitalized interest, fund a debt service reserve fund and pay certain costs of issuance. The Hotel Revenue Bonds are special limited obligations of the Hotel Development Corporation secured and payable from, among other things, hotel net operating revenues deposited in or credited to the funds and accounts held by U.S. Bank National Association, the Trustee under the Hotel Trust Indenture; direct payments received from the federal government in support of the Hotel Revenue Bonds, Series 2009B Build America Bonds (see “Legal Matters – Sequestration and Transparency Act of 2012”); and certain “City Tax Revenues” pledged pursuant to an Economic Development Agreement between the City and the Hotel Development Corporation. In connection with the issuance of the Hotel Revenue Bonds, the City agreed to pledge to the Hotel Development Corporation for the payment of the Hotel Revenue Bonds, certain “City Tax Revenues” consisting of: (a) revenues derived from the 6% state hotel occupancy tax collected at the Convention Center Hotel during the first ten years after the hotel opening; (b) revenues derived from the 6.25% state sales and use tax collected at the Convention Center Hotel during the first ten years after hotel opening; and revenue derived from the 7% local hotel occupancy tax collected at the Convention Center Hotel as long as any Hotel Revenue Bonds are outstanding. In addition, the City agreed in the Economic Development Agreement that, should hotel net operating revenues, City Tax Revenues, reserves and other amounts held under the Hotel Trust Indenture be insufficient to make the Senior Debt Service Payments in accordance with the terms of the Hotel Trust Indenture, the City would consider, on an annual basis and subject to the sufficiency of lawfully available funds, making grants or loans from the City’s general funds to the Hotel Development Corporation in an amount sufficient to fund any such deficiency for such fiscal year. Under the terms of the Economic Development Agreement, the City is under no obligation to appropriate such funds.

13 GENERAL OBLIGATION COMMERCIAL PAPER PROGRAM

On November 10, 2010, the City Council authorized the issuance of its General Obligation Commercial Paper Notes, Series A, Series B, and Series C (collectively, the “2010 Commercial Paper Program”) in an aggregate principal amount not to exceed $350,000,000 for voter approved capital projects (See Table 10 – Authorized General Obligation Bonds). The liquidity providers for the principal portion of the Series 2010 A, Series 2010 B and Series 2010 C Commercial Paper Notes were JPMorgan Chase Bank, National Association, U.S. Bank National Association and Wells Fargo Bank, National Association, respectively.

The Credit agreement between the City and U.S. Bank, National Association was terminated, which had the effect of terminating the Series 2010B Note program, effective as of July 9, 2013.

On October 25, 2017 the City approved the issuance of its General Obligation Commercial Paper Notes, Series A and Series B (the “Series A Notes” and “Series B Notes”, respectively, and together, the “2017 Commercial Paper Program”) in an aggregate principal amount not to exceed $350,000,000 for voter approved capital projects. The liquidity provider for the Series A Notes is JPMorgan Chase Bank, National Association pursuant to a revolving credit agreement (the “Credit Agreement”). The Series B Notes are to be directly purchased by JPMorgan Chase Bank, National Association) from time to time pursuant to the terms of a separate purchase agreement (the “Note Purchase Agreement”). Upon closing of the 2017 Commercial Paper Program, the City will issue $3,500,000 in Series B Notes that will be purchased by JPMorgan Chas Bank, National Association pursuant to the Note Purchase Agreement, and at least $3,500,000 aggregate principal amount of Series B Notes must remain outstanding for the duration of the term of the Note Purchase Agreement.

As of October 31, 2017, $9,650,000 aggregate principal amount of commercial paper notes are outstanding under the 2010 Commercial Paper Program. Upon closing of the 2017 Commercial Paper Program on November 28, 2017, all commercial paper notes issued pursuant to the 2010 Commercial Paper Program will be paid in full from available cash and the 2010 Commercial Paper Program will terminate.

Commercial paper notes issued under the 2017 Commercial Paper Program may be issued for a period not to exceed 270 days and will bear interest based on the specified terms of Series A Notes and Series B Notes. The Series A Notes and Series B Notes are payable from ad valorem taxes and other funds that may be provided under the Credit Agreement and Note Purchase Agreement.

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14 TABLE 7 – GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS (1)

Fiscal Year (1)(2) (3) Ending Outstanding Debt Service Refunded Debt The Bonds Total Debt % of Principal 9/30 Principal Interest Total Service(3) Principal Interest Total Service(1) Retired 2018 $ 139,508,560 $ 89,950,236 $ 229,458,796 $ 4,915,138 $ 4,195,000 $ 7,409,814 $ 11,604,814 $ 236,148,472 2019 137,475,322 85,238,245 222,713,567 4,180,388 17,560,000 10,780,150 28,340,150 246,873,330 2020 127,271,699 80,434,194 207,705,893 4,034,763 17,475,000 10,429,800 27,904,800 231,575,931 2021 149,150,000 54,657,787 203,807,787 3,879,138 17,385,000 10,081,200 27,466,200 227,394,850 2022 149,625,000 47,205,517 196,830,517 3,739,925 17,305,000 9,734,300 27,039,300 220,129,892 40.0% 2023 150,545,000 39,817,156 190,362,156 3,612,000 17,240,000 9,345,750 26,585,750 213,335,906 2024 144,830,000 32,613,813 177,443,813 3,482,194 17,180,000 8,915,500 26,095,500 200,057,119 2025 106,071,834 60,812,184 166,884,018 3,348,625 17,130,000 8,443,800 25,573,800 189,109,193 2026 96,960,114 57,527,530 154,487,644 3,213,175 17,075,000 7,930,725 25,005,725 176,280,194 2027 85,642,694 54,801,447 140,444,141 3,077,725 17,020,000 7,419,300 24,439,300 161,805,716 74.3% 2028 64,004,062 52,925,636 116,929,698 - 14,330,000 6,805,750 21,135,750 138,065,448 2029 53,258,642 51,864,969 105,123,611 - 14,330,000 6,089,250 20,419,250 125,542,861 2030 53,560,730 51,105,369 104,666,099 - 14,330,000 5,372,750 19,702,750 124,368,849 2031 45,055,840 50,602,192 95,658,032 - 14,33,0000 4,656,250 18,986,250 114,644,282 2032 45,053,960 50,512,854 95,566,814 - 14,330,000 3,939,750 18,269,750 113,836,564 91.8% 2033 34,822,046 50,792,228 85,614,274 - 14,330,000 3,223,250 17,553,250 103,167,524 2034 34,824,198 51,320,966 86,145,164 - 14,325,000 2,506,875 16,831,875 102,977,039 2035 14,936,297 45,590,144 60,526,441 - 14,325,000 1,790,625 16,115,625 76,642,066 2036 - - - - 14,325,000 1,074,375 15,399,375 15,399,375 2037 - - - - 14,325,000 358,125 14,683,125 14,683,125 100.0% $ 1,632,595,998 $ 1,007,772,467 $ 2,640,368,465 $ 37,483,069 $ 302,845,000 $ 126,307,339 $ 429,152,339 $ 3,032,037,735

______(1) Does not include Federal Subsidy payments from Build America Bonds. (2) Does not include debt service on Commercial Paper. (3) Preliminary, subject to change.

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15 TABLE 8 – TAXABLE ASSESSED VALUATIONS, TAX RATES, DIRECT AND OVERLAPPING FUNDED DEBT PAYABLE FROM AD VALOREM TAXES Expenditures of the various taxing entities within the boundaries of the City are paid out of ad valorem taxes levied by these taxing entities on properties within the City. These political taxing entities are independent of the City and may incur debt to finance their expenditures. This statement of direct and estimated overlapping ad valorem tax debt was developed from information contained in “Texas Municipal Reports” published by the Municipal Advisory Council of Texas. Except for the amounts relating to the City, the City has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed may have issued additional bonds since the date stated above, and such entities may have programs requiring the issuance of substantial amounts of additional debt, the amount of which cannot be determined. The table reflects the estimated share of overlapping funded debt of the City.

2016-2017 Taxable 2016-2017 Tax Direct G.O. Tax Estimated % City’s Overlapping Taxing Jurisdiction Assessed Value (2) Rate Debt as of 9/30/16 (3) Applicable (4) G.O. as of 9/30/16 City of Dallas $ 110,522,598,805 $ 0.782500 $ 1,774,890,000 (1) 100.00% 1,774,890,000 (1) Carrollton-Farmers Branch Independent School District 18,042,879,747 1.391170 242,085,000 7.71% 17,357,495 Cedar Hill Independent School District 3,023,872,635 1.516000 122,812,031 1.17% 1,436,901 Collin County 99,392,878,611 0.208395 395,590,000 4.23% 16,733,457 Collin County Community College District 112,324,010,515 0.081122 16,910,000 4.23% 715,293 Coppell Independent School District 10,403,841,780 1.492700 288,134,166 2.36% 6,799,966 Dallas County 200,270,902,687 0.243100 227,980,000 50.23% 114,514,354 Dallas County Community College District 217,216,436,340 0.122933 294,050,000 50.23% 147,701,315 Dallas County Hospital District 206,899,934,221 0.279700 718,480,000 50.13% 360,174,024 Dallas County Schools 200,270,902,687 0.009271 50,405,000 50.23% 25,318,432 Dallas Independent School District 101,241,853,707 1.282085 2,983,970,000 88.61% 2,644,095,817 Denton County 78,259,024,841 0.248409 608,895,000 1.61% 9,803,210 Duncanville Independent School District 3,950,537,719 1.521480 213,701,096 44.83% 95,802,201 Garland Independent School District 16,030,289,525 1.460000 613,232,866 2.36% 14,472,296 Grand Prairie Independent School District 5,777,951,061 1.595000 525,338,613 1.65% 8,668,087 Highland Park Independent School District 14,753,092,660 1.152700 282,375,000 9.21% 26,006,738 Irving Independent School District 11,614,555,793 1.445000 465,735,000 2.24% 10,432,464 Lancaster Independent School District 2,066,289,162 1.540000 149,175,344 1.97% 2,938,754 Lewisville Independent School District 29,997,037,494 1.420000 1,086,640,601 0.01% 108,664 Mesquite Independent School District 7,071,274,152 1.460000 490,699,333 1.19% 5,839,322 Plano Independent School District 41,000,164,146 1.439000 1,000,470,000 11.68% 116,854,896 Richardson Independent School District 20,320,775,786 1.390050 451,654,988 56.58% 255,546,392 Rockwall County 9,566,412,319 0.375900 110,610,000 15.00% 165,915 Rockwall Independent School District 7,698,797,901 1.465000 428,976,671 0.17% 729,260 Sunnyvale Independent School District 1,026,498,856 1.426000 60,352,581 3.49% 2,106,305 Total Direct and Overlapping G. O. Tax Debt $ 5,659,211,557 Ratio of Direct and Overlapping G. O. Tax Debt to Taxable Assessed Valuation 5.12% Per Capita Overlapping G. O. Tax Debt $ 4,500 (5)

______(1) Debt, excluding accreted interest and tax increment financing district bonds repayable from ad valorem taxes. (2) Source: Municipal Advisory Council of Texas. (3) Sources: Municipal Advisory Council of Texas. (4) Source: Municipal Advisory Council of Texas. (5) Based on North Central Texas Council of Gov’t 2016 population estimate of 1,257,730.

16 TABLE 9 – INTEREST AND SINKING FUND BUDGET PROJECTION

Budgeted General Purpose Debt Service Requirements, Fiscal Year Ending 9/30/18 $ 267,322,998 (1) Interest and Sinking Fund Cash Balance, estimated as of 9/30/17 $ 13,769,804 (1) 2017-18 Interest and Sinking Fund Tax Levy @ 97.64% Collection 260,036,328 (2) Estimated Transfers 16,609,518 (3) Projected Investment Income 102,526 Projected Build America Bonds Federal Subsidy 1,400,986

291,919,162

Projected Balance, 9/30/18 $ 24,596,164

______(1) FY 2017-18 Adopted Budget. Includes interest on commercial paper notes. (2) This is the estimated receipts for property tax for debt service, including prior year tax receipts and ad valorem penalty and interest payments, which will be deposited in the Interest and Sinking Fund whether or not collections equal 97.64% of the tax levy. (3) Reflects total estimated contributions from other funds to support outstanding self-supporting debt.

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17 TABLE 10 – AUTHORIZED GENERAL OBLIGATION BONDS 1

Amount Amount Previously Being Unissued Purpose Amount Voted Issued Issued2 Balance3 November 7, 2006 Election:

Street and Transportation $ 390,420,000 $ $ 19,284,000 $ Improvements 344,547,000 26,589,000

Flood Protection and Storm 334,315,000 323,832,500 1,110,000 9,372,500 Drainage Facilities Park and Recreation Facilities 343,230,000 333,732,000 1,415,000 8,083,000

Library Facilities 46,200,000 46,199,000 -0- 1,000

Cultural Arts Facilities 60,855,000 57,424,000 -0- 3,431,000

City Hall, City Service and City 34,750,000 24,708,500 4,817,000 5,224,500 Maintenance Facilities Land Acquisition for Development 1,500,000 1,500,000 -0- -0- of Low and Moderate Income Single Family Homes Economic Development in the 41,495,000 41,495,000 -0- -0- Southern Area of the City and in Other Areas in Connection with Transit-Oriented Development Farmers Market Improvements 6,635,000 6,635,000 -0- -0-

Cadillac Heights Land Acquisition 22,550,000 8,995,000 211,000 13,344,000 for City Facilities Court Facilities 7,945,000 7,945,000 -0- -0-

Public Safety Facilities 63,625,000 63,625,000 -0- -0-

November 6, 2012 Election:

Street Improvements 260,625,000 181,173,000 32,811,000 46,641,000

Flood Protection and Drainage 326,375,000 99,297,000 222,323,000 4,755,000 Facilities

Economic Development Programs 55,000,000 36,971,000 18,029,000 -0-

TOTALS $1,995,520,000 $1,578,079,000 $300,000,000 $117,441,000

Note: Numbers may not sum due to rounding.

1 In addition to the Bonds described below, pursuant to an election held on November 7, 2017, the voters approved the authorization of $1.05 billion in principal amount of general obligation bonds for multiple purposes. 2 Preliminary, subject to change. 3 The City intends to issue $3,500,000 in principal amount of Commercial Paper Notes from various voted amounts on November 28, 2017.

18 CITY FINANCIAL INFORMATION

ACCOUNTING POLICIES . . . The City’s policy is to adhere to the accounting principles generally accepted in the United States of America (“GAAP”). The City has established internal controls to help ensure the assets of the government are protected from loss, theft or misuse, and to ensure adequate accounting data are compiled to allow for preparation of financial statements in conformity with GAAP. The City Council is required by the City Charter to appoint a City Auditor who is independent of City management and reports directly to the City Council. The City Auditor supports the internal control structure within the City by performing independent evaluations of existing accounting and administrative controls and by ascertaining compliance with existing plans, policies and procedures. Additionally, the City undergoes an annual audit conducted by independent external auditors.

BUDGETARY POLICIES . . . The City policy is to begin the budgetary procedure at the department level in January of each year. The budget proceeds through departmental levels until it reaches the City Manager level where it is refined and presented to the Council in mid-August. The Council considers, amends and refines the budget until its final adoption in mid-September. The City adopted its 2017-2018 fiscal year budget by ordinance on September 20, 2017. The ordinance provides for budgetary control at the department level. Budgetary compliance is maintained in the automated accounting system and enforced at the department level by reserving appropriations by encumbering purchase orders and contracts.

FINANCIAL MANAGEMENT PERFORMANCE CRITERIA (“FMPC”) . . . The original FMPC were adopted by the City Council in March 1978 as standards to guide managerial decisions in operating and capital budgeting, as well as to promote efficient administration of the City’s financial policies. The City Council last reviewed and amended the FMPC in October 2014. The FMPC guide many of the City’s financial decisions and enable the City to achieve a long-term positive financial condition. The FMPC are evaluated for compliance each year during the budget preparation/approval process, at fiscal year- end and prior to each debt issuance.

The criteria are grouped into the following areas:

Operating Programs: These criteria pertain to revenues and expenditures, ad valorem tax levy, retirement systems and adequacy of reserves. As an example, certain criteria in this section require the City to maintain the Contingency and Emergency Reserves plus the unassigned fund balance at a specified minimum level in relation to operating expenditures and to review the adequacy of other General Fund Reserve accounts at specified intervals.

Capital and Debt Management: These criteria pertain to the City’s general obligation bonds, debt levels and the use of certificates of obligation and tax increment financing zone/public improvement district financing. The City policy is to not use bond proceeds, grants or other non-recurring revenues for current expenses.

Accounting, Auditing and Financial Planning: These criteria pertain to audit and accounting standards and requirements for financial planning.

Cash Management: These criteria pertain to the disbursement, collection and deposit of all funds, investment of idle cash and banking services.

Grants and Trusts: These criteria pertain to grant and trust administration.

Water Utilities: These criteria pertain to Dallas Water Utilities system rates, revenues, reserves, and debt financing.

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19 TABLE 11 – GENERAL FUND REVENUES AND EXPENDITURES HISTORY AS OF 9/30/16

Fiscal Years Ended September 30, (000s omitted) 2012 2013 2014 2015 2016 Revenues: Ad valorem tax $ 427,756 $ 437,442 $ 466,363 $ 499,734 $ 534,289 Sales tax 231,327 243,697 257,467 275,250 285,669 Franchise fees 129,508 131,009 136,951 132,719 135,098 Licenses and permits 6,185 6,271 6,232 6,047 6,232 Intergovernmental 7,656 8,194 8,203 8,943 9,543 Service to others 162,859 168,712 189,321 194,734 109,736 Fines and forfeitures 27,796 26,529 25,278 26,148 29,922 Investment income 1,078 553 468 1,780 1,865 Other 2,417 640 5,244 4,862 8,785 Total Revenues $ 996,582 $ 1,023,047 $ 1,095,527 $ 1,150,217 $ 1,121,139 Expenditures: General government $ 78,535 $ 85,682 $ 98,928 $ 93,818 $ 101,376 Public safety 603,195 619,730 647,591 672,971 688,943 Streets, street lighting, sanitation & code enforcement 155,850 163,072 172,427 186,082 127,411 Public works and transportation 5,299 5,271 6,121 7,517 7,239 Equipment and building services 17,293 21,216 25,604 23,427 24,293 Culture and recreation 94,641 104,557 111,570 121,442 128,089 Housing and neighborhood services 8,327 9,499 10,290 13,551 11,932 Debt Service: Principal 2,981 4,031 6,412 10,909 18,801 Interest and fiscal charges 802 1,078 1,153 1,374 1,564 Capital outlay 7,661 8,389 11,787 7,676 13,062 Total Expenditures $ 974,584 $ 1,022,525 $ 1,091,883 $ 1,138,767 $ 1,122,710 Excess (Deficiency) of Revenues Over Expenditures $ 21,998 $ 522 $ 3,644 11,450 (1,571) Other Financing Sources (Uses): Proceeds from sale of capital assets 4,553 4,272 260 325 213 Capital Lease 958 895 3,661 158 52 Operating transfers - net 106 2,280 16,104 7495 6.167 Total Other Sources (Uses) $ 5,617 $ 7,447 $ 20,025 $ 7978 $ 6,432 Excess (Deficiency) of Revenues Over Expenditures and Other Sources (Uses) $ 27,615 $ 7,969 $ 23,669 $ 19428 $ 4,861 Beginning Fund Balance 121,421 149,036 157,005 180674 186,170 Ending Fund Balance $ 149,036 $ 157,005 $ 180,674 $ 200102 $ 191,031 Detail of Fund Balances at end of year:(1) Nonspendable $ 9,289 $ 9,324 $ 10,044 $ 9,679 $ 10,659 Restricted 11,431 8,506 11,236 8,485 9,593 Committed 1,490 1,250 1,250 10,570 1,250 Assigned 25,621 17,086 28,905 29,603 15,836 Unassigned 101,205 120,839 129,239 141,765 153,693 Total Fund Balance $ 149,036 $ 157,005 $ 180,674 $ 200,102 $ 191,031

______(1) Restated fund balance. At the beginning of fiscal year 2016, the City implemented a change in accounting principle related to the accounting for sanitation activities. See Note 19. Change in Accounting Principles in the Fiscal Year 2016 Audit.

20 CITY SALES TAX . . . The City has adopted the Municipal Sales and Use Tax Act, Texas Tax Code, Chapter 321, which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City; the proceeds are credited to the General Fund and are not pledged to the payment of the Bonds. Collections and enforcements are effected through the offices of the Comptroller of Public Accounts, State of Texas, who remits the proceeds of the tax, after deduction of a 2% service fee, to the City on a monthly basis. Revenue from this source for the last five years is shown below.

TABLE 12 – MUNICIPAL SALES TAX HISTORY

Fiscal Equivalent Year % of Ad of Ad Ended Valorem Valorem Per 9/30 Revenue Tax Levy Tax Rate Capita (1) 2012 231,327,000 35.40% 0.2821 191.59 2013 243,697,000 36.54% 0.2912 199.46 2014 257,467,000 37.02% 0.2951 208.92 2015 272,250,000 37.08% 0.2955 221.21 2016 285,669,000 35.73% 0.2848 227.13

(1) North Central Texas Council of Governments.

INVESTMENT POLICY . . . The City invests its investable funds in investments authorized by State law and in accordance with its written investment policy approved by the City Council of the City. Both State law and the City’s investment policy are subject to change. The City Council last approved the Investment Policy on September 13, 2017.

Legal Investments . . . Under State law, the City is authorized to invest in (1) obligations, including letters of credit, of the United States or its agencies and instrumentalities, (2) direct obligations of the State or its agencies and instrumentalities, (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States, (4) other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or backed by the full faith and credit of, the State or the United States or their respective agencies and instrumentalities, (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than “A” or its equivalent, (6) bonds issued, assumed, or guaranteed by the State of Israel, (7) interest-bearing banking deposits that are (A) guaranteed or insured by the Federal Deposit Insurance Corporation or its successor or the National credit Union Share Insurance Fund or its successor or (B) are invested through (i) a broker with a main office or branch office in this state that the investing entity selects from a list the governing body or designated investment committee of the City adopts or (ii) a depository institution with a main office or branch office in this state that the City selects; and (a) the broker or depository institution selected arranges for the deposit of the funds in the banking deposits in one or more federal insured depository institutions, regardless of where located, for the City’s account; and (b) the full amount of the principal and accrued interest of the banking deposits is insurance by the United States or an instrumentality of the United States; and (c) the City appoints as the City’s custodian of the banking deposits issued for the City’s account:(1) the depository institution selected pursuant to (ii) above or (2) an entity described by Section 2256.041(d); or (iii) a clearing broker dealer registered with the Securities and Exchange Commission and operating under Securities and Exchange Commission Rule 15c3-3; (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State, (9) bankers’ acceptances with a stated maturity of 270 days or less from the date of its issuance, if the short-term obligations of the accepting bank or its parent are rated at least “A-1” or “P-1” or the equivalent by at least one nationally recognized credit rating agency, (10) commercial paper that is rated at least “A-1” or “P-1” or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (11) no-load money market mutual funds registered with and regulated by the Securities and Exchange Commission that meet the requirements of the Public Funds Investment Act (Chapter 2256, Texas Government Code, and referred to herein as the “PFIA”), and are rated not less than “Aaa” or its equivalent rating by at least one nationally recognized rating service, (12) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in the preceding clauses, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than “Aaa” or its equivalent, and (13) public funds investment pools that have an advisory board which includes participants in the pool and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than “Aaa” or its equivalent or no lower than investment grade. State law also permits the City to invest bond proceeds in a guaranteed investment contract, subject to limitations as set forth in the Public Funds Investment Act.

A political subdivision such as the City may enter into securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than “A” or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (10) through (12) above, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the City, held in the City’s name and deposited at the time the investment is made with the City or a third party designated by the City; (iii) a loan made under the program through either a primary government securities dealer or a financial institution doing business in the State; and (iv) the agreement to lend securities has a term of one year or less. 21 The PFIA specifically prohibits the City from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security collateral and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. In addition, the City is prohibited from investing any portion of bond proceeds, reserves and funds held for debt service in no-load mutual funds.

Additional Provisions . . . Under State law, the City Council is required to designate one or more investment officer who is responsible for the investment of the City’s funds, under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a formally adopted “Investment Strategy Statement” that specifically addresses each fund’s investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio and (6) yield.

Under State law, City investments must be made “with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person’s own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived.” At least quarterly, the investment officers of the City shall submit an investment report: (1) that describes in detail the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) that contains a summary statement, which includes the beginning market value, the ending market value and fully accrued interest during the reporting period of each pooled fund group, (4) that states the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) that states the maturity date of each separately invested asset, (6) that states the account or fund or pooled fund group for which each individual investment was acquired, and (7) that states the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) State law. The investment officers responsible for the investment of City funds must be designated by the City Council, and no person may invest City funds without express written authority from the City Council.

Under State law the City is additionally required to: (1) annually review its adopted policies and strategies; (2) require any investment officers with personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (3) adopt a rule, order, ordinance or resolution stating that it has reviewed its investment policy and investment strategies and records any changes made to either its investment policy or investment strategy in the respective rule, order, ordinance or resolution (4) require a qualified representative of firms seeking to sell securities to the City to: (a) receive and review the City’s investment policy, (b) acknowledge that reasonable controls and procedures have been implemented in an effort to preclude unauthorized investment activities, and (c) deliver a written statement attesting to these requirements; (5) perform an annual audit of the management controls on investments and adherence to the City’s investment policy; (6) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (7) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (8) restrict the investment in non-money market mutual funds in the aggregate to no more than 15 percent of its monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service; (9) require local government investment pools to conform to the disclosure, rating, net asset value, yield calculation, and advisory board requirements of the PFIA and; (10) at least annually review, revise and adopt a list of qualified brokers that are authorized to engage in investment transactions with the City.

Under State law, the City may contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b- 1 et seq.) or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control for a term up to two years, but the City retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the City must do so by order, ordinance, or resolution.

City Investment Policy . . . City policy requires investments in accordance with applicable State law, specifically the PFIA. The City’s Investment Policy does not permit the investment of City funds in all eligible investments permitted by Texas law. Of those eligible investments described above under “Legal Investments”, bankers’ acceptances, commercial paper, certain collateralized mortgage obligations, reverse repurchase agreements, no-load mutual funds, State of Israel bonds and guaranteed investment contracts are not authorized for investment purposes under the City’s Investment Policy. The City generally invests in obligations of the United States or its agencies and instrumentalities and in “Aaa”-rated no-load money market mutual funds and local government investment pools. In addition to such limitations, the City’s Investment Policy permits the investment of bond funds (including debt service and reserve funds) in the manner permitted by the respective ordinances authorizing the issuance of bonds.

Neither the PFIA nor the City’s Investment Policy govern the investment of pension and other deferred compensation funds, and those funds are not included in the investment totals below.

22 Current Investments . . . The following table represents, as of September 30, 2017, percentages by investment type applied to the City’s investable funds, which had an unaudited aggregate market value of $1,584,119,645.

Description Market Value(1) % of Total Federal Agriculture Mortgage $344,368,105 21.74% Corporation U.S. Agencies 1,066,731,540 67.34% LOGIC(1) 32,000,000 2.02% TexPool 20,000 0.00% TexPool Prime 17,000,000 1.07% TexSTAR(2) 4,000,000 0.25% Money Market Mutual Funds 120,000,000 7.58% Total / Average 1,584,119,645 100% (1) Totals may not add due to rounding.

As of such date, the unaudited aggregate book value of such investments (as determined by the City by reference to published quotations, dealer bids and comparable information) was $1,586,996,242.

(1) Local Government Investment Cooperative (“LOGIC”) is a local government investment pool for whom First Southwest Asset Management, Inc., an affiliate of First Southwest Company, LLC, provides customer service and marketing for the pool. LOGIC currently maintains a “AAAm” rating from Standard & Poor’s and has an investment objective of achieving and maintaining a stable net asset value of $1.00 per share. Daily investments or redemptions of funds are allowed by the participants. LOGIC operates in a manner consistent with the SEC’s Rule 2a-7 of the Investment Company Act of 1940, to the extent such rule is applicable to its operations. Accordingly, LOGIC uses the amortized cost method permitted by SEC Rule 2a-7 to report net assets and share prices since that amount approximates fair value. The investment activities of LOGIC are administered by third party advisors. There is no regulatory oversight by the State over LOGIC.

(2) TexSTAR is a local government investment pool for whom First Southwest Asset Management, Inc., an affiliate of First Southwest Company, LLC, provides customer service and marketing for the pool. TexSTAR currently maintains a “AAAm” rating from Standard & Poor’s and has an investment objective of achieving and maintaining a stable net asset value of $1.00 per share. Daily investments or redemptions of funds is allowed by the participants.

PENSION PLANS . . . Eligible City Department employees participate in the Employees’ Retirement Fund of the City (“ERF”), a description of which is set forth below. City police and firefighters participate in separate retirement plans, the Dallas Police and Fire Pension System pension plans.

In accordance with the Texas Constitution and related statutes, each of the City’s pension plans is administered by a board of trustees that are selected in accordance with the terms of the relevant plan document. These separate boards are responsible for administering each plan; hiring a plan administrator; selecting legal counsel; selecting the plan’s actuary; and approving sound actuarial assumptions for each plan. The contributions made to each plan by the City and the employees who participate in each plan are determined by the terms of the plan document and relevant City ordinances. The amount of the contributions described in the plan documents are either fixed by statute; determined by a fixed formula described in the plan that is based on annual calculations made by the plan’s actuary; or based on an actuarial calculation with specified assumptions and approved by the relevant board. Additionally, each board administers a qualified governmental excess benefit arrangement associated with each plan which is maintained solely for the purpose of providing its members with that part of the members’ benefits that would have been provided under its qualified plan but for certain limitations imposed by the Internal Revenue Code. The City is making all of the contributions as contractually or statutorily required by the plan documents, as requested by each plan administrator on behalf of each board of trustees. The financial information below is based entirely on information provided to the City by each plan administrator on behalf of each plan’s board of trustees.

At the date of this Official Statement, the City has received the audited Comprehensive Annual Financial Report from the Employees’ Retirement Fund of the City of Dallas for the period ended December 31, 2016. For additional detail about the City’s schedule of employer contributions, actuarial methods and assumptions, funded status and funded progress based on the plans’ December 31, 2014 and December 31, 2015 actuarial studies, see the City’s Comprehensive Annual Financial Report for the Fiscal Year ended September 30, 2016, particularly Note 16.

Employees’ Retirement Fund of the City of Dallas . . . All eligible employees of the City, excluding fire fighters and police officers, participate in the ERF. Except as further described below, benefits are based on credited service and average monthly earnings and include normal retirement pension at age 60, early retirement pension at age 55 if employed before May 9, 1972 or at least age 50, for active employees, where age and years of service total 78, service retirement pension at any age after 30 years of credited service and disability retirement pension as determined by the Board of Trustees of the ERF (the “Board”). Survivor benefits are available before and after retirement. If a member’s employment is terminated after five years of service, the member may elect to receive pension benefits, when eligible, equal to the amount accrued to date of termination.

23 Contribution rates for employees and the City are subject to annual adjustments based on actuarial determinations and fixed formulas. Employees pay 37% and the City pays 63% of the total cost of the ERF, including the debt service on the City’s outstanding pension obligation bonds, but not exceeding 36% of payroll. This funding approach was added to the ERF plan terms in preparation for the issuance of pension obligation bonds in 2005 to support the City’s long-term funding of the plan during future business cycles. On January 19, 2005, the City issued $399,347,609 par value Taxable General Obligation Pension Bonds, Series 2005. Proceeds totaling $533,397,000 were contributed to the ERF to partially fund an unfunded actuarial accrued liability of approximately $646 million, which had been identified in the annual actuarial report of 2003. ERF invested the contributed proceeds consistent with its investment policy.

For the fiscal year ended September 30, 2016, each employee contributed 13.32% and the City contributed 22.68% of pay for a total of 36.00%. For the fiscal year beginning October 1, 2016, the member total contribution rate is 13.32% and the City’s portion is 22.68%, in accordance with the plan document that is codified as Chapter 40A of the Dallas City Code (“Chapter 40A”). This 36.00% of payroll is less than the annual actuarially required contribution calculated by the plan’s actuary based on the plan’s experience for the one-year period ended on December 31, 2015, but is consistent with the City’s long- term funding strategy implemented in 2005 and Chapter 40A. A portion of the City’s contribution is expected to pay $33,803,365 in debt service on the pension obligation bonds during the fiscal year beginning on October 1, 2016.

As of December 31, 2016, the ERF reported the Net Pension Liability (NPL) was $964,211,000 and the funded ratio based on the NPL was 78.1%. This NPL is required to be reported by the City for the fiscal year ended September 30, 2017.

For additional detail about the City’s schedule of employer contributions, actuarial methods and assumptions, funded status and funded progress, see the City’s Comprehensive Annual Financial Report for the Fiscal Year ended September 30, 2016, particularly Note 16.

On November 8, 2016, the City voters passed Proposition 1 authorizing certain amendments to Chapter 40A of the City Code affecting the terms of the ERF for employees hired on and after January 1, 2017. The amendments include, but are not limited to, increasing the retirement age from 60 to 65 with five years of credited service, decreasing the percentage multiplier used to calculate benefits from 2.75% to 2.50%, eliminating health benefit supplements and lowering the cap on cost of living adjustment from 5% to 3%. The ERF projects that the amendments will reduce pension liabilities of the ERF over the next 30 years by approximately $2.15 billion over what the liabilities may have been if the changes to be effected through the passage of Proposition 1 had not been approved.

Dallas Police and Fire Pension System . . . For a description of the City of Dallas Police and Fire Pension Fund System’s pension legislation recently adopted by the Texas legislature in the Regular Session that ended May 29, 2017, see the voluntary filing made by the City on June 22, 2017, which is available by accessing the City’s page on EMMA at https://emma.msrb.org/ER1065343-ER834402-ER1235296.pdf.

References to web site addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader’s convenience. Unless otherwise specified, such web sites and the information or links contained therein are not incorporated into, and are not a part of, this official statement for the purpose of, and as that term is defined in, Rule 15c2-12.

See “LEGAL MATTERS – Litigation” for additional information.

OTHER POST-EMPLOYMENT BENEFITS . . . In addition to pension benefits, the City provides certain other post-employment benefits for retired employees (“OPEB”). The City ended subsidization of these benefits for employees hired on or after January 1, 2010. The cost of these benefits is recognized as expenditures when the underlying claims are paid using the modified accrual basis of accounting.

The City is required to prepare an actuarial report estimating an Actuarial Accrued Liability (“AAL”) which reflects the value of future benefits payments based on certain assumptions including the current level of benefits. Accounting standards require the City to amortize the AAL over a period not to exceed 30 years and record a portion of the liability each year. This accumulated amortization of the AAL is reported as a Net OPEB obligation in the City’s enterprise funds and government wide financial statements.

The City received the actuarial valuation report from an outside consultant regarding the City’s September 30, 2015 and 2016 OPEB obligations. The City has elected to amortize the AAL over a 30-year period as a level percentage of payroll. As of September 30, 2015, the City estimated an AAL of $460 million. As of September 30, 2016, the AAL is estimated to be $493 million. The Net OPEB obligations as of September 30, 2015 and 2016 were estimated to be $242 million and $252 million, respectively.

For more information concerning the City’s post-employment benefits for fiscal year ended September 30, 2016, see the City’s September 30, 2016 Comprehensive Annual Financial Report and Note 18 thereto.

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24 TABLE 13 – FINANCIAL INDICATORS

Fiscal Year Ended September 30 2012 2013 2014 2015 2016 General Fund Ending Fund Balance $ 149,036,000 $ 157,005,000 $ 180,674,000 $ 200,102,000 $ 191,031,000 Debt Service Fund Ending Fund Balance $ 6,494,000 $ 5,984,000 $ 3,492,000 $ 13,809,000 $11,088,000 Taxable Assessed Valuation $ 81,993,746,356 $ 83,681,721,883 $ 87,251,522,141 $ 93,138,210,535 $ 100,318,936,973 Percent Change in Taxable Assessed Valuation -1.72% 2.06% 4.27% 6.75% 7.71% Tax Base Debt(1) $ 1,666,007,336 $ 1,691,184,734 $ 1,547,227,904 $ 1,700,336,063 $ 1,774,890,086 Per Capita Net Tax Base Debt $ 1,373 $ 1,384 $ 1,255 $ 1.367 $ 1.411 Per Capita Valuation $ 67,565 $ 68,491 $ 70,800 $ 74,854 $ 79,762 Tax Base Debt to Valuation 2.03% 2.02% 1.77% 1.83% 1.77% Current Tax Collection Rate 97.78% 97.53% 97.52% 97.62% 97.65% Total Tax Collection as % of Tax Levy 98.63% 98.22% 98.14% 98.23% 98.20%

(1) Represents general obligation debt, excluding accrued interest and tax increment financing district bonds, payable from ad valorem taxes. Does not include the Bonds, includes the Refunded Obligations.

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25

LEGAL MATTERS

LITIGATION

The City is a party to various lawsuits in the normal course of business. It is the opinion of the City Attorney and City Management that, except as described herein below, there is no pending litigation against the City that if decided adversely to the City, would have a material adverse financial impact upon the City or its operations.

The City is a defendant in six lawsuits, including two class actions, arising from City Ordinance No. 16084, adopted on January 22, 1979. All of the lawsuits allege that current and past police and fire pay schedules were adopted in violation of a referendum approved by the voters in 1979. All Plaintiffs claim that the City failed to maintain percentage pay differentials between grades in the sworn ranks as required by the referendum, and seek compensation for alleged underpayments of salaries and loss of value of retirement benefits.

It is the City’s position that the 1979 referendum only mandated that pay raises be made in fiscal year 1978-1979 and that there was no continuing obligation of the City to maintain pay scale differentials, as alleged by the plaintiffs. The City has asserted its governmental immunity and various special exceptions and affirmative defenses, and disputes the Plaintiffs’ allegations in all of the lawsuits.

The Plaintiffs in Albert, et al. v. City of Dallas (Cause No. 199-697-94) (“Albert”) are 808 members of the Dallas Fire Department. The Plaintiffs in Arredondo, et al. v. City of Dallas (Cause No. 199-1743-99) are 16 members of the Dallas Fire Department who were originally plaintiffs in Albert but whose claims were severed in October 1999. The Plaintiffs in Barber, et al. v. City of Dallas (Cause No. 199-624-95) are 71 members of the Dallas Fire Department. The Plaintiffs in Willis, et al, v. City of Dallas (Cause No. 199-200-95) are 772 members of the Dallas Police Department. Parker et al. v. City of Dallas (Cause No. 1-95-107) is a class action lawsuit. The Parker Plaintiff class consists of all current, past or future members of the sworn ranks of the Dallas Police Department, as well as their spouses, heirs or estates. Martin, et al. v. City of Dallas (Cause No. 1-95-506) is the other class action lawsuit. The Martin Plaintiff class consists of current, past and future members of the sworn ranks of the Dallas Fire Department, as well as their spouses, heirs or estates. Both of the class action lawsuits have been certified. In addition, in September 1999, the Dallas Police and Fire Pension System intervened in the lawsuits seeking contributions from both its members (Plaintiffs) and the City of Dallas in the event of a final judgment awarding back pay to Plaintiffs. In the two class action lawsuits, Parker and Martin, the Plaintiffs have alleged damages of approximately $94,000,000. The amount of alleged damages has not been specified in the other lawsuits. The Plaintiffs also seek an award of attorney fees in an unspecified amount in connection with their breach of contract and declaratory relief claims. Although the City has stated that the total recovery in the cases could exceed $1 billion if the plaintiffs prevailed on liability and damage issues, any estimate of damage at this stage in the litigation is speculative. Unless the current Court of Appeals decision, as described below, is reversed, the City is not liable for back pay damages to the Plaintiffs and any damages would be significantly more limited.

In August 1997, the trial court in Albert, the oldest of the cases, issued an order holding that the City had not maintained the percentage pay differentials between grades; however, the Court also held that the remedy was within the City’s discretion and that salaries could be either raised or lowered to conform to the appropriate percentage differentials. The City adopted a resolution implementing a remedy which was submitted to the Court for approval. In May 1999, the Court determined that the City’s remedy was not adequate and, upon motion of 16 of the 824 Albert Plaintiffs, entered an Order Granting Partial Summary Judgment in favor of those 16 Plaintiffs, awarding damages of $1.7 million to the 16 Plaintiffs. Plaintiffs requested that the Court sever that portion of the case as to the 16 Plaintiffs and enter a final order in their favor. On October 20, 1999, the Court granted the Plaintiffs’ motion for severance, making the Partial Summary Judgment final with respect to the 16 Plaintiffs, whose claims are now styled, Arredondo, et al v. City of Dallas (Cause No. 199-1743-99). On October 28, 1999, the 16 Plaintiffs appealed the Court’s Final Summary Judgment order based on the measure of damages issue and on January 4, 2000, the City appealed the Final Summary Judgment as to both liability and damages issues. The Arredondo appeal (No. 05-99-01819-CV) was fully briefed and oral argument was held on November 28, 2000. On June 4, 2002, the Court of Appeals reversed the trial court’s judgment and remanded the case to the trial court, holding that the ordinance is patently ambiguous and that resolution of the ambiguity (regarding whether the word “maintain’ applies only to the one-time raise provided in the ordinance or also to all future pay scales) would be a question for the finder of fact based on contemporaneous evidence of the voters’ intent in passing the referendum. The Arredondo plaintiffs filed a petition for review in the Texas Supreme Court. That petition was denied.

On December 21, 2006, the Court of Appeals reversed the trial courts in all six cases and upheld the City’s governmental immunity from Plaintiffs’ breach-of-contract claims, including claims for declaratory relief to recover damages. However, the Court of Appeals affirmed the trial courts’ denial of the City’s pleas regarding the Plaintiffs’ claims for prospective declaratory relief, and found it appropriate to allow Plaintiffs the opportunity to argue to the trial court that the legislature has waived immunity from suit for breach of contract under Texas Local Government Code sections 271.151 to 271.160, which were enacted during the pendency of the appeals.

In opinions on August 26, 2011, and December 16, 2011, the Texas Supreme Court reversed the Court of Appeals. The Court held that the City has immunity from Plaintiffs’ requests for a declaratory judgment and that the adoption of an ordinance by referendum did not result in waiver or abrogation of the City’s immunity. The Court remanded the cases to the trial court to consider whether, by adding sections 271.151 through 271.160 to the Texas Local Government Code, the legislature waived the City’s immunity.

On remand in Albert, Arredondo, Barber, and Willis, the City filed pleas to the jurisdiction, asserting that Plaintiffs have not pleaded a written contract to invoke the waiver of the City’s governmental immunity in the Local Government Code. The district court denied the pleas, and the City filed interlocutory appeals to the Court of Appeals for review of whether the City’s immunity is waived under the Local Government Code. On August 13, 2013, the Court of Appeals reversed the denials in part and dismissed all Plaintiffs’ claims for declaratory relief and attorney fees, and affirmed the denials in part as to Plaintiffs’ breach-of-contract claims under section 271.152. The City filed a petition for review with the Texas Supreme Court. The Court denied the petition on February 27, 2015. The City filed a motion for rehearing on April 15, 2015. The Court denied rehearing on September 11, 2015.

26 The Dallas Police and Fire Pension System (the “Pension System”) filed a petition in intervention in Arredondo on March 15, 2016. The Arredondo Plaintiffs moved to strike the intervention, and the trial judge denied the motion. The Plaintiffs filed a mandamus petition in the Dallas Court of Appeals, which denied the petition on May 17, 2016. The Plaintiffs filed a mandamus petition in the Texas Supreme Court. In June 2016, the City filed, in all six cases, a plea to the jurisdiction of the Pension System’s intervention and a motion for summary judgment on all claims by Plaintiffs and the Pension System. The motions and pleas were heard in the four Collin County cases on July 22 and July 25, 2016. On July 26, 2016, the trial court reconsidered its previous denial of Plaintiffs’ motion to strike or sever the Pension System’s intervention and severed the Pension System’s claims in all four cases against the councilmembers and the city manager into a new cause number cause no. (199-03434-2016). The court also treated the pleas to the jurisdiction as motions for summary judgment, which it granted. As a result, the Supreme Court dismissed as moot the Plaintiffs’ petition for mandamus. The trial court also deferred ruling on the City’s motion for summary judgment against the Arredondo plaintiffs until the trial on the merits. The Pension System filed a motion for new trial from the summary judgment on August 25, 2016, and appealed from the summary judgment in cause no. 199-03434-2016 on October 19, 2016. On September 15, 2017, the Pension System moved to dismiss its appeal because of the passage of House Bill 3158, effective September 1, 2017, see Act of May 25, 2017, 85th Leg., R.S., ch. 318. The court of appeals dismissed the appeal on October 5, 2017.

Some of the Arredondo plaintiffs, including Joe Bob Betzel (the Betzel plaintiffs), have filed a motion for partial summary judgment, seeking the following declarations: (1) they have written contracts with the City that fall within the waiver of immunity in chapter 271; and (2) the chiefs and assistant chiefs are included within the set of salaries for which differentials must be maintained forever. On November 9, 2016, Judge Tucker heard but did not rule on the City and City officials’ motion to reconsider her order deferring a ruling on their motion for summary judgment and the Betzel plaintiffs’ motion for partial summary judgment. On November 22, 2016, the City filed in the Dallas Court of Appeals a petition for writ of mandamus requiring Judge Tucker to decide the jurisdictional ground in the motion for summary judgment. The court of appeals denied the petition on February 22, 2017, and the City filed a petition for mandamus in the Texas Supreme Court on March 7, 2017. The Supreme Court denied the petition on May 1, 2017.

On August 18, 2016, the City filed in Martin and Parker a second plea to the jurisdiction asserting Plaintiffs had not pled a contract within a waiver of immunity from suit. The City’s second pleas were heard in the two Rockwall County cases on September 1, 2016, and the court ordered Plaintiffs to replead. After Plaintiffs repled, the City filed supplemental pleas on September 22, 2016, asserting Plaintiffs had not filed a contract claim within the waiver for any claims on or after April 1, 2002, because the alleged written contract could not include personnel rules after that date. The City’s motions for summary judgment and pleas and second pleas were heard in the Rockwall cases on September 27, 2016, and the court denied all of them on that date. The City appealed to the Fifth Court of Appeals from those denials on October 14, 2016. The court of appeals consolidated the appeals under the Martin docket number. On July 20, 2017, the court of appeals affirmed the trial court’s orders denying the City’s motion for summary judgment and pleas to the jurisdiction. The City filed a motion for rehearing and a motion for reconsideration en banc, which were denied. The City’s petition for review in the Texas Supreme Court is due on November 20, 2017.

The Arredondo case is scheduled for trial on December 4, 2017. The City will continue to vigorously assert its arguments regarding ambiguity, constitutionality, and other defenses. The City has retained outside trial and appellate counsel in all six cases.

The City is a defendant in United States ex rel. Lockey et al. v. City of Dallas, et al., a qui tam False Claims Act lawsuit against the City, the Dallas Housing Authority, Dallas County, and the Dallas County Housing Agency. Curtis Lockey and Craig MacKenzie are the relators, claiming that each defendant falsely certified that it was affirmatively furthering fair housing when submitting applications for federal funds from the U.S. Department of Housing and Urban Development (HUD). Under their “false certification” legal theory, the relators contend that each defendant falsely obtained all HUD affordable housing funding received over the past six years. Thus, on behalf of the United States, relators claim that the City received more than $320 million based on the false claims and seek triple recovery of that sum and additional civil penalties against the City. They seek comparable dollar amounts based on the same formula from the other defendants. If the relators were to recover, the United States would receive the vast majority of the proceeds and the relators would receive the remainder. On February 3, 2010, the relators also filed a complaint with HUD that contains many of the same allegations that they have made in this lawsuit. In response to HUD’s inquiries, the City provided information to HUD in March and May 2010 and has not received any further communication from HUD. The suit was originally filed under seal in February 2011. After receiving information from the City and the other defendants, the United States elected not to intervene. The Court unsealed the case on November 14, 2011 and entered a partial scheduling order.

Relators served the City on February 28, 2012. The City moved to dismiss for lack of jurisdiction because of prior litigation and administrative proceedings. On January 23, 2013, the district court granted the City’s motion to dismiss. Relators filed a notice of appeal. On December 5, 2013, Relators filed a motion in district court seeking an “indicative ruling” based on HUD’s November 22, 2013 letter of non-compliance. The district court denied the motion. Relators also appealed the denial of their “indicative” motion. The Fifth Circuit affirmed the trial court’s judgment on August 4, 2014, and issued the mandate on August 24, 2014. However, on October 3, 2014, Relator filed a motion to amend complaint or to file new action. On April 22, 2015, the trial court denied the motion. Relators did not appeal. On October 8, 2014, Relators filed another lawsuit under seal using a complaint identical to the one denied in Lockey I. The complaint was unsealed on April 15, 2015 and the City was served. The City filed motions to dismiss. On December 16, 2015, the district court dismissed with prejudice the second lawsuit. Relators appealed. On October 4, 2016, the Fifth Circuit affirmed the trial court’s judgment that the Relators’ action is barred by issue preclusion. Related proceedings involving the Relators and HUD continue to be litigated; however, the City is not a party to these proceedings. The City believes that the risk of liability is remote in these proceedings.

In October 2014, the City Attorney publicly reported to the City Council that Dallas Fire-Rescue has misplaced approximately 14 laptops that may contain certain patient health information subject to privacy restrictions under the Health Insurance Portability and Accountability Act (“HIPAA”). Preliminary information has been conveyed to the U.S. Department of Health and Human Services (HHS) Office of Civil Rights (“OCR”), the agency that enforces HIPAA. By letter dated April 21, 2015, OCR notified the Dallas Fire-Rescue Department that it is investigating whether Dallas Fire- Rescue is in compliance with the applicable federal standards for Privacy of Individually Identifiable Health Information and the Security Standards for the Protection of Electronic Protected Health Information and the Breach Notification Rule. OCR directed Dallas Fire-Rescue to respond to 13 requests for information to determine its compliance status. Dallas Fire-Rescue responded on May 27, 2015. Since the City entered into several contracts with third party vendors as part of its plan to comply with the regulations, the City is investigating whether it may have claims against those

27 third party vendors and, if so, the amount of damages that may be recoverable to the City. If the City is fined by HHS, it is undetermined: (1) when the HHS determination as to the imposition of a fine against the City will be made; (2) whether the City would appeal the HHS determination; and (3) if, or when, the City would pay the fine amount. Based on the limited facts known to the City at this stage of the investigation, the City does not believe the amount of any fine would have a material adverse financial impact on the City or its operations.

On October 30, 2014, the City filed a petition with the Public Utility Commission (PUC) that challenged the SRA’s new rate, asserting that the SRA violated the existing agreement and/or the law in several ways, including: (1) adopting the rate unilaterally, (2) adopting a rate that does not take into account like contract sales of water of similar quality, quantity, and contract period, (3) adopting a rate that is not based on any appropriate cost considerations or any cost-of-service analysis, and (4) adopting a rate that exceeds the rates charged by the SRA to other customers for raw water from Lake Fork. The City requested the PUC to: (1) after a hearing, set a final rate that is just, fair, reasonable and non-discriminatory, and (2) immediately set an interim rate effective November 1, 2014, at the rate in effect prior to November 1, 2014, subject to a refund or surcharge depending on the final rate set by the PUC.

On April 2, 2015, an administrative law judge (ALJ) ruled that the City would pay an interim rate of $24.1 million per year until the dispute is resolved. The rate did not include the cost escalator at that SRA had requested and was retroactive to November 2, 2014. Neither the City nor SRA can access the interest-bearing escrow account until the dispute is resolved. The City is passing on this increase in water rates to all its retail and wholesale customers. If the City partially or totally prevails in the rate case, some or all of the funds in the escrow account will be returned to the City and its customers at the end of the case.

Subsequent to the April 2, 2015 ruling, the ALJ abated the case so the parties could obtain a ruling from a proper court on whether SRA’s purported rate was set “pursuant to contract.” The City filed a lawsuit in state district court in Travis County, asserting that SRA’s rate was not set “pursuant to contract.” SRA filed a plea to the jurisdiction, asserting government immunity. The court granted the plea on May 14, 2015. The City appealed to the Austin Court of Appeals. The Austin Court of Appeals affirmed the trial court’s order granting SRA’s plea to the jurisdiction and dismissal of the City’s claim on June 7, 2017.

In addition, the City filed a lawsuit in state district court in Orange County, asserting that the members of the board of directors of the SRA acted ultra vires (exceeded their lawful authority) when they established the rate. SRA intervened and sued the City for breach of contract. The City filed a plea to the jurisdiction on the contract claim, which was denied by the trial court. The City appealed and the appeal has been pending. On October 12, 2017, the parties settled all matters in controversy between them.

CLEAN AIR ACT AMENDMENTS OF 1990

The U.S. Environmental Protection Agency (USEPA) has established certain air quality standards for the North Texas Region consisting of Dallas, Collin, Denton and Tarrant counties (the “Region”). In 1993, the USEPA classified the Region as a non-attainment area under the USEPA’s one-hour ozone standard. In 1998, the USEPA downgraded the Region from an area of moderate non-attainment to an area of serious non-attainment. The Region was required to meet the one-hour ozone standards by a June 15, 2005 attainment date. A Texas State Implementation Plan (SIP), developed under the one-hour ozone standard, proposed emission reduction strategies necessary to meet the air quality standards.

Concurrently, USEPA developed its newer 8-hour clean air standards (based upon a different testing methodology). On April 15, 2004, the USEPA promulgated the new 8-hour standard, which also had the effect of enlarging the non-attainment Region by adding Ellis, Johnson, Kaufman, Parker and Rockwall counties (such counties, together with the Region, being the “North Texas Region”), as well as revoking the previous one-hour standard. The new “8-hour standard” required the Texas Commission on Environmental Quality (TCEQ) to develop a new SIP by June 2007 that would show attainment of the standard by 2010. The 8-hour rule also established new guidelines for areas that had not met their legal obligations under the previous one-hour standard. The option chosen by TCEQ was to propose a “5% Rate of Progress SIP” by June 2005, that would establish a schedule of at least a 5% decrease in levels of NOx, thereby leading the way for compliance of the new standard. The TCEQ approved this “5% Rate of Progress SIP” and submitted it to USEPA in June 2005. As a result of this submission, the area has now complied with its previous one-hour standard requirements.

The finalization of the 8-hour standard and revocation of the one-hour standard also contributed to the resolution of a lawsuit brought by environmental groups against USEPA for its failure to either approve or disapprove a SIP under the previous one-hour standard. In October 2004, a case styled Blue Skies Alliance et al. v. Leavitt was filed by four citizens groups in the U.S. District Court in Dallas, Texas. The suit sought to require the USEPA to either approve or disapprove the SIP submitted under the one-hour standard. The practical effect of the suit could have required the DFW area to a higher “severe” classification and cause disruption of all planning for federally funded highway projects in the region. However, the suit was settled and USEPA agreed to a consent decree that proposed to approve some additional air quality measures submitted by the State, as well as additional studies on point source controls to be conducted by TCEQ.

The TCEQ has also identified new control measures for consideration for the nine county area as well as certain regional controls. On December 13, 2006, the TCEQ presented a proposed plan to its Commissioners. That plan was formally adopted by the TCEQ Commissioners on May 26, 2007.

On March 12, 2008, USEPA revised the 8-hour ozone national ambient air quality standard. The new standard was established at 75 parts per billion (“ppb”). Due to the revision, new designations of ozone nonattainment were required by the Clean Air Act. States were to recommend to USEPA nonattainment areas and boundaries by March 2009, and USEPA was required by the Clean Air Act to finalize the designations by March 2010. On May 21, 2012, EPA designated the 10-county DFW area as “moderate nonattainment” with respect to the 8-hour ozone standard. In response, TCEQ proposed SIP revisions that were accepted in part and denied in part by EPA. Communication between TCEQ and EPA regarding these issues is ongoing. The attainment deadline for the 8-hour ozone standard is December 31, 2018.

On July 14, 2008, USEPA proposed conditional approval of the 1997 8-hour ozone attainment demonstration SIP revisions for the Dallas/Fort Worth area submitted to USEPA by the State of Texas on May 30, 2007 and supplemented on April 23, 2008. USEPA’s action was published in the Federal

28 Register on July 14, 2008 at 73 FR 40203. USEPA also proposed on July 11, 2008 a finding that the DFW area is currently attaining the 1-hour ozone standard. Details of this action are found in the Federal Register of July 11, 2008 at 73 FR 39897.

In February 2009, USEPA approved the 1997 8-hour ozone attainment demonstration SIP revisions for the Dallas/Fort Worth area. Details of this action are found in the Federal Register of January 14, 2009 at 74 FR 1927. However, in January 2010, USEPA proposed to further strengthen the national ambient air quality standards for ground level ozone from the current standard of 75 ppb. USEPA has proposed to change the standard to a level between 60 ppb and 70 ppb. On October 1, 2015, USEPA lowered the standard to 70 ppb, at the high end of the proposed scale. USEPA is expected to issue attainment designations for this new standard by October, 2017, with deadlines for achieving the standards ranging from 2020 to 2037, depending on the severity of the ozone problem.

SEQUESTRATION TRANSPARENCY ACT OF 2012

The American Recovery and Reinvestment Act of 2009 (“ARRA”) authorized the issuance of “build America bonds”, which permitted issuers to elect to receive payments equal to 35% payable on the “build America bonds”. The interest payable on “build America bonds” is subject to federal income taxation. Under the “build America bonds” program, the City currently receives payments from the Federal government with respect to its $85,380,000 General Obligation Bonds, Taxable Series 2010B (Direct Subsidy Build America Bonds) (the “2010 Build America Bonds”) and the Dallas Convention Center Hotel Development Corporation (the “Corporation”) also currently receives payments from the Federal government with respect to its $388,175,000 Hotel Revenue Bonds, Taxable Series 2009B Bonds (Build America Bonds – Direct Payment) (the “2009 Build America Bonds”) The payments are equal to 35% of the interest payable on the taxable debt (the “Federal Subsidy”). Under the Sequestration Transparency Act of 2012 (“STA”), the Federal Subsidy would be reduced. The STA was triggered by the failure of Congress to enact legislation to reduce the deficit by $1.2 trillion, as required by the Budget Control Act of 2011, and went into effect March 1, 2013. According to an update released by The IRS Office of Tax Exempt Bonds (TEB), the sequester reduction percentage applied to the payments made to issuers of direct pay bonds in FY 2017 will be 6.9 percent. This new percentage will apply to all direct credit subsidy payments scheduled to be made on or after October 1, 2016 through and including September 30, 2017. The City believes that the reduction in Federal Subsidies in 2016-2017 will not materially adversely affect the financial condition of the City. At this time, the City can make no representations as to the effect or the amount of any reduction in the Federal Subsidy which will be available to the City and the Corporation in 2016-2017 or any future year for these or any purpose. Absent Congressional action, the sequester reductions will continue through and including Fiscal Year 2024, with the sequestration reduction rate being set at different percentages each year.

REGISTRATION AND QUALIFICATION OF BONDS FOR SALE

The sale of the Bonds has not been registered under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions.

LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS

Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Bonds are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State. With respect to investment in the Bonds by municipalities or other political subdivisions or public agencies of the State, the PFIA, Chapter 2256, Texas Government Code, requires that the Bonds be assigned a rating of not less than “A” or its equivalent as to investment quality by a national rating agency. See “Other Information – Ratings” below. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Bonds are legal investments for state banks, savings banks, trust companies with capital of one million dollars or more, and savings and loan associations. The Bonds are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the City has been made of the laws in other states to determine whether the Bonds are legal investments for various institutions in those states.

LEGAL OPINIONS

The City will furnish a complete transcript of proceedings had incident to the authorization and issuance of the Bonds, including the unqualified approving legal opinion of the Attorney General of Texas approving the Initial Bonds and to the effect that the Bonds are valid and legally binding special obligations of the City, and based upon examination of such transcript of proceedings, the approving legal opinions of Co-Bond Counsel, to like effect and to the effect that the interest on the Bonds will be excludable from gross income for federal income tax purposes under existing law and the Bonds are not private activity bonds, subject to the matters described under "TAX MATTERS" herein, including alternative minimum tax consequences for corporations. The customary closing papers, including a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Bonds, or which would affect the provision made for their payment or security, or in any manner questioning the validity of said Bonds will also be furnished. Co-Bond Counsel was not requested to participate, and did not take part, in the preparation of the Notice of Sale and Bidding Instructions, the Official Bid Form and the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Co- Bond Counsel, such firms have reviewed the information describing the Bonds in the Official Statement to verify that such description conforms to the provisions of the Ordinance. The legal fees to be paid Co-Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent on the sale and delivery of the Bonds. The legal opinion will accompany the Bonds deposited with DTC or will be printed on the Bonds in the event of the discontinuance of the Book-Entry Only System.

29 The various legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion the attorney does not become an insurer or guarantor of the expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise from the transaction.

TAX MATTERS

TAX EXEMPTION

In the opinion of Co-Bond Counsel, under existing law (i) interest on the Bonds is excludable from gross income for federal income tax purposes and (ii) the Bonds are not “private activity bonds” under the Internal Revenue Code of 1986, as amended (the “Code”), and as such, interest on the Bonds is not subject to the alternative minimum tax on individuals and corporations, except as described below in the discussion regarding the adjusted current earnings adjustment for corporations.

The Code imposes a number of requirements that must be satisfied for interest on state or local obligations, such as the Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of bond proceeds and the source of repayment of bonds, limitations on the investment of bond proceeds prior to expenditure, a requirement that excess arbitrage earned on the investment of bond proceeds be paid periodically to the United States and a requirement that the City file an information report with the Internal Revenue Service. The City has covenanted in the Bond Ordinance that it will comply with these requirements.

Co-Bond Counsel’s opinion will assume continuing compliance with the covenants of the Bond Ordinance pertaining to those sections of the Code that affect the exclusion from gross income of interest on the Bonds for federal income tax purposes and, in addition, will rely on representations by the City, the City’s Co-Financial Advisors, and the Initial Purchasers with respect to matters solely within the knowledge of the City, the City’s Co-Financial Advisors, and the Initial Purchasers, respectively, that Co-Bond Counsel has not independently verified. If the City should fail to comply with the covenants in the Bond Ordinance or if the foregoing representations should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds, regardless of the date on which the event causing such taxability occurs.

The Code also imposes a 20% alternative minimum tax on the “alternative minimum taxable income” of a corporation if the amount of such alternative minimum tax is greater than the amount of the corporation’s regular income tax. Generally, the alternative minimum taxable income of a corporation (other than any S corporation, regulated investment company, REIT, or REMIC), includes 75% of the amount by which its “adjusted current earnings” exceeds its other “alternative minimum taxable income.” Because interest on tax-exempt obligations, such as the Bonds, is included in a corporation’s “adjusted current earnings,” ownership of the Bonds could subject a corporation to alternative minimum tax consequences.

Except as stated above, Co-Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the receipt or accrual of interest on, or acquisition, ownership or disposition of, the Bonds.

Co-Bond Counsel’s opinions are based on existing law, which is subject to change. Such opinions are further based on Co-Bond Counsel’s knowledge of facts as of the date thereof. Co-Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances that may thereafter come to Co-Bond Counsel’s attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, Co-Bond Counsel’s opinions are not a guarantee of result and are not binding on the Internal Revenue Service (the “Service”); rather, such opinions represent Co-Bond Counsel’s legal judgment based upon its review of existing law and in reliance upon the representations and covenants referenced above that it deems relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the City as the taxpayer and the Owners may not have a right to participate in such audit. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit regardless of the ultimate outcome of the audit.

ADDITIONAL FEDERAL INCOME TAX CONSIDERATIONS

COLLATERAL TAX CONSEQUENCES . . . Prospective purchasers of the Bonds should be aware that the ownership of bonds may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, low and middle income taxpayers qualifying for the health insurance premium assistance credit and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the United States may be subject to the “branch profits tax” on their effectively connected earnings and profits, including tax-exempt interest such as interest on the Bonds. These categories of prospective purchasers should consult their own tax advisors as to the applicability of these consequences. Prospective purchasers of the Bonds should also be aware that, under the Code, taxpayers are required to report on their returns the amount of tax-exempt interest, such as interest on the Bonds, received or accrued during the year.

TAX ACCOUNTING TREATMENT OF PREMIUM BONDS . . . The issue price of certain of the Bonds may exceed the stated redemption price payable at maturity of such Bonds. Such Bonds (the “Premium Bonds”) are considered for federal income tax purposes to have “bond premium” equal to the amount of such excess. The basis of a Premium Bond in the hands of an initial owner is reduced by the amount of such excess that is amortized during the period such initial owner holds such Premium Bond in determining gain or loss for federal income tax purposes. This reduction in basis will increase the amount of any gain or decrease the amount of any loss recognized for federal income tax purposes on the sale or other taxable disposition of a Premium Bond by the initial owner. No corresponding deduction is allowed for federal income tax purposes for the reduction in basis resulting from amortizable bond premium. The amount of bond premium on a Premium Bond that is amortizable each year (or shorter period in the event of a

30 sale or other disposition of a Premium Bond) is determined using the yield to maturity on the Premium Bond based on the initial offering price of such Bond.

The federal income tax consequences of the purchase, ownership and redemption, sale or other disposition of Premium Bonds that are not purchased in the initial offering at the initial offering price may be determined according to rules that differ from those described above. All owners of Premium Bonds should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of amortized bond premium upon the redemption, sale or other disposition of a Premium Bond and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership and sale, redemption or other disposition of such Premium Bonds.

TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT BONDS . . . The issue price of all or a portion of the Bonds may be less than the stated redemption price payable at maturity of such Bonds (the “Original Issue Discount Bonds”). In such case, the difference between (i) the amount payable at the maturity of each Original Issue Discount Bond, and (ii) the initial offering price to the public of such Original Issue Discount Bond constitutes original issue discount with respect to such Original Issue Discount Bond in the hands of any owner who has purchased such Original Issue Discount Bond in the initial public offering of the Bonds. Generally, such initial owner is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Bond continues to be owned by such owner. Because original issue discount is treated as interest for federal income tax purposes, the preceding discussion regarding interest on the Bonds under the captions “Tax Exemption” and “Additional Federal Income Tax Considerations – Collateral Tax Consequences” generally applies, and should be considered in connection with the discussion in this portion of the Official Statement.

In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Bond was held by such initial owner) is includable in gross income.

The foregoing discussion assumes that (a) the Initial Purchasers have purchased the Bonds for contemporaneous sale to the public and (b) all of the Original Issue Discount Bonds have been initially offered, and a substantial amount of each maturity thereof has been sold, to the general public in arm’s-length transactions for a price (and with no other consideration being included) not more than the initial offering prices thereof stated on the inside cover page of this Official Statement. Neither the City nor Co-Bond Counsel has made any investigation or offers any comfort that the Original Issue Discount Bonds will be offered and sold in accordance with such assumptions.

Under existing law, the original issue discount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Bonds and ratably within each such six-month period) and the accrued amount is added to an initial owner’s basis for such Original Issue Discount Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Bond.

The federal income tax consequences of the purchase, ownership, and redemption, sale or other disposition of Original Issue Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Bonds should consult their own tax advisors with respect to the determination for federal, state, and local income tax purposes of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Bonds.

TAX LEGISLATIVE CHANGES

Current law may change so as to directly or indirectly reduce or eliminate the benefit of the exclusion of interest on the bonds from gross income for federal income tax purposes. Any proposed legislation, whether or not enacted, could also affect the value and liquidity of the bonds. Prospective purchasers of the bonds should consult with their own tax advisors with respect to any proposed, pending or future legislation.

31 CONTINUING DISCLOSURE

CONTINUING DISCLOSURE OF INFORMATION

In the Bond Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to the Municipal Securities Rulemaking Board (the “MSRB”). This information will be available free of charge from the MSRB via the Electronic Municipal Market Access (“EMMA”) system at www.emma.msrb.org.

ANNUAL REPORTS . . . The City shall provide annually to the MSRB, (1) within six months after the end of each fiscal year of the City, financial information and operating data with respect to the City of the general type included in the final Official Statement in Tables numbered 1-7 and 9-13, and including financial statements of the City if audited financial statements of the City are then available, and (2) if not provided as part such financial information and operating data, audited financial statements of the City, when and if available. Any financial statements so to be provided shall be (i) prepared in accordance with the accounting principles prescribed by the Generally Accepted Accounting Principles or such other accounting principles as the City may be required to employ, from time to time, by State law or regulation, and (ii) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If the audit of such financial statements is not complete within 12 months after any such fiscal year end, then the City shall file unaudited financial statements within such 12-month period and audited financial statements for the applicable fiscal year, when and if the audit report on such statements becomes available.

The financial information and operating data to be provided may be set forth in full in one or more documents or may be included by specific reference to any document available to the public on the MSRB’s Internet Web site or filed with the SEC, as permitted by the Rule.

The City’s current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify the MSRB of the change.

DISCLOSURE EVENT NOTICES . . . The City shall notify the MSRB, in a timely manner not in excess of ten (10) business days after the occurrence of the event, of any of the following events with respect to the Bonds: (1) Principal and interest payment delinquencies; (2) Non-payment related defaults, if material; (3) Unscheduled draws on debt service reserves reflecting financial difficulties; (4) Unscheduled draws on credit enhancements reflecting financial difficulties; (5) Substitution of credit or liquidity providers, or their failure to perform; (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds; (7) modifications to rights of holders of the Bonds, if material; (8) Bond calls, if material, and tender offers; (9) Defeasances; (10) Release, substitution, or sale of property securing repayment of the Bonds, if material; (11) Rating changes; (12) Bankruptcy, insolvency, receivership or similar event of the City(1); (13) The consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) Appointment of a successor or additional Paying Agent/Registrar or change in the name of the Paying Agent/Registrar, if material.

(1) For the purposes of the event identified in (12), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City.

AVAILABILITY OF INFORMATION . . . The City has agreed to provide the foregoing information only as described above. Investors will be able to access continuing disclosure information filed with the MSRB free of charge at www.emma.msrb.org.

LIMITATIONS AND AMENDMENTS . . . The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach, whether negligent or without fault on its part, of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds may seek a writ of mandamus or specific performance to compel the City to comply with its agreement.

The City may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, if (i) the agreement, as amended, would have permitted an Initial Purchaser to purchase or sell Bonds in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds consent to the amendment or (b) any person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. If the City so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under “Annual Reports” an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided.

32 COMPLIANCE WITH PRIOR UNDERTAKINGS . . . The City has been in compliance, in all material respects, during the last 5 years with its undertakings under the Rule. The City timely filed its annual filings and material event filings with respect to its undertakings for the related outstanding bonds for the prior 5 years; however, certain of those filings inadvertently were not linked to certain of the related outstanding bonds. The City has updated its annual filings and remedied any incorrect or missing CUSIP linkages for any series of bonds of which it is aware.

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33 OTHER INFORMATION

RATINGS

Fitch Rating, Inc. (“Fitch”) and S&P Global Ratings (“S&P”) have assigned their municipal bond ratings of AA (stable outlook) and AA- (stable outlook), respectively, to the Bonds. An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organizations and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by either or both of such rating companies, if in the judgment of either or both companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the market price and marketability of the Bonds.

AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION

The financial data and other information contained herein have been obtained from the City’s records, audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects.

Verification of Arithmetical and Mathematical Computations

The arithmetical accuracy of certain computations included in the schedules provided by the City’s Co-Financial Advisors on behalf of the City was verified by Grant Thornton LLP, Minneapolis, Minnesota, certified public accountants (the "Accountants"). Such computations were based solely on assumptions and information supplied by the City’s Co-Financial Advisors on behalf of the City. The Accountants have restricted their procedures to verifying the arithmetical accuracy of certain computations and have not made any study or evaluation of the assumptions and information on which the computations are based, and accordingly, have not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome. The Accountants will verify from the information provided to them the mathematical accuracy as of the date of the closing on the Bonds of (i) the computations contained in the provided schedules to determine that the anticipated receipts from the Federal Securities and cash deposits listed in the schedules provided by the City’s Co-Financial Advisors, to be held in the Escrow Fund, will be sufficient to pay, when due, the principal and interest requirements· of the Refunded Bonds, and (ii) the computations of yield on both the Federal Securities and the Bonds contained in the provided schedules used by Bond Counsel in its determination· that the interest on the Bonds is excludable from the gross income of the holders thereof and the effective defeasance of the Refunded Bonds.

INITIAL PURCHASERS

After requesting competitive bids for the Bonds the City accepted the bid of [______] (the “Initial Purchaser”) to purchase the Bonds at the interest rate shown on the (inside) cover page of the Official Statement at a price of par plus cash premium (if any) of [$______]. The Initial Purchaser of the Bonds can give no assurance that any trading market will be developed for the Bonds after their sale by the City to the Initial Purchaser. The City has no control over the price at which the Bonds are subsequently sold and the initial yield at which the Bonds will be priced and reoffered will be established by and will be the responsibility of the Initial Purchaser of the Bonds.

CO-FINANCIAL ADVISORS

PFM Financial Advisors LLC and TKG & Associates LLC are employed as Co-Financial Advisors to the City in connection with the issuance of the Bonds. The Co-Financial Advisors’ fees for services rendered with respect to the sale of the Bonds are contingent upon the issuance and delivery of the Bonds. PFM Financial Advisors LLC and TKG & Associates LLC have agreed, in their Co-Financial Advisor contracts with the City, not to bid for the Bonds, either independently or as a member of a syndicate organized to submit a bid for the Bonds. PFM Financial Advisors LLC and TKG & Associates LLC in their capacity as Co-Financial Advisors have not verified and do not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Bonds or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. In the normal course of business, PFM Financial Advisors LLC may from time to time sell investment securities to the City for the investment of bond proceeds or other funds of the City upon the request of the City.

The Co-Financial Advisors to the City have provided the following sentence for inclusion in this Official Statement. The Co-Financial Advisors have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to the City and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Co-Financial Advisors do not guarantee the accuracy or completeness of such information.

FORWARD LOOKING STATEMENTS

The statements contained in this Official Statement, and in any other information provided by the City, that are not purely historical, are forward- looking statements, including statements regarding the City’s expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward looking statements included in this Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. It is important to note that the City’s actual results could differ materially from those in such forward-looking statements.

The forward-looking statements herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or

34 developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement would prove to be accurate.

The Ordinance approved the form and content of this Official Statement, and any addenda, supplement or amendment hereto, authorized designated officials of the City to complete this Official Statement, and authorize its further use in the reoffering of the Bonds by the Initial Purchasers.

CERTIFICATION OF THE OFFICIAL STATEMENT

At the time of payment for and delivery of the Bonds, the Purchasers of the Bonds will be furnished a certificate, executed by proper officers, acting in their official capacity, to the effect that to their knowledge and belief: (a) the descriptions and statements of or pertaining to the City contained in this Official Statement and any addenda, supplement or amendment thereto, for its Bonds, on the date of such Official Statement, on the date of sale of said Bonds and on the date of the delivery, were and are true and correct in all material respects;· (b) insofar as the City and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (c) insofar as the descriptions and statements, including financial data, of or pertaining to entities other than the City and their activities contained in such Official Statement are concerned, such statements and data have been obtained from sources which the City believes to be reliable and the City has no reason to believe that they are untrue in any material respect; and (d) there has been no material adverse change in the financial condition of the City, since September 30, 2016, the date of the last audited financial statements of the City appearing in the Official Statement.

MISCELLANEOUS

The financial data and other information contained herein have been obtained from the City's records, audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in the Official Statement are made subject to all of the provisions of such statutes, documents and resolution. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. The Ordinance authorizing the issuance of the Bonds also approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and authorize its further use in the reoffering of the Bonds by the Initial Purchasers.

T.C. Broadnax City Manager City of Dallas, Texas

M. Elizabeth Reich Chief Financial Officer

ATTEST:

Billierae Johnson Interim City Secretary

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SCHEDULE I SCHEDULE OF REFUNDED BONDS*

Maturity Date Amount Call Date 02/15/2018 $3,580,000 01/11/2018 02/15/2019 3,010,000 01/11/2018 02/15/2020 3,015,000 01/11/2018 02/15/2021 3,010,000 01/11/2018 02/15/2022 3,010,000 01/11/2018 02/15/2023 3,010,000 01/11/2018 02/15/2024 3,010,000 01/11/2018 02/15/2026 3,010,000 01/11/2018 02/15/2027 3,010,000 01/11/2018

*Preliminary, subject to change.

S-1 THIS PAGE LEFT BLANK INTENTIONALLY APPENDIX A

GENERAL INFORMATION REGARDING THE CITY

THIS PAGE LEFT BLANK INTENTIONALLY LOCATION AND POPULATION ...The City of Dallas is located in north central Texas approximately 300 miles north of the Gulf of Mexico. It is among the three largest cities in Texas and among the ten largest cities in the United States. Dallas is the county seat of Dallas County.

Dallas County encompasses an area of 880 square miles while the City of Dallas contains approximately 378 square miles. The City of Dallas’ corporate land extends into Collin, Denton, Kaufman and Rockwall Counties.

POPULATION TOTALS ARE:

201720162015201420132012 Estimate Estimate Estimate Estimate Estimate Estimate City 1,270,170 1,257,730 1,244,270 1,232,360 1,221,800 1,213,550 Dallas County 2,502,270 2,478,970 2,454,880 2,435,710 2,414,980 2,396,980 (1) MSA 7,124,670 7,001,940 6,822,730 6,724,090 6,635,530 6,555,950

(1) Metropolitan Statistical Area (MSA) is a thirteen-county area which includes Collin, Dallas, Denton, Ellis, Hood, Hunt, Johnson, Kaufman, Parker, Rockwall, Somervell, Tarrant, and Wise Counties. Sources: North Central Texas Council of Governments.

ESTIMATED PER CAPITA INCOME

2015 2014 2013 2012 2011 Dallas MD(1) $ 52,719 $ 50,818 $ 48,336 $ 48,009 $ 46,360 Dallas County 53,186 51,382 48,443 48,170 46,859 Texas 46,947 45,755 43,355 43,148 40,812 U.S. 42,026 40,794 39,129 39,441 37,804

(1) Metropolitan Division (MD) is a seven-county area which includes Collin, Dallas, Denton, Ellis, Hunt, Kaufman, and Rockwall Counties. Sources: U.S. Department of Commerce, Bureau of Economic Analysis.

GOVERNMENT ORGANIZATION ...The City of Dallas operates under a Council-Manager form of government. There are fourteen single-district council members and a mayor elected at large. The Mayor and Council appoint the City Manager, City Attorney, City Auditor, City Secretary, City Treasurer and the Municipal Court Judges. The City Manager appoints all other department directors except two appointed by the Civil Service Board and the Park and Recreation Board. The Mayor is elected to a four-year term and is limited to two consecutive four-year terms. Council members are elected for two-year terms and can serve up to four consecutive two-year terms.

The Mayor and City Council set the public agenda, adopt policy and laws and appoint the City Manager, who acts as chief executive, responsible for implementing council policy. The City Manager oversees City operations with an executive team of assistant city managers, each of whom has responsibility for various departments.

The City organization has approximately 13,000 full-time employees.

CITY SERVICES AND FACILITIES                                                                    !"  #    $  %   &'  #     " ( ) )              R 

EMPLOYMENT DATA ...A diverse economy and highly-skilled work force contribute to the strengths of the City. Dallas is a center for high technology, retail and wholesale trade, finance, major medical facilities, culture and recreation and a convention and visitor destination. The following tables show the City’s civilian employment over the last several years, the employment by sector and the major employers within the Dallas area.

A-1 EMPLOYMENT STATISTICS

April April April April April 2017 2016 2015 2014 2013 Civilian Labor Force (City of Dallas) 677,458 654,456 632,553 627,236 618,401 Civilian Labor Force (Dallas MD*) 2,542,065 2,457,574 2,376,115 2,337,212 2,290,695 Total Employed (City of Dallas) 649,579 630,540 608,115 595,926 579,897 Total Employed (Dallas MD*) 2,444,676 2,372,657 2,288,270 2,225,534 2,155,137 Total Unemployed (City of Dallas) 27,879 23,916 24,438 31,310 38,504 Total Unemployed (Dallas MD*) 97,389 84,917 87,845 111,678 135,558 % Unemployed (City of Dallas) 4.1 3.7 3.9 5.0 6.2 % Unemployed (Dallas MD*) 3.8 3.5 3.7 4.8 5.9 % Unemployed (Dallas County) 4.1 3.7 4.0 5.2 6.4 % Unemployed (Texas) 4.5 4.3 4.0 4.8 6.0 % Unemployed (U.S.) 4.1 4.7 5.1 5.9 7.1

* Metropolitan Division (MD) is a seven-county area which includes Collin, Dallas, Denton, Ellis, Hunt, Kaufman, and Rockwall Counties Source: Texas Workforce Commission, 2017.

AVERAGE ANNUAL UNEMPLOYMENT RATES

2017* 2016 2015 2014 2013 City of Dallas 4.3 3.9 4.2 5.3 6.4 Dallas Metropolitan Division 4.1 3.8 4.0 5.0 6.1 State of Texas 4.9 4.6 4.5 5.1 6.2 UnitedStates 4.74.95.36.27.4

(1) Preliminary as of April 2017. * Metropolitan Division (MD) is a seven-county area which includes Collin, Dallas, Denton, Ellis, Hunt, Kaufman, and Rockwall Counties Source: Texas Workforce Commission.

MAJOR DALLAS AREA EMPLOYERS

Number of Company Product/Service Local Employees Wal-Mart Stores Inc. Retailer 34,000 American Airlines Group Inc. Airlines/Aviation 27,000 Texas Health Resources Hospital & Health Care 22,296 Dallas Independent School District Education 19,740 Baylor Scott & White Health Hospital & Health Care 16,500 Lockheed Martin Corp. Aviation & Aerospace 13,750 Bank of America Financial Services 13,500 City of Dallas Government Administration 13,336 University of Texas Southwestern Medical Center Hospital & Health Care 13,018 Texas Instruments Inc. Semiconductors 13,000 186,140

Source: The Dallas Business Journal Book of Lists 2017 (July 2016).

A-2 DALLAS –PLANO -IRVING METROPOLITAN DIVISION (1)---NON-AGRICULTURAL WAGE AND SALARY EMPLOYMENT BY SECTOR

2016 Average Annual 2015 Average Annual Industry Employment Percentage Employment Percentage Trade, Transportation, and Utilities 503,800 20.16% 484,300 20.13% Professional and Business Services 469,300 18.78% 448,700 18.65% Education and Health Services 300,100 12.01% 288,900 12.01% Government 290,400 11.62% 283,200 11.77% Leisure and Hospitality 251,000 10.04% 238,100 9.90% Financial Activities 224,800 8.99% 217,400 9.03% Manufacturing 172,500 6.90% 169,200 7.03% Mining, Logging and Construction 134,500 5.38% 127,900 5.32% Other Services 82,300 3.29% 79,900 3.32% Information 70,600 2.82% 68,600 2.85% Non-farm Total 2,499,300 100.00% 2,406,200 100.00%

(1) Dallas-Plano-Irving Metropolitan Division (MD) is a seven-county area which includes Collin, Dallas, Denton, Ellis, Hunt,
Kaufman,
and
Rockwall
Counties.
Source:
Texas
Workforce
Commission,
2017.

OFFICE AND INDUSTRIAL SPACE OCCUPANCY RATES...The City of Dallas’ office market consists of 131.267 million square feet of space. Average rents continue to rise reaching $24.88 per square foot. As of May 2017, over 2.456 million square feet of new office space is under construction or renovation citywide. The citywide vacancy rate is 17.70 percent.

The City is committed to the long-term health of the Central Business District (CBD). A number of public/private projects completed within the CBD in FY 2016 include renovations, key tenant leasing and new construction. The Hartford Building at 400 N. St. Paul renovated 161,082 SF of office space and 12,396 SF of retail space. KPMG Plaza at Hall Arts at 2323 Ross Ave. leased 430,000 SF of office tower space to KPMG and others, and 30,000 SF retail including Flora Street Café. Alta Farmers Market constructed 313 new apartments in the Dallas Farmers Market. Also, part of the Butler Brothers Building at 500 S. Ervay St, a former office building adjacent to City Hall, has been renovated into 238 apartments. The current CBD office vacancy rate is 22.40 percent. The market consists of 33.581 million square feet. As of May 2017, average rents are $25.50 per square foot.

Industrial/distribution market citywide consists of 205.109 million square feet with 5.10 percent vacant as of May 2017.

Source: CoStar (as of May 2017).

CONSTRUCTION VALUATION/BUILDING PERMIT ACTIVITY**

Valuation ($000) 2016 2015 2014 2013 2012 2011 Resdential $ 2,228,062 $ 2,140,069 $11,574,178 $ ,270,705$ 1,060,472 $ 673,100 Commercial 2,203,075 2,136,044 1,792,730 1,402,317 1,249,854 2,426,771 Total $ 4,431,137 $ 4,276,113 $23,366,908 $ ,673,022$ 2,310,326 $ 3,099,871

Source: City of Dallas Building Inspection Division. Residential defined as single-family plus multi-family.

Other is reflected in Commercial. These valuations are based on all building permit activity inclusive of single trade permits, new residential and new non- residential construction, residential and non-residential rehabilitation with additions considered as new construction. Excluded are sign permits, barricades, excavations, demolitions, moving permits and tents.

** Permit data is fluid and may fluctuate for the following reasons after the initial data is reported: 1) Permit cancellations. 2) Permit addendums; reductions or augmentations to the original plans submitted that change the valuation of the project. 3) Periodic audits that correct data entry errors after the reporting period has closed.

A-3 TRANSPORTATION...Dallas’ success as a leader in transportation is a result of its excellent airports, rail routes, and interstate highway systems. Positioned centrally to both the east and west coasts, Dallas is easily accessible to all areas of the United States, Mexico and Canada. Direct flight time to any North American city takes less than four hours. In addition, Dallas is the center point between North America’s five largest business centers - New York, Los Angeles, Chicago, Mexico City and Toronto.

Dallas/Fort Worth International Airport is a major contributor to the City's diversified economy. It is among the world’s busiest airports in terms of total operation ranked fourth in the world. Approximately 66 million passengers traveled through the airport for the previous 12 months, as of September 2016.

Dallas Love Field, located seven miles north of the Central Business District, is also extremely valuable to the Dallas economy. Approximately 7.8 million passengers were carried at Love Field during the fiscal year ended September 30, 2016. It acts as a catalyst for business by providing valuable scheduled air carrier and general aviation transportation services, and attracting and serving major companies that assemble, overhaul and maintain aircraft. Love Field began major renovation to the facility starting in 2010. The Love Field Modernization Program (LFMP) will increase efficiency for travelers while maintaining the convenience that Love Field currently offers passengers.

In the new modernization design, the terminal decreased in size approximately 25 percent by replacing a large amount of unused and outdated space with modern and efficient facilities. The three original concourses were demolished and consolidated into one convenient, centrally located concourse for all airlines.

Dallas Executive Airport, formerly known as Redbird Airport, is a public airport located six miles (10 km) southwest of the central business district (CBD) of the City of Dallas, in Dallas County, Texas, USA. The airport is used entirely for general aviation purposes and serves as a reliever airport for Dallas Love Field. It has two runways, the longest being 6,451 feet long by 150 feet wide. Facilities at the airport include a restaurant, a conference center, Fixed Based Operators and aircraft Hangar and tie-down areas. The airport is home to approximately 126 individual, enclosed T-hangars.

The Dallas Vertiport is a facility located at the Dallas Convention Center at the Central Business District and built to accommodate helicopters and tiltrotor type aircraft. It has two landing areas with independent approaches and facilities for flight planning and meetings and 5 tie-down areas.

Dallas has a well-developed highway system. There are five interstate highways which run north/south and east/west including a loop freeway encompassing the City. Dallas has 19 other major U.S. and state highways. Dallas is a principal trucking and freight distribution center with approximately 120 trucking companies. Overnight pickup and delivery services are available to most cities.

Dallas is a major hub for hundreds of rail routes. Major railroads that serve the Dallas area include Burlington Northern Santa Fe Railway, Kansas City Southern Railway and Union Pacific. Amtrak provides passenger train service at Union Station in downtown Dallas with three lines: Chicago, Los Angeles, and San Antonio.

The City is part of an integrated regional mass transit system – Dallas Area Rapid Transit (DART). DART consists of the City of Dallas and 13 cities and is funded by a 1.0% local sales tax assessed in the cities within the service area as well as fare revenues and federal funds for certain capital projects. The DART Service Area is approximately 700 square miles. The DART Transit System Plan is designed to provide a balanced combination of transit services and facilities to meet the region’s mobility needs. DART’s mission is made both difficult and necessary by the size and sprawl of the metroplex. Unlike some cities that funnel transportation into the central business district, the metroplex has multiple “cores” that have developed in suburban communities and along existing transportation routes. These mini-hubs complicate transportation service requirements and necessitate a range of mobility programs.

DART provides fixed-route bus service with a total of 652 vehicle fleet from three DART-owned facilities. DART currently operates 90 miles of light rail. A 34-mile commuter rail service between downtown Dallas and Fort Worth is operated jointly by DART and the Fort Worth Transportation Authority. Additionally, DART operates and maintains 75 freeway miles of high- occupancy vehicle (HOV) lanes and provides Paratransit service to more than 11,550 riders.

Sources: Greater Dallas Chamber; The Dallas Facts; Dallas Area Rapid Transit (DART); the City of Dallas, Dallas/Fort Worth International Airport.

A-4 EDUCATION...The City of Dallas is served by nine independent school districts. The largest, the Dallas Independent School District (DISD), had approximately 160,000 students enrolled for the 2016-2017 school year. DISD has 227 schools, including four elementary school vanguards (magnets), three K-8 Montessori schools, nine magnet middle schools, fifteen magnet high schools and four early college high schools. In May 2008, a $1.35 billion bond program was approved to build fifteen new schools, 177 new classrooms in existing schools and additional renovations.

There are 48 college and university campuses in the Dallas metroplex area, enrolling over 342,000 students. Twenty-six campuses offer 4-year undergraduate degree programs, 19 offer 2-year associate degree programs and 22 offer advanced degrees.

Sources: Dallas Independent School District; Texas Higher Education Board, City of Dallas Office of Economic Development

MEDICAL ...The Dallas metropolitan area is a major medical center providing "state-of-the-art" equipment and facilities. There are 24 general hospitals in Dallas County which are licensed for nearly 8,000 beds. In addition, there are two pediatric, two psychiatric and several long-term/rehabilitation hospitals.

As a complement to its excellent medical treatment facilities, Dallas is becoming a leading force in biomedical research. The University of Texas Southwestern Medical Center at Dallas has five Nobel Prize winners on the faculty and staff. Nationally recognized medical and dental schools in Dallas include University of Texas Southwestern Medical Center, Texas A&M University System - Baylor College of Dentistry, Texas Women’s University T. Boone Pickens Institute of Health Sciences and Baylor University School of Nursing.

Sources: The University of Texas Southwestern Medical Center at Dallas; The Texas State Board of Medical Examiners.

TOURISM ...According to the Dallas Convention and Visitors Bureau, Dallas ranks among the top convention cities in the nation. On April 24, 2013 City Council renamed the Dallas Convention Center the Kay Bailey Hutchison Convention Center, which has the largest convention center of its kind in Texas with approximately 1.0 million square feet of total space. There are 96 meeting rooms and over one million square feet of exhibit space. The convention center also boasts the world’s largest column-free exhibit hall and a fully equipped theater along with catering capabilities and a cafeteria. The Center has both open and covered parking and the facilities include a Heliport/Vertiport.

Dallas is the number one visitor and leisure destination in Texas. Annually, more than 50 million people visit metropolitan Dallas. The Dallas area annually receives $9.1 billion in direct spending from visitors, generating a total impact of $14.6 billion on the metropolitan economy. There are almost 79,000 hotel rooms.

On September 15, 2009, City broke ground on the 23-story Omni Dallas Convention Center Hotel. The 1,000 room hotel opened November 11, 2011. The Dallas Convention & Visitors Bureau has received commitments for meetings totaling 400,000 definite room nights for groups committed to Dallas for future years using the Omni Dallas Convention Center hotel.

Source: Dallas Convention Center; Dallas Convention and Visitors Bureau.

RECREATION ...Dallas offers numerous recreational, cultural and entertainment opportunities. Within the City are 389 public parks and open spaces covering 23,148 acres plus 4,400 surface acres of water. There are over 60 lakes and reservoirs within 100 miles of Dallas covering more than 550,000 acres and four state parks within an hour of Dallas. There are 39 private and 34 municipal golf courses in the area, including six owned by the City of Dallas.

The Dallas metropolitan area hosts numerous national annual sporting events and has several large amusement parks. Major golf tournaments include the AT&T Byron Nelson Classic and the Dean & Deluca Invitational PGA Tour events. Dallas is one of few metropolitan areas with four professional sports teams, including the Dallas Cowboys football team, the Dallas Mavericks basketball team, the Texas Rangers baseball team and the Dallas Stars hockey team.

Key attractions include the Dallas Museum of Art, Nasher Sculpture Center, Crow Collection of Asian Art, Dallas Black Dance Theater Center, and Morton H Meyerson Symphony Center, home of the Dallas Symphony Orchestra. In October 2009, with the opening of the AT&T Performing Arts Center, three new cultural facilities were added to the Arts District: Winspear Opera House, Wyly Theater, and Sammons Performance Park. The Dallas area has a number of museums, galleries, theaters, orchestras and dance groups.

Sources: City of Dallas, Park and Recreation Department; City of Dallas, Office of Cultural Affairs.

A-5 THIS PAGE LEFT BLANK INTENTIONALLY

APPENDIX B

CITY OF DALLAS

FINANCIAL STATEMENTS

For the Year Ended September 30, 2016

The information contained in this Appendix consists of the City of Dallas, Financial Statements for the Year Ended September 30, 2016, and is not intended to be a complete statement of the financial condition of the City of Dallas.

THIS PAGE LEFT BLANK INTENTIONALLY Comprehensive Annual Financial Report Annual Financial Comprehensive For the Fiscal Year Ended Year theFiscal For City ofCity Dallas, Texas September 30, September

2016

2016

DALLAS THIS PAGE LEFT BLANK INTENTIONALLY CITY OF DALLAS, TEXAS

COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended September 30, 2016

Issued by City Controller's Office

M. Elizabeth Reich, Chief Financial Officer Edward R. Scott, CPA, CGMA, City Controller Lance Sehorn, CPA, CGMA, Assistant City Controller Jenifer West, Financial Reporting Manager

Dennis Clotworthy Kevin Levin Prakash Gautam Theresa Lu Zaman Hemani Cyndi Mendez Nancy Hong Adam Wong Bethlehem Kassa Rowena Zhang, CFA, CPA

“Dallas, the City that works: diverse, vibrant and progressive.” CITY OF DALLAS, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED SEPTEMBER 30, 2016 TABLE OF CONTENTS

I. INTRODUCTORY SECTION (Unaudited) PAGE

Letter of Transmittal v City Officials xvii City of Dallas Organizational Chart xviii GFOA Certificate of Achievement xix

II. FINANCIAL SECTION

Independent Auditors’ Report 1

A. MANAGEMENT’S DISCUSSION AND ANALYSIS (Unaudited) 3

B. BASIC FINANCIAL STATEMENTS

Government-Wide Financial Statements Statement of Net Position 15

Statement of Activities 16

Fund Financial Statements

Governmental Fund Financial Statements Balance Sheet 18

Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position 19

Statement of Revenues, Expenditures, and Changes in Fund Balances 20

Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 21

Budget and Actual Comparison General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances-Non-GAAP Budgetary Basis 22

Proprietary Fund Financial Statements Statement of Net Position 24

Statement of Revenues, Expenses, and Changes in Fund Net Position 26

Statement of Cash Flows 28

Fiduciary Fund Financial Statements Statement of Net Position 32

Statement of Changes in Net Position 33

Notes to the Basic Financial Statements 34

C. REQUIRED SUPPLEMENTARY INFORMATION (Unaudited) Schedule of Changes in the City’s Net Pension Liability and Related Ratios – Pension Plans 99

i

CITY OF DALLAS, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED SEPTEMBER 30, 2016

TABLE OF CONTENTS (continued)

PAGE

Schedule of City Contributions to Pension Plans 100

Notes to Schedule of City Contributions to Pension Plans 102

Schedule of Funding Progress – Other Postemployment Benefits 103

D. COMBINING FINANCIAL STATEMENTS

Nonmajor Governmental Funds Combining Balance Sheet 106

Combining Statement of Revenues, Expenditures, and 110 Changes in Fund Balances

Nonmajor Enterprise Funds Combining Statement of Net Position 117

Combining Statement of Revenues, Expenses, and Changes in Fund Net Position 118

Combining Statement of Cash Flows 119

Internal Service Funds Combining Statement of Net Position 121

Combining Statement of Revenues, Expenses, and Changes in Fund Net Position 122

Combining Statement of Cash Flows 123

Fiduciary Funds Combining Statement of Plan Net Position 125

Combining Statement of Changes in Plan Net Position 126

Combining Statement of Changes in Agency Assets and Liabilities 127

Debt Service Fund Budgetary Comparison Schedule-Debt Service Fund 129

Discretely Presented Component Units Combining Statement of Net Position 131

Combining Statement of Revenues, Expenses, and Changes in Net Position 132

ii CITY OF DALLAS, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED SEPTEMBER 30, 2016

TABLE OF CONTENTS (continued)

PAGE

E. CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS Schedules by Source 133

Schedule by Function and Activity 134

Schedule of Changes by Function and Activity 135

III. STATISTICAL SECTION (UNAUDITED) TABLE PAGE Net Position by Component 1 138

Change in Net Position 2 140

Fund Balances, Governmental Funds 3 142

Changes in Fund Balances, Governmental Funds 4 144

Assessed Value and Estimated Actual Value of Taxable Property 5 146

City Tax Rate Distribution 6 147

Property Tax Rates - All Direct and Overlapping Tax Rates 7 148

Property Tax Levies and Collections 8 149

Principal Property Taxpayers 9 150

Direct and Overlapping Governmental Activities Debt 10 151

Ratio of Outstanding Debt by Type 11 152

Legal Debt Margin 12 154

Schedule of Revenue Bond Coverage-Dallas Water Utilities 13 156

Schedule of Revenue Bond Coverage-Convention Center Fund 14 157

Demographic Statistics and Economic Statistics 15 158

Principal Employers 16 159

Capital Assets Statistics by Function/Program 17 160

Operating Indicators by Function/Program 18 162

Headcount of City Government Employees by Function/Program 19 164

iii

“Dallas, the City that works: diverse, vibrant and progressive.”

iv INTRODUCTORY SECTION THIS PAGE LEFT BLANK INTENTIONALLY

“Dallas, the City that works: diverse, vibrant and progressive.”

xvi

CITY OF DALLAS FISCAL YEAR 2016 CITY OFFICIALS

FRONT ROW (seated, left to right): BACK ROW (standing, left to right):

Mark Clayton - District 9 Lee Kleinman - District 11 Carolyn King Arnold - District 4 Casey Thomas, II - District 3 Mayor Pro Tem Monica R. Alonzo - District 6 Phillip T. Kingson - District 14 Dallas Mayor Mike Rawlings Jennifer S. Gates - District 13 Deputy Mayor Pro Tem Erik Wilson - District 8 Scott Griggs - District 1 Tiffinni A. Young - District 7 Adam Medrano - District 2 Sandy Greyson - District 12 Adam McGough - District 10 Rickey D. Callahan - District 5

CITY MANAGER

“Dallas, the City that works: diverse, vibrant and progressive.” T. C. Broadnax Appointed February 1, 2017 xvii City of Dallas Organizational Chart September 30, 2016

DALLAS CITY COUNCIL

CITY ATTORNEY CITY SECRETARY CITY AUDITOR JUDICIARY CITY MANAGER

Chief of Ethics & Compliance Civil Service Human Resources Mayor & Council Office Chief of Resilience Chief of Neighbohood Plus Design Director

Housing Committee

Office of Risk Management Public Information IGS Housing/Community Services Fair Housing Planning & Urban Design

CFO ACM ACM 1st ACM ACM ACM xv i i i

Financial Services Dallas Fire-Rescue Sanitation Services Economic Development Park and Recreation Street Services

Business Development & Dallas Police Department Library Sustainable Development Dallas Water Utilities Public Works Procurement & Construction

Court & Detention Services Office of Cultural Affairs Aviation Trinity Watershed Equipment & Building City Controller Management Services

Budget, Finance & Audit Emergency Management Code Compliance Convention & Event Services Communication & Office of Environmental Information Services Quality

Quality of Life Economic Development Public Safety Arts, Culture & Libraries 3-1-1

Effective: September 8, 2016 Center for Indicates Liaison Department Performance Excellence Indicates Management Services Division

Indicates Contractor Transportation & Trinity River Corridor Project xix

“Dallas, the City that works: diverse, vibrant and progressive.”

xx

FINANCIAL SECTION THIS PAGE LEFT BLANK INTENTIONALLY REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Grant Thornton LLP 1717 Main Street, Suite 1800 Dallas, TX 75201-4667 T 214.561.2300 The Honorable Mayor and Members of City Council F 214.561.2370 GrantThornton.com City of Dallas, Texas linkd.in/GrantThorntonUS twitter.com/GrantThorntonUS Report on the financial statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Dallas, Texas (the “City”) as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents.

Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Dallas Police and Fire Pension System and Supplemental Police and Fire Pension Plan of the City of Dallas, which are blended component units which represent 45%, 46% and 15%, respectively, of the assets, net position and revenues of the aggregate remaining fund information. We also did not audit the financial statements of the Dallas Housing Finance Corporation, the Dallas Housing and Acquisition Development Corporation, and the Dallas Development Fund, which are discretely presented component units which represent 2%, 11%, and 3% respectively of the assets, net position, and revenues of the aggregate discretely presented component units. Those financial statements were audited by other auditors, whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for those component units, is based on the reports of the other auditors. We also did not audit the financial statement of the Dallas/Fort Worth International Airport, a joint venture, which is disclosed in Note 6.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The financial statements of the Dallas Police and Fire Pension System, Supplemental Police and Fire Pension Plan of the City of Dallas, Dallas Housing Finance Corporation, the Dallas Housing and Acquisition Development Corporation, and the Dallas Development Fund were not audited in accordance with Government Auditing Standards.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd 1 Opinions In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Dallas, Texas as of September 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof and the respective budgetary comparison of the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other matters Required supplementary information Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis on pages 3 through 14, and the Schedule of Changes in the City’s Net Pension Liability and Related Ratios, Schedule of City Contributions to Pension Plans, Notes to the Schedule of City Contributions to Pension Plans, and Schedule of Funding Progress- Other Postemployment Benefits on pages 99 through 103 be presented to supplement the basic financial statements. Such information, although not a required part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. This required supplementary information is the responsibility of management. We and other auditors have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America. These limited procedures consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Supplementary information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The combining financial statements, budgetary comparison schedule-debt service fund, and schedules of capital assets used in the operation of governmental funds are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures. These additional procedures included comparing and reconciling the information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America by us and other auditors. In our opinion, based on our audit and the report of other auditors, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole.

Other information The introductory section and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.

Other reporting required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report, dated June 23, 2017, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance.

Dallas, Texas June 23, 2017

Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd 2 CITY OF DALLAS, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS September 30, 2016 (Unaudited)

As management of the City of Dallas (the City), we offer readers of the City’s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, 2016. The City’s management’s discussion and analysis is designed to (1) assist the reader in focusing on significant issues, (2) provide an overview of the City’s financial activity, (3) identify changes in the City’s financial position (its ability to address the next and subsequent year challenges), (4) identify any material deviations from the financial plan (the approved budget), and (5) identify individual major fund issues or concerns. We encourage readers to consider the information presented here in conjunction with the accompanying transmittal letter, which can be found on pages v-xiv of this report. All amounts, unless otherwise indicated, are expressed in thousands of dollars.

FINANCIAL HIGHLIGHTS

 The City elected to reclassify Sanitation services from a General Fund department to an enterprise fund. This was done to improve transparency in setting rates as a result of a move toward full cost recovery for these services. This change in accounting principle increased net position in Governmental activities $68 million, and decreased Business-type net position by $68 million. The change also reduced fund balance in the General fund by $14 million.  The liabilities and deferred inflows of resources of the City exceeded its assets and deferred outflows of resources at the close of the most recent fiscal year by approximately $145 million (deficit net position).  The City’s governmental activities net position decreased from the restated beginning net position by $742 million while the business-type activities net position decreased by $4 million.  As of the close of fiscal year 2016, the City’s governmental funds reported combined ending fund balances of $983 million, an increase of $115 million in comparison to the prior year fund balance.  At the end of the current fiscal year, unassigned fund balance for the general fund was $153.7 million, or approximately 13.6 percent of the total general fund expenditures, including transfers out.  The City’s governmental long-term liabilities had a net increase of $3 billion from the prior year restated balance of $7.9 billion.  The City’s business-type activities long-term liabilities increased $770 million from the prior year’s restated balance of $4 billion.

OVERVIEW OF THE FINANCIAL STATEMENTS

The City’s basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.

Government-wide financial statements: The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business and are made up of the following two statements: the statement of net position and the statement of activities. Both of these statements are prepared using the economic resources measurement focus and the accrual basis of accounting.

The statement of net position presents information on all of the City’s assets and deferred outflows of resources, and liabilities and deferred inflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of net position combines and consolidates governmental funds current financial resources (short-term spendable resources) with capital assets and long-term obligations. Other non-financial factors should also be taken into consideration, such as changes in the City’s property tax base, the condition of the City’s property tax base, and the condition of the City’s infrastructure (i.e. roads, drainage improvements, storm and sewer lines, etc.) to assess the overall health or financial condition of the City.

The statement of activities presents information showing how the City’s net position changed during the fiscal year. All changes in net position are reported when the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods (e.g. uncollected taxes and unused compensated absences).

Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from functions that are intended to recover all or a portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, streets, environmental and health services, public works and transportation, equipment and building services, culture and recreation services, housing, and human services.

3 CITY OF DALLAS, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS September 30, 2016 (Unaudited)

The business-type activities of the City include water and sewer utilities, convention center, airport, sanitation and landfill, municipal radio, and building inspections. The airport revenue fund includes the activities of the Love Field Airport Modernization Corporation (LFAMC), a blended component unit.

The government-wide financial statements reflect not only the activities of the City itself (known as the primary government), but also those of the seven separate legal entities for which the City is financially accountable – the Housing Finance Corporation, the Housing Acquisition and Development Corporation, Dallas Development Fund, the Downtown Dallas Development Authority (DDDA), the North Oak Cliff Municipal Management District, the Cypress Waters Municipal Management District, and the Dallas Convention Center Hotel Development Corporation, which are reported as discretely presented component units separately from the primary government itself.

The government-wide financial statements can be found on pages 15-17 of this report.

Fund Financial Statements: A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds.

Governmental Funds: Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on current sources and uses of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements.

Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government- wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental funds balance sheet and the governmental funds statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

The City maintains twenty-three individual governmental funds. Information is presented separately in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures, and changes in fund balances for the general and debt service funds, which are considered to be major funds. Data from the other twenty-one funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the combining financial statements section of this report.

The City adopts an annual appropriated budget for its general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget.

The basic governmental fund financial statements can be found on pages 18, 20, 22, and 23 of this report.

Proprietary Funds: Proprietary funds are generally used to account for services for which the City charges customers – either outside customers, or to other units within the City. Proprietary funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. The proprietary funds financial statements provide the same type of information as shown in the government-wide financial statements, only in more detail. The City maintains two types of proprietary funds:

 Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for the airport, convention center, municipal radio, building inspection, sanitation, and water utilities operations. All of the City’s enterprise funds, except the municipal radio and building inspection, are considered major funds.

 Internal Service funds accumulate and allocate costs internally among the City’s various functions. The City uses its internal service funds to account for its equipment services, communication equipment, office services, information services, and risk management programs. Because these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements. All internal service funds are combined into a single aggregated presentation in the proprietary fund financial statements. Individual fund data for the internal service funds is provided in the combining financial statements elsewhere in this report.

The basic proprietary fund financial statements can be found on pages 24-31 of this report.

4 CITY OF DALLAS, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS September 30, 2016 (Unaudited)

Fiduciary Funds: Fiduciary funds are used to account for resources held for the benefit of parties outside the City. The City’s pension trust and agency funds are reported under the fiduciary funds. Since the resources of these funds are not available to support the City’s own programs, they are not reflected in the government-wide financial statements. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements can be found on pages 32-33 of this report.

Notes to the Basic Financial Statements: The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes can be found immediately following the basic financial statements. The notes to the financial statements can be found on pages 34-98 of this report.

GOVERNMENT-WIDE FINANCIAL ANALYSIS

The City’s combined net position was a deficit of approximately $145 million as of September 30, 2016. Analyzing the net position of governmental and business-type activities separately, the governmental activities had a deficit balance of approximately $(3.4) billion and the business-type activities net position was approximately $3.2 billion. This analysis focuses on the assets and deferred outflows of resources, liabilities and deferred inflows of resources, and net position (Table 1), and changes in revenues and expenses (Table 2) of the City’s governmental and business-type activities.

Table 1 Net Position (in thousands) Governmental Activities Business-type Activities Totals 2016 2015* 2016 2015* 2016 2015* Current and other assets $ 1,305,493 $ 1,217,136 $ 1,113,600 $ 1,110,856 $ 2,419,093 $ 2,327,992 Capital assets 3,829,324 3,735,378 6,468,015 6,057,075 10,297,339 9,792,453 Total assets 5,134,817 4,952,514 7,581,615 7,167,931 12,716,432 12,120,445 Deferred outflows of resources 2,692,342 648,960 555,009 139,942 3,247,351 788,902 Long-term liabilities 10,945,190 8,047,221 4,720,763 3,819,707 15,665,953 11,866,928 Other liabilities 211,250 216,954 196,738 204,038 407,988 420,992 Total liabilities 11,156,440 8,264,175 4,917,501 4,023,745 16,073,941 12,287,920 Deferred inflows of resources 24,146 15,871 10,709 4,561 34,855 20,432

Net position: Net investment in capital assets 2,640,551 2,520,158 2,917,498 2,778,732 5,558,049 5,298,890 Restricted 169,538 195,210 288,970 261,399 458,508 456,609 Unrestricted (6,163,516) (5,393,940) 1,946 239,436 (6,161,570) (5,154,504) Total net postion $ (3,353,427) $ (2,678,572) $ 3,208,414 $ 3,279,567 $ (145,013) $ 600,995

* Information for fiscal year 2015 was not restated in this table.

The largest portion of the City’s net position reflects its investments in capital assets (e.g., land, building, equipment, improvements, construction in progress and infrastructure), less any debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide service to citizens and, consequently, they are not available for future spending. Although the City’s investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. The current and other assets in governmental activities increased from the prior year by $88 million, due primarily to increases in restricted cash, generated through the issuance of general obligation bonds during the year for $227 million. The majority of these liquid resources will be used to finance new City projects and future public improvements.

Long-term liabilities increased by $2.9 billion in the governmental activities due to a net increase in the net pension liability of $2.9 billion.

The business-type activities long-term liabilities increased $901 million, due mainly to the recognition of a net increase in the net pension liability of $521 million, a net increase of $131 million in total water utilities bonds payable, a net increase of $134 million in the water transmission facilities financing agreement, and a net increase in airport capital leases payable of $44 million.

An additional portion of the City’s net position ($170 million governmental activities and $289 million business-type activities) represents resources that are subject to external restrictions on how they may be used. The remaining balance in net position is unrestricted.

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CITY OF DALLAS, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS September 30, 2016 (Unaudited)

In governmental activities, there is a deficit unrestricted net position of $6.2 billion as a result of long-term liabilities for items such as bonds, compensated absences, unfunded risk liabilities, net pension liability, other postemployment benefits, pollution remediation, pension obligation bonds, and sales tax liability. Because of the focus on current assets and liabilities, the City’s budget is developed to address the needs of current operations. The City plans to fund long term liabilities in future budgets as those liabilities consume current assets. Unrestricted net position in business-type activities is $2 million.

Analysis of the City’s Operations

The table below provides a summary of the City’s operations for the fiscal year ended September 30, 2016, with comparative totals for the fiscal year ended September 30, 2015. The governmental activities restated net position decreased by $742 million and business-type activities restated net position decreased by $4 million. Key elements of these changes in net position are as shown below.

Table 2 Change in Net Position (in thousands)

Governmental Activities Business-type Activities Totals

2016 2015* 2016 2015* 2016 2015* Revenues: Program revenues: Charges for services $ 269,534 $ 316,389 $ 901,483 $ 744,668 $ 1,171,017 $ 1,061,057 Operating grants and contributions 75,560 77,038 6,343 5,937 81,903 82,975 Capital grants and contributions 31,092 59,712 37,317 21,135 68,409 80,847 General revenues: Ad valorem tax 791,420 735,913 - - 791,420 735,913 Tax increment financing revenue 6,473 4,892 - - 6,473 4,892 Sales tax 285,669 275,250 - - 285,669 275,250 Franchise fees 140,184 132,719 - - 140,184 132,719 Hotel occupancy tax - - 59,225 53,931 59,225 53,931 Alcohol beverage tax - - 12,058 11,247 12,058 11,247 Investment income 10,089 7,550 6,786 5,901 16,875 13,451 Other 16,771 43,588 699 314 17,470 43,902 Total revenues 1,626,792 1,653,051 1,023,911 843,133 2,650,703 2,496,184 Expenses: General government 339,671 220,164 - - 339,671 220,164 Public safety 1,345,492 594,747 - - 1,345,492 594,747 Streets, street lighting & code enforcement 195,187 213,665 - - 195,187 213,665 Environmental and health services 19,431 18,067 - - 19,431 18,067 Public works and transportation 88,141 74,130 - - 88,141 74,130 Equipment and building services 50,829 36,917 - - 50,829 36,917 Culture and recreation 222,921 160,527 - - 222,921 160,527 Housing 32,694 17,529 - - 32,694 17,529 Human services 26,789 20,451 - - 26,789 20,451 Interest on long-term debt 80,890 63,404 - - 80,890 63,404 Dallas water utilities - - 586,505 499,585 586,505 499,585 Convention center - - 105,869 92,661 105,869 92,661 Airport revenues - - 137,143 103,950 137,143 103,950 Sanitation 116,152 - 116,152 - Municipal radio - - 3,009 2,254 3,009 2,254 Building inspection - - 45,988 28,704 45,988 28,704 Total expenses 2,402,045 1,419,601 994,666 727,154 3,396,711 2,146,755 Excess before transfers (775,253) 233,450 29,245 115,979 (746,008) 349,429 Transfers 32,856 23,120 (32,856) (23,120) - - Increase (decrease) in net position (742,397) 256,570 (3,611) 92,859 (746,008) 349,429 Net position - beginning of year (2,678,572) 2,244,616 3,279,567 3,357,023 600,995 5,601,639 Change in accounting principle 67,542 (5,179,758) (67,542) (170,315) - (5,350,073) Net position - beginning of year (2,611,030) (2,935,142) 3,212,025 3,186,708 600,995 251,566 Net position - end of year $ (3,353,427) $ (2,678,572) $ 3,208,414 $ 3,279,567 $ (145,013) $ 600,995 * Information for fiscal year 2015 was not restated in this table.

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CITY OF DALLAS, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS September 30, 2016 (Unaudited)

Governmental Activities

Governmental activities net position decreased $675 million in fiscal year 2016. Net position decreased $742 million as a result of current year activities. This was offset by an increase of $68 million as a result of a restatement of prior year ending net position for a change in accounting principal that moved Sanitation services from the General Fund to an enterprise fund. Total revenues and transfers decreased $17 million, or 1 percent from fiscal year 2015. Significant changes in revenue include the following:

 Ad valorem tax revenues increased $55.5 million due to an increase in the certified property tax values.  Tax increment financing, intergovernmental revenue increased $1.6 million, primarily due to an increase in the certified property tax values.  Sales tax revenue increased $10.4 million due to increased discretionary customer spending.  Charges for services decreased $46.9 million due primarily to the reclassification of Sanitation Services from a general government activity to a business-type activity. This was offset by increases of $12 million in charges for services for general government, primarily caused by increases in fines and forfeitures in municipal courts, as well as increased indirect charges to the City’s business-type activities. There were additional offsets of $28 million in charges for services for public safety, related to an average increase of 80 percent in ambulance service rates. Furthermore, customer charges for culture and recreation services increased $2 million.  Operating grants and contributions decreased $1.5 million. Capital grants and contributions decreased $28.6 million, due primarily to decreases in contributions of capital assets related to public works and transportation from developers and outside agencies.  Investment income increased $2.5 million during fiscal year 2016 from fiscal year 2015. The increase in investment income was due to an increase in the average yield on investments from 0.613 percent during fiscal year 2015 to 0.885 percent during fiscal year 2016.  Other revenues decreased $26.8 million, mainly due to the receipt of proceeds from the sale of property in fiscal year 2015.

FY16 Governmental Activities Revenues Investment income Other 1% Franchise fees 1% Charges for services 9% 16% Sales tax 17% Operating grants 5%

Capital grants 2%

Ad valorem tax 49%

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7 CITY OF DALLAS, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS September 30, 2016 (Unaudited)

Total governmental activities expenses increased approximately $983 million, or 69 percent, from fiscal year 2015. The most significant portion of expenses related to governmental activities is the cost of personnel and related benefits.

 General government expenses increased $120 million. Personnel expenses increased $71 million due to pension expense and $12 million due to merit pay. Neighborhood and development initiatives increased $17.0 million due to increased payments to developers for public infrastructure and economic development grants. Costs related to equipment maintenance and information technology increased $4.2 million.  Public safety expenses increased $751 million. Pension expense increased $733 million and overtime pay increased $11 million.  Streets, street lighting, and code enforcement expenses decreased $18 million, due primarily to the reclassification of sanitation services from this expense category in the governmental activities to business-type activities, which reduced the expenses by $76 million. This was partially offset with.an increase in pension expense of $41 million, increased expenses of $6 million for additional maintenance and repairs of streets and alleys, and additional costs for animal services of $6 million related to increased efforts in animal control.  Public works and transportation expenses increased $14 million, due primarily to an increase in pension expense of $10 million.  Equipment and building services expenses increased $14 million, due primarily to an increase in pension expense of $12 million.  Culture and recreation expenses increased $62 million. Pension expense increased $53 million, while costs related to parks and recreation services increased $4 million due to additional staff to maintain park land and funding programs for seniors.  Housing expenses increased $15 million due primarily to additional pension expenses of $18 million.  Human services increased $6 million due primarily to developer, mortgage, and rental assistance initiatives.  Interest on long-term debt increased $17 million, related to the issuance of general obligation bonds.

FY16 Governmental Activities Expenses

Interest Other 3% General government Culture and recreation 6% 14% 9%

Public works 4%

Streets 8%

Public safety 56%

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8 CITY OF DALLAS, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS September 30, 2016 (Unaudited)

Business-type Activities

Business-type activities net position decreased $71 million during fiscal year 2016. As a result of reclassifying Sanitation Services from the General Fund to an enterprise fund, net position decreased $68 million. Total revenues increased $181 million from fiscal year 2015.

Significant changes in revenues include the following:

 The reclassification of Sanitation services from a governmental activity to an enterprise fund resulted in an increase in revenues for business-type activities when compared to fiscal year 2015. Operating revenues from these services totaled $102 million in fiscal year 2016.  During fiscal year 2016, airport operating revenues increased $12 million, due to increased passenger traffic, which resulted in higher landing fees, rental fees, concession fees, and parking fees.  During fiscal year 2016, Dallas Water Utilities customer charges increased $34 million from a 5.3 percent retail rate increase and a 14.2 percent wholesale rate increase.  Convention Center customer charges increased $5 million from the previous fiscal year primarily due to major events held at the Kay Bailey Hutchison Convention Center during the fiscal year.

Total business-type activities expenses increased $268 million from fiscal year 2015. The following items contributed to changes in expenses during fiscal year 2016:

 Dallas Water Utilities personnel expenses increased due to an increase in pension expense of $77 million and merit raises of $3 million.  Convention Center personnel services increased due to an increase in pension expense of $5 million. Contractual and other services increased due to major events held at the Kay Bailey Hutchison Convention Center and an increase in payments to the Convention and Visitors Bureau for their share of hotel occupancy taxes.  Airport personnel services increased $10.8 million due to an increase in pension expense. Depreciation expense increased $3 million due to new capital assets and a full year of depreciation on projects completed the previous fiscal year. Bonds issued to construct a planned parking garage resulted in an increase in interest expense of $5 million.  Operating expenses in Sanitation Services were reported in governmental activities in fiscal year 2015. Total operating expenses in fiscal year 2016 were $114 million, including $28 million related to pension expense.  Personnel services in nonmajor enterprise funds (building inspections and municipal radio) increased $17 million, due primarily to an increase in pension expense of $16 million.

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CITY OF DALLAS, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS September 30, 2016 (Unaudited)

Financial Analysis of the Government’s Funds

As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements.

Governmental funds: The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year.

As of the end of fiscal year 2016, the City’s governmental funds reported combined ending fund balance of $983 million, an increase of $115 million in comparison with the prior fiscal year restated fund balance. The majority of this increase is due to the issuance of general obligation bonds during the fiscal year. Approximately $154 million constitutes unassigned fund balance, which is available for spending at the government’s discretion. The remainder of fund balance is nonspendable, restricted, committed, or assigned to indicate that it is not available for new spending because it is 1) nonspendable in form or required to be maintained intact; 2) restricted for a specific purpose by constitution, external resource providers, or through enabling legislation; 3) committed by a formal action of Council for a specific purpose; or 4) assigned and intended to be used by the government for a specific purpose for contracts and purchase orders of the prior period.

The general fund is the chief operating fund of the City. At the end of fiscal year 2016, unassigned fund balance of the general fund was $154 million while total fund balance was $191 million. As a measure of the general fund’s liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures. Unassigned fund balance represents 14 percent of total general fund expenditures and transfers out, while total fund balance represents 17 percent of that same amount.

The City’s general fund balance increased $5 million during fiscal year 2016, primarily from increases in ad valorem revenue and sales tax revenue. Ad valorem tax revenue increased $35 million due to an increase in certified tax values. Sales tax revenue increased $10 million due to improvements in the economy. Revenue from services to others decreased $85 million due to the reclassification of Sanitation services to an enterprise fund. Total expenditures decreased $16 million, primarily as a result of the reclassification of Sanitation services to an enterprise fund.

The debt service fund had a total fund balance of $11 million at September 30, 2016 restricted for the payment of debt service. The debt service fund balance decreased during the current year by $3 million primarily due to a decrease in transfers from other funds of $6 million.

Proprietary funds: The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail.

Unrestricted net position in Dallas Water Utilities at the end of the year amounted to $35 million, Convention Center was $56 million, Airport Revenues was $44 million, and Sanitation was a deficit of $123 million. The total change in net position was an increase of $19 million in Dallas Water Utilities, a decrease of $1 million in Convention Center, an increase of $10 million in the Airport Revenues Fund, and a decrease of $18 million in Sanitation. Factors regarding the finances of these funds have already been addressed in the discussion of the City’s business-type activities.

General Fund Budgetary Highlights

During the fiscal year, the final amended revenue budget included an increase in fines and forfeitures of $4 million over the original budget, and an increase in interfund transfers-in of $3 million. Final budgeted expenditures and interfund transfers out increased $6 million over the original expenditure budget. This was primarily due to increases in expenditures related to the Dallas Police Department of $8 million, Code Compliance of $1 million, and Street Services of $1 million. These increases were mainly offset by a decrease in transfers-out by $2 million, and various reductions in general government expenditures of $2 million.

Actual budgetary basis revenues and transfers-in were higher by $6 million, or less than 1 percent from final budgeted amounts. The following actual revenues were unexpectedly higher than the final budgeted revenues: sales tax revenues were higher by $3 million, other tax and franchise revenues were higher by $2 million, and miscellaneous revenue was higher by $2.3 million, while services to others and interfund transfers-in were $3 million and $3 million less than the final budgeted revenues, respectively. Actual budgetary expenditures and transfers out were less than the final amended budget by $14.9 million. Significant decreases occurred in the non- departmental, Dallas fire department, 9-1-1 systems operations, code compliance, and library expenditures.

10 CITY OF DALLAS, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS September 30, 2016 (Unaudited)

CAPITAL ASSET AND DEBT ADMINISTRATION

Capital Assets

As of September 30, 2016, the City had approximately $10.3 billion invested in a broad range of capital assets, including police and fire equipment, buildings, park facilities, roads, bridges, and water and sewer lines (see table 3). This amount represents a net increase of $505 million or 5.2 percent over the prior fiscal year. At the beginning of fiscal year 2016, the City implemented a change in accounting principle that reclassified sanitation activities, including $29.6 million in net capital assets, from governmental to business-type activities. Table 3 Capital Assets (Net of Accumulated Depreciation, in thousands) Governmental Activities Business-type Activities Totals 2015 2015 2015 2016 (Restated) 2016 (Restated) 2016 (Restated) Land $ 492,553 $ 490,048 $ 316,733 $ 265,253 $ 809,286 $ 755,301 Artwork 49,501 49,460 3,396 3,344 52,897 52,804 Construction in progress 342,716 249,724 1,034,279 696,371 1,376,995 946,095 Water rights - - 236,995 241,107 236,995 241,107 Buildings 786,811 798,633 1,210,647 1,244,882 1,997,458 2,043,515 Improvements other than buildings 465,042 473,751 374,427 365,900 839,469 839,651 Equipment 170,624 158,498 223,560 218,457 394,184 376,955 Infrastructure assets 1,522,077 1,485,683 350,571 361,581 1,872,648 1,847,264 Utility property - - 2,717,407 2,689,761 2,717,407 2,689,761 Totals $ 3,829,324 $ 3,705,797 $ 6,468,015 $ 6,086,656 $ 10,297,339 $ 9,792,453

Some of the major additions for fiscal year 2016 included (gross additions – in millions):

Street and transportation improvements $ 105.2 Flood control/storm drainage improvements 37.8 Library Renovation and Addition 3.3 Old Municipal Building Renovation 7.3 Southern Streetcar Extension 12.5 Land acquistions 54.0 Equipment acquisitions 67.0 Water and wastewater facilities 86.0 Pipeline reserve capacity rights 117.2 Airport improvements 16.7 Total $ 507.0

The general purpose capital improvement program provides for improvements to, and/or construction of, the City’s street system; parks and recreational facilities; libraries; police and fire protection facilities; cultural art facilities; the flood protection and storm drainage systems; other City-owned facilities; and economic initiatives. General obligation bonds are the primary financing mechanism for these capital improvements.

The capital improvement program for the enterprise funds consists primarily of improvements to, and/or construction of, water and wastewater systems, and air transportation facilities. The primary financing mechanism for these capital improvements are enterprise fund net revenues and issuance of debt such as commercial paper and revenue bonds.

More detailed information about the City’s capital assets is presented in Note 14 to the financial statements.

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CITY OF DALLAS, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS September 30, 2016 (Unaudited)

Debt

At fiscal year-end, the City had $5.2 billion in bonds for both governmental and business-type activities, an obligation for revenue credit agreement (including accrued unpaid interest), and water transmission facilities financing agreement outstanding, as shown in Table 4.

Table 4 Outstanding Debt at Fiscal Year-end (in thousands) Governmental Activities Business-type Activities Totals 2015 2015 2015 2016 (Restated) 2016 (Restated) 2016 (Restated) General obligation bonds $ 1,484,515 $ 1,396,715 $ 7,905 $ 9,640 $ 1,492,420 $ 1,406,355 Equipment acquisition obligations ------Certificates of obligation 16,630 20,090 - - 16,630 20,090 Pension obligation bonds 182,258 187,778 83,581 86,112 265,839 273,890 Revenue bonds - - $ 2,501,921 2,430,088 2,501,921 2,430,088 Water transmission facilities financing agreement - - 455,820 322,223 455,820 322,223 Obligation for revenue credit agreement - - 439,105 446,095 439,105 446,095 Total $ 1,683,403 $ 1,604,583 $ 3,488,332 $ 3,294,158 $ 5,171,735 $ 4,898,741

Bond proceeds for governmental activities will be used to pay costs of various equipment purchases, street systems, playgrounds, recreation facilities, library facilities, and other City infrastructure and facilities.

In November 2015, the City issued general obligation refunding and improvement bonds, Series 2015, of $226.6 million with a stated interest rate of 5.0 percent and a final maturity of February 15, 2034. $2.9 million of the bonds were issued to refund outstanding commercial paper. The remaining $223.7 will be used to finance certain public improvements and pay the cost of issuance of the bonds.

In June 2016, Dallas Water Utilities issued Waterworks and Sewer System Revenue Refunding Bonds Series 2016 of $540.3 million with an interest rate range of 0.60 percent to 5.00 percent and a final maturity of October 1, 2045. The bonds were issued to refund previously issued waterworks and sewer system bonds and to refund outstanding commercial paper used by Dallas Water Utilities to fund capital construction projects. Proceeds of $398.6 million were deposited with an escrow agent to be used to pay the outstanding amount of the refunded bonds. As a result, $357.4 million of these bonds are considered defeased and the liability for the refunded portion of these bonds has been removed from the financial statements. The refunding resulted in a difference of $28.8 million between the net carrying amount of the old debt and the reacquisition price. This difference, reported in the accompanying financial statement as a deferred outflow of resources, is being amortized to interest expense over the life of the old bonds. Total debt service payments decreased by $36.2 million as a result of the refunding. The City also incurred an economic gain (difference between the present value of the old debt and new debt service payments) of $31.1 million.

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12

CITY OF DALLAS, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS September 30, 2016 (Unaudited)

The City’s General Obligation, General Obligation Pension, Waterworks and Sewer System, General Airport Revenue, Civic Center Convention Complex, Dallas Convention Center Development Corp, and Downtown Dallas Development Authority bonds’ underlying ratings as of September 30, 2016 are listed below. Moody's Investors Standard & Service Poor's Fitch General Obligation Bonds Aa2 AA AA+ General Obligation Pension Bonds Aa2 AA AA+ Revenue Bonds: Waterworks and Sewer System Aa1 AAA AA+ General Airport Revenue A1 A A Civic Center Convention Complex A1 A N/R Dallas Convention Center Development Corp A2 A N/R Downtown Dallas Development Authority Aa2 A N/R

During the year, Moody’s downgraded the City’s General Obligation debt, including the Pension Bonds, from Aa1 to Aa2, and Dallas Convention Center Development Corp. from A1 to A2; and Standard and Poor’s downgraded the General Obligation debt, including Pension Bonds, from AA+ to AA, Dallas Convention Center Development Corp. from A+ to A, and Downtown Dallas Development Authority from A+ to A. More detailed information about the City’s long-term liabilities is presented in Note 10 to the financial statements.

ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES

The Dallas City Council has identified five key focus areas – Public Safety; Economic Vibrancy; Clean, Healthy Environment; Culture, Arts, Recreation, & Education; and E-Gov. Property value for the tax roll as of January 1, 2016 is $110.4 billion; which is a 10.04 percent increase from the 2015 tax roll. For the first time in ten years, citizens will see a tax rate decrease. The adopted fiscal year 2016-17 tax rate of $78.25 per $100 valuation is a $1.45 reduction from the fiscal year 2015-16 adopted tax rate of $79.70. The fiscal year 2016-17 budget of $3.1 billion is balanced, utilizing various cost containment strategies, revenue enhancements, and operational efficiencies

With the multitude of water challenges across Texas, the City will continue to focus on maintaining infrastructure, conserving resources, and providing for future needs through replacement of aged water and wastewater mains; improvements at water treatment plants to improve reliability and water quality as well as increase capacity; continued water conservation efforts; and the TRWD integrated pipeline project to connect Lake Palestine to Dallas’ water supply system to meet future needs. In order to achieve these goals, it was necessary to implement a water rate increase of 2.6 percent for retail revenue and 6.7 percent for wholesale revenue.

The City of Dallas is experiencing areas of economic growth. The City’s unemployment rate of 3.9 percent is below the national average of 4.9 percent, and existing home sales and housing starts are increasing. Property tax revenue is the single largest revenue source and accounts for 50 percent of General fund revenue. Fiscal year 2017 will mark the fifth consecutive year of growth in property value that includes $2.5 billion in new constructions. As the second largest revenue source in General Fund, sales tax revenue is projected at $292.2 million for fiscal year 2016-17; which is a 3.9 percent increase from fiscal year 2015-16 budget. The combined property tax and sales tax revenue in General Fund budget increased by $61.5 million from fiscal year 2016 to fiscal year 2017.

In fiscal year 2016-17 the City will focus resources to the following areas:

 Strengthen public safety and code enforcement  Maintain street infrastructure and the overall satisfactory level on streets and alleys  Prepare for significant challenges that threaten the financial stability of the city

The City’s fiscal year 2017 capital budget also provides $524.7 million for capital projects, principally for four major categories: $184.5 million for general purpose capital improvements, $311.5 million for water utilities capital improvements, $14.1 million for aviation facilities, and $14.6 million for convention and event services.

13

CITY OF DALLAS, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS September 30, 2016 (Unaudited)

On November 8, 2016, City of Dallas voters approved changes to the Employees’ Retirement Fund (ERF) for employees hired on or after January 1, 2017. The changes included a reduction in the benefit multiplier from 2.75 percent to 2.5 percent; an increase in the normal retirement age from 60 to 65; an actuarially reduced benefit for retirees under age 65 whose age plus years of service equal 80; an increase in service retirement from 30 to 40 years; and elimination of the health benefit supplement. On May 9, 2017, the ERF board of trustees also voted to decrease the interest rate used for certain economic assumptions. The effect of these changes will be reflected in the City’s Comprehensive Annual Financial Report for the fiscal year ending September 30, 2017.

On May 31, 2017, Texas Governor Greg Abbott signed into law House Bill 3158, affecting the Dallas Police and Fire Pension System (“Pension System”). House Bill 3158 primarily amends 6243a-1, Texas Revised Statutes, including amendments to provisions concerning benefits, contributions, and governance, among other things. These changes take effect September 1, 2017, contingent upon the board’s continued prohibition on lump-sum distributions from Deferred Retirement Option Plan accounts. For more information, see Note 20D in the notes to the financial statements.

CONTACTING THE CITY’S FINANCIAL MANAGEMENT

The financial report is designed to provide our citizens, taxpayers, customers, investors, and creditors with a general overview of the City’s finances, and to show the City’s accountability for the money it receives. If you have questions about this report or need any additional financial information, contact the City Controller’s Office, at City of Dallas, 1500 Marilla, Room 2BS, Dallas, Texas 75201.

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14

CITY OF DALLAS, TEXAS STATEMENT OF NET POSITION September 30, 2016 (in thousands)

Primary Government Component Units Governmental Business-Type Activities Activities Total Governmental Business-type Assets Cash and cash equivalents$ 383,198 $ 392,766 $ 775,964 $ 19,804 $ 63,936 Other investments, at fair value 13,016 - 13,016 3,413 - Receivables, net 201,334 95,547 296,881 902 8,912 Internal balances 1,326 (1,326) - - - Prepaid items 4,115 10,527 14,642 7 762 Inventories, at cost 13,763 16,074 29,837 - 503 Other assets 2,045 123 2,168 831 29 Restricted assets: Cash and cash equivalents 686,696 312,862 999,558 7,957 27,259 Other investments, at fair value - 130,655 130,655 - 37,052 Future pipeline reserve capacity rights - 155,720 155,720 - - Customer assessments - 652 652 - - Capital assets: Land 492,553 316,733 809,286 509 27,511 Artwork 49,501 3,396 52,897 - - Construction in progress 342,716 1,034,279 1,376,995 - - Water rights - 353,910 353,910 - - Buildings 1,309,879 1,823,570 3,133,449 1,958 330,732 Improvements other than buildings 667,677 498,742 1,166,419 - - Equipment 665,925 710,362 1,376,287 98 42,093 Infrastructure assets 2,448,749 603,239 3,051,988 - - Utility property - 3,789,642 3,789,642 - - Less accumulated depreciation (2,147,676) (2,665,858) (4,813,534) (281) (54,988) Total assets 5,134,817 7,581,615 12,716,432 35,198 483,801

Deferred outflows of resources Deferred loss on refunding 28,354 77,009 105,363 - - Deferred outflows of resources related to pensions 2,663,988 478,000 3,141,988 - - Total deferred outflows of resources 2,692,342 555,009 3,247,351 - -

Liabilities Accrued payroll 21,181 1,942 23,123 - 1,209 Accounts payable 51,419 40,263 91,682 245 5,259 Due to other governments 4,531 475 5,006 - - Contracts payable 12,165 - 12,165 - - Other liabilities 8,510 1,175 9,685 307 434 Construction accounts payable 37,668 72,857 110,525 - - Accrued bond interest payable 15,814 52,294 68,108 156 15,626 Unearned revenue 54,746 7,751 62,497 - 5,143 Customer deposits 5,216 18,804 24,020 - - Customer construction advances - 1,177 1,177 - - Noncurrent liabilities: Due within one year 246,170 138,041 384,211 2,769 5,990 Due in more than one year 10,699,020 4,582,722 15,281,742 94,037 481,780 Total liabilities 11,156,440 4,917,501 16,073,941 97,514 515,441

Deferred inflows of resources Deferred inflows of resources related to pensions 24,146 10,709 34,855 - - Other deferred inflows of resources - - - 75 24 Total deferred inflows of resources 24,146 10,709 34,855 75 24

Net position Net investment in capital assets 2,640,551 2,917,498 5,558,049 2,284 (57,088) Restricted for: Capital projects 7,795 - 7,795 - - Debt service 2,414 244,121 246,535 8,623 - General government 51,612 - 51,612 - - Storm water operations 44,003 - 44,003 - - Public safety 10,868 - 10,868 - - Culture and recreation 22,654 - 22,654 - - Streets and transportation 11,213 - 11,213 - - Other purposes 9,742 - 9,742 - - Permanent funds - nonexpendable 9,237 - 9,237 - - Emergency repairs and replacements - 5,000 5,000 - - Operation and maintenance expenses - 11,046 11,046 - - Passenger facility charges - 28,803 28,803 - - Unrestricted (6,163,516) 1,946 (6,161,570) (73,298) 25,424 Total net position$ (3,353,427) $ 3,208,414 $ (145,013) $ (62,391) $ (31,664)

The notes to financial statements are an integral part of this statement. 15 CITY OF DALLAS, TEXAS STATEMENT OF ACTIVITIES For the Year Ended September 30, 2016 (in thousands)

Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions Function/Program Activities Primary Government: Governmental activities: General government $ 339,671 $ 115,901 $ 11,940 $ 10,840 Public safety 1,345,492 102,308 12,781 80 Streets, street lighting, and code enforcement 195,187 18,984 2,208 668 Environmental and health services 19,431 71 18,048 - Public works and transportation 88,141 6,551 1,522 18,624 Equipment and building services 50,829 1,157 - - Culture and recreation 222,921 21,467 2,326 880 Housing 32,694 2,973 1,569 - Human services 26,789 122 25,166 - Interest on long-term debt 80,890 - - - Total governmental activities 2,402,045 269,534 75,560 31,092 Business-type activities: Dallas water utilities 586,505 607,329 - 15,869 Convention center 105,869 32,858 5,674 - Airport revenues 137,143 123,757 669 21,408 Sanitation 116,152 102,283 - - Municipal radio 3,009 1,608 - 40 Building inspection 45,988 33,648 - - Total business-type activities 994,666 901,483 6,343 37,317 Total primary government 3,396,711 1,171,017 81,903 68,409

Component units: Governmental 18,102 3,696 - - Business-type 114,385 103,913 9,207 - Total component units 132,487 107,609 9,207 -

General revenues: Ad valorem tax Tax increment financing, intergovernmental revenue Sales taxes Franchise fees Hotel occupancy tax Alcohol beverage tax Investment income Other revenues Transfers Total general revenues and transfers Change in net position Net position, beginning of year (restated - see note 19) Net position, end of year

The notes to financial statements are an integral part of this statement. 16 Net (Expense) Revenue and Changes in Net Position Primary Government Governmental Business-Type Component Units Activities Activities Total Governmental Business-type

$ (200,990) $ - $ (200,990) $ - $ - (1,230,323) - (1,230,323) - - (173,327) - (173,327) - - (1,312) - (1,312) - - (61,444) - (61,444) - - (49,672) - (49,672) - - (198,248) - (198,248) - - (28,152) - (28,152) - - (1,501) - (1,501) - - (80,890) - (80,890) - - (2,025,859) - (2,025,859) - -

- 36,693 36,693 - - - (67,337) (67,337) - - - 8,691 8,691 - - - (13,869) (13,869) - - - (1,361) (1,361) - - - (12,340) (12,340) - - - (49,523) (49,523) - - (2,025, 859) (49,523) (2,075,382) - -

(14,406) - - (1,265) (14,406) (1,265)

791,420 - 791,420 - - 6,473 - 6,473 16,796 - 285,669 - 285,669 - - 140,184 - 140,184 - - - 59,225 59,225 - - - 12,058 12,058 - - 10,089 6,786 16,875 19 1,118 16,771 699 17,470 - 11,066 32,856 (32,856) - - - 1,283,462 45,912 1,329,374 16,815 12,184 (742,397) (3,611) (746,008) 2,409 10,919 (2,611,030) 3,212,025 600,995 (64,800) (42,583) $ (3,353,427) $ 3,208,414 $ (145,013) $ (62,391) $ (31,664)

17 CITY OF DALLAS, TEXAS BALANCE SHEET GOVERNMENTAL FUNDS September 30, 2016 (in thousands)

Nonmajor Total Governmental Governmental General Debt Service Funds Funds Assets Pooled cash and cash equivalents$ 177,790 $ 10,148 $ 143,542 $ 331,480 Other investments, at fair value - - 13,016 13,016 Receivables: Ad valorem tax 28,041 12,077 - 40,118 Sales tax 49,156 - - 49,156 Notes 126 - 65,405 65,531 Special assessments-paving notes - - 5,640 5,640 Accounts 100,285 - 22,258 122,543 Accrued interest 217 14 1,207 1,438 Allowance for uncollectible accounts (63,920) (10,375) (42,123) (116,418) Due from other governments 113 - 33,062 33,175 Due from other funds 3,959 466 7,635 12,060 Prepaid items - - 4,086 4,086 Inventories, at cost 10,659 - - 10,659 Restricted cash and cash equivalents - - 686,696 686,696 Notes receivable from other funds - - 4,161 4,161 Total assets 306,426 12,330 944,585 1,263,341

Liabilities, deferred inflows of resources, and fund balances

Liabilities Accrued payroll 20,250 - 512 20,762 Accounts payable 31,811 - 8,194 40,005 Due to other funds 268 - 4,215 4,483 Unearned revenue 9,038 - 46,547 55,585 Due to other governments 2,405 - 2,126 4,531 Construction accounts payable - - 37,668 37,668 Notes payable to other funds - - 10,412 10,412 Customer deposits 5,196 - 20 5,216 Contracts payable - - 12,165 12,165 Other liabilities 5,205 - 1,910 7,115 Total liabilities 74,173 - 123,769 197,942

Deferred inflows of resources Unavailable revenue 41,222 1,242 39,455 81,919

Fund balances Nonspendable 10,659 - 17,484 28,143 Restricted 9,593 11,088 750,096 770,777 Committed 1,250 - 13,781 15,031 Assigned 15,836 - - 15,836 Unassigned 153,693 - - 153,693 Total fund balance 191,031 11,088 781,361 983,480 Total liabilities, deferred inflows, and fund balances $ 306,426 $ 12,330 $ 944,585 $ 1,263,341

The notes to financial statements are an integral part of this statement. 18 CITY OF DALLAS, TEXAS RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION September 30, 2016 (in thousands)

Total fund balances - governmental funds $ 983,480

Amounts reported for governmental activities in the statement of net position are different because:

Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. These assets consist of:

Land 490,857 Artwork 49,501 Construction in progress 342,557 Infrastructure assets 2,446,927 Buildings 1,305,444 Improvements other than buildings 666,688 Equipment 536,139 Accumulated depreciation (2,027,420) Total capital assets 3,810,693

Deferred outflows from refunding of debt represent a consumption of net position that applies to future periods and therefore will not be recognized as an outflow of resources until then. The amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. 28,354

Other long-term assets are not available to pay for current period expenditures and, therefore, are reported as unavailable revenue in the funds. 81,919

Internal service funds are used by management to charge the costs of certain activities, such as equipment services, communication equipment services, office services, information services, and insurance. The assets and liabilities of the internal service funds are included in the governmental activities in the statement of net position. (69,727)

A portion of unearned revenue represents funds received in advance for Section 108 loans that have not been loaned to developers. 839

Some long-term liabilities are not due and payable in the current period and therefore are not reported in the funds. Those liabilities consist of:

Bonds payable, plus unamortized bond premium and accretion 2,022,960 Capital leases 59,117 Accrued interest on bonds and notes 15,814 Developer payable 93,464 Notes payable 53,113 Compensated absences 113,853 Sales tax refund 8,159 Other postemployment benefits 194,008 Pollution remediation 4,323 Total long-term liabilities (2,564,811)

Net pension liability and pension related deferred outflows and inflows of resources are not due in the current period and therefore are not reported in the funds. These amounts consist of: Net pension liability 8,164,045 Deferred outflows of resources (2,561,711) Deferred inflows of resources 21,840 (5,624,174)

Net position of governmental activities $ (3,353,427)

The notes to financial statements are an integral part of this statement. 19 CITY OF DALLAS, TEXAS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the Year Ended September 30, 2016 (in thousands)

Nonmajor Governmental General Debt Service Funds Total Revenues: Ad valorem tax $ 534,289 $ 220,070 $ 36,728 $ 791,087 Tax increment financing, intergovernmental - - 6,473 6,473 Sales tax 285,669 - - 285,669 Franchise fees 135,098 - 5,086 140,184 Licenses and permits 6,232 - - 6,232 Intergovernmental 9,543 - 88,786 98,329 Service to others 109,736 - 73,223 182,959 Fines and forfeitures 29,922 - 9,340 39,262 Investment income 1,865 219 7,720 9,804 Contributions and gifts 53 - 15,217 15,270 Confiscated money awards - - 3,256 3,256 Other revenues 8,732 1,401 2,507 12,640 Total revenues 1,121,139 221,690 248,336 1,591,165

Current expenditures: General government 101,376 - 122,966 224,342 Public safety 688,943 - 11,487 700,430 Streets,street lighting and code enforcement 127,411 - 2,061 129,472 Environmental and health services - - 18,576 18,576 Public works and transportation 7,239 - 10,807 18,046 Equipment and building services 24,293 - 82 24,375 Culture and recreation 128,089 - 12,477 140,566 Housing 11,932 - - 11,932 Human services - - 25,285 25,285 Debt service: Principal 18,801 141,255 5,178 165,234 Interest and fiscal charges 1,564 89,389 2,156 93,109 Payment to refunded bond escrow agent - 2,880 - 2,880 Capital outlay 13,062 - 215,664 228,726 Total expenditures 1,122,710 233,524 426,739 1,782,973

Excess (deficiency) of revenues over (under) expenditures (1,571) (11,834) (178,403) (191,808)

Other financing sources (uses): Transfers in 15,593 6,233 32,639 54,465 Transfers out (9,426) - (9,839) (19,265) Proceeds from sale of capital assets 213 - 397 610 Premium on debt issued - - 31,556 31,556 Issuance of general obligation bonds - - 192,195 192,195 Refunding bonds issued - 2,880 - 2,880 Capital lease 52 - 24,303 24,355 Proceeds from repayment of notes receivable - - 6,143 6,143 Issuance of notes - - 13,760 13,760 Total other financing sources (uses) 6,432 9,113 291,154 306,699

Net change in fund balances 4,861 (2,721) 112,751 114,891

Fund balances, beginning of year (restated - see note 19) 186,170 13,809 668,610 868,589 Fund balances, end of year $ 191,031 $ 11,088 $ 781,361 $ 983,480

The notes to finanical statements are an integral part of this statement. 20 CITY OF DALLAS, TEXAS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the Year Ended September 30, 2016 (in thousands)

Net change in fund balances--total governmental funds $ 114,891

Amounts reported for governmental activities in the statement of activities are different because:

Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. Capital outlay 228,726 Capital contributions 696 Capital assets acquired through developer payable 11,335 Depreciation expense (115,730) Net adjustment 125,027

Governmental funds only report the disposal of capital assets to the extent proceeds are received from the sale. In the statement of activities, a gain or loss is reported for each disposal. Proceeds from sale of capital assets (610) Net gain/(loss) on disposal of capital assets (2,616) (3,226) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. This adjustment is to recognize the net change in “unavailable” revenues. 6,268

The issuance of long-term debt (e.g., bonds, certificates of obligation) provides current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net position. Repayment of long-term debt principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net position. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items. Debt issued: Premium on debt issued (31,556) Commercial paper notes payable (10,220) General obligation bonds and certificates of obligation (195,075) Notes payable (3,540) Capital leases (24,355) Repayments: Capital lease principal payment 17,726 Sales tax refund liability 1,398 Note principal payment 4,855 Bond principal payments 116,257 Payment to refunded bond escrow agent 2,880 Commercial paper notes payment 25,000 Net adjustment (96,630)

Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Increase in accrued interest payable (6,134) Amortization of premium, discount and refunding deferral 22,349 Accretion on capital appreciation bonds (3,997) Increase in other postemployment benefits (7,595) Increase in pollution remediation liability (463) Decrease in compensated absences 2,073 Increase in developer payable (24,913) Total adjustment (18,680)

Internal service funds are used by management to charge the costs of certain activities, such as fleet management, insurance, compensated absences, and computer replacement, to individual funds. The external revenue generated by these funds (interest income and gain on sale of equipment) is reported with the governmental activities. (39,841)

Changes to net pension liabiity and pension related deferred outflows and inflows of resources do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. (830,206)

Change in net position of governmental activities $ (742,397)

The notes to financial statements are an integral part of this statement. 21 CITY OF DALLAS, TEXAS GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES-NON-GAAP BUDGETARY BASIS Year Ended September 30, 2016 (in thousands)

Actual Variance with Amounts Final Budget- Budgeted Amounts (Budgetary Positive Original Final Basis) (Negative)

Revenues: Ad valorem taxes $ 559,636 $ 559,636 $ 560,307 $ 671 Sales tax 281,272 281,272 283,918 2,646 Other tax and franchise revenues 133,043 133,043 134,920 1,877 Licenses and permits 6,067 6,067 6,523 456 Intergovernmental 7,432 7,432 8,019 587 Services to others 87,873 87,973 85,252 (2,721) Fines and forfeitures 33,462 35,875 37,551 1,676 Investment income 961 961 1,970 1,009 Miscellaneous revenue 10,068 10,068 12,412 2,344 Total revenues 1,119,814 1,122,327 1,130,872 8,545

Expenditures: General government City attorney's office 15,886 15,686 15,637 49 City auditor's office 3,004 2,954 2,929 25 Office of financial services 2,957 2,932 2,758 174 Independent audit 786 789 789 - Non-departmental 57,926 57,085 52,540 4,545 City controller's office 4,541 4,411 4,385 26 City manager's office 1,972 1,972 1,932 40 Municipal court - Judiciary 3,231 2,991 2,895 96 Court and detention services 11,563 11,138 10,999 139 Jail contract-Lew Sterrett 7,557 7,557 7,557 - Civil service 2,599 2,569 2,373 196 Sustainable development and construction 1,438 1,128 806 322 Office of economic development 1,819 1,819 1,751 68 Mayor and city council 4,243 4,331 4,280 51 Office of management services 8,544 8,094 8,062 32 Human resources 4,789 4,789 4,307 482 Business development and procurement services 2,885 2,903 2,903 - Elections 97 754 733 21 City secretary's office 2,005 2,005 1,888 117 Total general government 137,842 135,907 129,524 6,383

Public safety Dallas police department 451,882 459,407 458,644 763 Dallas fire department 239,567 239,567 238,317 1,250 9-1-1 systems operations 16,292 16,292 11,728 4,564 Total public safety 707,741 715,266 708,689 6,577

Streets, street lighting, and code enforcement Code compliance 38,569 39,724 39,401 323 Street services 71,531 72,731 72,702 29 Street lighting 17,525 17,525 17,464 61 Total streets, street lighting, and code enforcement 127,625 129,980 129,567 413

Public works and transportation 5,911 5,911 5,482 429

continued

The notes to finanical statements are an integral part of this statement. 22 CITY OF DALLAS, TEXAS GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES-NON-GAAP BUDGETARY BASIS (continued) Year Ended September 30, 2016 (in thousands)

Actual Variance with Amounts Final Budget- Budgeted Amounts (Budgetary Positive Original Final Basis) (Negative)

Trinity Watershed Management $ 1,526 $ 1,126 $ 990 $ 136

Building services 23,831 24,160 24,160 -

Culture and recreation Library 30,509 30,034 29,062 972 Office of cultural affairs 17,671 17,701 17,699 2 Park and recreation 85,646 86,351 86,351 - Total culture and recreation 133,826 134,086 133,112 974

Housing/Community services 11,936 11,936 11,932 4

Planning and neighborhood vitality 4,232 3,782 3,766 16 Total expenditures 1,154,470 1,162,154 1,147,222 14,932

Excess (deficiency) of revenues over (under) expenditures (34,656) (39,827) (16,350) 23,477

Other financing sources (uses): Interfund transfers in 41,278 44,449 41,361 (3,088) Interfund reserved and transfers out (6,622) (4,622) (4,622) - Total other financing sources (uses) 34,656 39,827 36,739 (3,088)

Excess (deficiency) of revenues and other financing sources over (under) expenditures and other uses - - 20,389 26,565 Fund balances, beginning of year (restated) 155,383 155,383 155,383 - Fund balances, end of year $ 155,383 $ 155,383 $ 175,772 $ 26,565

The notes to finanical statements are an integral part of this statement. 23 CITY OF DALLAS, TEXAS STATEMENT OF NET POSITION PROPRIETARY FUNDS September 30, 2016 (in thousands)

Business-type Activities Enterprise Funds Governmental Dallas Nonmajor Activities- Water Convention Airport Enterprise Internal Utilities Center Revenues Sanitation Funds Total Service Funds

Assets Current assets: Pooled cash and cash equivalents $ 173,400 $ 69,494 $ 78,277 $ 19,030 52,565$ $ 392,766 $ 51,718 Receivables: Accounts 73,633 3,211 7,264 14,551 475 99,134 96 Taxes - 8,257 - - - 8,257 - Accrued interest 637 142 169 34 72 1,054 55 Allowance for uncollectible accounts (8,244) (547) (7) (4,752) (14) (13,564) - Due from other governments - 666 - - 666 - Due from other funds 268 - - - - 268 - Prepaid items 9,975 - 552 - - 10,527 29 Inventories, at cost 13,595 581 1,641 257 - 16,074 3,104 Restricted assets: Customer assessments 625 - 27 - - 652 - Pooled cash and cash equivalents for current debt service 139,595 3,671 - - - 143,266 - Cash and cash equivalents Held for construction purposes 27,032 4,157 - - - 31,189 - Customer deposits: Pooled cash and cash equivalents 16,083 - - 720 - 16,803 - Other assets 123 - - - - 123 2,045 Total current assets 446,722 88,966 88,589 29,840 53,098 707,215 57,047

Noncurrent assets: Capital Assets: Land 100,987 82,728 128,359 3,759 900 316,733 1,696 Artwork - - 3,396 - - 3,396 - Construction in progress 964,454 2,533 66,990 - 302 1,034,279 159 Water rights 353,910 - - - - 353,910 - Buildings 525,039 594,427 698,570 5,197 337 1,823,570 4,435 Improvements other than buildings 80,068 64,381 332,842 21,178 273 498,742 989 Infrastructure assets 579,704 12,636 4,896 6,003 - 603,239 1,822 Equipment 560,223 42,252 75,694 27,960 4,233 710,362 129,786 Utility property 3,789,642 - - - - 3,789,642 - Accumulated depreciation (2,064,984) (319,502) (251,884) (25,409) (4,079) (2,665,858) (120,256) Total capital assets 4,889,043 479,455 1,058,863 38,688 1,966 6,468,015 18,631

Other noncurrent assets: Restricted assets: Future pipeline reserve capacity rights 155,720 - - - - 155,720 - Held for construction purposes: Cash and cash equivalents - - 609 - - 609 - Other investment - - 49,858 - - 49,858 - Pooled cash and cash equivalents for future debt service 13,342 477 6,326 - - 20,145 - Pooled cash and cash equivalents for emergency repairs and replacements - - 5,000 - - 5,000 - Pooled cash and cash equivalents for operation and maintenance expenses - - 11,046 - - 11,046 - Pooled cash and cash equivalents for passenger facility charges - - 28,803 - - 28,803 - Other investments for future debt service at fair value 89,954 22,962 17,739 - - 130,655 - Cash and cash equivalents held by escrow agent 6,143 - - - - 6,143 - Notes receivable from other funds 6,251 - - - - 6,251 - Total other noncurrent assets 271,410 23,439 119,381 - - 414,230 - Total noncurrent assets 5,160,453 502,894 1,178,244 38,688 1,966 6,882,245 18,631

Total assets 5,607,175 591,860 1,266,833 68,528 55,064 7,589,460 75,678

Deferred outflows of resources Deferred loss on refunding 72,109 4,779 19 65 37 77,009 - Deferred outflows of resources related to pensions 281,409 16,838 34,911 88,977 55,865 478,000 102,277

Total deferred outflows of resources $ 353,518 $ 21,617 $ 34,930 $ 89,042 55,902$ $ 555,009 $ 102,277

The notes to financial statements are an integral part of this statement. 24 CITY OF DALLAS, TEXAS STATEMENT OF NET POSITION PROPRIETARY FUNDS (continued) September 30, 2016 (in thousands)

Business-type Activities Enterprise Funds Governmental Dallas Nonmajor Activities- Water Convention Airport Enterprise Internal Utilities Center Revenues Sanitation Funds Total Service Funds Liabilities Current liabilities: Accrued payroll$ 1,101 $ 85 $ 156 $ 375 $ 225 $ 1,942 $ 419 Accounts payable 18,729 7,365 8,873 4,935 361 40,263 11,414 Compensated absences 5,140 351 667 1,341 1,078 8,577 1,923 Due to other governments - 9 - 466 - 475 - Due to other funds - - - 7,845 - 7,845 - Unearned revenue - 41 1,133 586 5,991 7,751 - Estimated unpaid health claims ------7,183 Estimated unpaid claims - general ------7,468 Workers' compensation ------6,519 Accrued interest payable on notes 224 16 1 120 41 402 - General obligation bonds - - - 966 - 966 - Pension obligation bonds 1,543 110 145 504 281 2,583 - Pollution remediation - 59 15 - - 74 - Notes payable - - 266 - - 266 - Obligation for revenue credit agreement - - 7,340 - - 7,340 - Landfill closure/postclosure - - - 251 - 251 - Capital leases - - 1,034 - - 1,034 - Other liabilities - - - - 1,175 1,175 1,395 Total current liabilities 26,737 8,036 19,630 17,389 9,152 80,944 36,321

Current liabilities (payable from restricted assets): Construction accounts payable 59,135 455 12,563 704 - 72,857 - Accrued interest payable on bonds 38,177 1,947 11,768 - - 51,892 - Water transmission facilities financing agreement 9,025 - - - - 9,025 - Revenue bonds 100,980 6,945 - - - 107,925 - Total current liabilities (payable from restricted assets) 207,317 9,347 24,331 704 - 241,699 - Total current liabilities 234,054 17,383 43,961 18,093 9,152 322,643 36,321

Noncurrent liabilities: Commercial paper notes payable 48,322 - - - - 48,322 - Revenue bonds 2,178,079 294,721 121,228 - - 2,594,028 - Obligation for revenue credit agreement - - 427,437 - - 427,437 - Accreted interest on pension obligation bonds 28,056 2,002 2,629 9,173 5,110 46,970 - General obligation bonds - - - 7,430 - 7,430 - Pension obligation bonds 69,985 4,982 6,557 22,879 12,752 117,155 - Water transmission facilities financing agreement 446,795 - - - - 446,795 - Capital leases - - 72,865 - - 72,865 - Total long-term debt 2,771,237 301,705 630,716 39,482 17,862 3,761,002 -

Other long-term liabilities: Estimated unpaid claims - general ------12,980 Other postemployment benefits 28,453 1,938 4,073 9,550 4,943 48,957 9,235 Net pension liability 427,999 25,429 52,872 135,742 84,289 726,331 155,631 Workers compensation ------28,897 Customer deposits 16,469 1,615 - 720 - 18,804 - Customer construction advances 1,177 - - - - 1,177 - Pollution remediation - - 440 - - 440 - Landfill closure/postclosure - - - 35,680 - 35,680 - Compensated absences 6,179 422 803 1,612 1,296 10,312 2,312 Total other long-term liabilities 480,277 29,404 58,188 183,304 90,528 841,701 209,055 Total noncurrent liabilities 3,251,514 331,109 688,904 222,786 108,390 4,602,703 209,055

Total liabilities 3,485,568 348,492 732,865 240,879 117,542 4,925,346 245,376

Deferred inflows of resources Deferred inflows of resources related to pensions 6,315 373 775 2,026 1,220 10,709 2,306

Net Position Net investment in capital assets 2,229,460 181,491 466,597 37,984 1,966 2,917,498 18,631 Restricted: Debt service 204,714 27,110 12,297 - - 244,121 - Emergency repairs and replacements - - 5,000 - - 5,000 - Operation and maintenance expenses - - 11,046 - - 11,046 - Passenger facility charges - - 28,803 - - 28,803 - Unrestricted 34,636 56,011 44,380 (123,319) (9,762) 1,946 (88,358) Total net position $ 2,468,810 $ 264,612 $ 568,123 $ (85,335) (7,796)$ $ 3,208,414 $ (69,727)

The notes to financial statements are an integral part of this statement. 25 CITY OF DALLAS, TEXAS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS For the Year Ended September 30, 2016 (in thousands)

Business-type Activities Enterprise Funds Governmental Dallas Nonmajor Activities- Water Convention Airport Enterprise Internal Utilities Center Revenues Sanitation Funds Total Service Funds

Operating revenues: Customer charges$ 607,329 $ 32,858 $ 95,028 $ 102,283 $ 35,256 $ 872,754 $ - Charges to other City departments ------218,358 Charges to employees/retirees ------54,442 Intergovernmental - 5,674 669 - - 6,343 - Other revenues - 58 433 8 200 699 617 Total operating revenues 607,329 38,590 96,130 102,291 35,456 879,796 273,417

Operating expenses: Personnel services 184,352 13,098 25,608 61,340 38,684 323,082 77,898 Supplies and materials 106,135 4,185 7,003 7,195 1,169 125,687 25,531 Contractual and other services 113,545 52,881 45,572 42,920 8,139 263,057 204,357 Depreciation 115,500 18,872 29,569 2,805 61 166,807 4,051 Total operating expenses 519,532 89,036 107,752 114,260 48,053 878,633 311,837

Operating income (loss) 87,797 (50,446) (11,622) (11,969) (12,597) 1,163 (38,420)

Nonoperating revenues (expenses): Investment income 4,101 780 1,322 218 365 6,786 285 Alcohol beverage tax - 12,058 - - - 12,058 - Hotel occupancy tax - 59,225 - - - 59,225 - Passenger facility charges - - 28,729 - - 28,729 - Interest on bonds and notes (66,912) (16,833) (29,357) (1,892) (944) (115,938) - Net gain (loss) on property disposals (61) - (34) - - (95) 638 Total nonoperating revenues (expenses) (62,872) 55,230 660 (1,674) (579) (9,235) 923

Income before contributions and transfers 24,925 4,784 (10,962) (13,643) (13,176) (8,072) (37,497)

Capital contributions 15,869 - 21,408 - 40 37,317 - Transfers in 739 - - - - 739 - Transfers out (22,763) (6,278) (236) (4,150) (168) (33,595) (2,344) (6,155) (6,278) 21,172 (4,150) (128) 4,461 (2,344)

Change in net position 18,770 (1,494) 10,210 (17,793) (13,304) (3,611) (39,841)

Net position, beginning of year (restated - see note 19) 2,450,040 266,106 557,913 (67,542) 5,508 3,212,025 (29,886)

Net position, end of year $ 2,468,810 $ 264,612 $ 568,123 $ (85,335) $ (7,796) $ 3,208,414 $ (69,727)

The notes to financial statements are an integral part of this statement. 26

“Dallas, the City that works: diverse, vibrant and progressive.”

27

CITY OF DALLAS, TEXAS STATEMENT OF CASH FLOWS PROPRIETARY FUNDS For the Year Ended September 30, 2016 (in thousands)

Business-type Activities Enterprise Funds

Dallas Water Convention Airport Utilities Center Revenues Sanitation Cash flows from operating activities: Cash received from customers$ 615,424 $ 39,288 $ 95,711 $ 103,324 Cash payments to suppliers for goods and services (105,435) (2,073) (15,034) (5,047) Cash payments to employees for services (92,900) (7,214) (14,044) (32,687) Cash payments for contractual services (114,211) (52,881) (45,535) (42,740) Other operating cash receipts (payments) - 64 433 7,887 Net cash provided by (used in) operating activities 302,878 (22,816) 21,531 30,737

Cash flows from non capital financing activities: Taxes - 70,875 - - Principal paid on pension obligation bonds (1,512) (106) (142) (494) Interest paid on pension obligation bonds (4,707) (280) (441) (1,538) Transfers from other funds 873 - - - Transfers to other funds (22,763) (6,278) (236) (4,150) Net cash provided by (used in) non capital financing activities (28,109) 64,211 (819) (6,182)

Cash flows from capital and related financing activities: Acquisition and construction of capital assets (275,638) (3,196) (63,872) (11,210) Proceeds from sale of fixed assets - - 14 - Proceeds from obligation for revenue bonds 622,786 - - - Payment to refunded bond escrow agent (366,097) - - - Principal paid on revenue bonds (96,675) (5,740) - - Principal paid on notes payable and other obligations (6,403) (1,981) (8,563) (1,735) Interest paid on bonds, notes and other obligations (117,932) (15,948) (28,813) (410) Bond issuance costs - - - - Proceeds from sale of commercial paper notes 180,004 - - - Retirement of commercial paper notes (222,140) - - - Passenger facility charges - - 37,148 - Net cash used in capital and related financing activities (282,095) (26,865) (64,086) (13,355)

Cash flows from investing activities: Purchase of investments (80,000) (3,984) 53,799 - Maturity of investments 80,000 - - - Investment income 4,466 730 1,350 207 Net cash provided by (used in) investing activities 4,466 (3,254) 55,149 207

Net increase (decrease) in cash and cash equivalents (2,860) 11,276 11,775 11,407 Cash and cash equivalents, beginning of year 378,455 66,523 118,286 8,343 Cash and cash equivalents, end of year $ 375,595 $ 77,799 $ 130,061 $ 19,750

The notes to financial statements are an integral part of this statement. 28 Governmental Nonmajor Activities- Enterprise Internal Funds Total Service Funds

$ 35,703 $ 889,450 $ 272,877 (1,038) (128,627) (26,980) (20,342) (167,187) (45,460) (8,139) (263,506) (199,018) 335 335 8,719 (252) 6,519 338,849 1,167

- - 70,875 - (275 ) (275) (2,529) - (885 ) (885) (7,851) - 64 64 937 - (232 ) (232) (33,659) (2,344) (1,328) 27,773 (2,344)

(336 ) (336) (354,252) 3,524 - - 14 (8,661) - - 622,786 - - - (366,097) - - - (102,415) - - - (18,682) - - - (163,103) ------180,004 - - - (222,140) - - - 37,148 -

(336 ) (336) (386,737) (5,137)

- (30,185) - - - 80,000 - 350 350 7,103 284 350 350 56,918 284

5,205 36,803 (6,030) 47,360 618,967 57,748 $ 52,565 $ 655,770 $ 51,718 continued

29 CITY OF DALLAS, TEXAS STATEMENT OF CASH FLOWS PROPRIETARY FUNDS (continued) For the Year Ended September 30, 2016 (in thousands)

Business-type Activities Enterprise Funds Dallas Water Convention Airport Utilities Center Revenues Sanitation Reconciliation of operating income (loss) to net cash provided by (used in) operating activities:

Operating income (loss)$ 87,797 $ (50,446) $ (11,622) $ (11,969)

Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation 115,500 18,872 29,569 2,805 Change in assets and liabilities (Increase) Decrease in accounts and other receivables 7,603 196 844 568 (Increase) Decrease in customer assessments receivable 22 - (18) - (Increase) Decrease in inventories 677 (75) (271) 11 (Increase) Decrease in other assets - - - - (Increase) Decrease in due from other governments - 6 - 34 (Increase) Decrease in due from other funds - - - - (Increase) Decrease in deferred outflows for pension contributions (216,924) (13,044) (27,077) (67,972) Increase (Decrease) in accounts payable 23 2,187 (7,760) 2,137 Increase (Decrease) in accrued payroll 750 63 111 261 Increase (Decrease) in due to other funds - - - 7,845 Increase (Decrease) in compensated absences (42) 95 68 35 Increase (Decrease) in allowance for uncollectibles (1,151) (88) 5 (21) Increase (Decrease) in unearned revenue - 29 (817) 415 Increase (Decrease) in customer deposits 1,621 619 - 79 Increase (Decrease) in other post employment benefits 950 421 260 351 Increase (Decrease) in customer construction advances (666) - - - Increase (Decrease) in estimated unpaid health claims - - - - Increase (Decrease) in estimated unpaid claims - general - - - - Increase (Decrease) in workers' compensation - - - - Increase (Decrease) in landfill liability - - - 180 Increase (Decrease) in net pension liability 306,718 18,349 38,202 95,978 Increase (Decrease) in other liabilities - - 37 - Total adjustments 215,081 27,630 33,153 42,706

Net cash provided by (used in) operating activities 302,878 (22,816) 21,531 30,737

Current Assets: Pooled cash and cash equivalents$ 173,400 $ 69,494 $ 78,277 $ 19,030 Pooled cash and cash equivalents for current debt service 139,595 3,671 - - Held for construction purposes 27,032 4,157 - - Customer Deposits pooled cash and cash equivalents 16,083 - - 720 Non-current Assets: Cash and cash equivalents Held by escrow agent 6,143 - - - Held for construction purposes - - 609 - For future debt service 13,342 477 6,326 - For emergency repairs and replacements - - 5,000 - For operation and maintenance expenses - - 11,046 - For passenger facility charges - - 28,803 - Total cash and cash equivalents end of year $ 375,595 $ 77,799 $ 130,061 $ 19,750

Noncash investing, capital, and financing activities: Capital contributions$ 15,869 $ - $ 21,408 $ - Inception of capital lease - - 44,831 - Change in fair value of non-pooled investments (421) - - - Premium/discount amortization 28,426 548 1,388 386 Accretion on capital appreciation bonds 4,005 286 375 1,309 Amortization of deferred gain/loss on refunding 6,574 - - - Capital assets acquired through water transmission financing agreement 117,211 - - - Decrease in future pipeline reserve capacity rights (117,211) - - -

The notes to financial statements are an integral part of this statement. 30 Governmental Nonmajor Activities- Enterprise Internal Funds Total Service Funds

$ (12,597) $ 1,163 $ (38,420)

61 166,807 4,051 - 139 9,350 77 - 4 - - 342 295 - - (161) - 40 - - - 488 (43,701) (368,718) (78,581) 131 (3,282) 477 151 1,336 290 - 7,845 - (16) 140 27 - (1,255) - 308 (65) - - 2,319 - 201 2,183 889 - (666) - - - 470 - - 3,118 - - (1,599) - 180 - 61,707 520,954 110,942 135 172 (1,196) 19,116 337,686 39,587

6,519 338,849 1,167

$ 52,565 $ 392,766 $ 51,718 - 143,266 - - 31,189 - - 16,803 -

- 6,143 - - 609 - - 20,145 - - 5,000 - - 11,046 - - 28,803 - $ 52,565 $ 610,921 $ 51,718

$ 40 $ 37,317 - - 44,831 - - (421) - 122 30,870 - 729 6,704 - - 6,574 -

- 117,211 - - (117,211) -

31 CITY OF DALLAS, TEXAS STATEMENT OF NET POSITION FIDUCIARY FUNDS September 30, 2016 (in thousands)

Agency Pension Funds Trust Funds (1)

Assets Pooled cash and cash equivalents $ 3,186 $ - Cash and cash equivalents - 163,009 Invested securities lending collateral - 395,324 Receivables: Accounts 40 255,417 Accrued interest 5 20,858 Short-term investments - 29,987 Equity securities - 439,816 Domestic equities - 935,950 U.S. and foreign government fixed income securities - 596,864 Domestic corporate fixed income - 664,380 International equities and fixed income - 761,473 Commingled index funds - 109,994 Real assets - 1,135,348 Private equities and venture capital funds - 870,097 Atlernative investments - 395,026 Forward currency contracts - (389) Prepaid expenses - 200 Other assets 120 - Capital assets, net - 12,192 Total assets 3,351 6,785,546

Liabilities Accounts payable 1,883 9,848 Payable for securities purchased - 45,485 Securities lending obligation - 395,324 Other liabilities 1,468 433,100 Total liabilities 3,351 883,757

Net Position Net investment in capital assets - 12,192 Restricted for pensions - 5,889,597

Total net position $ - $ 5,901,789

(1) Information presented for the pension trust funds is as of December 31, 2015.

The notes to financial statements are an integral part of this statement. 32 CITY OF DALLAS, TEXAS STATEMENT OF CHANGES IN NET POSITION FIDUCIARY FUNDS For the Year Ended September 30, 2016 (in thousands)

Pension Trust Funds (1)

Additions: Contributions: Employer $ 168,050 Employee 76,461 Total contributions 244,511

Net investment income: Interest and dividends 176,128 Net depreciation in fair value of investments (440,295) Securities lending income 2,252 Less investment expenses: Investment management fees (27,471) Custody fees (138) Consultant fees (340) Securities lending management fees (508) Total investment expenses (28,457)

Net investment loss (290,372)

Other income 294

Total decreases (45,567)

Deductions: Benefit payments 520,963 Refund of contributions 6,640 Interest expense 6,050 Administrative expenses 13,076 Total deductions 546,729

Change in net position (592,296)

Net position Beginning of year 6,494,085

End of year $ 5,901,789

(1) Information presented for the pension trust funds is for the year ended December 31, 2015.

The notes to financial statements are an integral part of this statement. 33 CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

INDEX PAGE

Note 1. - Summary of Significant Accounting Policies 35

Note 2. - Stewardship, Compliance, and Accountability 46

Note 3. - Cash, Deposits, and Investments 50

Note 4. - Receivables 60

Note 5. - Restricted Assets 61

Note 6. - Joint Ventures 62

Note 7. - Accrued Landfill Liability 62

Note 8. - Interfund Receivables, Payables, and Transfers 63

Note 9. - Accounts Payable and Accrued Expenses 64

Note 10. - Long-term Debt 65

Note 11. - Leases 79

Note 12. - Defeasance of Debt 81

Note 13. - Risk Management – Estimated Claims and Judgments Payable 81

Note 14. - Capital Assets 82

Note 15. - Pollution Remediation 84

Note 16. - Pension Plans 85

Note 17. - Commitments and Contingencies 94

Note 18. - Other Postemployment Benefits 95

Note 19. - Change in Accounting Principle 97

Note 20. - Subsequent Events 97

34

CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 1. Summary of Significant Accounting Policies

A. General

The City of Dallas, Texas (“the City”) is a municipal corporation incorporated under Article XI, Section 5 of the Constitution of the State of Texas (Home Rule Amendment). The City operates under the Council-Manager form of government and provides such services as are authorized by its charter to advance the welfare, health, comfort, safety, and convenience of the City and its inhabitants.

The accounting policies of the City conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to state and local governments. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. Unless otherwise indicated, amounts are presented in thousands (000’s). The more significant accounting and reporting policies and practices used by the City are described below.

B. Reporting Entity

The accompanying basic financial statements present the City and its component units, entities for which the government is considered to be financially accountable. The criteria considered in determining activities to be reported within the City’s basic financial statements include whether:

 the organization is legally separate (can sue and be sued in their own name)  the City appoints a voting majority of the organization’s board  the City is able to impose its will on the organization  the organization has the potential to impose a financial benefit/burden on the City  there is fiscal dependency by the organization on the City

The City’s municipal services, which include public safety (police and fire), streets, environmental and health services, code enforcement, public works and transportation, equipment and building, culture and recreation, housing and human services, and general administrative services, are included in the accompanying basic financial statements.

In addition, the City owns and operates certain enterprise funds including water utilities, convention services, airport, sanitation, and other enterprise activities that are also included in the accompanying basic financial statements.

Blended Component Units

Blended component units, although legally separate entities, are included as part of the primary government because they meet the above criteria as well as serve or benefit the City exclusively. Thus, blended component units are appropriately presented as funds of the primary government. The information reported for the pension trust funds is as of December 31, 2015 and the Love Field Airport Modernization Corporation (LFAMC) is as of September 30, 2016.

 Pension Trust Funds – The Pension Trust Funds have a December 31 year-end. The primary functions of the pension entities are investment and benefit management activities. Each board has contracted with various investment managers and banks for management of the portfolios of the plans. The City contributes on behalf of its employees to three defined benefit pension plans administered by two legally separate entities: the Employees’ Retirement Fund of the City of Dallas, at 600 North Pearl Street, Suite 2450, Dallas, TX 75201; and Dallas Police and Fire Pension System, at 4100 Harry Hines Boulevard, Ste. 100, Dallas, TX 75219. Complete financial statements of each plan may be obtained at the administrative offices.  Love Field Airport Modernization Corporation (LFAMC) – The City created the LFAMC, a Texas nonprofit local government corporation organized under Subchapter D of Chapter 431 of the Texas Transportation Code. The Corporation was formed to serve as a conduit financing entity for the purpose of issuing bonds to promote the development of the geographic area of the City included at or in the vicinity of Love Field Airport to promote, develop, and maintain the employment, commerce, aviation activity, tourism, and economic development in the City.

35

CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 1. Summary of Significant Accounting Policies (continued)

Discretely Presented Component Units – The following legally separate entities are reported as discretely presented component units of the City because the City appoints a voting majority of the boards, approves budgets, and maintains the ability to impose its will on the entities. The discretely presented component units of the governmental activities and the business-type activities are reported in separate columns in the government-wide financial statements to emphasize that they are legally separate from the government. The information reported for the Dallas Convention Center Hotel Development Corporation and the Housing Finance Corporation is as of December 31, 2015, and all others are as of September 30, 2016.

 Housing Finance Corporation – organized to issue tax-exempt mortgage revenue bonds to encourage opportunities for single-family residential home ownership among low to moderate-income citizens.  Housing Acquisition and Development Corporation – organized solely and exclusively for the public purpose of providing safe, affordable housing facilities for low and moderate income persons.  Dallas Development Fund – organized to assist in carrying out the economic development program and objectives of the City by generating private investment capital through the New Markets Tax Credit Program to be made available for investment in low-income communities.  Downtown Dallas Development Authority – The primary function of the Downtown Dallas Development Authority (DDDA) is to increase the property tax base in the downtown area of the City. The DDDA operates in a manner similar to other tax increment financing zones of the City, but has a separate board. Its primary purpose is to issue revenue bonds to finance major improvements by developers.  North Oak Cliff Municipal Management District – organized to promote, develop, encourage and maintain employment, commerce, transportation, housing, tourism, recreation and the arts, entertainment, economic development, safety, the public welfare in the District, and educational scholarships for college-bound students residing in or out of the District.  Cypress Waters Municipal Management District – organized to promote, develop, encourage and maintain employment, commerce, transportation, housing, tourism, recreation and the arts, entertainment, economic development, safety, and the public welfare in the District.  Dallas Convention Center Hotel Development Corporation – organized to promote the development of the geographic area of the City included at or in the vicinity of the Dallas Convention Center, in furtherance of the promotion, development, encouragement, and maintenance of employment, commerce, convention and meeting activity, tourism, and economic development in the City, including specifically, without limitation, the development and financing of a convention center hotel which is located within 1,000 feet of the Dallas Convention Center.

Entity financial statements are available for all of the above entities by contacting the City Controller’s Office, 1500 Marilla, Room 2BS, Dallas, TX 75201.

Related Organizations

City officials are also responsible for appointing members to the boards of the following organizations, but the City’s accountability for the organization does not extend beyond making appointment.

The Dallas/Fort Worth International Airport (DFW Airport) is jointly governed by the cities of Dallas and Fort Worth. The Cities approve the Airport’s annual budget and all bond sales, but have no responsibility for the DFW Airport’s debt service requirements. DFW Airport is governed by a 12-member board (Board) comprised of seven members representing the City of Dallas, four members representing the City of Fort Worth, and on an annual basis, one non- voting member from the neighboring cities of Irving, Grapevine, Euless and Coppell. Members of the Board are appointed by the respective City Councils. The Board is a semi-autonomous body charged with governing the DFW Airport and may enter into contracts without approval of the city councils.

The Dallas Housing Authority (Authority) is an independent organization, which has a scope of public service within the geographic boundaries of the City. Under Texas State Statutes, the responsibility for the administration and operations of the Authority is vested solely with the Authority’s Board of Commissioners. The Authority is dependent on Federal funds from the Department of Housing and Urban Development and, as a result, is not financially dependent on the City. In addition, the City is not responsible for any deficits incurred and has no fiscal management control. The governing body of the Authority is its Board of Commissioners, composed of five members appointed by the Mayor of the City of Dallas. The Authority is not considered a component unit of the City, as defined by GASB since the City is not financially accountable for the operations of the Authority, has no responsibility to fund deficits or receive surpluses, and has not guaranteed the Authority’s debt.

36

CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 1. Summary of Significant Accounting Policies (continued)

The Dallas Area Rapid Transit (DART) is a regional transportation authority under Chapter 452 of the Texas Transportation Code and is controlled by a 15-member board. The Dallas City Council appoints seven members and participating suburban city councils appoint eight board members. Its purpose is to provide transportation services in the DART service area. The voters in the DART service area approved a one percent sales tax to fund the authority annually. DART is not fiscally dependent on the City.

C. Government-wide and Fund Financial Statements

The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on the primary government and its non-fiduciary component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes, intergovernmental revenues, and other non-exchange transactions, are reported separately from business-type activities, which rely to a significant extent on fees and charges to external customers for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable.

The statement of activities demonstrates the degree to which the direct expenses of a given function or program are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or program. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, and 2) grants and contributions that are restricted to meeting operational or capital requirements of a particular function or segment.

Taxes and other items are reported as general revenues, rather than as program revenues.

Separate fund level financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and individual enterprise funds are reported as separate columns in the fund financial statements.

D. Measurement Focus, Basis of Accounting, and Financial Statement Presentation

The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. The fiduciary fund financial statements have no measurement focus, but do employ the accrual basis of accounting for purposes of asset and liability recognition. Revenues are recognized when earned and expenses are recognized when a liability is incurred, regardless of the timing of related cash flows; however, agency funds report only assets and liabilities and have no measurement focus.

The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues received within 60 days of year-end to be available, in accordance with the City’s accounting policy, except as noted in the paragraph below.

Revenues susceptible to accrual include ad valorem taxes, sales tax, ambulance fees, parking fines, franchise fees, and interest. In applying the susceptible to accrual concept to Federal and State grants, revenues are recognized when applicable eligibility requirements, including time requirements, are met. The grant revenues and developer and intergovernmental contributions availability period is considered to be one year. All other revenue items are considered to be measurable and available only when the City receives the cash as the resulting net receivables are deemed immaterial, such as court fines and fees.

Expenditures are generally recorded when the liability is incurred, as under accrual accounting. However, debt service expenditures as well as expenditures related to compensated absences, rebatable arbitrage, claims and judgments, other postemployment benefits, and pollution remediation are recorded only when matured and payment is due.

37

CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 1. Summary of Significant Accounting Policies (continued)

The City reports the following major governmental funds:

The General Fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund.

The Debt Service Fund is used to account for the accumulation of resources for, and the payment of general long-term debt principal, interest, and related costs.

The City reports the following non-major governmental funds:

The Capital Project Funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets. Capital projects funds exclude those types of capital-related outflows financed by proprietary funds or for assets that will be held in trust for individuals, private organizations, or other governments.

The Special Revenue Funds are used to account for proceeds of specific revenue sources that are restricted or committed to expenditures for specified purposes other than debt service or capital projects.

The Permanent Funds are used to account for private endowments whereby interest earnings are restricted in accordance with the endowment terms.

Proprietary Funds and Pension Trust Funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. The accounting objectives are determinations of operating income, change in net position, financial position, and cash flow. All assets, deferred outflows of resources, liabilities, and deferred inflows of resources are included on the statement of net position.

The City reports the following major proprietary funds:

The Dallas Water Utilities Fund accounts for water and wastewater services for Dallas, area customer cities, and governmental entities. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance, and related debt service.

The Convention Center Fund accounts for convention and event services for the Dallas Convention Center. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance, and related debt service.

The Airport Revenues Fund accounts for the Dallas Airports System, which includes airport services and administration of Dallas Love Field, Executive Airport, and the Heliport. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance, and related debt service. DFW airport activity is not included in the financial statements.

The Sanitation Fund accounts for solid waste collection and disposal services for residential and commercial customers in Dallas. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance, and related debt service.

The City reports the following non-major proprietary funds:

The non-major proprietary funds consist of Enterprise Funds, which are used to account for operations, other than the major proprietary funds listed above, and are operated in a manner similar to private business enterprises. Non-major Enterprise Funds include the operation of the municipal radio station and building inspections.

Additionally, the City reports the following funds:

The Internal Service Funds are used to allocate associated costs of centralized services on a cost-reimbursement basis. The services provided to other City departments are vehicles, vehicle maintenance, fuel and lubrication, communication services, data processing and programming services, office supplies, printing, copying and mailing services, and risk financing, including insurance-related activities.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 1. Summary of Significant Accounting Policies (continued)

The Pension Trust Fund accounts for the activities of the Employees’ Retirement System, Police and Fire Pension System, and Supplemental Police and Fire Pension Plan. The three contributory defined benefit plans are used to accumulate resources for pension benefits payments to qualified employees.

The Agency Funds are used to account for assets held by the City, as an agent for individuals (employee war and savings bond fund, deferred compensation, cash escrow, confiscated money, and disposal deposit fund), and other funds for assets held by the City, in a trustee capacity (tax distribution, employee benefits, and the Dallas Tourism Public Improvement District deposit account).

As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments-in-lieu of taxes (PILOT) and other charges between the Dallas Water Utilities Fund and various other funds of the City. Elimination of these charges would distort the direct costs and program revenues reported for various functions concerned.

Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services in connection with a proprietary fund’s principal ongoing operations.

Operating revenues of the City’s enterprise funds are charges to customers for sales and services, charges to other City departments, services to others, intergovernmental revenue, and other revenues. Operating expenses include cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses.

E. Cash, Cash Equivalents, and Investments

Cash and cash equivalents include amounts in pooled cash as well as short-term investments with the exception of the Pension Trust Funds (which consider short-term investments as regular investments). Investment income on the pooled investments is prorated monthly based upon the average daily cash balance in each fund.

Investments in U.S. government obligations are recorded at fair value based on observable inputs; investments in money market mutual funds, local government investment pools and hedge funds are recorded at net asset value. Other investments, except hedge funds, held in trusts for various permanent funds are recorded at fair value based on quoted market prices. Pension investments are recorded at fair value based on quoted market values, when available. The amounts recorded in the Pension Trust Funds for real estate funds and venture capital funds represent estimated fair values based upon appraised values or other comparable methods. The Commingled Index Funds estimated fair values are based upon audited financial statements.

F. Property Taxes

The City’s property tax is levied each October 1 on the assessed value as of the previous January 1 for all real and income-producing (or business personal) property. Appraised values are established by the Dallas, Denton, Collin, and Rockwall Central Appraisal Districts equal to 100 percent of appraised market value as required under the State Property Tax Code. The value of real property within the Appraisal District must be reviewed every three years. The City may challenge appraised values established by the Appraisal District through various appeals and, if necessary, legal action. The City establishes tax rates on property within its jurisdiction. If the adopted tax rate, excluding tax rates for bonds and other contractual obligations, exceeds the effective tax rate by more than eight percent, qualified voters of the City may petition for an election to determine whether to limit the tax rate increase to no more than eight percent above the effective tax rate. Property taxes attach as an enforceable lien on property as of January 1 of the subsequent year.

Taxes are due October 1. Full payment can be made prior to the following January 31 to avoid penalty and interest charges. Current tax collections for the year ended September 30, 2016 were 97.65 percent of the tax levy. The City is permitted by Article XI, Section 5 of the State of Texas Constitution to levy taxes up to $2.50 per one hundred dollars of assessed valuation for general governmental services including the payment of principal and interest on general obligation long-term debt. The tax rate for fiscal year 2016 was $0.797 per $100 dollars of assessed valuation, $0.5646 for general governmental services and $0.2324 for the payment of principal and interest on general obligation long-term debt.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 1. Summary of Significant Accounting Policies (continued)

G. Federal and State Grants and Entitlements

Grants and entitlements received for purposes normally financed through the general government are accounted for within the Special Revenue Funds. Grants and similar items are recognized as revenue as soon as all applicable eligibility requirements, excluding time requirements, have been met. Amounts received before time requirements are met, but after all other eligibility requirements have been met are reported as a deferred inflow of resources. Amounts received before eligibility requirements have been met are reported as unearned revenue.

H. Inventories

Inventory is valued at average cost. Inventory for all funds generally consists of expendable supplies held for consumption and are recorded as expenditures (or expenses) when consumed.

I. Prepaid Items

Prepaid items are payments made to vendors for services that will benefit periods beyond September 30, 2016. Prepaid items are recorded using the consumption method.

J. Restricted Assets

Proceeds of Enterprise Fund revenue bonds, commercial paper notes, and other financing arrangements, as well as resources set aside for revenue bond repayment, are classified as restricted assets on the statement of net position when their use is limited by applicable covenants. The Capital Project Funds record proceeds of debt issuances restricted for construction. The current Debt Service Funds are used to segregate resources accumulated for debt service payments over the next 12 months.

The assets restricted for revenue bond future debt service are used to report resources set aside to fulfill revenue bond debt reserve requirements. Other restricted assets include funds restricted for construction from revenue bond proceeds, contractual obligation debt service funds, unspent grant proceeds, and customer deposits. Assets restricted for a specific purpose are utilized before the use of unrestricted assets to pay related obligations when authorized to do so.

K. Capital Assets

Capital assets, which include property, plant, equipment, and infrastructure assets (examples include streets and bridges), are reported in the applicable governmental or business-type activities columns, in both the government- wide and proprietary fund level statement of net position. Generally, equipment with an individual cost of at least $5 thousand, infrastructure with a cost of at least $25 thousand, and buildings with a cost of at least $50 thousand and an estimated useful life of more than one year, are capitalized. Purchased or constructed capital assets are valued at historical cost or estimated historical cost if actual cost is not available. Assets acquired by donation are recorded at acquisition value on the date received.

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital asset additions and improvements are capitalized as projects are constructed.

The business-type activities and proprietary funds capitalized interest costs during construction. Interest capitalized in the Dallas Water Utilities and Aviation Revenues during the year ended September 30, 2016 was $32.2 million and $1 million, respectively.

Depreciation, which includes amortization of assets under capital leases, is computed using the straight-line method over the estimated useful or service lives of the related assets beginning on the date of acquisition or the date placed in service.

40

CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 1. Summary of Significant Accounting Policies (continued)

The estimated useful lives of the primary government’s capital assets are as follows:

Useful Life Governmental Business-type Activities Activities Infrastructure 10-50 years 50-100 years Reservoirs and water rights N/A 100 years Buildings 10-50 years 10-50 years Improvements other than buildings 10-50 years 10-100 years Equipment 3-20 years 3-25 years Utility property N/A 33-75 years

Artwork is capitalized but not depreciated. These assets are maintained for public exhibition, education, or research and are being preserved for future generations. The proceeds from sales of any pieces of the collection are used to purchase other items for the collection.

L. Compensated Absences

The City’s employees earn vacation, sick, and attendance incentive leave which may be used or accumulated up to certain amounts. Unused vacation and attendance incentive leave is paid upon death, retirement, or termination. Unused sick leave is reduced to a specified limit when paid upon retirement, certain terminations, or death.

In accordance with the criteria established in the Codification of Governmental Accounting Standards, Section C60, “Compensated Absences,” a liability is recorded for vacation leave earned by employees attributable to past service and sick leave earned by employees attributable to past service only to the extent it is probable that such leave will result in termination pay. In addition, a liability has been recorded for certain salary related payments associated with the payment of accrued vacation and sick leave.

In the government-wide and proprietary fund statements of net position, all compensated absence liabilities incurred are recorded as liabilities. However, a liability is recorded in the governmental funds balance sheet only if they have matured and are due as a result of employee resignations, retirements, or termination.

M. Risk Management

The City is self-funded for workers’ compensation, employee health insurance, most property damage, and the majority of tort liability exposures. Commercial insurance is used where it is legally required, contractually required, or judged to be the most effective way to finance risk. Indemnity and insurance protection are also required for all City contractors, vendors, lessees, and permit holders. Claims and judgments are recorded when it is probable that an asset has been impaired or a liability has been incurred, and the amount of loss can be reasonably estimated. The recorded estimated liability for claims and judgments includes a provision for Incurred but Not Reported (IBNR) liabilities for workers’ compensation, tort cases, and employee health insurance.

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41

CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 1. Summary of Significant Accounting Policies (continued)

N. Deferred Outflows/Inflows of Resources

In addition to assets, the balance sheet and statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (expense/expenditure) until then. The City has the following items that qualify for reporting in this category.

 Deferred charges on refunding – A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. The amount is deferred and amortized over the shorter of the life of the refunded or refunding debt.  Pension contributions after measurement date – The pension contributions made from the measurement date of the pension plan to the current fiscal year end are deferred and will be recognized in the subsequent fiscal year.  Difference in projected and actual earnings on pension assets, difference between estimated and actual experience, and changes in assumptions – These are amortized as a component of pension expense over a closed period equal to the average of the expected remaining service lives of all employees that are provided with pensions through the pension plan (active employees and inactive employees) determined as of the beginning of the measurement period.

In addition to liabilities, the balance sheet and statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City has two items that qualify in this category. The first item arises only under the modified accrual basis of accounting. Accordingly, the item, unavailable revenue, is reported only in the governmental funds balance sheet. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. The deferred inflow is reclassified to revenue on the government-wide financial statements. The second item qualifies as deferred inflows of resources related to pensions. A deferred inflow is recorded in the government-wide statement of net position and fund level financials for the proprietary statements of net position for the difference in projected and actual experience in the actuarial measurement of the total pension liability not recognized in the current year. The differences are amortized over the average remaining service life of all participants in the respective pension plans and recorded as a component of pension expense beginning with the period in which they are incurred. The Dallas Convention Center Hotel Development Corporation discretely presented component unit also reports a deferred inflow as a result of the advance for the Build America Bonds rebate.

O. Long-term Obligations

In the government-wide financial statements and proprietary fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities or proprietary fund financial statements of net position.

General obligation bonds are issued to fund capital projects of both the general government and certain proprietary funds, and are to be repaid from tax revenues of the City. Accreted interest on capital appreciation bonds is reflected as interest expense in the governmental activities statement of activities and as an addition to non-current liabilities in the statement of net position.

P. Bond Premiums, Discounts, and Issuance Costs

In the government-wide financial statements and proprietary fund financial statements, bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable premium or discount. Issuance costs, except any portion related to prepaid insurance costs (if applicable), are recognized as an expense in the period incurred.

In the fund financial statements, governmental fund types recognize bond premiums and discounts as well as issuance costs in the current period. The face amount of debt issued is reflected as other financing sources. Premiums are reported as other financing sources while discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

42

CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 1. Summary of Significant Accounting Policies (continued)

Q. Interfund Receivables and Payables

During the course of operations, numerous transactions occur between individual funds for goods provided or services rendered. These receivables and payables are classified as “due from other funds” or “due to other funds” on the fund level balance sheets/statement of net position. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as “internal balances.” Short-term and long-term interfund loans are classified as notes receivable or payable from other funds with interest rates ranging from 4.25 percent to 5.44 percent.

R. Transactions Between Funds

Transactions between funds, which would have been treated as revenues, expenditures, or expenses if they involved organizations external to the government unit, are accounted for as revenues, expenditures, or expenses in the funds involved. Transactions which constitute reimbursements of a fund for expenditures or expenses initially made from that fund which are properly applicable to another fund are recorded as expenditures or expenses in the reimbursing fund and as reductions of the expenditure or expenses in the fund reimbursed. All other nonreciprocal transactions between funds which are not reimbursements and where the funds do not receive equivalent goods or services for the transaction are classified as transfers.

S. Deferred Compensation Plan

There are three deferred compensation plans. Two of these plans are voluntary for City employees who participate in the City’s pension plans. The third plan is mandatory for all employees and council members who are not covered by the City’s pension plans. These plans comply with sections 401(k) and 457(b) of the Internal Revenue Code.

Participants in the City’s voluntary 457 and 401(k) plans have full discretion to choose investments from a list of standard plan options, a linked brokerage account, and a commingled pool managed by Fidelity Management Trust Company. The list of standard plan options includes mutual funds with varying styles and levels of investment risk. All the account balances in the mandatory 457 plan are invested in the same commingled pool. All contributions to these plans are deferred by plan participants from their compensation and all the earnings are allocated to each participant’s account. Distributions from all the deferred compensation plans are available after termination of employment. Additionally, participants in the City’s voluntary plans may also take out loans and may receive hardship withdrawals in accordance with federal regulations. The assets held in these plans are not included in the City’s financial statements and cannot be used for purposes other than the exclusive benefit of the participants or their beneficiaries or to pay the reasonable expenses of plan administration.

T. Net Position

In the government-wide and proprietary funds financial statements, the net position is reported in three components: (1) net investment in capital assets; (2) restricted; and (3) unrestricted. Net investment in capital assets represents the City’s total investment in capital assets, net of depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction, or improvement of those assets. Nonexpendable restricted net position consists of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained in perpetuity, and invested for the purpose of producing present and future income, which may be either expended or added to principal. The City is subject to the State of Texas Uniform Prudent Management of Institutional Funds Act (UPMIFA) in relation to endowment funds.

The risk fund has a deficit net position of $64.2 million associated with the City’s self-insured workers’ compensation, auto, and general liability activities. The deficit results from the recognition of certain liabilities that will be paid in future periods. Those liabilities will be funded in the fiscal year in which they will be paid through annual budget appropriations. The City’s approach for addressing this deficit is consistent with the budgetary basis of accounting for all funds as indicated in Note 2.B. The Sanitation, Municipal Radio, Building Inspection, Equipment Services and Communication Equipment Services funds had deficit net positions of $85 million, $1.7 million, $6.1 million, $10.5 million and $162 thousand, respectively, due to the recognition of the net pension liability. The City’s approach for addressing this deficit is to enhance revenues and to employ cost reduction measures.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 1. Summary of Significant Accounting Policies (continued)

U. Statement of Cash Flows

For purposes of the statement of cash flows, the City considers pooled cash and all highly liquid debt instruments purchased with an original maturity of three months or less or that have general characteristics of demand deposits in that additional funds may be deposited or withdrawn at any time without prior notice or penalty to be cash equivalents.

V. Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

W. New Accounting Pronouncements

During fiscal year 2016, the City adopted the following Governmental Accounting Standard Board (GASB) Statements:

GASB Statement No. 72, Fair Value Measurement and Application, was implemented by the City as required by GASB during fiscal year ending September 30, 2016. The objective of this statement is to address accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The implementation of this statement did not result in any changes to the City’s financial statements; however, changes were made to the note disclosures in Note 3, Cash, Deposits and Investments. The City’s pension plans were not required to implement GASB Statement No. 72, since their fiscal year ended was December 31, 2015; therefore, the requirements for GASB Statement No. 72 will be included in Note 3 during the City’s fiscal year 2017.

GASB Statement No. 76, “The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments,” was implemented as required by GASB during the fiscal year ending September 30, 2016. The Statement supersedes Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and non-authoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. The implementation of this statement did not result in any changes to the financial statements.

GASB Statement No. 79, “Certain External Investment Pools and Pool Participants,” was implemented by the City as required by GASB during fiscal year ending September 30, 2016. This Statement establishes additional note disclosure requirements for qualifying external investment pools that measure all of their investments at amortized cost for financial reporting purposes and for governments that participate in those pools. Those disclosures for both the qualifying external investments pools and their participants include information about any limitations or restrictions on participant withdrawals. The implementation of this statement did not result in any changes to the City’s financial statements; however, changes were made to the note disclosures in Note 3, Cash, Deposits, and Investments.

The GASB has issued the following statements which will be effective in future years as described below:

GASB Statement No. 73, “Accounting and Financial Reporting for Pensions and Related Assets That Are Not Within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68,” will be implemented as required by GASB during the fiscal year ending September 30, 2017. This statement establishes requirements for defined benefit pensions that are not within the scope of Statement No. 68, Accounting and Financial Reporting for Pensions, as well as for the assets accumulated for purposes of providing those pensions. In addition, it establishes requirements for defined contributions pensions that are not within the scope of Statement 68. It also amends certain provisions of Statement No. 67, Financial Reporting for Pension Plans, and Statement No. 68 for pension plans and pensions that are within their respective scopes. The City is currently evaluating potential changes to the financial statements as a result of the implementation of this statement.

44

CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 1. Summary of Significant Accounting Policies (continued)

GASB Statement No. 74, “Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans,” will be implemented as required by GASB during the fiscal year ending September 30, 2017. The Statement replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement 43, and Statement No. 50, Pension Disclosures. The City is currently evaluating potential changes to the financial statements as a result of the implementation of this statement.

GASB Statement No. 75, “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions,” will be implemented as required by GASB during the fiscal year ending September 30, 2018. This Statement replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB, Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes new accounting and financial reporting requirements for OPEB plans. The City is currently evaluating potential changes to the financial statements as a result of the implementation of this statement.

GASB Statement No. 77, “Tax Abatement Disclosures,” will be implemented as required by GASB during the fiscal year ending September 30, 2017. This Statement requires governments that enter into tax abatement agreements to disclose the following information about the agreements:

 Brief descriptive information, such as the tax being abated, the authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made by tax abatements recipients,  The gross dollar amount of taxes abated during the period, and  Commitments made by a government, other than to abate taxes, as part of a tax abatement agreement.

The City is currently evaluating potential changes to the financial statements as a result of the implementation of this statement.

GASB Statement No. 78, “Pensions Provided Through Certain Multiple-Employer Defined Benefit Pension Plans,” will be implemented as required by GASB during the fiscal year ending September 30, 2017. This Statement amends the scope and applicability of Statement 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan that (1) is not a state or local governmental pension plan, (2) is used to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and (3) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan). This Statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and required supplementary information for pensions that have the characteristics described above. The implementation of this statement is not expected to result in any changes to the financial statements.

GASB Statement No. 80, “Blending Requirements for Certain Component Unit – An Amendment of GASB Statement No. 14,” will be implemented by the City as required by GASB during fiscal year ending September 30, 2017. This Statement amends the blending requirements for the financial statement presentation of component units of all state and local governments. The additional criterion requires blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member. The additional criterion does not apply to component units included in the financial reporting entity pursuant to the provisions of Statement No 39, “Determining Whether Certain Organization are Component Units.” The City is currently evaluating potential changes to the financial statements as a result of the implementation of this statement.

GASB Statement No. 81, “Irrevocable Split-Interest Agreements,” will be implemented by the City as required by GASB during fiscal year ending September 30, 2018. The objective of this statement is to improve accounting and financial reporting for irrevocable split-interest agreements by providing recognition and measurement guidance for situations in which a government is a beneficiary of the agreement. The City is currently evaluating potential changes to the financial statements as a result of the implementation of this statement.

45

CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 1. Summary of Significant Accounting Policies (continued)

GASB Statement No. 82, “Pension Issues,” will be implemented as required by GASB during the fiscal year ending September 30, 2017. This Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. The City is currently evaluating potential changes to the financial statements as a result of the implementation of this statement.

GASB Statement No. 83, “Certain Asset Retirement Obligations,” will be implemented as required by GASB during the fiscal year ending September 30, 2019. This Statement establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources for asset retirement obligations (AROs). An ARO is a legally enforceable liability associated with the retirement of a tangible capital asset. The City is currently evaluating potential changes to the financial statements as a result of the implementation of this statement.

GASB Statement No. 84, “Fiduciary Activities,” will be implemented as required by GASB during the fiscal year ending September 30, 2020. This Statement improves guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. The City is currently evaluating potential changes to the financial statements as a result of the implementation of this statement.

GASB Statement No. 85, “Omnibus 2017,” will be implemented as required by GASB during the fiscal year ending September 30, 2018. This Statement addresses several different accounting and financial reporting issues identified by GASB during the implementation and application of certain GASB pronouncements. The City is currently evaluating potential changes to the financial statements as a result of the implementation of this statement.

GASB Statement No. 86, “Certain Debt Extinguishment Issues,” will be implemented as required by GASB during the fiscal year ending September 30, 2018. This Statement improves consistency in accounting and financial reporting for in-substance defeasance of debt. This Statement also improves accounting and financial reporting for prepaid insurance on debt that is extinguished, and notes to the financial statements for debt that is defeased in- substance. The City is currently evaluating potential changes to the financial statements as a result of implementation of this Statement.

Note 2. Stewardship, Compliance, and Accountability

A. Legal Compliance – Budgets

The City Council adheres to the following procedures in establishing the budgets reflected in the accompanying combined financial statements.

1) By the fifteenth day of August each year, the City Manager is required to submit to the City Council a proposed budget for the fiscal year beginning the following October 1. The operating budget includes proposed expenditures and the means of financing them. 2) Public hearings are conducted to obtain taxpayers’ comments. 3) Prior to October 1, the budget is legally enacted by the City Council through passage of an ordinance. 4) The City Manager is authorized to transfer budgeted amounts between accounts within any department; however, any revisions that alter the total expenditures of any department must be approved by the City Council. The legal level of budgetary control is the department level. 5) Formal budgetary integration is employed as a management control device during the year for the general fund and debt service fund. Formal budgetary integration is employed as a management control device in the capital project funds for the life of the projects. 6) Annual budgets are legally adopted for the general fund, debt service fund, and proprietary funds. Certain differences exist between the basis of accounting used for budgetary purposes and that used for financial reporting in accordance with GAAP. Budgets for the capital project funds are normally established pursuant to the terms of the related bond ordinances on a project basis.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 1. Summary of Significant Accounting Policies (continued)

B. Budgets and Budgetary Basis of Accounting

The City prepares its annual appropriated general fund, debt service fund, and proprietary operating funds’ budgets on the budget basis which differs from the GAAP basis. The budget and all transactions of the general fund are presented in accordance with the City’s budget basis in the general fund statement of revenues, expenditures, and changes in fund balances – non-GAAP budgetary basis to provide a meaningful comparison of actual results with the budget. The major differences between the budget and GAAP basis are attributable to the elimination of certain revenues and expenditures budgeted on a non-annual basis and the fact that encumbrances are recorded as the equivalent of expenditures (budget) rather than fund balance (GAAP) in the governmental funds. Adjustments necessary to convert the excess of revenues and other financing sources over expenditures and other uses on the budget basis to a GAAP basis for the general fund are provided below:

Excess of revenues and other financing sources over expenditures and other uses--budgetary basis$ 20,389 Change in fair value of investments (108) Change in encumbrances (7,745) Funds not included in general fund budget (48) Revenue recognized for GAAP basis but not budgetary basis 179 Other items budgeted on a non-GAAP basis (7,806) Excess of revenues and other financing sources over expenditures and other uses--GAAP basis$ 4,861

Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to assign that portion of the applicable appropriation, is utilized as an extension of formal budgetary integration in the governmental funds. For budgetary purposes, appropriations lapse at fiscal year-end except for that portion related to encumbered amounts. For the general fund, outstanding encumbrances are reported as assigned fund balances. For other governmental funds, encumbrances are reported as either restricted or committed. These balances do not constitute expenditures or liabilities for GAAP purposes since the goods and services have not been received.

Encumbrances outstanding at year-end are carried forward to the new fiscal year. Such encumbrances constitute the equivalent of expenditures for budgetary purposes and, accordingly, the accompanying financial statements present comparisons of actual results to budget of governmental funds on the budget basis of accounting.

C. Nature and Purpose of Classifications of Fund Balance

Fund balance for governmental funds should be reported in classifications that comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. The nonspendable fund balance classification includes amounts that cannot be spent because they are either not in spendable form or legally or contractually required to be maintained intact. Fund balance should be reported as restricted when constraints placed on the use of resources are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments, or imposed by law through constitutional provision or enabling legislation. Fund balance should be reported as committed when amounts can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority. Those committed amounts cannot be used for any other purpose unless the government removes or changes the specified use by taking the same type of action it employed to previously commit those amounts. Committed fund balance also includes contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements. Fund balance should be reported as assigned for amounts that are constrained by the government’s intent to be used for specific purposes, but are neither restricted nor committed. Intent should be expressed by the governing body itself or a body or official to which the governing body has delegated the authority to assign amounts to be used for specific purposes. Unassigned fund balance is the residual classification for the General Fund and includes amounts that are available for any purpose. Positive amounts are reported only in the General Fund.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 2. Stewardship, Compliance, and Accountability (continued)

The City Council is the City’s highest level of decision-making authority, and the formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution approved by the City Council. This can also be done through adoption or amendment of the budget. The resolution must either be approved or rescinded, as applicable, prior to the last day of the fiscal year for which the commitment is made. The amount subject to the constraint may be determined in the subsequent period.

The City Council has authorized the City Manager as the official authorized to assign fund balance up to $50 to $70 thousand per transaction, depending on the type of goods or services by administrative action, pursuant to Section 2-30 of the City Code. Such assignments cannot exceed the available (spendable, unrestricted, uncommitted) fund balance in any particular fund.

When multiple categories of fund balance are available for expenditure (for example, a construction project is being funded partly by a grant, funds set aside by the City Council, and unassigned fund balance), the City will start with the most restricted category and spend those funds first before the next category with available funds.

It is the desire of the City to maintain adequate General Fund balance to maintain liquidity and in anticipation of economic downturns or natural disasters. The City Council has adopted a financial standard to maintain an unassigned General Fund balance, which includes the Emergency and Contingency Reserves, at a level not less than 30 days of the General Fund operating expenditures, less debt service.

The table on the following page presents additional detail of fund balances as of September 30, 2016.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 2. Stewardship, Compliance, and Accountability (continued) Non-major Govermental General Debt Service Funds Total Fund balances Nonspendable Inventory$ 10,659 $ - $ - $ 10,659 Prepaid items - - 4,086 4,086 Long-term note receivable - - 4,161 4,161 Permanent fund principal - - 9,237 9,237 Total nonspendable 10,659 - 17,484 28,143 Restricted for 9 -1 -1 9,593 - - 9,593 Debt service - 11,088 - 11,088 Culture and recreation: Culture and recreation services - - 58,879 58,879 Library facilities - - 5,217 5,217 Parks and recreation facilities - - 34,335 34,335 Culture and arts facilities - - 5,174 5,174 Public safety: Police services - - 9,913 9,913 Homeland security - - 663 663 Fire station facilities - - 416 416 Police headquarters and safety facilities - - 11,244 11,244 Community development - - 9,681 9,681 Health and human services - - 795 795 Public-private partnerships - - 28,567 28,567 Municipal court technology - - 3,832 3,832 Public television cable system - - 9,378 9,378 Grants and other purposes - - 8,424 8,424 Storm water operations - - 42,800 42,800 Streets and transportation: Repairs - - 10,906 10,906 Improvements - - 205,825 205,825 Flood protection - - 154,480 154,480 Trinity River project - - 73,723 73,723 Capital reserve and assessments - - 4,688 4,688 Neighborhood projects: Tax increment financing - - 32,405 32,405 Economic development incentives - - 28,793 28,793 City-wide capital improvements - - 6,600 6,600 Farmers' Market improvements - - 2,248 2,248 City animal shelter facilities - - 318 318 Municipal court facilities - - 706 706 Homeless facilities - - 86 86 Total restricted 9,593 11,088 750,096 770,777 Committed to Risk reserve 1,250 - - 1,250 Culture and recreation services - - 13,781 13,781 Streets and transportation maintenance - - - - Total committed 1,250 - 13,781 15,031 Assigned to Code enforcement services 3,095 - - 3,095 Communication and information technology services 130 - - 130 Community development services 1,063 - - 1,063 Cultural affairs services 146 - - 146 Fire safety services 775 - - 775 Library services 357 - - 357 Municipal court services 151 - - 151 Parks and recreation services 628 - - 628 Police safety services 1,952 - - 1,952 Public works services 633 - - 633 Streets and transportation maintenance 4,003 - - 4,003 General government services 2,903 - - 2,903 Total assigned 15,836 - - 15,836 Unassigned 153,693 - - 153,693 Total fund balance$ 191,031 $ 11,088 $ 781,361 $ 983,480

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 3. Cash, Deposits, and Investments

The City maintains a cash and investment pool available for use by all City funds. Each fund’s portion of this pool is displayed on the balance sheet/statement of net position as “Pooled cash and cash equivalents.” The City treats pooled investments and short-term non-pooled investments as cash equivalents. Long-term non-pooled investments are reported as “Other investments, at fair-value” in the appropriate funds. In addition, several City funds have investments, which are separately held. A fund may overdraw its account in the pool, with the overdrafts reported as liabilities (due to other funds) on the balance sheet.

In 1987, the City Council adopted the City’s Investment Policy which was in compliance with federal and state law and the City Charter. Subsequent amendments were made by the City Council to incorporate changes to the Public Funds Investment Act (Chapter 2256, Texas Government Code) and to improve management of the City’s investments. The Public Funds Investment Act requires that investments shall be made in accordance with written policies approved at least annually by the governing body. Investment policies must address safety of principal, liquidity and yield, with primary emphasis on safety of principal. In accordance with this Policy, the City may invest in direct or guaranteed obligations of the U.S. Treasury, certain U.S. agencies and instrumentalities, and direct obligations of states and local governments with a credit rating no less than Aa3 or its equivalent; fully collateralized certificates of deposit and repurchase agreements; no-load money market mutual funds and local government investment pools with credit ratings no less than Aaa or its equivalent. The City’s Investment Pool is an aggregation of the majority of City Funds which includes tax receipts, enterprise fund revenues, fine and fee revenues, as well as some, but not all, bond proceeds, grants, gifts, and endowments. This portfolio is maintained to meet anticipated daily cash needs for City of Dallas operations, capital projects, and debt service. The City is precluded from investing in bankers’ acceptances, commercial paper, and collateralized mortgage obligations, all of which are authorized by State law.

The Employees’ Retirement Fund and the Dallas Police and Fire Pension Systems, component units of the City, are included under Pension Trust in the following table. Police and Fire Pension Plans include Dallas Police and Fire Pension Combined Plan (Combined Plan) and Supplemental Police and Fire Pension Plan (Supplemental Plan). A summary of pooled cash and other investments for all City funds, including blended and discretely presented component units and $3.2 million held in agency funds is presented below. Balances are presented as of September 30, 2016 or December 31, 2015, depending on the fiscal year of the entity.

Other Cash and Other Cash Cash and Investments and Pooled Held in Trusts - Investments Investments with Permanent Held in City Treasury Funds Pension Trust Total Cash and cash equivalents $ 779,150 $ - $ 163,009 $ 942,159 Other investments 3,779 9,237 5,938,546 5,951,562 Restricted cash and investments 1,130,213 - - 1,130,213 Total$ 1,913,142 $ 9,237 $ 6,101,555 $ 8,023,934

A summary of the carrying amount of cash on hand, deposits, and investments at September 30, 2016, is as follows:

Cash and Other Cash and Pooled Investments Other Cash and Investments Held in Trusts - Investments with City Permanent Held in Pension Treasury Funds Trust Total Deposits$ 153,311 $ - $ 163,009 $ 316,320 Investments 1,759,831 9,237 5,938,546 7,707,614 Total$ 1,913,142 $ 9,237 $ 6,101,555 $ 8,023,934

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 3. Cash, Deposits, and Investments (continued)

City of Dallas categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs.

The City has the following recurring fair value measurements as of September 30, 2016:

Fair Value Measurements Using

Quoted Prices in Active Significant Markets for Other Identical Assets Observable Total (Level 1) Inputs (Level 2) Investments by Fair Value Level Federal Agricultural Mortgage Corporation Notes$ 233,987 $ - $ 233,987 Federal Farm Credit Bank Notes 285,467 - 285,467 Federal Home Loan Bank Notes 215,387 - 215,387 Federal Home Loan Mortgage Corporation Notes 410,963 - 410,963 Federal National Mortgage Association Notes 228,986 - 228,986 Exchange-Traded Funds - Equities 5,913 5,913 - Exchange-Traded Funds - Fixed Income 1,540 1,540 - Exchange Traded Funds - Real Estate 491 491 - Index Tracking Funds - Tangible Assets 236 236 - Total Investments by Fair Value Level 1,382,970 $ 8,180 $ 1,374,790

Investments Measured at Net Asset Value (NAV) Money Market Funds 61,806 Local Government Investment Pools 256,020 Hedge Funds 783 Total Investments Measured at Net Asset Value (NAV) 318,609

Other Investments Repurchase Agreements 67,489

Total Investments$ 1,769,068

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 3. Cash, Deposits, and Investments (continued)

At December 31, 2015, the investments held in the City’s Pension Trust Funds are as follows:

Type of Investment Total Categorized Investments: Employees' Retirement Fund (at quoted market value) Domestic Equities$ 935,950 U.S. and Foreign Government Securities 213,806 Domestic Corporate Fixed Income 664,380 International Equities and Fixed Income 761,473

Dallas Police and Fire Pension System: Investment in Group Master Trust - Combined Plan 2,807,473 Investment in Group Master Trust - Supplemental Plan 20,387 Total Categorized 5,403,469

Investments Not Categorized: Employees' Retirement Fund Private Equities and Venture Capital Funds 148,135 Real Estate 276,948 Commingled Index Funds 109,994 Total Not Categorized 535,077

Total Investment in City's Pension Trust Funds$ 5,938,546

The City invests in TexSTAR, TexPool, TexPool Prime, and LOGIC, which are Local Government Investment Pools (LGIP) created under the Interlocal Cooperation Act, Texas Government Code Chapter 791, and the Public Funds Investment Act, Texas Government Code Chapter 2256. These two acts provide for the creation of LGIP’s and authorize eligible governmental entities to invest their public funds and funds under their control through the investment pools. The LGIP’s follow all requirements of the Public Funds Investment Act, including being rated by a nationally recognized rating agency, valuing investments at amortized cost, and seeking to maintain a net asset value of $1.00 per unit.

J.P. Morgan Investment Management Inc. and First Southwest Company (a division of Hilltop Securities) serve as co- administrators for the TexSTAR & LOGIC programs under agreements with each pool’s respective board of directors. The TexSTAR governing board is a five-member Board consisting of three representatives of employees, officers or elected officials of participating government entities, and one member designated by each of the co-administrators. In addition, TexSTAR has an Advisory Board composed of participants in the pool and other persons who do not have a business relationship with the pool and are qualified to advise the pool. The governing body of LOGIC is a five-member board of directors comprised of employees, officers or elected officials of participating government entities, or individuals who do not have a business relationship with LOGIC and are qualified to advise the pool. A maximum of two advisory board members represent the co-administrators of LOGIC.

The Comptroller of Public Accounts for the State of Texas is the sole officer, director, and shareholder of the Texas Treasury Safekeeping Trust Company, which is authorized to operate TexPool and TexPool Prime. Pursuant to the TexPool Participation Agreement, administrative and investment services to the TexPool Portfolios are provided by Federated Investors, Inc., under an agreement with the State Comptroller, acting on behalf of the Trust Company. In addition, TexPool has an Advisory Board composed equally of participants in the TexPool Portfolios and other persons who do not have a business relationship with the TexPool Portfolios who are qualified to advise the TexPool Portfolios.

At year end, the following deposits and bank balance were covered by federal depository insurance, a letter of credit issued to the City by Federal Home Loan Bank, or by collateral held by the City’s third-party agents pledged to the City. The fair value of these deposits approximates their costs.

The collateral pledged to the City is held in the City’s name at the Bank of New York Mellon.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 3. Cash, Deposits, and Investments (continued)

Primary Government Carrying Value Bank Balance Pooled Demand Deposits$ 153,311 $ 164,168 Cash and cash equivalents - Pension Trust Funds 163,009 163,009 Total$ 316,320 $ 327,177

Investment in Group Master Trust

The Dallas Police and Fire Pension System’s (the System) investments are held in the Group Master Trust (Group Trust). JP Morgan Chase served as custodian for the year ended December 31, 2015. The book value of the System interests in the Group Trust is based on the unitized interests that it has in the Group Trust. The Combined Plan’s interest in the Group Trust was approximately 99.30 percent at December 31, 2015. The Supplemental Plan’s interest in the Group Trust was approximately 0.70 percent at December 31, 2015. The allocation of investment income between the Combined Plan and the Supplemental Plan is based on the number of units owned of the Group Trust. Benefits, contributions, and administrative expenses are allocated to each plan directly.

Investments in Group Master Trust:

The following summarizes the book value of the System’s investments for the Group Trust as of December 31, 2015.

Short-term investments Short-term investment funds$ 29,987 Fixed income securities US Treasury bonds 27,822 US government agencies 3,448 Corporate bonds 163,439 Foreign-denominated bonds 62,906 Commingled funds 125,442 Equity securities Domestic 274,997 Foreign 164,818 Real assets Real estate 651,937 Infrastructure 197,552 Timberland 123,593 Farmland 162,267 Private equity 445,014 Alternative investments 395,026 Forward currency contracts (389) Net position in the Group Trust$ 2,827,859

Deposit and Investment Risk Disclosures

GASB Statement No. 40, “Deposit and Investment Risk Disclosures,” requires disclosure information related to common risks inherent in deposit and investment transactions. Investments are subject to certain types of risks, including custodial credit risk, concentration of credit risk, interest rate risk, and foreign currency risk. Exposure of deposited funds and investment risk are disclosed in the following sections of this note.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 3. Cash, Deposits, and Investments (continued)

Custodial Credit Risk

Custodial credit risk is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its deposit or collateral securities that are in the possession of an outside party. The City’s pension plans do not have policies for custodial credit risk. As of September 30, 2016, $9.7 million was fully collateralized by U.S. Federal Agency securities, $150.0 million was fully collateralized by letter of credit issued to the City by Federal Home Loan Bank, and $250 thousand was insured by the Federal Deposit Insurance Corporation. The collateral pledged to the City is held in the City’s name at the Bank of New York Mellon. The FDIC insures demand accounts up to $250 thousand in the aggregate. At September 30, 2016, all deposits were either insured or collateralized.

Fully collateralized and insured deposits held by custodian banks:

Demand Deposits $ 160.0 million

Safekeeping of investment securities is provided by the City’s depository and trust institutions. Securities are held in street name with the bank as nominee. As of September 30, 2016, the City’s investments held by the counterparty, and not insured, are as follows: Security Type Fair Value U.S. Agency Securities$ 1,374,790

The Dallas Police and Fire Pension System security investments that were not subject to custodial credit risk were the investments in fixed income and equity investments. The Employees’ Retirement Fund had $3.1 million, or .09 percent of the total Plan investments of $3.2 billion exposed to custodial credit risk as follows:

Uninsured and uncollateralized held by custodian bank outside the United States $ 3.1 million

Concentration of Credit Risk

Investments that individually represent 5 percent or more of net portfolio assets are stated below. Investments issued or explicitly guaranteed by the U.S. government, and investments in mutual funds and external investment pools, are excluded.

% of Total Agency Securities by Issuer Fair Value Portfolio Federal Agricultural Mortgage Corporation (FAMC)$ 233,987 17.02% Federal National Mortgage Association (FNMA) 228,986 16.66% Federal Home Loan Mortgage Corporation (FHLMC) 410,963 29.89% Federal Home Loan Bank (FHLB) 215,387 15.67% Federal Farm Credit Bank (FFCB) 285,467 20.76% Total Agency Securities$ 1,374,790 100.00%

The Employees’ Retirement Fund board has contracted with investment managers to manage the investment portfolio of the Plan, subject to the policies and guidelines established by the board. Northern Trust Company, as the Plan’s custodian bank, had responsibility for the safekeeping of certain investments, handling of transactions based on the instructions of investment managers, and accounting for the investment transactions. The Plan had no investments that individually represented 5 percent or more of the net position available for benefits at December 31, 2015. The Plan’s concentration of credit risk policy is communicated to individual managers in their guidelines through limitations or restrictions to securities, sectors, debt ratings, and other factors that may be applicable to a particular manager.

Credit Risk

Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Money market mutual funds and local government investment pools in the City’s portfolio are rated AAAm by Standard & Poor’s and/or Aaa by Moody’s. U.S. Treasury Notes and Bills are obligations of the U.S. government and are not considered to have credit risk and thus are not rated (NR). Long-term bond ratings are used for the U.S. Government Agencies. Ratings for the City’s portfolio are listed on the following table.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 3. Cash, Deposits, and Investments (continued)

% of Total S&P/Moody's Security Type Fair Value Portfolio Ratings

Money Market Mutual Funds and Pools$ 317,826 18.78% AAAm/Aaa U.S. Agency Securities 1,374,790 81.22% AA+/Aaa Total Portfolio$ 1,692,616 100.00% Repurchase Agreements and Investment Portfolios Held by Various Trusts 76,452 Total Investments$ 1,769,068

The Employees’ Retirement Fund Investment policy allocates 30 percent of the total assets to fixed income. The policy provides for investments of up to 15 percent of fixed income assets in investment grade assets and up to 15 percent of fixed income assets in below investment grade assets. The investment grade allocation allows the managers to invest up to 20 percent of their portfolio assets in non-US dollar issues. Long term bond ratings for the Employees’ Retirement Fund as of December 31, 2015 are shown on the following page.

% of Bond Quality Rating Fair Value Portfolio AAA$ 101,759 11.59% AA+ 20,000 2.28% AA 3,562 0.41% AA- 8,426 0.96% A+ 905 0.10% A 16,494 1.88% A- 16,056 1.83% BBB+ 22,560 2.57% BBB+ 34,105 3.88% BBB- 26,493 3.02% BB+ 48,318 5.50% BB 60,742 6.91% BB- 85,963 9.79% B+ 63,304 7.21% B 76,744 8.74% B- 55,282 6.30% CCC+ 31,734 3.61% CCC 7,624 0.87% CCC- 2,773 0.32% CC 1 0.00% C 521 0.06% DDD 336 0.04% D 1,074 0.12% Not Rated 90,484 10.30% U.S. Government fixed income securities - NR 102,927 11.72%

Total$ 878,187 100.00%

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 3. Cash, Deposits, and Investments (continued)

Credit Risk (continued)

The Dallas Police and Fire Pension System does not have a formal policy limiting investment credit risk, but rather mandates such limits within the Investment Management Services Contract. The System’s exposure to investment credit risk in fixed income securities as of December 31, 2015 is as follows:

U.S. Government U.S. Foreign Quality Corporate Treasury Government Government Grand Total Percentage of Rating Bonds Securities Agencies Securities Book Value Holdings AAA$ 6,557 $ - $ 3,448 $ 2,725 $ 12,730 4.94% AA+ 5,333 - - 12,285 17,618 6.84% AA 1,630 - - 135 1,765 0.69% AA- 3,918 - - 352 4,270 1.66% A+ 2,407 - - 4,372 6,779 2.63% A4,372 - - 4,054 8,426 3.27% A- 3,362 - - 16,400 19,762 7.67% BBB+ 2,558 - - - 2,558 0.99% BBB 3,236 - - 7,612 10,848 4.21% BBB- 4,541 - - 3,186 7,727 3.00% BB+ 8,576 - - 149 8,725 3.39% BB 9,730 - - 4,583 14,313 5.56% BB- 14,843 - - - 14,843 5.76% B+ 18,698 - - - 18,698 7.26% B 10,094 - - - 10,094 3.92% B- 7,985 - - 807 8,792 3.41% Below CCC 48,260 - - 470 48,730 18.92% NA 7,339 27,822 - 5,776 40,937 15.88% Subtotal$ 163,439 $ 27,822 $ 3,448 $ 62,906 $ 257,615 100.00%

Total credit risk debt securities$ 257,615 9.11% Other investments 2,570,244 90.89% Total investments$ 2,827,859 100.00%

Interest Rate Risk

In order to ensure the ability of the City to meet obligations and to minimize potential liquidation losses, the dollar-weighted average stated maturity of the Investment Pool shall not exceed 1.5 years. The weighted average maturities of the City’s investments at September 30, 2016 are as follows:

Weighted Average Maturity Security Type Fair Value (days) Money Market Mutual Funds and Pools$ 317,826 1 U.S. Agency Securities 1,374,790 531 Total Portfolio 1,692,616 432 Repurchase Agreeements and Investment Portfolios Held by Various Trusts 76,452 Total Investments$ 1,769,068

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 3. Cash, Deposits, and Investments (continued)

In the Employees’ Retirement Fund, Government Mortgage Backed Securities are most sensitive to changes in interest rates as their payments can vary significantly with interest rate changes. This change in prepayments will generally cause the duration, or interest rate risk, of these securities to increase when interest rates rise and decrease when interest rates fall. These securities represent 12 percent of the total fixed income portfolio with a fair market value of $107,705 at December 31, 2015. The Employees’ Retirement Fund does not have a separate policy for interest rate risk.

As of December 31, 2015, the Employees’ Retirement Fund weighted-average maturities of the fixed income securities are as follows:

Weighted Average Maturity Fixed Income Securities Fair Value (Years) Asset Backed$ 23,289 7.81 Bank Loans 12,433 4.68 Commercial Mortgage-Backed 29,514 28.35 Corporate Bonds 571,030 7.50 Government Agencies 18,216 8.40 Government Bonds 82,722 12.70 Government Mortgage-Backed Securities 107,705 20.17

Government Issued Commercial Mortgage-Backed Securities 1,216 3.12 Index Lined Government Bonds 2,542 21.78 Municipal/Provincial Bonds 19,004 16.39 Non-Government Backed C.M.O.s 10,516 18.90 Total$ 878,187

Portfolio weighted average maturity in years: 10.51

As of December 31, 2015, the Dallas Police and Fire Pension Plans had the following investments and maturities:

Investment Maturity in Years

Less Than More Than Investment Type Book Value 1 Year 1 - 5 Years 6 - 10 Years 10 Years Fixed maturity domestic: U.S. Treasury Securities$ 27,822 $ - $ 12,455 $ 433 $ 14,934 U.S. Gov't Agency Securities 3,448 - - - 3,448 Corporate Bonds 163,439 3,110 62,317 56,841 41,171 Foreign-denominated Bonds 62,906 2,883 13,537 22,756 23,730 Total$ 257,615 $ 5,993 $ 88,309 $ 80,030 $ 83,283

While the Plans do not have a specific investment policy to limit investment maturities as a means of managing their exposure to interest rate risk, the Plans do manage this exposure by mandating maturity limits within the Investment Management Service Contracts.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 3. Cash, Deposits, and Investments (continued)

Foreign Currency Risk

The Employees’ Retirement Fund investment policies limit the aggregate amount that can be invested in each class of investments. The equity investment policy sets an allocation of 15 percent of assets to international equity, 5 percent of the assets to global equity, and 10 percent to global low volatility equity. The fixed income policy permits up to 12.5 percent of the global manager’s portfolio to be invested in global investment grade fixed income bonds. The Fund’s positions in these equity securities, invested directly and through commingled funds, was 24.48 percent of invested assets at December 31, 2015. The Fund’s positions in such fixed income assets invested directly were 4.80 percent of invested assets at December 31, 2015. Employees’ Retirement fund non-US Dollar denominated investments at December 31, 2015 were as follows:

Balance of Investment Currency Investment Type (U.S. Dollars) Australian Dollars Equity$ 14,219 Australian Dollars Fixed Income 5,760 Brazilian Real Equity 4,309 British Pound Sterling Equity 39,611 Canadian Dollars Equity 22,171 Canadian Dollars Fixed Income 805 Czech Republic Koruna Equity 235 Danish Krone Equity 4,721 Euro Equity 78,856 Hong Kong Dollars Equity 27,256 Hungarian Forint Equity 494 Indonesian Rupiahs Equity 2,823 Israeli Shekel Equity 2,932 Japanese Yen Equity 65,346 Malaysian Ringgit Equity 4,755 Mexican New Peso Equity 4,019 Mexican New Peso Fixed Income 2,703 New Zealand Dollar Equity 4,381 Norwegian Krone Equity 8,982 Phillipino Peso Equity 835 Polish Zlotych Equity 2,019 Singaporean Dollars Equity 2,050 South African Rand Equity 5,969 South Korean Won Equity 20,721 Swedish Krona Equity 10,202 Swiss Francs Equity 21,278 Thai Baht Equity 7,114 Turkish Lira Equity 2,040 Total non-US denominated instruments$ 366,606

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 3. Cash, Deposits, and Investments (continued)

Police and Fire Pension Plans do not have specific policy guidelines other than the constraints included in the individual investment manager contracts. Police and Fire Pension Plans non-US Dollar denominated investments at December 31, 2015 were as follows:

Balance of Investment Currency Investment Type (U.S. Dollars) Austrailan Dollar Government Bonds$ 4,943 Brazilian Real Government Bonds 3,602 British Pound Sterling Government Bonds 3,631 Canadian Dollars Government Bonds 923 Euro Government Bonds 9,007 Hungarian Forint Government Bonds 1,129 Indonesian Rupiahs Government Bonds 3,186 Japanese Yen Government Bonds 4,916 Malaysian Ringgit Government Bonds 3,132 Mexican New Peso Government Bonds 15,947 New Zealand Dollar Government Bonds 6,191 Polish New Zlotych Government Bonds 4,054 Singapoream Dollar Government Bonds 788 South African Rand Government Bonds 1,457 Total International Bonds$ 62,906

Securities Lending Transactions

The respective boards of the Employees’ Retirement Fund and Dallas Police and the Dallas Fire Pension System have authorized the Plans to enter into agreements for the lending of certain of the Plans’ securities (the “Securities Lending Program” or Program) including, but not limited to, stocks and bonds to counter party brokers and banks (“borrowers”), for a predetermined period of time and fee. Such transactions are not prohibited by State statute.

During the fiscal year ended December 31, 2015, Northern Trust (“Northern”) lent, on behalf of the Employees’ Retirement Fund, securities held by Northern, as a custodian, and received United States dollar cash, United States government agency securities, agency securities, and irrevocable bank letters of credit as collateral. Northern did not have the ability to pledge or sell collateral securities absent a borrower default. Northern Trust’s Core USA Collateral Section establishes requirements for participation, collateralization levels, cash and non-cash collateral guidelines, and investment guidelines for the collateral received from borrowers. Borrowers were required to put up collateral for each loan equal to: (i) in the case of loaned securities, the collateral for which is all denominated in the same currency as the loaned securities, 102 percent of the fair value of the loaned securities plus any accrued but unpaid distributions thereon, and (ii) in the case of loaned securities, the collateral for which is denominated in a different currency from the loaned securities, 105 percent of the fair value of the loaned securities plus any accrued but unpaid distributions thereon. Additionally, the guidelines set maturity/liquidity requirements for the collateral received from borrowers. At year-end, the Plan had no credit risk exposure to borrowers because the amounts of collateral held by the Plan exceed the amounts the borrowers owe the Plan. The collateral held for the Plan as of December 31, 2015 was $301.1 million.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 3. Cash, Deposits, and Investments (continued)

During the fiscal year ended December 31, 2015, JP Morgan Chase (“JP Morgan”) lent, on behalf of the Dallas Police and Fire Pension System, securities held by JP Morgan as a custodian, and received United States dollar cash and United States Government securities as collateral. JP Morgan did not have the ability to pledge or sell collateral securities absent a borrower default. Borrowers were required to put up collateral for each loan equal to: (i) in the case of loaned securities denominated in United States dollars or whose primary trading market was in the United States or sovereign debt issued by foreign governments, 102 percent of the fair value of the loaned securities, and (ii) in the case of loaned securities not denominated in United States dollars or whose primary trading market was not in the United States dollars, 105 percent of the fair value of the loaned securities. At year-end, the System has no credit risk exposure to borrowers because the amounts of collateral held by the System exceed the amounts the borrowers owe the System. The collateral held for the System as of December 31, 2015 was $106.6 million.

The Boards did not impose any restrictions during the fiscal year on the amount of the loans that Northern and JP Morgan made on their behalf. There were no failures by any borrowers to return the loaned securities or pay distributions thereon during the fiscal year. Moreover, there were no losses during the fiscal year resulting from a default of the borrowers or Northern and JP Morgan. Northern is contractually obligated to fully indemnify the Plan for a borrower’s failure to return the loaned securities.

During the fiscal year, the Boards and the borrowers maintained the right to terminate all securities lending transactions on demand. The cash collateral was invested, together with the collateral of other qualified tax-exempt plan lenders, in collective investment pools maintained by Northern and JP Morgan. The relationship between the average maturities of the investment pools and the Plans’ loans were affected by the maturities of the loans made by other plans’ entities that invested cash collateral in the collective investment pools, which the Boards could not determine.

Note 4. Receivables

Receivables at September 30, 2016 for the government’s individual major and nonmajor governmental and internal service funds, including the applicable allowances for uncollectible accounts, consist of the following:

Internal Total Debt Service Governmental General Service Nonmajor Funds Activities Receivables: Ad valorem tax$ 28,041 $ 12,077 $ - $ - $ 40,118 Sales tax 49,156 - - - 49,156 Notes 126 - 65,405 - 65,531 Special Assessments - paving notes - - 5,640 - 5,640 Accounts 100,285 - 22,258 96 122,639 Accrued interest 217 14 1,207 55 1,493 Due from other governments 113 - 33,062 - 33,175 Gross receivables 177,938 12,091 127,572 151 317,752 Less allowance for doubtful accounts (63,920) (10,375) (42,123) - (116,418) Net total receivables $ 114,018 $ 1,716 $ 85,449 $ 151 $ 201,334

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 4. Receivables (continued)

Receivables at September 30, 2016 for the primary government’s individual major and nonmajor enterprise funds in the aggregate including the applicable allowances for uncollectible accounts, consist of the following:

Total Dallas Business- Water Convention Airport Nonmajor type Utilities Center Revenues Sanitation Enterprise Activities Receivables: Accounts$ 73,633 $ 3,211 $ 7,264 $ 14,551 $ 475 $ 99,134 Taxes - 8,257 - - - 8,257 Accrued interest 637 142 169 34 72 1,054 Due from other governments - - 666 - - 666 Gross receivables 74,270 11,610 8,099 14,585 547 109,111 Less allowance for uncollectible accounts (8,244) (547) (7) (4,752) (14) (13,564) Net total receivables$ 66,026 $ 11,063 $ 8,092 $ 9,833 $ 533 $ 95,547

Governmental funds report deferred inflows of resources in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. Intergovernmental revenues and related receivables arise through funding received from federal and state grants. These revenues and receivables are earned through expenditures of monies for grant purposes. At September 30, 2016, the various components of deferred inflows of resources – unavailable revenue and unearned revenue reported in the governmental funds were as follows:

Deferred Inflows Total of Resources Governmental Unavailable Unearned Revenue Taxes$ - $ 4,125 Accounts 9,038 38,339 Intergovernmental 46,547 39,455 Total$ 55,585 $ 81,919

Note 5. Restricted Assets

The primary government’s governmental and business-type restricted assets of $687 million and $600 million, respectively, are composed of the following at September 30, 2016:

Governmental Business-Type Activities Activities Cash and Investments: Pooled Cash and Cash Equivalents$ 686,696 $ 312,862 Other Investments - 130,655 Future pipeline reserve capacity rights - 155,720 Customer Assessments - 652 Total$ 686,696 $ 599,889

The restricted amounts are for accumulated resources for debt service payments, deposits from service users, unspent bond and other proceeds for construction, retention guarantees from contractors, and future pipeline reserve capacity rights (see Note 10.S for additional information).

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 6. Joint Ventures

Dallas/Fort Worth International Airport (DFW Airport)

DFW Airport is owned jointly by the cities of Dallas and Fort Worth and operated by a 12-member board comprised of seven members from Dallas and four members from Fort Worth appointed by the respective City Councils. One additional non-voting member is appointed from the neighboring cities of Irving, Grapevine, Euless, and Coppell on a rotating basis.

Joint Revenue Bonds were previously issued to construct DFW Airport. Additional bonds have been issued for the purpose of improving, constructing, replacing, or otherwise extending DFW. Revenues derived from the ownership and operations of the Airport are pledged to meet debt service requirements of the bonds issued pursuant to the Controlling Ordinances. The Controlling Ordinances require DFW to annually adopt a schedule of charges that is: (1) reasonably estimated to produce gross revenues in an amount at least sufficient to pay operation and maintenance expense plus 1.25 times accrued aggregate debt service and (2) reasonably estimated to at least produce current gross revenues in an amount at least sufficient to pay operation and maintenance expense plus 1.00 times accrued aggregate debt service.

The outstanding debt and related debt service are accounted for by the DFW Airport Board. The Joint Revenue Bonds outstanding at September 30, 2016 were $6.7 billion which is net of unamortized discount/premium.

The summary financial information for DFW Airport as of September 30, 2016 is presented below and is not included in the City’s financial statements.

Total assets and deferred outflows of resources$ 7,575,098 Less: Total liabilities and deferred inflows of resources (7,288,410) Total net position$ 286,688

Operating revenues$ 745,562 Non-operating revenues (expenses) (89,319) Less: Operating expenses (750,198) Plus: Capital contributions 5,222 Change in net position (88,733) Net position, beginning of year 375,421 Net position, end of year$ 286,688

The Board has entered into agreements with air carriers and other parties utilizing DFW Airport to provide for adjustments to rentals, fees and other charges which management believes precludes the need for a maintenance tax. To date, the cities have levied no maintenance tax. To obtain the financial statements of the joint venture, contact the finance department of DFW Airport at (972) 973-5443.

Note 7. Accrued Landfill Liability

The City owns and operates the McCommas Bluff landfill located in the southern portion of the City. The developed 379 acres of the landfill has an estimated remaining useful life of 1 year. The undeveloped 431 acres of the landfill has an estimated useful life of 50 years. Closure and post-closure care of this landfill is subject to the requirements of Subtitle D of the Resource Conservation and Recovery Act (P.L. 94-580) and Sections 330.250-256 of Title 30 of the Texas Administrative Code administered by the Texas Commission on Environmental Quality (TCEQ). These regulations require the City to place a final cover on each cell of the landfill when it ceases to accept waste, and perform certain maintenance and monitoring functions for thirty years after the closure of each cell.

Because final contours have not been achieved, the City has not yet initiated closure of any of this landfill or incurred closure expenses. Therefore, the estimated $30.7 million liability for closure/post-closure care is based on 93.3 percent of the capacity of the developed landfill subject to TCEQ regulations--none of which is expected to be paid from current available resources.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 7. Accrued Landfill Liability (continued)

The City also owns and operates three transfer stations. The estimated post closure cost is $231 thousand for the transfer stations at September 30, 2016.

The estimated total liability of $32.9 million is based on current dollar average cost per acre calculations for this specific landfill as originally provided by consulting firms and has been revised annually by the City to accommodate inflation, deflation, technology, and developmental or regulation changes. In accordance with the provisions of Codification of Governmental Accounting and Financial Reporting Standards, Section L10, “Landfill Closure and Post closure Care Costs,” the City has recorded a closure and post-closure liability of $30.9 million as a long-term liability. Closure and post-closure care are funded through current general fund revenues generated by landfill operations. Effective April 9, 1997, Sections 330.280-284 of Title 30 of the Texas Administrative Code (TAC) require landfill owners to demonstrate financial assurance on an annual basis that they will have sufficient financial resources to satisfy closure and post-closure care expenditures at such time as these become payable.

The City also owns the Deepwood & Loop 12 landfill located at South Miller Road, southwest of Loop 12. This landfill is closed. The estimated total liability for post closure care costs for the entire 47 acres of the closed landfill (132 acres of the Landfill Property) is estimated to be $5 million during the next 20 years, of which $251 thousand is due within one year.

The total closure and post-closure liability for both landfills and the three transfer stations at September 30, 2016 is $35.9 million.

Note 8. Interfund Receivables, Payables, and Transfers

Due to Other Funds/From Other Funds

A portion of the interfund payable due from nonmajor governmental funds to the general fund was a result of a bank overdraft from other fund’s share of pooled cash.

Amounts due from and due to other funds at September 30, 2016 were as follows:

Due to Other Funds Nonmajor Due From Other Funds Amount General Sanitation Governmental General$ 3,959 $ - $ - $ 3,959 Dallas Water Utilities 268 268 - - Nonmajor Governmental 7,635 - 7,379 256 Debt Service 466 - 466 - Total$ 12,328 $ 268 $ 7,845 $ 4,215

Interfund Notes Receivable and Payable

Interfund notes receivable and payable balances at September 30, 2016 were as follows:

Note Payable Nonmajor Note receivable Governmental Nonmajor governmental$ 4,161 Dallas Water Utilities 6,251 Total$ 10,412

These balances relate to long-term borrowings to finance various capital acquisitions and equipment purchases.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 8. Interfund Receivables, Payables, and Transfers (continued)

Transfers In/Out

Transfers made between funds during the fiscal year are listed below:

Transfers Out Nonmajor Amount Nonmajor Dallas Water Convention Airport Enterprise Internal Transfers In Transferred General Governmental Utilities Center Revenues Sanitation Funds Service General$ 15,593 $ - $ - $ 12,093 $ - $ - $ 3,500 $ - $ - Debt Service 6,233 6 1,849 169 1,461 236 - 168 2,344 Nonmajor Governmental 32,639 9,420 7,251 10,501 4,817 - 650 - - Dallas Water Utilities 739 - 739 ------Total$ 55,204 $ 9,426 $ 9,839 $ 22,763 $ 6,278 $ 236 $ 4,150 $ 168 $ 2,344

These transfers were primarily for support of operation and maintenance, construction projects, asset purchases, and to service the debt associated with the respective funds. Transfers were also made from Dallas Water Utilities fund for payments-in-lieu-of-taxes (PILOT), which are recorded as transfers rather than operation and maintenance expenses due to the nonreciprocal nature of the transactions. Under the terms of the bond ordinance, PILOT and other similar payments are not considered operation and maintenance of the Water Utilities Fund; therefore, they are not included in the debt coverage calculation. Transfers were made from the internal service and nonmajor governmental funds to the general fund for payments related to lease agreements.

Note 9. Accounts Payable and Accrued Expenses

The primary government’s accounts payable and accrued expenses at September 30, 2016 are as follows:

Total Nonmajor Internal Governmental General Governmental Service Activities Accrued payroll$ 20,250 $ 512 $ 419 $ 21,181 Accounts payable 31,811 8,194 11,414 51,419 Due to other governments 2,405 2,126 - 4,531 Contracts payable - 12,165 - 12,165 Other liabilities 5,205 1,910 1,395 8,510 Construction accounts payable - 37,668 - 37,668 Total$ 59,671 $ 62,575 $ 13,228 $ 135,474

Total Dallas Water Convention Airport Business-type Utilities Center Revenues Sanitation Nonmajor Activities Accrued payroll$ 1,101 $ 85 $ 156 $ 375 $ 225 $ 1,942 Accounts payable 18,729 7,365 8,873 4,935 361 40,263 Due to other governments - 9 - 466 - 475 Other liabilities - - - - 1,175 1,175 Construction accounts payable 59,135 455 12,563 704 - 72,857 Total$ 78,965 $ 7,914 $ 21,592 $ 6,480 $ 1,761 $ 116,712

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 10. Long-Term Debt

A. Governmental Activities

The changes in the governmental activities long-term liabilities for the year ended September 30, 2016 are as follows:

Beginning Balance Due Within General Obligation Bonds (Restated) Additions Deletions Ending Balance One Year Series 2007$ 13,080 $ - $ 6,540 $ 6,540 $ 6,540 Refunding Series 2007A 67,385 - 18,355 49,030 18,355 Series 2008 33,135 - 11,045 22,090 11,045 Refunding Series 2010A 160,675 - 8,535 152,140 17,335 Building America Bonds Series 2010B 85,380 - - 85,380 - Refunding Bonds Series 2010C 95,680 - 17,210 78,470 9,589 Refunding Bonds Series 2012 200,330 - 15,255 185,075 14,320 Refunding Bonds Series 2013A 173,990 - 10,235 163,755 10,235 Refunding Bonds Series 2013B 42,315 - 1,120 41,195 15,385 Refunding Bonds Series 2014 524,745 18,980 505,765 15,950 Refunding Bonds Series 2015 - 195,075 - 195,075 10,840 Tax and Revenue Certificates Series 2007 1,220 - 610 610 610 Series 2008A 1,800 - 600 1,200 600 Series 2010 860 - 215 645 215 Series 2012 16,210 - 2,035 14,175 2,095 Pension Obligation Bonds Taxable Series 2005A 81,480 - - 81,480 686 Series 2005B 54,100 - 5,520 48,580 4,946 Taxable Refunding Bonds Series 2010 52,198 - - 52,198 - Total Bonds, Obligations, and Certificates 1,604,583 195,075 116,255 1,683,403 138,746 Add: Unamortized Premium/Discount 234,640 31,556 29,064 237,132 - Add: Accretion 98,428 14,620 10,623 102,425 - Total Bonds, Obligations, and Certificates 1,937,651 241,251 155,942 2,022,960 138,746 Other Liabilities: Commercial paper notes payable 27,880 10,220 27,880 10,220 - Compensated absences 120,134 53,779 55,825 118,088 54,863 Other postemployment benefits 194,759 21,238 12,754 203,243 - Pollution remediation 3,860 1,411 948 4,323 683 Developer payable 68,551 37,996 13,083 93,464 9,809 Estimated unpaid claims 61,058 90,477 88,488 63,047 21,171 Notes payable 44,208 3,540 4,855 42,893 3,362 Net pension liability 5,396,235 3,581,522 658,081 8,319,676 - Sales tax refund liability 9,557 - 1,398 8,159 1,454 Capital leases 52,488 24,355 17,726 59,117 16,082 Total other liabilities 5,978,730 3,824,538 881,038 8,922,230 107,424 Total governmental long-term debt$ 7,916,381 $ 4,065,789 $ 1,036,980 $ 10,945,190 $ 246,170

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 10. Long-Term Debt (continued)

The liability for commercial paper notes will be fully liquidated by the Debt Service Fund. The liabilities for the compensated absences, net pension liability, and other postemployment benefits will be liquidated by General Fund, Community Development Fund, Health and Human Services Fund, Library Fund, Police Fund, Recreation Fund, Management Improvement Fund, Storm Water Operations Fund, Municipal Fund, General Citizen Fund, Equipment Services Fund, Communication Equipment Services Fund, Office Services Fund, Information Systems Fund, and the Risk Fund. The liability for pollution remediation will be fully liquidated by the General Fund. The liability for the developer payable will be liquidated by the Neighborhood Projects Fund. The entire estimated unpaid claims liability is reported in the Risk Fund and will be liquidated by that fund. The liabilities for the notes payable, sales tax refund, and capital leases will be liquidated by the General Fund.

B. Governmental General Obligation Bonds (GO Bonds)

General obligation bonds are direct obligations of the City for which its full faith and credit are pledged and are payable from taxes levied on all taxable property located within the City.

In November 2015, the City issued general obligation refunding and improvement bonds, Series 2015, of $195.1 million with a stated interest rate range of 5.0 percent and a final maturity of February 15, 2034. $2.9 million of the bonds were issued to refund outstanding commercial paper. The remaining $223.7 will be used to finance certain public improvements, and pay the cost of issuance of the bonds.

The General Obligation Bonds outstanding as of September 30, 2016 are as follows:

Final Interest Rates Amount Series 614 2027 5.0% to 5.25%$ 6,540 Series 615 2027 4.0% to 5.0% 49,030 Series 620 2028 4.0% to 5.25% 22,090 Series 627 2020 3.0% to 5.0% 152,140 Series 628 2030 4.39% to 5.61% 85,380 Series 631 2023 3.0% to 5.0% 78,470 Series 637 2026 2.0% to 5.0% 185,075 Series 638 2032 0.76% to 5.0% 204,950 Series 1692 2034 4.0% to 5.0% 505,765 Series 1700 2034 5.00% 195,075 Total$ 1,484,515

The Certificates of Obligation outstanding as of September 30, 2016 are as follows:

Final Interest Rates Amount Series 617 2017 3.50% to 4.00%$ 610 Series 622 2018 3.50% to 5.00% 1,200 Series 629 2019 2.00% to 4.00% 645 Series 635 2022 2.00% to 5.00% 14,175 Total$ 16,630

The Pension Obligation Bonds outstanding as of September 30, 2016 are as follows:

Final Interest Rates Amount Series 600 2035 3.24% to 5.19%$ 81,480 Series 601 2035 4.10% to 5.48% 48,580 Series 632 2024 0.295% to 4.66% 52,198 Total$ 182,258

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 10. Long-Term Debt (continued)

C. Long-term Notes Payable

In fiscal year 2016 and previous fiscal years, the City issued notes for the purpose of making utility efficiency improvements to various buildings owned by the City and for building improvements. These notes are payable in quarterly installments. In addition, the City recorded four U.S. Department of Housing and Urban Development Section 108 HUD notes. The total outstanding notes payable as of September 30, 2016 are as follows:

Final Interest Maturity Payments Due Rates Amount Suntrust 2018 Quarterly 1.89%$ 1,269 State Energy Conservation Office N/A N/A N/A 7,038 Section 108 B-09-MC-48-0009 2021 Semi-Annually Variable 7,600 Section 108 B-09-MC-48-0009-A 2032 Quarterly Variable 7,494 Section 108 B-09-MC-48-0009-B 2022 Quarterly Variable 8,492 Section 108 B-12-MC-48-0009-B 2027 Semi-Annually 2.75% 11,000 Total $ 42,893

D. General Obligation Commercial Paper Notes

The commercial paper notes are supported by two credit agreements through two banks. The credit agreement supporting Series A notes is through JP Morgan Chase, and extends through December 2, 2017. The Series A has an aggregate available principal amount not to exceed approximately $214.8 million, which includes $200 million of principal together with approximately $14.8 million of accrued interest for a maximum maturity date not to exceed 270 days at a rate not to exceed 10 percent per annum. The credit agreement supporting Series C notes, through Wells Fargo Bank extends to December 2, 2017. The Series C has an aggregate available principal amount not to exceed approximately $161.1 million, which includes $150 million of principal together with $11.1 million of accrued interest for a maximum maturity date not to exceed 270 days at a rate not to exceed 10 percent per annum. The two commercial paper programs constitute an obligation subordinate to the City’s general obligation bonds. Any advances for payments of commercial paper under the line of credit are secured by proceeds of the applicable portion of the tax levy as set forth in the Credit Agreements. During fiscal year 2016, $10.2 million was issued and $27.9 million was repaid. Upon maturity, the notes will be remarketed by the commercial paper dealers or extinguished with long-term debt.

E. Governmental Debt Service Requirements

The following is a summary of the future debt service principal and interest payment requirements for the City’s General Obligation, Equipment Acquisition Obligations, Tax Increment Bonds, Pension Obligation Bonds, and Contractual Obligations at September 30, 2016

Fiscal Year Principal Interest Total 2017$ 138,746 $ 87,307 $ 226,053 2018 135,753 81,507 217,260 2019 133,936 76,406 210,342 2020 123,756 71,291 195,047 2021 137,932 51,851 189,783 2022-2026 607,036 209,432 816,468 2027-2031 288,886 194,294 483,180 2032-2036 117,358 137,630 254,988 Total$ 1,683,403 $ 909,718 $ 2,593,121

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 10. Long-Term Debt (continued)

The following is a summary of the future principal and interest payment requirements for the City’s long-term notes payable at September 30, 2016.

Fiscal Year Principal Interest Total 2017$ 3,362 $ 686 $ 4,048 2018 3,420 604 4,024 2019 2,807 531 3,338 2020 5,672 470 6,142 2021 7,902 395 8,297 2022-2026 7,743 1,316 9,059 2027-2031 11,085 247 11,332 2032-2036 902 3 905 Total$ 42,893 $ 4,252 $ 47,145

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 10. Long-Term Debt (continued)

F. Business-type Activities

The changes in the business-type activities long-term liabilities for the year ended September 30, 2016 are as follows:

Beginning Balance Ending Due Within (Restated) Additions Deletions Balance One Year Dallas Water Utilities City of Dallas Waterworks and Sewer System Series 2006$ 19,710 $ - $ 14,130 $ 5,580 $ 5,580 Series 2007 314,080 - 231,245 82,835 43,905 Series 2008 33,290 - 22,450 10,840 3,435 Series 2009A 11,125 - 9,342 1,783 700 Series 2009B 7,385 - 460 6,925 465 Series 2009C 79,403 - 5,120 74,283 5,145 Series 2010 215,015 - 88,750 126,265 6,755 Series 2011 224,495 - 54,050 170,445 11,495 Series 2012 349,040 - 31,720 317,320 15,090 Series 2013 153,975 - 2,655 151,320 2,795 Series 2015 604,260 - 2,850 601,410 3,085 Series 2016 - 540,345 - 540,345 2,530 Total Revenue Bonds Payable 2,011,778 540,345 462,772 2,089,351 100,980 Add: Unamortized Premium 135,023 82,441 27,756 189,708 - Total Revenue Bonds of Water Utilities 2,146,801 622,786 490,528 2,279,059 100,980 Pension Obligation Bonds 51,443 - 1,512 49,931 1,543 Add: Net premium/discount 22,267 - 670 21,597 - Add: Accretion 26,961 4,005 2,910 28,056 - Total Water Utilities Bonds 2,247,472 626,791 495,620 2,378,643 102,523 Other liabilities: Commercial paper notes payable 90,458 180,004 222,140 48,322 - Compensated absences payable 11,361 6,160 6,202 11,319 5,140 Other postemployment benefits 27,503 2,518 1,568 28,453 - Net pension liability 121,281 373,855 67,137 427,999 - Water transmission facilities financing agreement 322,223 140,000 6,403 455,820 9,025 Total other liabilities 572,826 702,537 303,450 971,913 14,165 Total long-term liabilities for Dallas Water Utilities 2,820,298 1,329,328 799,070 3,350,556 116,688 Convention Center Revenue Bonds Civic Center Refunding and Improvement 309,075 - 5,740 303,335 6,945 Add: Net premium/discount (1,171) - 498 (1,669) - Total Convention Center Revenue Bonds 307,904 - 5,242 301,666 6,945 Pension Obligation Bonds 3,659 - 108 3,551 110 Add: net premium/discount 1,589 - 48 1,541 - Add: Accretion 1,924 286 208 2,002 - Total Convention Center Bonds 315,076 286 5,606 308,760 7,055 Other liabilities: Compensated absences 678 391 296 773 351 Note payable 1,981 - 1,981 - - Pollution remediation 59 - - 59 59 Other postemployment benefits 1,517 528 107 1,938 - Net pension liability 7,080 22,365 4,016 25,429 - Total long-term liabilities for Convention Center 326,391 23,570 12,006 336,959 7,465

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 10. Long-Term Debt (continued)

Beginning Balance Ending Due Within (Restated) Additions Deletions Balance One Year Airport Revenues General Airport Revenue Bonds$ 109,235 $ - $ - $ 109,235 $ - Add: Net Premium/Discount 13,318 - 1,325 11,993 - Total Airport Revenue Bonds 122,553 - 1,325 121,228 - Pension Obligation Bonds 4,820 - 142 4,678 145 Add: Net Premium/Discount 2,087 - 63 2,024 - Add: Accretion 2,527 375 273 2,629 - Total Airport Bonds 131,987 375 1,803 130,559 145 Other Liabilities: Compensated absences 1,402 834 766 1,470 667 Note payable 527 - 261 266 266 Pollution remediation 418 137 100 455 15 Capital leases payable 30,115 44,831 1,047 73,899 1,034 Obligation for revenue credit agreement 446,095 - 6,990 439,105 7,340 Revenue credit agreement Net premium/discount (4,063) - 265 (4,328) - Other postemployment benefits 3,813 485 225 4,073 - Net pension liability 14,670 46,563 8,361 52,872 - Total other liabilities 492,977 92,850 18,015 567,812 9,322 Total long-term liabilities for Airport Revenues 624,964 93,225 19,818 698,371 9,467

Sanitation General Obligation Bonds 2010C GO Refunding 9,640 - 1,735 7,905 966 Add: Net premium/discount 657 - 166 491 - Total Sanitation General Obligation Bonds 10,297 - 1,901 8,396 966 Pension Obligation Bonds 16,817 - 494 16,323 504 Add: Net premium/discount 7,280 - 220 7,060 - Add: Accretion 8,815 1,309 951 9,173 - Total Sanitation Bonds 43,209 1,309 3,566 40,952 1,470 Other liabilities: Landfill closure/postclosure 35,750 398 217 35,931 251 Compensated absences 2,918 1,355 1,320 2,953 1,341 Other postemployment benefits 9,199 877 526 9,550 - Net pension liability 39,764 116,986 21,008 135,742 - Total other liabilities 87,631 119,616 23,071 184,176 1,592 Total long-term liabilities for Sanitation 130,840 120,925 26,637 225,128 3,062 Non-Major Business-Type Pension Obligation Bonds 9,373 - 275 9,098 281 Add: Net premium/discount 4,057 - 122 3,935 - Add: Accretion 4,910 729 529 5,110 - Total Non-Major Business-Type Bonds 18,340 729 926 18,143 281 Other liabilities: Compensated absences 2,390 1,320 1,336 2,374 1,078 Other postemployment benefits 4,742 474 273 4,943 - Net pension liability 22,582 75,214 13,507 84,289 - Total other liabilities 29,714 77,008 15,116 91,606 1,078 Total long-term liabilities for Non-Major Business-type Activities 48,054 77,737 16,042 109,749 1,359 Total Business-Type Activities - Long-Term Liabilities $ 3,950,547 $ 1,644,785 $ 874,569 $ 4,720,763 $ 138,041

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 10. Long-Term Debt (continued)

G. Water Works and Sewer System Revenue Bonds and Pension Obligation Bonds

In June 2016, Dallas Water Utilities issued Waterworks and Sewer System Revenue Refunding Bonds Series 2016 of $540.3 million with an interest rate range of 0.60 percent to 5.00 percent and a final maturity of October 1, 2045. The bonds were issued to refund previously issued waterworks and sewer system bonds and to refund outstanding commercial paper used by Dallas Water Utilities to fund capital construction projects. Proceeds of $398.6 million were deposited with an escrow agent to be used to pay the outstanding amount of the refunded bonds. As a result, $357.4 million of these bonds are considered defeased and the liability for the refunded portion of these bonds has been removed from the financial statements. The refunding resulted in a difference of $28.8 million between the net carrying amount of the old debt and the reacquisition price. This difference, reported in the accompanying financial statement as a deferred outflow of resources, is being amortized to interest expense over the life of the old bonds. Total debt service payments decreased by $36.2 million as a result of the refunding. The City also incurred an economic gain (difference between the present value of the old debt and new debt service payments) of $31.1 million.

The Waterworks and Sewer System debt service fund provides for the payment of principal and interest on the water department outstanding revenue bonds. Operating revenues from water operations and interest earned on the cash balance in the debt service fund are pledged for repayment of the debt. Revenues are transferred from the Water Operating Fund to the debt service fund to meet annual principal and interest obligations. Pension Obligation bonds are paid through increased contributions to the debt service fund. The Water Works and Sewer System bonds outstanding as of September 30, 2016 are as follows:

Series Description Final Maturity Interest Rates Amount 610 Rev Bonds 2017 4.25% - 5.50%$ 5,580 613 Rev Bonds 2018 4.00% - 5.00% 82,835 619 Rev Bonds 2019 4.00% - 5.00% 10,840 624 Rev Bonds 2019 0.423% - 2.877% 1,783 625 Rev Bonds 2029 1.303% - 2.877% 6,925 626 Rev Bonds 2029 0.148% - 3.018% 74,283 630 Rev Bonds 2040 3.00% - 5.00% 126,265 634 Rev Bonds 2041 3.00% - 5.00% 170,445 636 Rev Bonds 2042 0.595% - 5.00% 317,320 639 Rev Bonds 2043 2.00% - 5.00% 151,320 9712 Rev Bonds 2045 1.00%-5.00% 601,410 1727 Rev Bonds 2046 3.00%-5.00% 540,345 Total Revenue Bonds 2,089,351 Pension Obligation Bonds 2035 0.295% - 5.48% 49,931 Total Outstanding$ 2,139,282

Utility Revenues Pledged

The City has pledged future water and wastewater customer revenues, net of specified operating expenses, to repay $2.1 billion in water and wastewater system revenue bonds, of which $540.3 million was issued during the current fiscal year and the remaining balance in prior fiscal years. Proceeds from the bonds provided financing for capital assets. The bonds are payable solely from water customer net revenues and are payable through fiscal year 2046. Net revenues, as defined in the bond documents, for each year are expected to be at least equal to 1.25 times the principal and interest requirements of all outstanding previously issued bonds and additional bonds for the year. The total principal and interest remaining to be paid on the bonds at September 30, 2016 is $3.2 billion. Principal and interest paid during fiscal year 2016 were $96.7 million and $86.2 million, respectively.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 10. Long-Term Debt (continued)

H. Convention Center (Revenue Bonds, Pension Obligation Bonds, and Note Payable)

The 7 percent Hotel Occupancy Tax, operating revenues of the Convention Center Complex, and interest earned on cash balances in the bond reserve and debt service funds are pledged for repayment of the debt. Pension Obligation Bonds are paid through increased contributions to the Debt Service Fund. Additionally, the City has covenanted to provide the payment of operating and maintenance expenses of the Convention Center Complex, should a shortfall in Convention Center revenues occur. Revenue from the Convention Center operating fund is transferred to the debt service fund to meet annual principal and interest payments. The Convention Center bonds outstanding as of September 30, 2016 are as follows:

Series Description Final Maturity Interest Rates Amount Civic Center Convention Complex 2038 3.00% - 5.25%$ 303,335 Pension Obligation Bonds 2035 0.295% - 5.48% 3,551 Total Outstanding $ 306,886

In a previous fiscal year, the City issued notes with an interest rate of 3.92 percent for the purpose of making utility efficiency improvements to the Convention Center. The notes matured during fiscal year 2016.

I. Airport Revenues (General Airport Revenue Bonds, Pension Obligation Bonds, and Note Payable)

In a previous year, the Love Field Airport Modernization Corporation (LFAMC) issued $109.2 million in General Airport Revenue Bonds, Series 2015 with a premium of $13.6 million. The stated interest rate on the bonds is 5 percent with a final maturity on November 1, 2035. Proceeds from the sale of the Bonds will be used to fund design and construction costs of an approximately 5,000 space parking garage and related improvements to increase public parking capacity at Love Field Airport, fund approximately 27 months of capitalized interest (which is intended to cover the period commencing with the date of issuance of the Bonds through 12 months following substantial completion of construction of the parking garage, fund a bond debt service reserve fund, and pay cost of issuance for the bonds.

Pension Obligation bonds are paid through increased contributions to the Debt Service Fund. Operating revenues from Airport operations and interest earned on the cash balance in the debt service fund are pledged for repayment of the debt. Revenues are transferred from the Airport operating fund to the debt service fund to meet annual principal and interest obligations.

Airport revenue and pension obligation bonds outstanding as of September 30, 2016 are as follows:

Final Maturity Interest Rates Amount General Airport Revenue Bonds 2036 5.00%$ 109,235 Pension Obligation Bonds 2035 0.295% - 5.48% 4,678 Total $ 113,913

In a previous fiscal year, the City issued notes with an interest rate of 1.89 percent for the purpose of making utility efficiency improvements to various buildings at Love Field. The notes are payable in quarterly installments and reach final maturity during fiscal year 2017. The total outstanding note payable as of September 30, 2016 is $266 thousand.

J. Airport Revenues Conduit Debt and Revenue Credit Agreement

The Love Field Airport Modernization Corporation (LFAMC), a Texas non-profit “local government corporation” and blended component unit of the City, issued $310 million in Special Facilities Revenue Bonds during November 2010, and $146.26 million in May 2012. The bonds were issued to finance the acquisition, construction, expansion, installation and equipping of certain capital improvements at Dallas Love Field Airport. Major construction commenced during fiscal year 2010 and was substantially completed during fiscal year 2015.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 10. Long-Term Debt (continued)

Prior to the issuance of the bonds, the City entered into two separate funding agreements with an airline carrier: (1) a “Facilities Agreement” pursuant to which the airline carrier is obligated to make debt service payments on the principal and interest amounts associated with the bonds (Facilities Payments), less other sources of funds the City may apply to the repayment of the bonds (including, but not limited to, passenger facility charges collected from passengers originating from Love Field Airport); and (2) a “Revenue Credit Agreement” pursuant to which the City will reimburse the airline carrier for the Facilities Payments made by the carrier.

A majority of the monies transferred from the City to the airline carrier under the Revenue Credit Agreement are expected to originate from a reimbursement account created in a “Use and Lease Agreement” between the City and the airline carrier. The Use and Lease Agreement is a 20-year agreement providing for, among other things, the lease of space at the Airport from the City. The remainder of such monies transferred from the City to the airline carrier under the Revenue Credit Agreement is expected to originate from (1) use and lease agreements with other airlines, (2) various concession agreements, and (3) other miscellaneous revenues generated at Love Field Airport.

All of the assets ultimately acquired by the bonds belong to the City at the time of acquisition pursuant to an Agreement for Donation and Assignment entered into between the City and the airline carrier. The bonds are a special obligation for which the airline carrier has guaranteed the principal and interest payments on the bonds, payable solely from the facilities payments to be made pursuant to the terms of the Special Facilities Agreement and other funds constituting the trust estate under the indenture, including any amounts received under the guaranty. The bonds do not constitute a debt or pledge of the faith and credit of the LFAMC, the City, the County, or the State of Texas, and accordingly have not been reported in the accompanying financial statements. At September 30, 2016, the Special Facilities Revenue Bonds outstanding was $435 million.

K. Airport Revenues Obligation for Revenue Credit Agreement

The revenue credit agreement entered into between the City and the airline carrier was made possible as a result of the rate making provisions of the Airport Use and Lease Agreement which provide for the annual calculation of airline rates and charges sufficient to recover among other things, debt service on the bonds. While the crediting back of money to the airline carrier under the revenue credit agreement will be done pursuant to a contractual agreement between the City and the airline carrier, such revenue credits are not pledged to the payment of debt service on the Bonds. The City has determined the obligation under the revenue credit agreement to be a liability, and accordingly has recorded the obligation in the accompanying financial statements. The interest rates for the obligation range between 4.39 percent to 5.48 percent, and the obligation will be amortized over a period of 30 years. The balance of the obligation for the revenue credit agreement was $439 million less the net premium/discount of $4 million for a total balance of $435 million, at September 30, 2016. The schedule of principal and interest payments required for the obligation is provided below (in thousands):

Airport Revenue - LFAMC Obligation for Revenue Credit Agreement Fiscal Year Principal Interest Total 2017$ 7,340 $ 22,462 $ 29,802 2018 7,710 22,086 29,796 2019 8,095 21,690 29,785 2020 8,500 21,318 29,818 2021 8,840 20,927 29,767 2022-2026 51,280 97,370 148,650 2027-2031 79,690 81,773 161,463 2032-2036 116,800 55,555 172,355 2037-2041 150,850 20,608 171,458 Total$ 439,105 $ 363,789 $ 802,894

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 10. Long-Term Debt (continued)

L. Sanitation Enterprise Fund (General Obligation Bonds, Pension Obligation Bonds)

The Sanitation fund provides for the payment of principal and interest on a portion of the 2010 General Obligation Refunding Bonds and the Pension Obligation Bonds, which are paid through increased contributions to the Debt Service Fund. The bonds outstanding as of September 30, 2016 are as follows:

Series Description Final Maturity Interest Rates Amount Series 631 General Obligation Bonds 2023 3.0% to 5.0%$ 7,905 Pension Obligation Bonds 2035 0.295% - 5.48% 16,323 Total Outstanding $ 24,228

M. Non-Major Enterprise Fund (Pension Obligation Bonds)

The non-major enterprise funds provide for the payment of principal and interest on a portion of Pension Obligation Bonds, which are paid through increased contributions to the Debt Service Fund. The bonds outstanding as of September 30, 2016 are as follows:

Series Description Final Maturity Interest Rates Amount Pension Obligation Bonds 2035 0.295% - 5.48%$ 9,098

N. Business-Type Activities Debt Service Requirements

The debt service principal and interest payment requirement to maturity at September 30, 2016 for the business-type activities Revenue Bonds and Pension Obligation Bonds are as follows:

Dallas Water Utilities Revenue Bonds Pension Obligation Bonds Fiscal Year Principal Interest Total Principal Interest Total 2017 $ 100,980 $ 79,592 $ 180,572 $ 1,543 $ 4,806 $ 6,349 2018 94,855 81,240 176,095 1,678 4,863 6,541 2019 99,013 77,936 176,949 1,622 5,117 6,739 2020 98,080 74,961 173,041 1,610 5,322 6,932 2021 101,350 71,690 173,040 5,559 1,575 7,134 2022-2026 445,740 305,700 751,440 23,038 16,990 40,028 2027-2031 366,518 223,706 590,224 7,547 40,028 47,575 2032-2036 370,890 140,814 511,704 7,334 36,194 43,528 2037-2041 288,245 60,010 348,255 - - - 2042-2046 123,680 11,052 134,732 - - - Total $ 2,089,351 $ 1,126,701 $ 3,216,052 $ 49,931 $ 114,895 $ 164,826

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 10. Long-Term Debt (continued)

Convention Center Revenue Bonds Pension Obligation Bonds Fiscal Year Principal Interest Total Principal Interest Total 2017$ 6,945 $ 15,579 $ 22,524 $ 110 $ 343 $ 453 2018 8,250 15,232 23,482 120 347 467 2019 8,665 14,820 23,485 116 365 481 2020 9,095 14,386 23,481 115 380 495 2021 9,550 13,932 23,482 397 112 509 2022-2026 55,415 61,999 117,414 1,632 1,212 2,844 2027-2031 70,760 46,652 117,412 538 2,856 3,394 2032-2036 91,145 26,267 117,412 523 2,582 3,105 2037-2038 43,510 3,455 46,965 - - - Total$ 303,335 $ 212,322 $ 515,657 $ 3,551 $ 8,197 $ 11,748

Sanitation General Obligation Bonds Pension Obligation Bonds Fiscal Year Principal Interest Total Principal Interest Total 2017$ 966 $ 345 $ 1,311 $ 504 $ 1,571 $ 2,075 2018 947 302 1,249 549 1,590 2,139 2019 825 267 1,092 530 1,673 2,203 2020 821 234 1,055 526 1,740 2,266 2021 1,912 170 2,082 1,818 515 2,333 2022-2026 2,434 103 2,537 7,530 5,555 13,085 2027-2031 - - - 2,468 13,086 15,554 2032-2036 - - - 2,398 11,832 14,230 Total$ 7,905 $ 1,421 $ 9,326 $ 16,323 $ 37,562 $ 53,885

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 10. Long-Term Debt (continued)

Non-Major Enteprise Funds Airport Revenues Pension Obligation Bonds Pension Obligation Bonds Fiscal Year Principal Interest Total Principal Interest Total 2017$ 281 $ 875 $ 1,156 $ 145 $ 450 $ 595 2018 306 886 1,192 157 456 613 2019 295 932 1,227 152 479 631 2020 293 969 1,262 151 499 650 2021 1,012 287 1,299 521 148 669 2022-2026 4,195 3,094 7,289 2,158 1,592 3,750 2027-2031 1,374 7,289 8,663 707 3,751 4,458 2032-2036 1,342 6,590 7,932 687 3,392 4,079 Total$ 9,098 $ 20,922 $ 30,020 $ 4,678 $ 10,767 $ 15,445

Airport Revenues General Airport Revenue Bonds Long-Term Notes Payable Fiscal Year Principal Interest Total Principal Interest Total 2017$ - $ 5,462 $ 5,462 $ 266 $ 1 $ 267 2018 - 5,462 5,462 - - - 2019 3,885 5,365 9,250 - - - 2020 4,075 5,166 9,241 - - - 2021 4,280 4,957 9,237 - - - 2022-2026 24,840 21,265 46,105 - - - 2027-2031 31,700 14,231 45,931 - - - 2032-2036 40,455 5,253 45,708 - - - Total$ 109,235 $ 67,161 $ 176,396 $ 266 $ 1 $ 267

O. Discretely Presented Component Unit Debt Service Requirements

The changes in the DDDA discretely presented component unit’s long- term liabilities for the year ended September 30, 2016 are as follows:

Balance Balance Due Within 09/30/15 Additions Deletions 09/30/16 One Year Tax Increment Revenue Bonds Series 2006$ 41,340 $ - $ 2,040 $ 39,300 $ 2,161 Series 2007 26,007 - 791 25,216 608 Total Bonds 67,347 - 2,831 64,516 2,769 Accretion 30,163 4,201 2,074 32,290 - Total Bonds $ 97,510 $ 4,201 $ 4,905 $ 96,806 $ 2,769

The changes in the Dallas Convention Center Hotel Development Corporation discretely presented component unit’s long-term liabilities for the year ended December 31, 2015 are as shown on the following page.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 10. Long-Term Debt (continued)

Balance Balance Due Within 12/31/14 Additions Deletions 12/31/15 One Year 2009A Current Interest Bonds$ 62,530 $ - $ - $ 62,530 $ - 2009A Capital Appreciation Bonds 11,881 - - 11,881 - 2009B Taxable Build America Bonds 388,175 - - 388,175 - 2009C Taxable Bonds 17,235 - 3,700 13,535 5,790 Total Revenue Bonds 479,821 - 3,700 476,121 5,790 Add: Unamortized Premium 557 - 88 469 - Less: Unamortized Discount (257) - (31) (226) - Add: Accretion on Capital Appreciation Bonds 4,411 995 - 5,406 - Key Money Payable 6,000 - - 6,000 200 Total Long-Term Debt $ 490,532 $ 995 $ 3,757 $ 487,770 $ 5,990

The DDDA discretely presented component unit has issued tax increment bonds that are payable solely from the pledged tax increments of the zone. The tax increment bonds outstanding as of September 30, 2016 are as follows:

Series Description Final Maturity Interest Rates Amount Series DDDA - Series 2006 2036 5.25% - 5.66%$ 39,300 Series DDDA - Series 2007 2036 5.49% - 6.28% 25,216 Total Outstanding $ 64,516

The Dallas Convention Center Hotel Development Corporation discretely presented component unit bonds outstanding as of December 31, 2015 are as follows:

Series Description Final Maturity Interest Rates Amount 2009A Current Interest Bonds 2024 4.25% - 5.25%$ 62,530 2009A Capital Appreciation Bonds 2026 5.43% - 6.46% 11,881 2009B Taxable Build America Bonds 2042 7.09% 388,175 2009C Taxable Bonds 2018 4.99% - 5.58% 13,535 Total Outstanding$ 476,121

The debt service principal and interest payment requirement to maturity at September 30, 2016 for the DDDA discretely presented component unit activities tax increment financing bonds and at December 31, 2015 for the Dallas Convention Center Hotel Development Corporation bonds are as follows:

Dallas Convention Center DDDA Calendar Hotel Development Corporation Fiscal Year Principal Interest TotalYear Principal Interest Total 2017$ 2,769 $ 3,795 $ 6,564 2016$ 5,790 $ 31,266 $ 37,056 2018 2,715 4,059 6,774 2017 7,415 30,907 38,322 2019 2,753 4,416 7,169 2018 5,437 33,355 38,792 2020 2,749 4,750 7,499 2019 8,435 30,471 38,906 2021 3,208 4,600 7,808 2020 9,125 30,041 39,166 2022-2026 14,562 27,099 41,661 2021-2025 49,737 150,635 200,372 2027-2031 15,551 30,052 45,603 2026-2030 73,752 130,002 203,754 2032-2036 20,209 29,299 49,508 2031-2035 105,670 94,325 199,995 Total$ 64,516 $ 108,070 $ 172,586 2036-2040 141,830 50,711 192,541 2041-2042 68,930 4,953 73,883 Total$ 476,121 $ 586,666 $ 1,062,787

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 10. Long-Term Debt (continued)

P. Bonds Authorized and Unissued

The following is a schedule of authorized but unissued bonds at September 30, 2016:

Date of Amount Amount Authorization Authorized Unissued 2006 Capital Improvement Program 11/7/2006$ 1,338,940 $ 102,000 2012 Capital Improvement Program 11/6/2012 642,000 335,310 Total $ 1,980,940 $ 437,310

Q. Compliance with Debt Covenants

For the year ended September 30, 2016, management of the City believes that it was in compliance with all financial bond covenants on outstanding revenue and general obligation bonded debt.

R. Dallas Water Utilities Commercial Paper Notes

The commercial paper notes Series D are supported by two liquidity agreements through two banks. The liquidity agreements supporting the Sub-Series D-1 and Sub-Series D-2 notes are through State Street Bank and Trust Company and Bank of America N.A., and extend to January 8, 2018. The Sub-Series D-1 notes have an aggregate available principal amount not to exceed $241.6 million, which includes $225 million of principal together with approximately $16.6 million of accrued interest for a maximum maturity date not to exceed 270 days at a rate of 10 percent per annum. The Sub-Series D-2 notes have an aggregate available principal amount not to exceed $80.5 million, which includes $75 million of principal together with approximately $5.5 million of accrued interest for a maximum maturity date not to exceed 270 days at a rate of 10 percent per annum. The commercial paper program constitutes an obligation subordinate to the Dallas Water Utility revenue bonds. Any advances made by credit providers for payments of commercial paper under the line of credit are secured by water and wastewater pledge revenues. During fiscal year 2016, $180.0 million was issued and $222.1 million was repaid. Upon maturity, the notes will be remarketed by the commercial paper dealers or extinguished with long-term debt.

S. Dallas Water Utilities Obligation for Water Transmission Facilities Financing Agreement

Tarrant Regional Water District (TRWD), a water control and improvement district and political subdivision of the State of Texas, issued Water Facilities Contract Revenue Bonds in February 2012 in the amount of $131.9 million, in January 2014 in the amount of $202.1 million, and in December 2015 in the amount of $140 million in Water Facilities Contract Revenue Bonds. The bonds were issued to finance the DWU share of costs for designing, acquiring, constructing, improving, repairing, rehabilitating, and or replacing water transmission facilities capable of delivering additional raw water supply to the customers of the DWU and TRWD for their respective customers (the Project). The Project is tentatively scheduled to be completed in 2025. The City’s share of the total cost of the Project is estimated to be $977.5 million. Upon completion of the Project, DWU will have reserved capacity rights in the amount of 150 million gallons per day. Depending on the timing of construction, additional bonds are expected to be issued throughout the construction period.

In order to ensure adequate funding from Dallas Water Utilities for the payment of principal and interest, the City entered into a separate funding agreement with TRWD, a Water Transmission Facilities Financing Agreement (the Agreement). Under this Agreement, the City is obligated to make payments to TRWD for the principal and interest amounts associated with the bonds. The Agreement establishes through State statutes that those payments will be treated as operating and maintenance expenses. The treatment of payments to TRWD as operating and maintenance expenses is only being applied to the Schedule of Revenue Bond Coverage for the Dallas Water Utilities and for purposes of establishing rates.

The Agreement establishes that TRWD shall own and operate the Project, subject to Dallas’ reserve capacity rights in the Project. The bonds are a special obligation of TRWD. Principal and interest are secured by, and payable solely from, payments to be received by TRWD from the City to the extent required and provided in the Agreement. The bonds do not constitute a debt or pledge of the faith and credit of the City, and accordingly have not been reported in the accompanying financial statements. At September 30, 2016, the TRWD Water Facilities Contract Revenue Bonds outstanding were $456.6 million.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 10. Long-Term Debt (continued)

The City has determined the obligation under the Agreement to be a liability to the extent that such obligations are for the payment of bonds issued to fund Dallas Water Utilities’ share of costs for the Project. The City has capitalized the development of an intangible asset, Pipeline Reserve Capacity Rights, in Construction in Progress for the actual Project costs incurred by TRWD. The unspent proceeds held by TRWD for future construction costs have been recorded in Other Noncurrent Assets – Future Pipeline Reserve Capacity Rights. The interest rates for the obligation range from 0.45 percent to 6.0 percent. The obligation will be amortized over a period of 30 years. The balance of the obligation for the Agreement was $455.8 million at September 30, 2016. The schedule of principal and interest payments required for the obligation is provided below:

Fiscal Year Principal Interest Total 2017$ 9,025 $ 16,718 $ 25,743 2018 10,095 17,874 27,969 2019 10,370 17,488 27,858 2020 10,660 17,081 27,741 2021 10,955 16,653 27,608 2022-2025 60,540 76,221 136,761 2027-2031 73,095 64,457 137,552 2032-2036 89,690 49,201 138,891 2037-2041 111,265 28,762 140,027 2042-2045 70,125 5,849 75,974 Total$ 455,820 $ 310,304 $ 766,124

Note 11. Leases

A. As Lessee

As lessee, the City is committed under various leases for building and office space, data processing, and communications equipment. These leases are considered for accounting purposes to be operating leases. Lease expenditures for the fiscal year ended September 30, 2016, amounted to $7.2 million.

Future minimum lease payments for these leases are as follows:

Total Rental Governmental Business-Type Year Ending September 30 Payments Activities Activities 2017$ 4,422 $ 2,933 $ 1,489 2018 3,520 2,813 707 2019 2,837 2,527 310 2020 2,584 2,263 321 2021 2,308 1,976 332 2022-2026 4,790 2,953 1,837 2027-2031 1,996 63 1,933 Thereafter 427 240 187 Minimum Future Rentals$ 22,884 $ 15,768 $ 7,116

The City is also committed under capital leases for the purchase of computer equipment, vehicles and heavy equipment, parking garages, and a parking lot. The liability for future capital lease payments totals $133 million. Future minimum lease payments for capital leases including interest and principal are as shown on the following page.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 11. Leases (continued)

Total Rental Governmental Business-Type Fiscal Year Payments Activities Activities 2017$ 22,339 $ 17,155 $ 5,184 2018 20,810 15,626 5,184 2019 14,623 9,439 5,184 2020 11,287 6,103 5,184 2021 12,050 6,866 5,184 2022-2026 33,651 7,734 25,917 2027-2031 25,917 - 25,917 Thereafter 72,818 - 72,818 Total minimum future lease payments 213,495 62,923 150,572 Less: Amount representing interest (80,479) (3,806) (76,673) Present value of net minimum lease payments $ 133,016 $ 59,117 $ 73,899

The following schedule provides an analysis of the City’s investments in capital assets under capital lease arrangements as of September 30, 2016.

Governmental Business- Type Activities Activities Building and equipment$ 77,302 $ - Land - 75,270 Less: Accumulated depreciation (20,879) - Total$ 56,423 $ 75,270

B. As Lessor

The City is also under several lease agreements as lessor whereby it receives revenues from leasing airport terminal space, hangars, parking spaces, ramps, land, buildings, and office space to air carriers and other tenants. These revenue leases are considered for accounting purposes to be operating leases. Additionally, other City departments receive revenues under various agreements for the operation of concessions. Most of these revenues are determined based on various percentages of gross sales for the concessions.

Revenues for the fiscal year ended September 30, 2016 were $50.8 million. The following is a schedule of minimum future rentals on non-cancelable operating leases as of September 30, 2016:

Year Ending Governmental Dallas Water Convention Airport September 30 Activities Utilities Center Revenues Total 2017$ 1,325 $ 57 $ 912 $ 38,773 $ 41,067 2018 990 46 898 30,353 32,287 2019 612 46 919 30,059 31,636 2020 612 46 919 29,347 30,924 2021 611 43 919 29,084 30,657 2022-2026 1,498 207 4,306 87,829 93,840 2027-2031 570 207 4,053 32,179 37,009 Thereafter 352 - 15,761 5,329 21,442 Minimum Future Rentals$ 6,570 $ 652 $ 28,687 $ 282,953 $ 318,862

The above amounts do not include contingent rentals of the Airport Revenues fund, which may be received under certain leases; such contingent rentals received totaled $469 thousand in fiscal year 2016.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 11. Leases (continued)

The following schedule provides an analysis of the Airport Revenues fund investment in property under operating lease arrangements as of September 30, 2016:

Building $ 503,328 Land 11,796 Subtotal 515,124 Less: Accumulated depreciation (132,801) Total$ 382,323

Note 12. Defeasance of Debt

In current and prior years, the City legally defeased certain outstanding general obligation and enterprise revenue bonds by placing the proceeds of new bonds in irrevocable trusts to provide for all future debt service payments of the refunded bonds. Accordingly, the trust accounts and the defeased bonds are not included in the City’s basic financial statements.

As of September 30, 2016, the City had a total of $303 million defeased outstanding General Obligation Bonds and $771 million defeased outstanding water and sewer revenue bonds. The following is a schedule of defeased bonds during the fiscal year:

9/30/2015 Additions Deletions 9/30/2016 General Obligation Bonds$ 321,485 $ - $ 18,130 $ 303,355 Water and Sewer Revenue Bonds 535,440 357,445 121,965 770,920 Total$ 856,925 $ 357,445 $ 140,095 $ 1,074,275

Note 13. Risk Management – Estimated Claims and Judgments Payable

The City is self-insured for all third-party general liability claims. Claims adjusting services are provided by the City’s internal staff. Interfund premiums are based primarily upon the insured funds’ claims experience and exposure, and are reported as cost reimbursement interfund transactions. The liability for unpaid claims includes the effects of specific incremental claims, adjustment expenses, and, if probable and material, salvage and subrogation.

All known City property, primarily buildings and contents, is insured through commercial insurance policies, subject to a $1 million deductible per loss occurrence. The amount of settlements exceeded the deductible loss per occurrence in fiscal year 2014.

The City is self-insured for workers’ compensation claims that occurred prior to October 1, 1999. Effective October 1, 1999 through January 31, 2013, the City was insured for workers’ compensation losses in excess of $750 per occurrence. Effective February 1, 2013, the City is insured for workers’ compensation losses in excess of $1 million per occurrence. Claims adjusting services are provided by an independent “administrative services” contractor. Workers’ compensation premiums are based primarily upon the insured funds’ claims experience and exposure, and are reported as cost reimbursement interfund transactions.

All workers’ compensation losses are accumulated in a clearing fund which is being reimbursed by the premiums collected. When losses exceed premiums, the deficiencies are prorated and supplemented by the various applicable funds. Accrued workers’ compensation liability consists of incurred but not reported as well as unpaid reported claims of which $35.4 million at September 30, 2016, is recorded in the risk funds. Of this amount, $6.5 million is estimated to be payable in the next fiscal year.

The City maintains a group health insurance plan for employees and dependents which is self-insured by the City. The City also offers enrollment in one health maintenance organization as an alternative. Premiums are determined based on the annual budget. The City also maintains a group life insurance plan which offers term-life and accidental death and dismemberment for employees and dependents. The City is fully insured for employee term-life. Health claims and claims incurred but not reported that are probable and can be reasonably estimated are accrued in the accompanying basic financial statements at September 30, 2016, in the amount of $7.2 million in the risk funds.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 13. Risk Management – Estimated Claims and Judgments Payable (continued)

At September 30, 2016, the City estimates its general liability at $20.4 million, which $7.5 million is estimated to be payable in the next fiscal year. The general liability includes $9.9 million for automobile and general liability and $10.5 million for probable claims and lawsuits.

Changes in the balances of claims liabilities during the past fiscal year are as follows:

Workers' General Compensation Health Liability 2016 2015 2016 2015 2016 2015 Unpaid claims, beginning of year$ 37,015 $ 40,200 $ 6,713 $ 5,733 $ 17,330 $ 16,408 Incurred claims, including incurred but not reported claims (IBNRs) and changes in estimates 8,950 4,937 70,021 71,048 7,923 6,360 Claim payments (8,611) (7,185) (75,422) (71,417) (4,455) (5,942) Changes to prior year estimates (IBNR) (1,938) (937) 5,871 1,349 (350) 504 Unpaid claims, end of year$ 35,416 $ 37,015 $ 7,183 $ 6,713 $ 20,448 $ 17,330

Note 14. Capital Assets

Capital asset activity for the year ended September 30, 2016 is as follows:

Balance, Beginning of Transfers Balance, Year and End (Restated) Additions Retirements of Year Governmental Activities: Capital assets, not being depreciated: Land$ 490,048 $ 2,517 $ (12) $ 492,553 Artwork 49,460 175 (134) 49,501 Construction in progress 249,724 188,556 (95,564) 342,716 Total capital assets, not being depreciated 789,232 191,248 (95,710) 884,770 Capital assets, being depreciated: Buildings 1,295,628 14,251 - 1,309,879 Improvements other than buildings 659,438 8,239 - 667,677 Equipment 634,385 46,384 (14,844) 665,925 Infrastructure assets 2,369,853 79,859 (963) 2,448,749 Total capital assets, being depreciated: 4,959,304 148,733 (15,807) 5,092,230 Less accumulated depreciation for: Buildings (496,995) (26,073) - (523,068) Improvements other than buildings (185,687) (16,948) - (202,635) Equipment (475,887) (34,203) 14,789 (495,301) Infrastructure assets (884,170) (42,550) 48 (926,672) Total accumulated depreciation (2,042,739) (119,774) 14,837 (2,147,676) Total capital assets being depreciated, net 2,916,565 28,959 (970) 2,944,554 Governmental activities capital assets, net$ 3,705,797 $ 220,207 $ (96,680) $ 3,829,324

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 14. Capital Assets (continued)

Depreciation expense charged to functions:

General government$ 17,363 Public safety 10,665 Streets, street lighting and code enforcement 2,798 Environment and health services 294 Public works and transportation 50,507 Equipment and building services 15,763 Culture and recreation 22,032 Housing 314 Human Services 38 Total depreciation expense - governmental activities$ 119,774 (includes $4,051 of depreciation expense for the Internal Service Funds)

Balance, Beginning of Year Balance, End (Restated) Additions Deletions of Year Business-type Activities: Capital assets, not being depreciated: Land$ 265,253 $ 51,480 $ - $ 316,733 Artwork 3,344 52 - 3,396 Construction in progress 696,371 443,180 (105,272) 1,034,279 Total capital assets, not being depreciated 964,968 494,712 (105,272) 1,354,408 Capital assets, being depreciated: Water rights 353,910 - - 353,910 Buildings 1,816,402 7,168 - 1,823,570 Improvements other than buildings 474,502 24,240 - 498,742 Equipment 686,823 25,429 (1,890) 710,362 Infrastructure assets 602,953 286 - 603,239 Utililty property 3,687,968 101,909 (235) 3,789,642 Total capital assets, being depreciated: 7,622,558 159,032 (2,125) 7,779,465 Less accumulated depreciation for: Water rights (112,803) (4,112) - (116,915) Buildings (571,520) (41,403) - (612,923) Improvements other than buildings (108,602) (15,713) - (124,315) Equipment (468,366) (20,078) 1,642 (486,802) Infrastructure assets (241,372) * (11,296) - (252,668) Utility property (998,207) * (74,205) 177 (1,072,235) Total accumulated depreciation (2,500,870) (166,807) 1,819 (2,665,858) Total capital assets being depreciated, net 5,121,688 (7,775) (306) 5,113,607 Business-type activities capital assets, net$ 6,086,656 $ 486,937 $ (105,578) $ 6,468,015

* Accumulated depreciation in the amount of $7,349 has been reclassified between infrastructure and utility property assets.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 14. Capital Assets (continued)

Depreciation expense charged to business-type activities: Dallas Water Utillities$ 115,500 Convention Center 18,872 Airport Revenues 29,569 Sanitation 2,805 Nonmajor Enterprise Funds 61 Total depreciation expense - business-type activities$ 166,807

Note 15. Pollution Remediation

The City is responsible for following all applicable environmental rules when managing sites with environmental clean-up or management requirements. The Texas Commission on Environmental Quality (TCEQ) is the State regulatory agency that regulates all projects being reported. The method used to calculate the liability is the current value of outlays to remediate the properties – the amount that would be paid if all equipment, facilities, and services included in the estimate were acquired during the current period. The liability is an estimate and is subject to revision because of price increases or reductions, changes in technology, or changes in applicable laws or regulations. As of September 30, 2016, the total environmental remediation liability is $4.84 million and $757 thousand is estimated to be paid in fiscal year 2017. At this time, the City is unable to estimate any recoveries to reduce the liability. The specific issues related to the City’s remediation efforts include:

The City is managing ten sites that are regulated by the Texas Risk Reduction Program, Texas Administrative Code (TAC) Ch. 350. For the first site, the City has investigated the environmental impact from two permitted closed landfills and has been conducting remediation as required. Additional activities include preparing response action completion report for submittal to TCEQ, requesting conditional closure, groundwater monitoring, methane monitoring, and cap inspections. The estimated cost for this project is $2.547 million and $84 thousand is expected to be paid in fiscal year 2017. For the second site, the City has completed a Phase I and Phase II Environmental Site Assessments (ESA), addressed groundwater with a municipal setting designation (MSD), and excavated a portion of metal impacted soils. Future response action includes preparing a Response Action Plan for TCEQ and installing a clay cap. The estimated cost for this project is $476 thousand and $10 thousand is expected to be paid in fiscal year 2017. For the third site, the City conducted pre-demolition environmental investigation in the building including testing for metals dust, asbestos containing material, lead, and mold and in the subsurface at a former Aviation Tenant property with the expectation to lease in the future. Additional activities include obtaining conditional closure from TCEQ and providing oversight of development activities by the tenant in the building and subsurface. The estimated cost for this project is $429 thousand and $15 thousand is expected to be paid in fiscal year 2017. For the fourth site, the City completed a Phase II ESA as part of pre-acquisition due diligence. Additional activities include groundwater monitoring and reporting. Currently known activities at this site are expected to be complete in fiscal year 2017 with an estimated cost of $59 thousand. For the fifth site, the City has completed a Phase I and Phase II ESA, hydraulic lift removal, asbestos abatement, and removal of impacted soil as part of construction of a new fire station. Additional activities include submitting an application to the TCEQ Voluntary Cleanup Program (VCP), obtaining an MSD and reporting to TCEQ. Currently known activities at this site are expected to be complete in fiscal year 2017 with an estimated cost of $67 thousand. For the sixth site, the City has completed a Phase I and II ESA. Additional activities include subsurface investigation, reporting, and a MSD. The estimated cost for this project is $227 thousand and $131 thousand is expected to be paid in fiscal year 2017. For the seventh site, the City has completed a Phase I and II ESA and an MSD is in process. Additional activities include subsurface investigation, reporting, and obtaining an MSD certification. The estimated cost for this project is $77 thousand and $63 thousand is expected to be paid in fiscal year 2017. For the eighth site, the City has completed a Phase I and II ESA as part of due diligence activities. Additional activities include subsurface investigation, excavation of impacted soil, and reporting. The estimated cost for this project is $358 thousand and $80 thousand is expected to be paid in fiscal year 2017. For the ninth site, the City has completed a Phase I and II ESA as part of due diligence before leasing the property to be developed. Additional activities include entering the site in VCP, an MSD, and reporting to TCEQ. The estimated cost for this project is $151 thousand and $45 thousand is expected to be paid in fiscal year 2017. For the tenth site, the City has completed a Phase I and II ESA as part of due diligence prior to executing a lease to own agreement. Additional activities are expected to include additional investigation and reporting to TCEQ. The estimated cost for this project is $26 thousand and no costs are expected in 2017. The City is committed under a capital lease for the purchase of this property. However, no environmental work is scheduled for 2017, as the property is occupied by a tenant of the City.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 15. Pollution Remediation (continued)

The City is also managing environmental corrective action at two leaking petroleum storage tank sites. Activities at these sites are conducted in compliance with the rule for Underground and Aboveground Storage Tanks, TAC Ch 334. For the first site, the City conducted groundwater monitoring and product recovery activities. Additional activities include groundwater monitoring, an MSD, and reporting. The estimated cost for this project is $231 thousand, with $90 thousand expected to be paid in fiscal year 2017. For the second site, the City completed a Phase I and Phase II ESA, asbestos abatement, removal of underground storage tanks and remaining subsurface components of a hydraulic lift, product recovery, installation of additional monitor wells, and groundwater monitoring. Additional activities include groundwater monitoring and reporting. The estimated cost for this project is $111 thousand, with $35 thousand expected to be paid in fiscal year 2017.

The City is also managing testing and removal of asbestos containing materials at one site in compliance with Texas Asbestos Health Protection Rules, TAC Ch 295. The City conducted an asbestos survey prior to redevelopment of the structure. Additional activities include asbestos abatement. The estimated cost for this project is $78 thousand and all activities are expected to be completed in fiscal year 2017.

Note 16. Pension Plans

A. Plan Descriptions

The City participates in funding three single employer, contributory, defined benefit employee pension plans. Membership is a condition of employment for all full-time, permanent employees. The activities of the entities as of December 31, 2015 are reported in the City’s Pension Trust Funds. Descriptions of each plan follow:

Employees’ Retirement Fund (ERF): The legal authority for this plan is Chapter 40A of the Dallas City Code. The fund is for the benefit of all eligible employees of the City, excluding firefighters and police officers. The fund is administered by a seven member board of trustees consisting of three persons appointed by the City Council who may be council members, three employees from different departments of the City who are elected by members of the retirement fund and who are members of the retirement fund, and the City Auditor. The ERF issues a stand- alone financial report which is available at: www.dallaserf.org/Publications.html.

Dallas Police and Fire Pension System Combined Plan (Combined Plan): The legal authority for the Combined Plan is Article 6243a-1 of the Revised Civil Statutes of Texas. The Combined Plan is a retirement fund for police officers and firefighters employed by the City of Dallas. The system is administered by a twelve member board of trustees of the Dallas Police and Fire Pension System (DPFP System) composed of three elected from active members of the police department, three elected from active members of the fire rescue department, one elected by retired police officers, one elected by retired firefighters, and four appointed by the City Council from its membership. It is comprised of a single defined benefit pension plan designed to provide retirement, death, and disability benefits for firefighters and police officers (members). All active, eligible police officers and firefighters employed by the City are required to participate. The DPFP System issues a stand-alone financial report which is available at: www.dpfp.org/annualreports.html.

Supplemental Police and Fire Pension Plan of the City of Dallas (Supplemental Plan): The legal authority for the Supplemental Plan is Subsection 35 of Chapter II of the Charter of the City of Dallas and Ordinance 14084 of 1973. The plan is administered by the board of trustees for the DPFP System. This plan includes officials in the Fire and Police Departments who hold rank higher than the highest corresponding Civil Service rank available as a result of competitive examination. The Supplemental Plan issues a stand-alone financial report which is available at: www.dpfp.org/annualreports.html.

B. Benefits provided

ERF: ERF provides retirement, disability, and death benefits to its members in accordance with Chapter 40A of the Dallas City Code. All employees of the City are members except police officers, firefighters, elected officers, non-salaried appointee members of boards or commissions, part-time employees working less than one-half time, temporary employees, individuals working under contract, and individuals whose salaries are paid in part by another government agency.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 16. Pension Plans (continued)

Members have vested rights to retirement benefits after five years of service or to survivor benefits after two years of service. Benefits are based on credited service and the average monthly earnings for the three highest paid calendar years. Members of the fund are entitled to normal retirement pension at age 60; early retirement pension at age 55 if employed prior to May 9, 1972 or age 50 and years of service total 78; service retirement pension at any age after 30 years of credited service and disability retirement pension as determined by the board of trustees. Cost of living adjustments for retirees are made each year on January 1 by adjusting the pension base by the percentage change of the consumer price index, not to exceed 5 percent.

Amendments to Chapter 40A of the Dallas City Code, other than provisions required to comply with federal law, may only be made by a proposal initiated by either the board of trustees of the ERF or the City Council which results in an ordinance approved by the board, adopted by the City Council, and approved by a majority of the voters voting at a general or special election.

Combined Plan: The Combined Plan provides comprehensive retirement, disability, and survivor benefits for the City’s police officers, firefighters and their beneficiaries as authorized through Article 6243a-1 of the Revised Civil Statutes of Texas. The Combined Plan consists of Group A and Group B membership. No member elected contribution under Group A.

Group A members may elect to receive one of two benefit structures: Options 1 and 2. Option 1 entitles members with 20 years or more of pension service to normal monthly pension benefits beginning at age 50 equal to 50 percent of the base pay as defined as the maximum monthly civil service pay established by the City at the time of retirement plus 50 percent of the longevity pay the member was receiving at the time he or she left active service with the City or the effective date the member joined the Deferred Retirement Option Plan (DROP). Option 2 entitles members with 20 years or more of pension service to normal monthly pension benefits beginning at age 55 equal to 3 percent of the base pay computed as noted in Option 1 for each year with a maximum of 32 years. In addition, a member receives 50 percent of the longevity pay and 1/24 of any City service incentive pay the member was receiving at the time he or she left active service with the City or the effective date the member joined DROP.

Under Group B, members receive one of two benefit structures:  Members who began membership before March 1, 2011 with 5 or more years of pension service are entitled to monthly pension benefits beginning at age 50 equal to 3 percent of the member’s average Computation Pay determined over the highest 36 consecutive months of Computation Pay, multiplied by the number of years of pension service, up to a maximum of 32 years. Certain members who meet the service prerequisite may elect to take early retirement with reduced benefits starting at age 45, or earlier if the member has 20 years of pension service. Benefits are increased by a cost of living adjustment of 4 percent of the initial benefit amount each October 1.  Members who began membership after February 28, 2011 are entitled to monthly pension benefits after accruing 10 years of pension service and the attainment of age 55. Pension benefits are equal to the member’s average Computation Pay determined over the highest 60 consecutive months of Computation Pay, multiplied by 2 percent for the first 20 years of service, 2.5 percent for the next five years of service, and 3 percent for years of service in excess of 25 years, and multiplied by the number of years of pension service. The member shall not accrue a monthly pension benefit that exceeds 90 percent of the member’s average Computation Pay.

Members who are eligible to retire are allowed to enter the DROP program. The member’s monthly benefit remains in a DROP account and accumulates interest. Upon retirement from the City, the member is able to withdraw benefits from their DROP account along with the normal benefits. The total DROP account balance was $1.5 billion at December 31, 2015.

Members may amend the Combined Plan documents in any manner, including amendments to benefits or eligibility requirements, or to create a new plan or amend or restate any existing plan within the DPFP System, provided certain criteria are met.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 16. Pension Plans (continued)

Supplemental Plan: The Supplemental Plan provides benefits designed to supplement Combined Plan Group B benefits for members holding a rank higher than the highest corresponding civil service rank because their Combined Plan benefits are capped by the definition of “considered compensation.” Benefits provided by the Supplemental Plan were approved by the Dallas City Council through passage of City Ordinance 14084 of 1973 as authorized in City Charter Chapter II, Subsection 35. Employees with five or more years of service are entitled to annual pension benefits beginning at normal retirement age 50. Members receive a supplemental pension based upon the difference between compensation for the civil service position held before entrance into the Supplemental Plan and compensation while participating in the Supplemental Plan. The formula used to determine the member’s Combined Plan Group B benefit is also used to determine the member’s benefit under the Supplemental Plan; therefore, the same length of time is used to determine the average computation pay for both the Combined Plan and the Supplemental Plan, as well as provisions for the application for benefits. Benefits are increased by a cost of living adjustment of 4 percent of the initial benefit amount each October 1.

Members who are eligible to retire are allowed to enter the DROP program. The member’s monthly benefit remains in a DROP account and accumulates interest. Upon retirement from the City, the member is able to withdraw benefits from their DROP account along with the normal benefits. The total DROP account balance was $10.9 million at December 31, 2015.

The Supplemental Plan document can be amended only by the City Council in accordance with City ordinance.

C. Employees covered by benefit terms

At December 31, 2015, the following numbers of employees were covered by the benefit terms:

Combined Supplemental ERF Plan Plan Retirees and beneficiaries currently receiving benefits 6,756 4,230 124 Inactive members entitled to benefits but not yet receiving them 1,163 200 - Current members 7,477 5,415 45 Total 15,396 9,845 169

D. Contributions

ERF: Chapter 40A of the Dallas City Code establishes contribution requirements. Changes to the contribution formula may only be made by a proposal initiated by either the board of trustees of the ERF or the City Council which results in an ordinance approved by the board, adopted by the City Council, and approved by a majority of the voters voting at a general or special election.

The City contributes 63 percent of the required contribution and the membership contributes 37 percent. The City’s contribution rate covers both the debt service tied to the pension obligation bonds and the contributions to the Employees’ Retirement Fund. Although the total contribution is actuarially determined each year, it is adjusted based on the following requirements of Chapter 40A: (1) the maximum contribution percentage of covered wages is 36 percent; (2) the maximum increase or decrease from one year to the next is 10 percent; and (3) the contribution rate changes only if the actuarial valuation develops a rate which differs from the prior rate by more than 300 basis points. The adjusted contribution as a result of Chapter 40A is the Current Adjusted Total Obligation Rate (CATOR). Contribution rates are 13.32 percent of covered wages for employees and 22.68 percent for the City for the City’s fiscal year ended September 30, 2016. The City’s contribution of 22.68 percent is divided into 13.83 percent cash to the Plan and 8.85 percent for debt service payments on the pension obligation bonds. For 2016, the City contribution was $53.9 million.

Combined Plan: Article 6243a-1 of the Revised Civil Statutes of the State of Texas establishes contribution requirements. The amount of the contribution percentage may be determined only by the State Legislature or by a majority vote of the voters of the City of Dallas.

The City makes statutorily required contributions of 27.5 percent of total wages and salaries as defined in the Combined Plan document and Article 6243a-1. No member elected contribution under Group A, which would have been 6.5 percent of contribution pay. Group B members not in DROP are required to contribute 8.5 percent of their computation pay. For 2016, the City contribution was $119.0 million.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 16. Pension Plans (continued)

Active members in DROP pay contributions at the rate of 4 percent of Computation Pay. The City pays contributions for active members in DROP at the rate of 27.5 percent of total wages and salaries.

Supplemental Plan: Ordinance 14084 of 1973 establishes contribution requirements. Changes to the contribution amounts or percentages may be made by City Council ordinance.

Members of the Supplemental Plan contribute 8.5 percent of their pay that is applicable to the Supplemental Plan. The City makes an annual contribution to the Supplemental Plan based on the results of an actuarial study. For 2016, the City contribution was $3.1 million.

E. Net Pension Liability

The City’s net pension liability was measured as of December 31, 2015. The total pension liability used to calculate the net pension liability was determined by actuarial valuations as of that date.

F. Actuarial Assumptions

The total pension liabilities in the December 31, 2015 actuarial valuations were determined using the following actuarial assumptions for each of the plans, applied to all periods included in the measurement:

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 16. Pension Plans (continued)

ERF Combined Plan Supplemental Plan Inflation 3% 2.75% 2.75% Salary Increases 3.50% to 7.00%, including 2.75% 2.75% inflation Investment Rate of Return 8.00% 7.25% 7.25%

Mortality For actives: For actives: For actives: Males - RP2000 Healthy RP-2014 Employee Mortality RP-2014 Employee Mortality Mortality Table for male Table, set back two years for Table, set back two years for employees, set forward 4 years. males, projected generationally males, projected generationally Females - RP2000 Healthy using Scale MP-2015. using Scale MP-2015. Mortality Table for female For healthy retirees: For healthy retirees: employees, set back 5 years. RP-2014 Blue Collar Healthy RP-2014 Blue Collar Healthy For healthy retirees: Annuitant Mortality Table, set Annuitant Mortality Table, set Males - RP2000 Blue Collar forward two years for females, forward two years for females, Mortality Table for male projected generationally using projected generationally using annuitants, with a 109% Scale MP-2015. Scale MP-2015. multiplier and fully generational For all disabled lives: For all disabled lives: mortality using improvement RP-2014 Disabled Retiree RP-2014 Disabled Retiree Scale BB. Mortality Table, set back three Mortality Table, set back three Females - RP2000 Blue Collar years for males and females, years for males and females, Mortality Table for female projected generationally using projected generationally using annuitants, with a 103% Scale MP-2015. Scale MP-2015. multiplier and fully generational mortality using improvement Scale BB. For all disabled lives: RP2000 Disabled Mortality Table for male annuitants, set forward one year.

Cost of Living Adjustments 3.00% 4% of original pension annually None Long-term expected rate of Estimated using a building block Derived from historical data, Derived from historical data, return methodology in which best- current and recent market current and recent market estimate ranges of expected expectations, and professional expectations, and professional future real rates of return are judgment. As part of the judgment. As part of the developed for each major asset analysis, a building block analysis, a building block class. These ranges are approach was used that reflects approach was used that reflects combined to produce the long- inflation expectations and inflation expectations and term expected rate of return by anticipated risk premiums for anticipated risk premiums for weighting the expected future each of the portfolio’s asset each of the portfolio’s asset real return rates by the target classes, as well as the System’s classes, as well as the System’s asset allocation percentage and target asset allocation. target asset allocation. by adding expected inflation.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 16. Pension Plans (continued)

The target allocation and best estimates of arithmetic real rates of return (RROR) for each of the plans, by major asset class, are summarized in the following table: ERF Target Long-term Asset Class Allocation RROR Domestic Equity 15.0% 6.50% International equity 15.0% 6.50% Global equity 5.0% 6.70% Low volatility global equity 10.0% 6.70% Private equity 15.0% 9.50% REITS 5.0% 5.00% Real assets 5.0% 6.40% Investment grade fixed income 12.5% 3.50% High yield fixed income 15.0% 6.35% Credit opportunities 2.5% 6.35% Total 100.0%

Combined Plan Supplemental Plan Target Long-term Target Long-term As s et Clas s Allocation RROR Allocation RROR Global equity 20% 7.10% 20% 7.10% Emerging markets equity 5% 9.85% 5% 9.85% Private equity 5% 11.50% 5% 11.50% Short-term core bonds 2% 1.75% 2% 1.75% Global bonds 3% 1.25% 3% 1.25% High yield and bank loans 11% 4.95% 11% 4.95% Structured credit/absolute return 6% 5.75% 6% 5.75% Emerging markets debt 6% 5.15% 6% 5.15% Private debt 5% 4.55% 5% 4.55% Natural resources 5% 4.30% 5% 4.30% Infrastructure 5% 6.45% 5% 6.45% Real estate 12% 4.55% 12% 4.55% Liquid real assets 3% 7.88% 3% 7.88% Global asset allocation 10% 5.34% 10% 5.34% Cash 2% 1.15% 2% 1.15% Total 100% 100%

G. Discount Rate

ERF: The discount rate used to measure the total pension liability was 5.76 percent. In order to develop the blended discount rate of 5.76 percent, the actuarial assumed rate of return of 8.00 percent was used during the period that the plan was projected to have a fiduciary net position, and a municipal bond rate of 3.57 percent was used during the period that the plan was projected to have no fiduciary net position. The 3.57 percent is based on the Municipal Bond 20-year High Grade Rate Index as of December 31, 2015. The projection of cash flows used to determine the discount rate assumed that that (1) plan member contributions and City contributions will be made at the projected future contribution rates outlined in Chapter 40A of the Dallas City Code, under which employees contribute 37 percent of the CATOR; the City contributes 63 percent of the CATOR, reduced by the amount required to pay current debt service on the 2005 pension obligation bonds; (2) the ERF annually earns 8.00 percent on its market value of assets; and (3) the number of active members remains constant in the future. Based on those assumptions, the ERF fiduciary net position was not projected to be available to make all projected future benefit payments of current active and inactive employees.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 16. Pension Plans (continued)

Combined Plan: The discount rate used to measure the total pension liability was 3.95 percent. In order to develop the blended discount rate of 3.95 percent, the actuarial assumed rate of return of 7.25 percent was used during the period that the plan was projected to have a fiduciary net position, and a municipal bond rate of 3.57 percent was used during the period that the plan was projected to have no fiduciary net position. The 3.95 percent is based on the Municipal Bond 20-year High Grade Rate Index as of December 31, 2015. The projection of cash flows used to determine the discount rate assumed that employee and City contributions will be made according to statutorily required contributions. Based on those assumptions, the DPFP System’s Combined Plan’s fiduciary net position was not projected to be available to make all projected future benefit payments of current active and inactive employees.

Supplemental Plan: The discount rate used to measure the total pension liability was 7.19 percent. In order to develop the blended discount rate of 7.19 percent, the actuarial assumed rate of return of 7.25 percent was used during the period that the plan was projected to have a fiduciary net position, and a municipal bond rate of 3.57 percent was used during the period that the plan was projected to have no fiduciary net position. The 3.57 percent is based on the Municipal Bond 20-year High Grade Rate Index as of December 31, 2015. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made according to statutorily required contributions. The City’s contributions will be made at rates equal to the difference between actuarially determined contribution rates and the statutorily required employee rate. Based on those assumptions, the Supplemental Plan’s fiduciary net position was not projected to be available to make all projected future benefit payments of current active and inactive employees.

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Note 16. Pension Plans (continued)

H. Changes in the Net Pension Liability

The following table shows the net pension liabilities as of December 31, 2015.

Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability Employees' Retirement Fund Balances at December 31, 2014$ 4,004,055 $ 3,398,485 $ 605,570 Changes for the year: Service cost 78,020 - 78,020 Interest 313,850 - 313,850 Changes of assumptions 1,238,431 - 1,238,431 Differences between expected and actual experience (26,829) - (26,829) Contributions - City - 50,721 (50,721) Contributions - Employee - 50,742 (50,742) Net investment income - (53,344) 53,344 Benefit payments, including refunds of employee contributions (239,960) (239,960) - Adminstrative expense - (4,598) 4,598 Other changes - 162 (162) Net Changes 1,363,512 (196,277) 1,559,789 Balances at December 31, 2015$ 5,367,567 $ 3,202,208 $ 2,165,359

Combined Plan Balances at December 31, 2014$ 8,048,930 $ 3,074,195 $ 4,974,735 Changes for the year: Service cost 125,441 - 125,441 Interest 359,023 - 359,023 Changes of assumptions 908,988 - 908,988 Differences between expected and actual experience 379,461 - 379,461 Contributions - City - 114,886 (114,886) Contributions - Employee - 25,676 (25,676) Net investment income - (235,338) 235,338 Benefit payments, including refunds of employee contributions (285,003) (285,003) - Adminstrative expense - (8,417) 8,417 Other changes - (5,875) 5,875 Net Changes 1,487,910 (394,071) 1,881,981 Balances at December 31, 2015$ 9,536,840 $ 2,680,124 $ 6,856,716

Supplemental Plan Balances at December 31, 2014$ 42,712 $ 21,405 $ 21,307 Changes for the year: Service cost 36 - 36 Interest 2,953 - 2,953 Changes of assumptions (601) - (601) Differences between expected and actual experience 929 - 929 Contributions - City - 2,443 (2,443) Contributions - Employee - 43 (43) Net investment income - (1,690) 1,690 Benefit payments, including refunds of employee contributions (2,640) (2,640) - Adminstrative expense - (61) 61 Other changes - (43) 43 Net Changes 677 (1,948) 2,625 Balances at December 31, 2015$ 43,389 $ 19,457 $ 23,932

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 16. Pension Plans (continued)

The net pension liability for the ERF has been allocated between governmental activities and business-type activities based on the percentage of contribution by each. The net pension liability for the Combined Plan and Supplemental Plan is reported in the governmental activities. For governmental activities, the total net pension liability was $8,319,676, and for business-type activities, $726,331. The amount of the ERF net pension liability allocated by business-type activity is $427,999 to Dallas Water Utilities, $25,429 to Convention Center, $52,872 to Airport Revenues, $135,742 to Sanitation and $84,289 to nonmajor funds.

I. Sensitivity of the Net Pension Liability to Changes in the Discount Rate

The following table presents the net pension liability of the City, calculated using the discount rates of 5.76 percent for ERF, 3.95 percent for the Combined Plan and 7.19 percent for the Supplemental Plan, as well as what the City’s net pension liability would be if it were calculated using discount rates that are 1-percentage-point lower (4.76 percent for ERF, 2.95 percent for the Combined Plan and 6.19 percent for the Supplemental Plan) or 1-percentage-point higher (6.76 percent for ERF, 4.95 percent for the Combined Plan and 8.19 percent for the Supplemental Plan) than the current rates:

Current 1% Decrease Discount Rate 1% Increase ERF$ 2,915,146 $ 2,165,359 $ 1,547,749 Combined Plan$ 8,471,987 $ 6,856,716 $ 5,581,404 Supplemental Plan$ 28,199 $ 23,932 $ 20,318

J. Pension Plan Fiduciary Net Position

Detailed information about the fiduciary net position of each of the pension plans is available in the separately issued financial reports.

Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions

For the fiscal year ended September 30, 2016, the City recognized pension expense of $510,366 for the ERF, $678,640 for the Combined Plan, and $2,981 for the Supplemental Plan. At September 30, 2016, the City also reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Supplemental ERF Combined Plan Plan Def erred Deferred Def erred Deferred Deferred Outf low s Inf low s Outf low s Inf low s Outf low s Differences betw een expected and actual experience$ - $ 31,804 $ 303,568 $ 3,051 $ - Changes of assumptions 1,093,697 - 727,191 - - Net difference betw een projected and actual earnings on pension plan investments 292,252 - 587,845 - 3,888 Contributions subsequent to the measurement date 41,613 - 88,870 - 3,064 Total deferred outflow s/inflow s$ 1,427,562 $ 31,804 $ 1,707,474 $ 3,051 $ 6,952

Deferred outflows of resources reported in the amounts of $41,613, $88,870 and $3,064 related to pension contributions in the ERF, Combined Plan and Supplemental Plan made subsequent to the measurement date will be recognized as a reduction of the net pension liability during the fiscal year ended September 30, 2016. Deferred outflows and inflows of resources reported in the amount of $2,973,586 related to pensions will be recognized in pension expense as shown on the following page.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 16. Pension Plans (continued) Supplemental ERF Combined Plan Plan Year ending 12/31: 2016$ 430,966 $ 422,767 $ 1,081 2017 430,966 422,767 1,080 2018 375,997 422,767 1,080 2019 116,216 347,497 647 2020 - (245) - Thereafter - - -

Note 17. Commitments and Contingencies

A. Pending Lawsuits and Claims

Various claims and lawsuits are pending against the City and its officers and employees acting in their official capacities (hereafter collectively “City” for purposes of Note 17 A). Those lawsuits and claims, excluding condemnation proceedings, which are considered “probable” and estimable are accrued as a liability, while those claims and judgments, excluding condemnation proceedings, which are considered “reasonably possible” are disclosed but not accrued.

In the opinion of the City Attorney, the potential loss resulting from all material pending lawsuits and claims, excluding condemnation proceedings, which are considered reasonably possible and estimable, is approximately $15.6 million as of September 30, 2016. Additionally, the City is a defendant in six lawsuits filed by past and current police and fire-rescue officers and on-behalf of future police and fire-rescue officers, alleging that current and past police and fire pay schedules were adopted in violation of a referendum approved by the voters in 1979. One of these lawsuits is scheduled for trial in December 2017. The City is currently unable to predict the ultimate outcome of these lawsuits; however, if the City were to receive an unfavorable outcome, the City would likely look to other avenues of resolution, including appropriate appeals. As such, the City cannot reasonably estimate the amount of liability, if any, that might result from these lawsuits, as well as the timing of any liability, at this time.

At September 30, 2016, approximately $10.5 million has been accrued as a liability in the risk funds for pending material claims and lawsuits, excluding condemnation proceedings, considered to be probable. In the opinion of the City Attorney, this is the total amount of all such pending claims and lawsuits which represent probable loss to the City.

B. Commitments and Loss Contingencies

The City participates in a number of federally assisted and state grant programs, principally the Community Development Block Grant, Women, Infants and Children, and HOME Programs. The programs are subject to program compliance audits by the grantors or their representatives. The amount, if any, of the expenditures which may be disallowed by the granting agencies cannot be determined at this time although the City expects such amount, if any, to be immaterial.

On February 5, 2016, the U.S. Army Corps of Engineers requested a detailed schedule for the removal of, or modifications to, the Standing Wave to provide navigability along the Trinity River in order to comply with permit requirements. The Standing Wave is a recreational whitewater feature along the Trinity River completed by the City of Dallas in 2009. The City is currently in the process of obtaining proposals for three options: modification of a bypass channel to allow for two-way navigation, full removal of the wave structures and bypass channel, and partial removal of some elements. Conceptual design and cost estimates for the three options are not available.

The City has several major construction projects planned or in progress as of September 30, 2016. These projects are evidenced by contractual commitments and include the following: $312 million for General Purpose Capital Improvements and $438 million for Water Utilities Capital Improvements.

As discussed in note 2.B., Budgets and Budgetary Basis of Accounting, encumbrance accounting is utilized to the extent necessary to assure effective budgetary control and accountability, and to facilitate effective cash planning and control. As of September 30, 2016, the amount of encumbrances expected to be honored upon performance by the vendor in a subsequent year were as follows:

94

CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 17. Commitments and Contingencies (continued)

Amount General fund $ 15,838 Nonmajor governmental funds 343,898 Total$ 359,736

C. Gain Contingency

On October 1, 1981, the City of Dallas purchased water supply rights for Lake Fork, a water source owned and operated by the Sabine River Authority (Authority), for approximately $117 million. Lake Fork is located on Lake Fork Creek, a tributary of the Sabine River, in Wood, Hopkins, and Rains Counties, approximately 70 miles east of the City of Dallas. Financial obligations of the City’s share of Lake Fork water supply rights were fully paid as of December 2004. The City now has a contract with the Authority for 74 percent of the water available from Lake Fork.

The City is required to pay the Authority for a pro rata share of the operation and maintenance costs associated with Lake Fork, which was approximately $3.8 million in the fiscal year ended September 30, 2016. The pro rata share of the operation and maintenance costs owed to the Authority for the renewal of the Lake Fork contract was to be mutually negotiated with the Authority pursuant to the terms of the contract. Negotiation attempts with the Authority failed and in October 2014, the Authority unilaterally established a rate which would require the City to pay approximately an additional $24 million annually for the water to which it is entitled. The City has challenged the rate by filing petitions with the Public Utilities Commission of Texas (PUC) and district courts in Travis and Orange counties in Texas. The PUC has ordered an administrative law judge to consider setting an interim rate while this dispute is pending.

On April 2, 2015, the administrative law judge ruled that the interim rate must be paid by the City of Dallas until the rate case is resolved. The rate was set by the Authority on a take-or-pay basis, without a cost escalator. This interim rate was retroactive to November 2, 2014. The amounts the City pays in accordance with the interim rate are expensed and deposited into an interest-bearing escrow account, established by the Authority, pending the final outcome of the rate case.

Note 18. Other Postemployment Benefits

In addition to pension benefits, the City provides certain healthcare and life insurance benefits for retired employees through various Council resolutions. Employees who are permanent, full-time employees are eligible to participate in the benefits at retirement. The City is self-insured for these programs. The City eliminated subsidization of the plan for individuals hired on or after January 1, 2010.

For retired employees hired before January 1, 2010, the City pays on average $249 (not in thousands) per month. For pre-Medicare retirees who qualify and choose the City health plan, the City pays approximately 50 percent of the actuarial cost and the retiree pays the other 50 percent. Spouses of retirees, like active employees, pay 100 percent of premiums. There were 5,163 retired participants and surviving spouses in the health plan at September 30, 2016, the latest data used for this evaluation. Post-Medicare retirees are offered the active plans but must pay the full cost of coverage; alternatively, they are also offered several Medicare supplement plans along with a Medicare Part D prescription drug plan. The City subsidizes the Medicare supplement plans for the retirees but does not subsidize the dependent cost.

The City’s annual other postemployment benefit (OPEB) cost is calculated based on the annual required contribution (ARC), an amount actuarially determined in accordance with GASB Statement No. 45. The actuarial cost method used in this valuation to determine the actuarial accrued liability and the ARC is the projected unit credit method with service prorated. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a period not to exceed 30 years. The City has elected to amortize the unfunded actuarial liability over 30 years as a level percentage of payroll, on an open basis. The discount rate used for the determination of the expense for fiscal year 2016 is 4 percent. The annual healthcare trend rates range from 8 percent to 4.5 percent per year. Total claim payments for fiscal year 2016 were approximately $15.5 million net of participants’ contributions.

95

CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 18. Other Postemployment Benefits (continued)

Actuarial Valuations

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the City are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the City and plan members) and include the types of benefits provided at the time of each valuation. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities, consistent with the long-term perspective of the calculations.

The following table shows the components of the City’s annual OPEB cost for fiscal year 2016, the amount actually contributed to the plan, and changes in the City’s net OPEB obligation (in thousands):

Annual required contribution$ 25,687 Interest on net OPEB obligation 9,663 Adjustment to annual required contribution (9,230) Annual OPEB cost 26,120 Contributions made (15,453) Increase in net OPEB obligation 10,667 Net OPEB obligation, beginning of year 241,533 Net OPEB obligation, end of year$ 252,200

Net OPEB obligation reported in governmental activities$ 194,008 Net OPEB obligation reported in business type activities funds 48,957 Net OPEB obligation reported in internal service funds 9,235 Net OPEB obligation, end of year$ 252,200

The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal years 2016, 2015, and 2014 are as follows (in thousands):

Net OPEB Percentage Obligation Net OPEB of Annual Fiscal Year Beginning of Annual Employer Obligation OPEB Cost Ended Year OPEB Cost Contributions End of Year Contributed 2016$ 241,533 $ 26,120 $ 15,453 $ 252,200 59.16% 2015$ 229,486 $ 26,465 $ 14,418 $ 241,533 54.48% 2014$ 207,462 $ 36,295 $ 14,271 $ 229,486 39.32%

As of September 30, 2016, the funded status was as follows:

UAAL as a Actuarial Actuarial Actuarial Percentage Valuation Value of Accrued Unfunded Funded Covered of Covered Value Assets Liability (AAL) AAL (UAAL) Ratio Payroll Payroll 9/30/2016$ - $ 492,867 $ 492,867 - %$ 850,011 57.98%

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 18. Other Postemployment Benefits (continued)

The actuarial accrued liability of $492,867 includes $287,711 for active employees and $205,156 for retirees.

Non- At September 30, 2016, membership was as follows: Uniformed Uniformed Total Active participants not eligible to retire 1,555 2,622 4,177 Active participants eligible to retire 1,801 881 2,682 Total active participants 3,356 3,503 6,859

Note 19. Change in Accounting Principle

At the beginning of fiscal year 2016, the City implemented a change in accounting principle related to the accounting for sanitation activities. In prior years, the City accounted for the sanitation activities using modified accrual accounting and the General Fund. As of the beginning of fiscal year 2016, the City utilizes full accrual accounting and an enterprise fund to account for the sanitation activities. This change in accounting principle was implemented to allow the City to move forward with full-cost accounting as a way to set rates, isolate costs and improve transparency. The implementation resulted in a restatement of beginning fund balance and net position as follows: General Sanitation Fund Fund Fund Balance, 09/30/15$ 200,102 $ - Adjustments to fund balance/net position (13,932) (67,542) Fund Balance, 09/30/15, as restated 186,170 (67,542)

Governmental Business-Type Activities Activities Net Position, 09/30/15$ (2,678,572) $ 3,279,567 Adjustments to net position 67,542 (67,542) Net Position, 09/30/15, as restated (2,611,030) 3,212,025

Note 20. Subsequent Events

A. Issuance of Debt

From October 1, 2016 through May 31, 2017, the City issued $9.7 million in General Obligation commercial paper notes, with an average interest rate of 1.25 percent, and retired $10.2 million in General Obligation commercial paper notes. From October 1, 2016 through May 31, 2017, the City issued $147.2 million in Dallas Water Utilities commercial paper notes, with an average interest rate of 0.80 percent.

On December 8, 2016, the City of Dallas issued $116.85 million of General Airport Revenue Bonds, Series 2017 with an interest rate of 5.00 percent and an initial yield of 1.88 percent to 3.87 percent. The bonds mature November 1, 2036.

B. Changes in bond ratings

On October 6, 2016, Fitch Investors Service downgraded the City of Dallas’ outstanding general obligation bonds from AA+ to AA.

On October 14, 2016, Moody’s downgraded the City of Dallas’ outstanding general obligation bonds from AA2 to AA3. On December 9, 2016, Moody’s again downgraded the outstanding general obligation bonds from AA3 to A1.

On October 18, 2016, Moody’s downgraded the Downtown Dallas Development Authority bonds from AA2 to A2 and the Dallas Convention Center Hotel Development Corporation bonds from A2 to A3.

On January 11, 2017, Standard & Poor’s downgraded the Dallas Convention Center Hotel Development Corporation bonds from A to A-.

On February 2, 2017, Moody’s downgraded the Dallas Convention Center Hotel Development Corporation bonds from A3 to Baa1.

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CITY OF DALLAS, TEXAS NOTES TO THE BASIC FINANCIAL STATEMENTS September 30, 2016

Note 20. Subsequent Events (continued)

C. Changes to retirement benefits, assumptions, and plans

On November 8, 2016, City of Dallas voters approved changes to the Employees’ Retirement Fund for employees hired on or after January 1, 2017. The changes included a reduction in the benefit multiplier from 2.75 percent to 2.5 percent, an increase in the normal retirement age from 60 to 65, an actuarially reduced benefit for retirees under age 65 whose age plus years of service equal 80, an increase in service retirement from 30 to 40 years, and elimination of the health benefit supplement. On May 9, 2017, the ERF board of trustees also voted to decrease the interest rate used for certain economic assumptions.

D. Legislative changes to the Dallas Police and Fire Pension System

On May 31, 2017, Texas Governor Greg Abbott signed into law House Bill 3158, affecting the Dallas Police and Fire Pension System (“Pension System”). House Bill 3158 primarily amends 6243a-1, Texas Revised Statutes, including amendments to provisions concerning benefits, contributions, and governance, among other things. House Bill 3158 also prohibits lump-sum distributions from individual Deferred Retirement Option Plan (“DROP”) accounts, which is the board’s current policy. These changes take effect September 1, 2017, contingent upon the board’s continued prohibition on lump-sum distributions from DROP accounts.

Specifically, House Bill 3158 adjusts the benefit multiplier to 2.5% with a normal retirement age of 58, and a maximum income replacement of 90% for all members on a prospective basis. House Bill 3158 increases the City’s contribution rate from approximately 30.5% of computation pay to the greater of 34.5% of computation or a hard-wired amount set forth in the bill based on certain hiring assumptions. Additionally, the City will contribute $13 million annually to the Pension System. The hard-wired amounts and additional $13 million are in effect through 2024, at which point the City’s contribution will be 34.5% of computation pay. A member’s contribution rate will increase from 8.5 percent to 13.5 percent, also calculated on computation pay. In 2024, an independent actuary will also assess the Pension System and recommend any changes needed to maintain the actuarial soundness of the Pension System. Governance changes include a new board comprised of six trustees appointed by the mayor and five by Pension System participants. Trustees must have demonstrated financial or other business experience.

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98

CITY OF DALLAS, TEXAS REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN THE CITY'S NET PENSION LIABILITY AND RELATED RATIOS Last Two Fiscal Years (Dollar amounts in thousands)

2016 2015 DPFP - DPFP - DPFP - DPFP - Combined Supplemental Combined Supplemental ERF Plan Plan ERF Plan Plan Total Pension Liability Service cost$ 78,020 $ 125,441 $ 36 $ 62,065 $ 131,312 $ 28 Interest 313,850 359,023 2,953 290,948 369,408 2,969 Changes of assumptions 1,238,431 908,988 (601) 292,137 - - Differences between expected and actual experience (26,829) 379,461 929 (21,967) (4,453) 336 Plan changes - - - - (329,794) (526) Benefit payments, including refunds (239,960) (285,003) (2,640) (230,243) (245,932) (3,415) Net change 1,363,512 1,487,910 677 392,940 (79,459) (608) Total Pension Liability, Beginning 4,004,055 8,048,930 42,712 3,611,115 8,128,389 43,320 Total Pension Liability, Ending (a) 5,367,567 9,536,840 43,389 4,004,055 8,048,930 42,712

Plan Fiduciary Net Position Contributions - City 50,721 114,886 2,443 45,833 109,792 1,817 Contributions - Employee 50,742 25,676 43 46,536 29,333 49 Net investment income (53,344) (235,338) (1,690) 207,992 (138,893) (517) Benefit payments, including refunds (239,960) (285,003) (2,640) (230,243) (245,932) (3,415) Administrative expense (4,598) (8,417) (61) (4,150) (8,003) (56) Other changes 162 (5,875) (43) 157 (7,361) (51) Net change (196,277) (394,071) (1,948) 66,125 (261,064) (2,173) Plan Fiduciary Net Position, Beginning 3,398,485 3,074,195 21,405 3,332,360 3,335,259 23,578 Plan Fiduciary Net Position, Ending (b) 3,202,208 2,680,124 19,457 3,398,485 3,074,195 21,405

(a) - (b) City's Net Pension Liability $ 2,165,359 $ 6,856,716 $ 23,932 $ 605,570 $ 4,974,735 $ 21,307

Plan Fiduciary Net Position as a percentage of Total Pension Liability 60% 28% 45% 85% 38% 50%

Covered-employee payroll $ 393,186 $ 365,210 $ 725 $ 353,650 $ 383,006 $ 557

City's Net Pension Liability as a percentage of covered- employee payroll 551% 1877% 3301% 171% 1299% 3825%

99 CITY OF DALLAS, TEXAS REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CITY CONTRIBUTIONS TO PENSION PLANS Last Ten Fiscal years (Dollar amounts in thousands)

2016 2015 2014

Employees Retirement Fund Actuarially determined contribution $ 81,838 $ 68,100 $ 62,756

Contributions in relation to the actuarially determined contribution $ 53,896 $ 49,135 $ 44,816 Contribution deficiency (excess) $ 27,942 $ 18,965 $ 17,940

Covered-employee payroll $ 389,706 $ 377,381 $ 357,887

Contributions as a percentage of covered-employee payroll 14% 13% 13%

Dallas Police and Fire Pension - Combined Plan Statutorily required contribution $ 118,508 $ 113,026 $ 108,268

Contributions in relation to the statutorily required contribution $ 118,508 $ 113,026 $ 108,268 Contribution deficiency (excess) $ - $ - $ -

Covered-employee payroll $ 432,082 $ 414,373 $ 378,000

Contributions as a percentage of covered-employee payroll 27% 27% 29%

Dallas Police and Fire Pension - Supplemental Plan Actuarially determined contribution $ 3,064 $ 2,443 $ 1,817

Contributions in relation to the contractually required contribution $ 3,064 $ 2,443 $ 1,817 Contribution deficiency (excess) $ - $ - $ -

Covered-employee payroll $ 725 $ 556 $ 521

Contributions as a percentage of covered-employee payroll 423% 439% 349%

100 2013 2012 2011 2010 2009 2008 2007

$ 54,289 $ 37,822 $ 32,865 $ 34,793 $ 18,995 $ 15,904 $ 18,121

$ 35,515 $ 28,917 $ 27,303 $ 27,668 $ 24,604 $ 22,893 $ 23,310 $ 18,774 $ 8,905 $ 5,562 $ 7,125 $ (5,609) $ (6,989) $ (5,189)

$ 336,483 $ 317,551 $ 318,408 $ 345,819 $ 374,395 $ 370,537 $ 347,868

11% 9% 9% 8% 7% 6% 7%

$ 105,753 $ 102,431 $ 106,633 $ 109,211 $ 106,868 $ 102,720 $ 96,235

$ 105,753 $ 102,431 $ 106,633 $ 109,211 $ 106,868 $ 102,720 $ 96,235 $ - $ - $ - $ - $ - $ - $ -

$ 361,000 $ 349,000 $ 365,000 $ 367,000 $ 362,000 $ 341,000 $ 317,000

29% 29% 29% 30% 30% 30% 30%

$ 1,936 $ 1,954 $ 1,543 $ 1,444 $ 1,344 $ 1,244 $ 1,340

$ 1,936 $ 1,954 $ 1,543 $ 1,444 $ 1,344 $ 1,244 $ 1,340 $ - $ - $ - $ - $ - $ - $ -

$ 450 $ 621 $ 886 $ 1,044 $ 1,043 $ 938 $ 866

430% 315% 174% 138% 129% 133% 155%

101 CITY OF DALLAS, TEXAS REQUIRED SUPPLEMENTARY INFORMATION NOTES TO SCHEDULE OF CITY CONTRIBUTIONS TO PENSION PLANS Last 10 Fiscal Years Employees Retirement Fund Valuation date 12/31/15 12/31/14 12/31/13 12/31/12 12/31/11 12/31/10 12/31/09 12/31/08 12/31/07 12/31/06 Timing The actuarially determined contribution rate is effective October 1 after the valuation date. Actuarial cost method Entry age normal. Amortization method 30-year open amortization period level percentage of payroll. The City ordinance authorizing the plan specfies that the rate may not change from year-to-year if the calculated rate is less than 300 basis points different from the current rate. Asset valuation method 5-year smoothed market value of assets. 3-year smoothed market value of assets. Inflation 3% Salary increases 3.5% to 7%, including inflation Discount rate 8.00% 8.25% Cost of Living Adjustment The greater of (a) the percentage of change in the price index for October of the current year over October of the previous year, up to 5%, or (b) the percentage of annual average change in the price index for the 12-month period ending with the effective date of the adjustment, up to 5%. Mortality For actives: For actives: Males - RP2000 Healthy Mortality Table for male employees, set forward 4 years. Males - 1994 Uninsured Pension Mortality Table for males, base table rates Females - RP2000 Healthy Mortality Table for female employees, set back 5 years. multiplied by 87%. For healthy retirees: Females - 1994 Uninsured Pension Mortality Table for females, base table rates Males - RP2000 Healthy Mortality Table for male annuitants, projected to 2007 using mortality improvement multiplied by 125%. scale AA, set forward two years. For healthy retirees: P2000 Healthy Mortality Table for female annuitants. Males - 1994 Uninsured Pension Mortality Table for males, set forward two years. For all disabled lives: Females - 1994 Uninsured Pension Mortality Table for females, base table rates 102 RP2000 Disabled Mortality Table for male annuitants, set forward one year. multipled by 125% for ages less than 85 and multipled by 135% for ages 85 and up. For all disabled lives: 1965 Railroad Retirement Board Disabled Annuitants Mortality Table (without select rates). For females, the rates are multiplied by 60%.

Dallas Police and Fire Pension - Supplemental Plan Valuation date 01/01/16 01/01/15 01/01/14 01/01/13 01/01/12 01/01/11 01/01/10 01/01/09 01/01/08 01/01/07 Timing The actuarially determined contribution is due September 30 after the valuation date. Actuarial cost method Entry age normal. Amortization method Level percentage of payroll. Asset valuation method Market value of assets. Inflation 2.75% 4% Salary increases 2.75% 4% - 9.64%, including inflation 4.3% - 10%, Discount rate 7.25% 8.50% Cost of Living Adjustment 4% for members hired on or before December 31, 2006. New members hired after December 31, 2006 are not eligble for an automatic increase. 4% Mortality For actives: For actives: 1994 Group Annuity Mortality Table for males and females, set back one year for RP-2014 Employee Mortality Table, set back RP2000 Combined Healthy Mortality Table projected ten years males and females. two years for males, projected generationally beyond the valuation date using Scale AA. using Scale MP-2015. For healthy retirees: For healthy retirees: RP2000 Combined Healthy Mortality Table projected ten years RP-2014 Blue Collar Healthy Annuitant Mortality Table, set forward two years for beyond the valuation date using Scale AA. females, projected generationally using For all disabled lives: Scale MP-2015. RP2000 Combined Healthy Mortality Table with a one-year set For all disabled lives: forward. RP-2014 Disabled Retiree Mortality Table, set back three years for males and females, projected generationally using Scale MP- CITY OF DALLAS, TEXAS REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF FUNDING PROGRESS (UNAUDITED) Other Postemployment Benefits Year Ended September 30, 2016 (in thousands)

Actuarial UAAL as a Actuarial Accrued Percentage Value of Liability Unfunded Funded of Covered Actuarial Assets (AAL) AAL (UAAL) Ratio Covered Payroll Payroll Valuation Date (a) (b) (b-a) (a/b) ( c ) ((b-a)/c)) 9/30/2016 -$ $ 492,867 $ 492,867 - % $ 850,011 57.98% 9/30/2015 -$ $ 459,643 $ 459,643 - % $ 812,400 56.58% 9/30/2014 -$ $ 611,397 $ 611,397 - % $ 767,664 79.64%

The actuarial information presented is determined by an actuarial valuation and is the amount that results from applying various assumptions with regard to future employment, mortality, and the healthcare cost trend.

A re-evaluation of the Medicare Supplement plans in the 9/30/2015 actuarial valuation revealed that a significant decrease in the post-Medicare net claims cost assumption was warranted. This change of assumption caused a 28% reduction in the liability.

103 NONMAJOR GOVERNMENTAL FUNDS

SPECIAL REVENUE FUNDS

Special revenue funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects.

Community Development Fund – to account for funds received by the City of Dallas pursuant to the Community Development Act of 1974, as amended, and grant funds for community development type programs.

Health and Human Services Fund – to account for private and grant funds received for public health and human services programs.

Library Fund – to account for private and grant funds received for acquisition of library materials and expansion of library services.

Police Fund – to account for private and grant funds received for crime prevention and law enforcement programs.

Recreation Fund – to account for private and grant funds received for summer recreation and other recreation programs.

Transportation Fund – to account for private and grant funds received for transportation studies and construction.

Management Improvement Fund – to account for private and grant funds received for management productivity improvements.

Storm Water Operations Fund – to account for the administration and operational activities of the Storm Water Program. Financing is provided by a Storm Water fee.

Municipal Fund – to account for private contributions restricted to the provision of various employee and citizen municipal purposes.

General Citizen Fund – to account for private contributions restricted to the provision of various general governmental projects.

Arts and Cultural Fund – to account for private contributions restricted for the financing arts and cultural activities.

CAPITAL PROJECTS FUNDS

Capital projects funds are used to account for and report financial resources that are restricted, committed, or assigned for capital outlays, including the acquisition or construction of capital facilities and other capital assets which are not financed by Enterprise Funds, Internal Service Funds, and Trust Funds.

Neighborhood Projects – to account for construction of neighborhood facilities and paving projects.

Parks – to account for construction of parks, playgrounds, and recreational facilities.

Streets and Drainage – to account for construction of streets and storm sewers.

Buildings – to account for construction of City-owned buildings

Transportation – to account for construction of traffic signals and controls.

104 NONMAJOR GOVERNMENTAL FUNDS

PERMANENT FUNDS

Permanent funds are used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the reporting government’s programs that is, for the benefit of the government or its citizenry.

Samuell Park – to account for the private donation by Dr. W.W. Samuell. The income from this fund is restricted to the operation and improvement of Samuell Park.

Grauwyler Memorial – to account for the private donation by Mrs. Emma H. Grauwyler. The income from the trust is to be used to improve and beautify Grauwyler Park.

Craddock Park – to account for the private donation by Mr. and Mrs. L. Craddock. The earnings from the trust are to be used for improving and maintaining Craddock Park.

Martin Weiss Park – to account for the private donations by Mr. and Mrs. Martin Weiss, the earnings from which are restricted to the use for further improvements of the Martin Weiss Park.

Hale Davis – to account for private donations by Hale Davis, restricted for municipal purposes.

105 CITY OF DALLAS, TEXAS COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS September 30, 2016 (in thousands)

Special Revenue Community Health and Development Human Services Library Police Recreation Assets Pooled cash and cash equivalents$ 10,025 $ - $ 1,892 9,756$ $ 20,909 Other investments, at fair value - - 998 - - Receivables: Notes 40,382 - - - 43 Special assessments- paving notes - - - - - Accounts 168 90 9 - 12 Accrued interest 11 1 7 15 62 Allowance for uncollectible accounts (7,111) - - - (4) Due from other governments 4,357 4,213 117 2,571 23 Due from other funds - - - - - Prepaid Expenses - - - - - Restricted cash and cash equivalents - - - - - Notes receivable from other funds - - - - - Total assets 47,832 4,304 3,023 12,342 21,045

Liabilities, deferred inflows, and fund balances

Liabilities Accrued payroll 110 150 1 48 9 Accounts payable 1,681 383 126 565 1,044 Due to other governments - - - - - Due to other funds - 2,976 - - - Unearned revenue 1,239 - 9 1,073 104 Construction accounts payable - - - - - Notes payable to other funds - - - - 5,921 Customer deposits - - - - 11 Contracts payable - - - - - Other liabilities 1,541 - 41 85 43 Total liabilities 4,571 3,509 177 1,771 7,132

Deferred inflows of resources Unavailable revenue 33,580 - - - 132

Fund balances Nonspendable - - - - - Restricted 9,681 795 2,846 10,571 - Committed - - - - 13,781 Total fund balances 9,681 795 2,846 10,571 13,781

Total liabilities, deferred inflows and fund balance $ 47,832 $ 4,304 $ 3,023 12,342$ $ 21,045

106 Total Nonmajor Management Storm Water General Arts and Special Revenue Transportation Improvement Operations Municipal Citizen Cultural Funds

$ 9,082 $ 17,486 $ 42,385 $ 25,197 3,654$ 3,156$ $ 143,542 - - - - - 2,233 3,231

- - - 10,593 - - 51,018 ------12,974 671 8,201 72 - 11 22,208 24 24 20 36 5 8 213 (10,092) (45) (4,345) (3,118) - - (24,715) 629 650 - - - - 12,560 - - - 256 - - 256 ------12,617 18,786 46,261 33,036 3,659 5,408 208,313

- - 160 34 - - 512 46 693 2,704 948 4 - 8,194 - 1 - 2,125 - - 2,126 - - - - - 2,976 - - - 399 - - 2,824 ------5,921 ------11 ------20 24 135 14 7 - 1,910 66 718 2,999 3,520 11 - 24,474

1,645 - 462 1,031 - - 36,850

------10,906 18,068 42,800 28,485 3,648 5,408 133,208 ------13,781 10,906 18,068 42,800 28,485 3,648 5,408 146,989

$ 12,617 $ 18,786 $ 46,261 $ 33,036 3,659$ 5,408$ $ 208,313 continued

107 CITY OF DALLAS, TEXAS COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS (continued) September 30, 2016 (in thousands)

Total Capital Projects Nonmajor Neighborhood Streets and Trans- Capital Project Projects Parks Drainage Building portation Funds Assets Pooled cash and cash equivalents$ - -$ $ - -$ $ - $ - Other investments, at fair value - - - - 548 548 Receivables: Notes 12,887 - - 1,500 - 14,387 Special assessments- paving notes - - 5,640 - - 5,640 Accounts 46 - - - 4 50 Accrued interest 97 72 313 144 368 994 Allowance for uncollectible accounts (10,843) - (5,065) (1,500) - (17,408) Due from other governments - 1,200 - 6,785 12,517 20,502 Due from other funds - - - 7,379 - 7,379 Prepaid Expenses - - - - 4,086 4,086 Restricted cash and cash equivalents 70,774 53,689 235,761 65,854 260,618 686,696 Notes receivable from other funds - - 4,161 - - 4,161 Total assets 72,961 54,961 240,810 80,162 278,141 727,035

Liabilities, deferred inflows, and fund balances

Liabilities Accrued payroll ------Accounts payable ------Due to other governments ------Due to other funds 1,195 - - 44 - 1,239 Unearned revenue - 178 6 4,341 39,198 43,723 Construction accounts payable 1,077 3,833 13,931 8,457 10,370 37,668 Notes payable to other funds 4,491 - - - - 4,491 Customer deposits - - 9 - - 9 Contracts payable 2,955 325 3,856 2,283 2,746 12,165 Other liabilities ------Total liabilities 9,718 4,336 17,802 15,125 52,314 99,295

Deferred inflows of resources Unavailable revenue 2,045 - 560 - - 2,605

Fund balances Nonspendable - - 4,161 - 4,086 8,247 Restricted 61,198 50,625 218,287 65,037 221,741 616,888 Committed ------Total fund balances 61,198 50,625 222,448 65,037 225,827 625,135 . Total liabilities, deferred inflows and fund balance $ 72,961 $ 54,961 $ 240,810 80,162$ $ 278,141 $ 727,035

108 CITY OF DALLAS, TEXAS COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS (continued) September 30, 2016 (in thousands)

Permanent Funds Total Martin Total Nonmajor Samuell Grauwyler Craddock Weiss Hale Permanent Governmental Park Memorial Park Park Davis Funds Funds Assets Pooled cash and cash equivalents$ - -$ -$ -$ -$ $ - $ 143,542 Other investments, at fair value 7,735 101 929 89 383 9,237 13,016 Receivables: Notes ------65,405 Special assessments- paving notes ------5,640 Accounts ------22,258 Accrued interest ------1,207 Allowance for uncollectible accounts ------(42,123) Due from other governments ------33,062 Due from other funds ------7,635 Prepaid Expenses ------4,086 Restricted cash and cash equivalents ------686,696 Notes receivable from other funds ------4,161 Total assets 7,735 101 929 89 383 9,237 944,585

Liabilities, deferred inflows, and fund balances

Liabilities Accrued payroll ------512 Accounts payable ------8,194 Due to other governments ------2,126 Due to other funds ------4,215 Unearned revenue ------46,547 Construction accounts payable ------37,668 Notes payable to other funds ------10,412 Customer deposits ------20 Contracts payable ------12,165 Other liabilities ------1,910 Total liabilities ------123,769

Deferred inflows of resources Unavailable revenue ------39,455

Fund balances Nonspendable 7,735 101 929 89 383 9,237 17,484 Restricted ------750,096 Committed ------13,781 Total fund balances 7,735 101 929 89 383 9,237 781,361

Total liabilities, deferred inflows and fund balance $ 7,735 101$ 929$ $ 89 $ 383 9,237$ $ 944,585

109 CITY OF DALLAS, TEXAS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS For the Year Ended September 30, 2016 (in thousands)

Special Revenue Community Health and Development Human Services Library Police Recreation Revenues: Ad valorem tax $ - $ - -$ -$ -$ Tax increment financing, intergovernmental - - - - - Franchise fees - - - - - Intergovernmental 36,997 17,697 269 11,607 81 Service to others 3,924 4 23 - 5,857 Fines and forfeits - 2 - 289 - Investment income 61 7 20 76 146 Contributions and gifts 35 955 362 7 1,013 Confiscated money awards - - - 3,256 - Other revenues 2,507 - - - - Total revenues 43,524 18,665 674 15,235 7,097

Expenditures: Current General government 12,602 - - - - Public safety 105 - - 10,953 - Streets, street lighting and code enforcement 595 - - - - Environmental and health services - 18,576 - - - Public works and transportation - - - - - Equipment and building services - - - - - Culture and recreation 693 - 299 - 7,591 Human services 25,285 - - - - Debt service: Principal 4,256 - - 922 - Interest and fiscal charges 662 - - 80 253 Capital outlay 703 23 1,758 4,153 1,879 Total expenditures 44,901 18,599 2,057 16,108 9,723

Excess (deficiency) of revenues over (under) expenditures (1,377) 66 (1,383) (873) (2,626)

Other financing sources (uses): Transfers in 100 - - - 1,807 Transfers out (575) (197) (9) (17) (2) Premium on bonds issued - - - - - Issuance of general obligation bonds - - - - - Proceeds from sale of capital assets - - - - - Capital lease - - - - - Proceeds from repayment of notes receivable 6,143 - - - - Issuance of notes - - - - - Total other financing sources (uses) 5,668 (197) (9) (17) 1,805

Net change in fund balances 4,291 (131) (1,392) (890) (821)

Fund balances, beginning of year 5,390 926 4,238 11,461 14,602

Fund balances, end of year $ 9,681 $ 795 $ 2,846 10,571$ 13,781$

110 Total Nonmajor Management Storm Water General Arts and Special Revenue Transportation Improvement Operations Municipal Citizen Cultural Funds

$ - $ - $ - $ - -$ -$ $ ------906 1,244 - 764 - - 69,565 1,421 2,795 50,102 3,167 8 84 67,385 8,047 1,002 - - - - 9,340 102 120 89 170 22 46 859 500 4 - 105 1,061 - 4,042 ------3,256 ------2,507 10,976 5,165 50,191 4,206 1,091 130 156,954

- 3,275 43,763 11,179 171 - 70,990 - - - 274 - - 11,332 ------595 ------18,576 7,790 - - - - - 7,790 ------10 8,593 ------25,285

------5,178 ------995 910 8 4,038 1,002 - - 14,474 8,700 3,283 47,801 12,455 171 10 163,808

2,276 1,882 2,390 (8,249) 920 120 (6,854)

- - - 10,517 - - 12,424 - - (1,440) (193) - - (2,433) ------10 - - - 10 ------6,143 ------(1,430) 10,324 - - 16,144

2,276 1,882 960 2,075 920 120 9,290

8,630 16,186 41,840 26,410 2,728 5,288 137,699

$ 10,906 $ 18,068 $ 42,800 $ 28,485 3,648$ 5,408$ $ 146,989 continued

111 CITY OF DALLAS, TEXAS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS (continued) For the Year Ended September 30, 2016 (in thousands)

Capital Projects Neighborhood Streets and Projects Parks Drainage Building Revenues: Ad valorem tax $ 36,728 $ - $ - $ - Tax increment financing, intergovernmental 6,473 - - - Franchise fees - - 5,086 - Intergovernmental - - - 4,445 Service to others 307 1,051 4,477 2 Fines and forfeits - - - - Investment income 502 342 1,719 1,532 Contributions and gifts 10,313 791 4 67 Confiscated money awards - - - - Other revenues - - - - Total revenues 54,323 2,184 11,286 6,046

Expenditures: Current General government 47,507 - - 4,469 Public safety - - - 155 Streets, street lighting and code enforcement - - 261 1,205 Environmental and health services - - - - Public works and transportation - - - 1,509 Equipment and building services - - - 82 Culture and recreation - 3,380 - 504 Human services - - - - Debt service: Principal - - - - Interest and fiscal charges - - - 287 Capital outlay 2,295 12,324 83,504 51,096 Total expenditures 49,802 15,704 83,765 59,307

Excess (deficiency) of revenues over (under) expenditures 4,521 (13,520) (72,479) (53,261)

Other financing sources (uses): Transfers in - 8,495 11,720 - Transfers out - (7,000) - Premium on bonds issued - - - - Issuance of general obligation bonds 13,419 - 80,056 8,990 Proceeds from sale of capital assets - 381 6 - Capital lease - - - 24,303 Proceeds from repayment of notes receivable - - - - Issuance of notes - - 5,283 7,154 Total other financing sources (uses) 13,419 8,876 90,065 40,447

Net change in fund balance 17,940 (4,644) 1 7,586 (12,814)

Fund balances, beginning of year 43,258 55,269 204,862 77,851

Fund balances, end of year $ 61,198 $ 50,625 $ 222,448 $ 65,037

112 Total Nonmajor Trans- Capital Project portation Funds

$ - $ 36,728 - 6,473 - 5,086 14,776 19,221 1 5,838 - - 1,995 6,090 - 11,175 - - - - 16,772 90,611

- 51,976 - 155 - 1,466 - - 1,508 3,017 - 82 - 3,884 - -

- - 874 1,161 51,971 201,190 54,353 262,931

(37,581) (172,320)

- 20,215 - (7,000) 31,556 31,556 89,730 192,195 - 387 - 24,303 - - 1,323 13,760 122,609 275,416

85,028 103,096

140,799 522,039

$ 225,827 $ 625,135 continued

113 CITY OF DALLAS, TEXAS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS (continued) For the Year Ended September 30, 2016 (in thousands)

Permanent Funds

Samuell Grauwyler Craddock Park Memorial Park Revenues: Ad valorem tax $ - $ - $ - Tax increment financing, intergovernmental - - - Franchise Fees - - - Intergovernmental - - - Service to others - - - Fines and forfeits - - - Investment income 675 6 57 Contributions and gifts - - - Confiscated money awards - - - Other revenues - - - Total revenues 675 6 57

Expenditures: Current General government - - - Public safety - - - Streets, street lighting and code enforcement - - - Environment and health services - - - Public works and transportation - - - Equipment and building services - - - Culture and recreation - - - Human services - - - Debt service: Principal - - - Interest and fiscal charges - - - Capital outlay - - - Total expenditures - - -

Excess (deficiency) of revenues over (under) expenditures 675 6 57

Other financing sources (uses): Transfers in - - - Transfers out (385) - (4) Premium on bonds issued - - - Issuance of general obligation bonds - - - Proceeds from sale of capital assets - - - Capital lease - - - Proceeds from repayment of notes receivable - - - Issuance of notes - - - Total other financing sources (uses) (385) - (4)

Net change in fund balances 290 6 53

Fund balances, beginning of year 7,445 95 876

Fund balances, end of year $ 7,735 $ 101 $ 929

114 Total Martin Total Nonmajor Weiss Hale Permanent Governmental Park Davis Funds Funds

$ - $ - $ - $ 36,728 - - - 6,473 - - - 5,086 - - - 88,786 - - - 73,223 - - - 9,340 5 28 771 7,720 - - - 15,217 - - - 3,256 - - - 2,507 5 28 771 248,336

- - - 122,966 - - - 11,487 - - - 2,061 - - - 18,576 - - - 10,807 - - - 82 - - - 12,477 - - - 25,285

- - - 5,178 - - - 2,156 - - - 215,664 - - - 426,739

5 28 771 (178,403)

- - - 32,639 (1) (16) (406) (9,839) - - - 31,556 - - - 192,195 - - - 397 - - - 24,303 - - - 6,143 - - - 13,760 (1) (16) (406) 291,154

4 12 365 112,751

85 371 8,872 668,610

$ 89 $ 383 $ 9,237 $ 781,361

115 NONMAJOR ENTERPRISE FUNDS

To account for operations which are financed and operated in a manner similar to private business enterprise.

Municipal Radio – to account for City-owned radio broadcast services.

Building Inspection – to account for construction inspection services within the Dallas city limits.

116 CITY OF DALLAS, TEXAS COMBINING STATEMENT OF NET POSITION NONMAJOR ENTERPRISE FUNDS September 30, 2016 (in thousands) Total Nonmajor Municipal Building Enterprise Radio Inspection Funds Assets Current assets: Pooled cash and cash equivalents$ 1,758 $ 50,807 $ 52,565 Receivables: Accounts 332 143 475 Accrued interest 2 70 72 Allowance for uncollectible acccounts (14) - (14) Total current assets 2,078 51,020 53,098

Capital assets: Land - 900 900 Artwork - - - Construction in progress - 302 302 Buildings 337 - 337 Improvements other than building 273 - 273 Equipment 2,416 1,817 4,233 Accumulated depreciation (2,262) (1,817) (4,079) Total capital assets 764 1,202 1,966

Total assets 2,842 52,222 55,064

Deferred outflows of resources Deferred loss on refunding 5 32 37 Deferred outflows of resources related to pensions 3,575 52,290 55,865

Total deferred outflows of resources 3,580 52,322 55,902

Liabilities Current liabilities: Accrued payroll 8 217 225 Accounts payable 13 348 361 Compensated absences 35 1,043 1,078 Pension obligation bonds - current 34 247 281 Other liabilities 24 1,151 1,175 Unearned revenue - 5,991 5,991 Accrued bond interest payable 5 36 41 Total current liabilities 119 9,033 9,152

Noncurrent liabilities: Accreted interest on pension obligation bonds 613 4,497 5,110 Pension obligation bonds 1,580 11,172 12,752 Total long-term debt 2,193 15,669 17,862

Other noncurrent liabilities Compensated absences 42 1,254 1,296 Other postemployment benefits 178 4,765 4,943 Net pension liability 5,461 78,828 84,289 Total other noncurrent liabilities 5,681 84,847 90,528 Total long-term liabilities 7,874 100,516 108,390

Total liabilities 7,993 109,549 117,542

Deferred inflows of resources Deferred inflows of resources related to pensions 80 1,140 1,220

Net position Net investment in capital assets 764 1,202 1,966 Unrestricted (2,415) (7,347) (9,762) Total net position (deficit) $ (1,651) $ (6,145) $ (7,796)

117 CITY OF DALLAS, TEXAS COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION NONMAJOR ENTERPRISE FUNDS For the Year Ended September 30, 2016 (in thousands)

Total Nonmajor Municipal Building Enterprise Radio Inspection Funds Operating revenues: Customer charges $ 1,608 $ 33,648 $ 35,256 Other revenues 92 108 200 Total operating revenues 1,700 33,756 35,456

Operating expenses: Personnel services 2,069 36,615 38,684 Supplies and materials 80 1,089 1,169 Contractual and other services 687 7,452 8,139 Depreciation 61 - 61 Total operating expenses 2,897 45,156 48,053

Operating income (loss) (1,197) (11,400) (12,597)

Nonoperating revenues (expenses): Investment income 11 354 365 Interest on bonds and notes (112) (832) (944) Total nonoperating revenues (expenses) (101) (478) (579)

Income before contributions and transfers (1,298) (11,878) (13,176)

Capital contributions 40 - 40 Transfers out 64 (232) (168)

Change in net position (1,194) (12,110) (13,304)

Net position, beginning of year (457) 5,965 5,508

Net position, end of year$ (1,651) $ (6,145) $ (7,796)

118 CITY OF DALLAS, TEXAS COMBINING STATEMENT OF CASH FLOWS NONMAJOR ENTERPRISE FUNDS For the Year Ended September 30, 2016 (in thousands)

Total Nonmajor Municipal Building Enterprise Radio Inspection Funds Cash flows from operating activities: Cash received from customers$ 1,756 $ 33,947 $ 35,703 Cash payments to suppliers for goods and services (97) (941) (1,038) Cash payments to employees for services (1,041) (19,301) (20,342) Cash payments for contractual services (687) (7,452) (8,139) Other operating cash receipts (payments) 87 248 335 Net cash provided by (used in) operating activities 18 6,501 6,519

Cash flows from non capital financing activities: Taxes - - - Principal paid on pension obligation bonds (32) (243) (275) Interest paid on pension obligation bonds (103) (782) (885) Transfers from other funds 64 - 64 Transfers to other funds - (232) (232) Net cash provided by (used in) non capital financing activities (71) (1,257) (1,328)

Cash flows from capital and related financing activities: Acquisition and construction of capital assets (336) - (336) Interest paid on bonds, notes and other obligations - - - Bond issuance costs - - - Net cash provided by (used in) capital and related financing activities (336) - (336)

Cash flows from investing activities: Investment income 11 339 350 Net cash provided by (used in) investing activities 11 339 350

Net increase (decrease) in cash and cash equivalents (378) 5,583 5,205 Cash and cash equivalents, beginning of year 2,136 45,224 47,360 Cash and cash equivalents, end of year$ 1,758 $ 50,807 $ 52,565

Reconciliation of operating income (loss) to net cash provided by (used in) operating activities:

Operating income (loss)$ (1,197) $ (11,400) $ (12,597)

Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation 61 - 61 Change in assets and liabilities (Increase) Decrease in accounts and other receivables 148 (9) 139 (Increase) Decrease in deferred outflows for pension contributions (2,755) (40,946) (43,701) Increase (Decrease) in accounts payable (17) 148 131 Increase (Decrease) in accrued payroll 3 148 151 Increase (Decrease) in compensated absences (34) 18 (16) Increase (Decrease) in unearned revenue - 308 308 Increase (Decrease) in other post employment benefits (107) 308 201 Increase (Decrease) in net pension liability 3,921 57,786 61,707 Increase (Decrease) in other liabilities (5) 140 135 Total adjustments 1,215 17,901 19,116

Net cash provided by (used in) operating activities $ 18 $ 6,501 $ 6,519

Current Assets: Pooled cash and cash equivalents $ 1,758 $ 50,807 $ 52,565 Total cash and cash equivalents end of year $ 1,758 $ 50,807 $ 52,565

Noncash investing, capital, and financing activities: Capital contributions $ 40 $ - $ 40 Premium/discount amortization 15 107 122 Accretion on capital appreciation bonds 87 642 729

119 INTERNAL SERVICE FUNDS

Equipment Services Fund – to account for the cost of providing vehicles, vehicle maintenance, and fuel and lubrication to other City departments.

Communication Equipment Services Fund – to account for the cost of providing communication services to other City Departments.

Office Systems Fund – to account for the cost of providing office supplies, printing, copying, and mailing services to other City Departments.

Information Systems Fund – to account for the cost of providing data processing and programming services to other City departments.

Risk Funds – to account for the cost of providing risk financing and insurance-related activities to other City departments.

120 CITY OF DALLAS, TEXAS COMBINING STATEMENT OF NET POSITION INTERNAL SERVICE FUNDS September 30, 2016 (in thousands)

Communication Equipment Equipment Office Information Risk Services Services Services Systems Funds Total Assets Current assets: Pooled cash and cash equivalents$ 6,173 $ 2,729 1,623$ $ 35,388 $ 5,805 $ 51,718 Receivables: Accounts 2 21 12 38 23 96 Accrued interest 1 4 2 39 9 55 Inventories, at cost 2,799 173 132 - - 3,104 Prepaid expenses - - - - 29 29 Due from other funds ------Other assets - - - - 2,045 2,045 Total current assets 8,975 2,927 1,769 35,465 7,911 57,047 Capital assets: Land 1,696 - - - - 1,696 Buildings 2,772 1,663 - - - 4,435 Improvements other than buildings 285 456 - 248 - 989 Infrastructure 1,137 685 - - - 1,822 Equipment 94,077 15,230 210 19,933 336 129,786 Construction in progress 159 - - - - 159 Accumulated depreciation (86,118) (16,802) (210) (16,790) (336) (120,256) Total capital assets 14,008 1,232 - 3,391 - 18,631 Total assets 22,983 4,159 1,769 38,856 7,911 75,678

Deferred outflows of resources Deferred outflows of resources related to pensions 45,346 6,151 1,738 41,513 7,529 102,277

Liabilities Current liabilities: Accrued payroll 184 26 7 167 35 419 Accounts payable 2,175 428 320 6,025 2,466 11,414 Compensated absences 761 83 30 916 133 1,923 Estimated unpaid health claims - - - - 7,183 7,183 Estimated unpaid claims - general - - - - 7,468 7,468 Workers' compensation - - - - 6,519 6,519 Other liabilities 42 1 18 123 1,211 1,395 Total current liabilities 3,162 538 375 7,231 25,015 36,321 Noncurrent liabilities: Estimated unpaid claims - general - - - - 12,980 12,980 Workers' compensation - - - - 28,897 28,897 Compensated absences 915 100 36 1,101 160 2,312 Other postemployement benefits 4,805 356 158 2,966 950 9,235 Net pension liability 68,908 9,341 2,642 63,308 11,432 155,631 Total noncurrent liabilities 74,628 9,797 2,836 67,375 54,419 209,055 Total liabilities 77,790 10,335 3,211 74,606 79,434 245,376

Deferred inflows of resources Deferred inflows of resources related to pensions 1,016 137 39 945 169 2,306

Net position Net investment in capital assets 14,008 1,232 - 3,391 - 18,631 Unrestricted (24,485) (1,394) 257 1,427 (64,163) (88,358) Total net position (deficit) $ (10,477) $ (162) 257$ $ 4,818 $ (64,163) $ (69,727)

121 CITY OF DALLAS, TEXAS COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION INTERNAL SERVICE FUNDS For the Year Ended September 30, 2016 (in thousands)

Communication Equipment Equipment Office Information Risk Services Services Services Systems Funds Total Operating revenues Charges to other city departments$ 51,179 $ 5,122 $ 3,860 $ 60,806 97,391$ 218,358$ Charges to employees/retirees - - - - 54,442 54,442 Other revenues 172 - 156 2 287 617 Total operating revenues 51,351 5,122 4,016 60,808 152,120 273,417

Operating expenses Personnel services 31,313 3,938 1,144 28,068 13,435 77,898 Supplies and materials 21,679 895 1,341 1,450 166 25,531 Contractual and other services 9,780 2,163 1,783 39,549 151,082 204,357 Depreciation 3,558 125 - 368 - 4,051 Total operating expenses 66,330 7,121 4,268 69,435 164,683 311,837 Operating income (loss) (14,979) (1,999) (252) (8,627) (12,563) (38,420)

Nonoperating revenues (expenses): Investment income 7 19 7 175 77 285 Gain (loss) on property disposals 638 - - - - 638 Total nonoperating revenues (expenses) 645 19 7 175 77 923

Income (loss) before transfers and contributions (14,334) (1,980) (245) (8,452) (12,486) (37,497)

Transfers in ------Transfers out (1,035) (135) (37) (967) (170) (2,344)

Change in net position (15,369) (2,115) (282) (9,419) (12,656) (39,841)

Net position (deficit), beginning of year 4,892 1,953 539 14,237 (51,507) (29,886)

Net position (deficit), end of year $ (10,477) $ (162) 257$ $ 4,818 $ (64,163) $ (69,727)

122 CITY OF DALLAS, TEXAS COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS For the Year Ended September 30, 2016 (in thousands)

Communication Equipment Equipment Office Information Risk Services Services Services Systems Funds Total

Cash flows from operating activities: Cash received from customers 51,179$ 5,200$ 3,860$ $ 60,805 $ 151,833 $ 272,877 Cash payments to suppliers for goods and services (22,126) (555) (3,653) (1,777) 1,131 (26,980) Cash payments to employees for services (16,486) (2,063) (611) (14,536) (11,764) (45,460) Cash payments for contractual services (9,780) (2,163) 438 (39,549) (147,964) (199,018) Other operating cash receipts (payments) 667 - 157 2 (1,078) (252) Net cash provided by (used in) operating activities 3,454 419 191 4,945 (7,842) 1,167

Cash flows from non capital financing activities: Transfers to other funds (1,035) (135) (37) (967) (170) (2,344) Net cash provided by (used in) non capital financing activities (1,035) (135) (37) (967) (170) (2,344)

Cash flows from capital and related financing activities: Acquisition and construction of capital assets 4,348 (19) - (805) - 3,524 Proceeds from sale of fixed assets (8,660) - - (1) - (8,661) Net cash provided by (used in) capital and related financing activities (4,312) (19) - (806) - (5,137)

Cash flows from investing activities: Investment income 6 18 8 173 79 284 Net cash provided by (used in) investing activities 6 18 8 173 79 284

Net increase (decrease) in cash and cash equivalents (1,887) 283 162 3,345 (7,933) (6,030) Cash and cash equivalents, beginning of year 8,060 2,446 1,461 32,043 13,738 57,748 Cash and cash equivalents, end of year 6,173$ 2,729$ 1,623$ $ 35,388 $ 5,805 $ 51,718

Reconciliation of operating income (loss) to net cash provided by (used in) operating activities:

Operating income (loss) $ (14,979) (1,999)$ (252)$ $ (8,627) $ (12,563) $ (38,420)

Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation 3,558 125 - 368 - 4,051 Change in assets and liabilities (Increase) Decrease in accounts and other receivables - 78 - (1) - 77 (Increase) Decrease in inventories 302 66 (73) - - 295 (Increase) Decrease in other assets - - - - (161) (161) (Increase) Decrease in due from other funds 488 - - - - 488 (Increase) Decrease in deferred outflows for pension contributions (34,981) (4,757) (1,342) (31,698) (5,803) (78,581) Increase (Decrease) in accounts payable (749) 274 (18) (327) 1,297 477 Increase (Decrease) in accrued payroll 126 19 5 116 24 290 Increase (Decrease) in compensated absences (9) (18) 1 30 23 27 Increase (Decrease) in other post employment benefits 291 (99) (32) 348 381 889 Increase (Decrease) in estimated unpaid health claims 470 470 Increase (Decrease) in estimated unpaid claims - general 3,118 3,118 Increase (Decrease) in workers' compensation (1,599) (1,599) Increase (Decrease) in net pension liability 49,400 6,730 1,901 44,736 8,175 110,942 Increase (Decrease) in other liabilities 7 - 1 - (1,204) (1,196) Total adjustments 18,433 2,418 443 13,572 4,721 39,587

Net cash provided by (used in) operating activities 3,454$ 419$ 191$ $ 4,945 $ (7,842) $ 1,167

123 FIDUCIARY FUNDS

Trust and Agency Funds – to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governments, and/or other funds. The City’s Trust and Agency Funds include Pension Trust Funds and Agency Funds.

Pension Trust Funds are accounted for in essentially the same manner as proprietary funds, using the same measurement focus and basis of accounting. The Pension Trust Funds are used to account for the assets of the City’s Employees’ Retirement Fund, the Dallas Police and Fire Pension System, and the Police and Fire Supplemental Pension Fund.

Agency Funds are purely custodial and do not involve measurement of results of operations.

Cash Escrow Deposit Fund – to account for cash escrow bonds collected by the municipal court.

Confiscated Money Fund – to account for property confiscated in drug violation arrests.

Disposal Deposit Fund – to account for deposits from sanitation landfill customers that have credit accounts with the City to guarantee payment of accounts.

Tax Distribution Fund – to account for the collection and distribution of ad valorem taxes for the City and the Dallas Independent School District.

Employee War and Savings Bond Fund – to account for employee payroll deductions for the purchase of savings bonds.

Deferred Compensation Fund – to account for the employees’ 401k, tax-deferred compensation deductions.

Employee Benefits Fund – to account for employees’ Dental, Vision, AD&D, and Dependent Life Insurance deductions and Health Maintenance Organization (HMO) employees’ and City deductions. The City collects and remits premiums on behalf of the participants.

Dallas Tourism Public Improvement District (PID) Deposit Fund – to account for the collection and distribution of Tourism Public Improvement District recovery assessment fees for the Tourism PID.

124 CITY OF DALLAS, TEXAS COMBINING STATEMENT OF PLAN NET POSITION PENSION TRUST FUNDS September 30, 2016 (1) (in thousands)

Employees' Dallas Police & Police & Fire Total Retirement Fire PensionSupplemental Pension Fund System Pension Fund Trust Funds Assets Cash and cash equivalents$ 85,936 $ 76,517 $ 556 $ 163,009 Invested securities lending collateral 301,078 93,567 679 395,324 Receivables: Accounts 202,491 52,550 376 255,417 Accrued interest and dividends 15,217 5,600 41 20,858 Short-term investments - 29,771 216 29,987 Equity securities - 436,645 3,171 439,816 Domestic equities 935,950 - - 935,950 U.S. and foreign government fixed income securities 213,806 380,296 2,762 596,864 Domestic corporate fixed income 664,380 - - 664,380 International equities and fixed income 761,473 - - 761,473 Commingled index funds 109,994 - - 109,994 Real assets - 1,127,163 8,185 1,135,348 Private equities and venture capital funds 425,083 441,806 3,208 870,097 Alternative investments - 392,178 2,848 395,026 Forward currency contracts - (386) (3) (389) Prepaid expenses - 199 1 200 Capital assets, net - 12,104 88 12,192 Total assets 3,715,408 3,048,010 22,128 6,785,546

Liabilities Accounts payable 6,193 3,629 26 9,848 Payable for securities purchased 8,144 37,072 269 45,485 Securities lending collateral 301,078 93,567 679 395,324 Other liabilities 197,785 233,618 1,697 433,100 Total liabilities 513,200 367,886 2,671 883,757

Net Position Net investment in capital assets - 12,104 88 12,192 Restricted for pensions 3,202,208 2,668,020 19,369 5,889,597 Total net position $ 3,202,208 $ 2,680,124 $ 19,457 $ 5,901,789

(1) Although the City has a fiscal year-end of September 30, the pension trust funds have a calendar year-end; therefore, the information presented above is as of December 31, 2015.

125 CITY OF DALLAS, TEXAS COMBINING STATEMENT OF CHANGES IN PLAN NET POSITION PENSION TRUST FUNDS For the Year Ended September 30, 2016 (1) (in thousands)

Employees' Dallas Police & Police & Fire Total Retirement Fire Pension Supplemental Pension Fund System Pension Fund Trust Funds Additions: Contributions Employer$ 50,721 $ 114,886 $ 2,443 $ 168,050 Employee 50,742 25,676 43 76,461 Total contributions 101,463 140,562 2,486 244,511

Net investment income: Interest and dividends 102,712 72,887 529 176,128 Net appreciation (depreciation) in fair value of investments (139,372) (298,772) (2,151) (440,295) Securities lending income 1,501 746 5 2,252 Less investment expenses: Investment management fees (17,407) (9,992) (72) (27,471) Custody fees (138) - - (138) Consultant fees (340) - - (340) Securities lending management fees (300) (207) (1) (508) Total investment expenses (18,185) (10,199) (73) (28,457)

Net investment income (53,344) (235,338) (1,690) (290,372)

Other income 162 131 1 294

Total increases 48,281 (94,645) 797 (45,567)

Deductions: Benefit payments 235,106 283,217 2,640 520,963 Refund of contributions 4,854 1,786 - 6,640 Interest expense - 6,006 44 6,050 Administrative expenses 4,598 8,417 61 13,076 Total deductions 244,558 299,426 2,745 546,729

Net increase (decrease) in net position available for benefits (196,277) (394,071) (1,948) (592,296)

Net position, beginning of year 3,398,485 3,074,195 21,405 6,494,085

Net position, end of year $ 3,202,208 $ 2,680,124 $ 19,457 $ 5,901,789

(1) Although the City has a fiscal year-end of September 30, the pension trust funds have a calendar year-end; therefore, the information presented above is as of December 31, 2015.

126 CITY OF DALLAS, TEXAS COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES ALL AGENCY FUNDS For the Year Ended September 30, 2016 (in thousands)

Balance Balance September 30, September 30, 2015 Additions Deductions 2016 CASH ESCROW DEPOSIT FUND Assets Cash and other assets$ 576 $ 42 $ 363 $ 255 Liabilities Due to other governments and other liabilities 576 42 363 255

CONFISCATED MONEY FUND Assets Cash and other assets 5,251 1,378 5,047 1,582 Liabilities Other liabilities 5,251 1,378 5,047 1,582

DISPOSAL DEPOSIT FUND Assets Cash and other assets 943 - 943 - Liabilities Customer deposits 943 - 943 -

TAX DISTRIBUTION FUND Assets Cash and other assets 85 1 - 86 Liabilities Due to other funds and other liabilities 85 1 - 86

EMPLOYEE WAR AND SAVINGS BOND FUND Assets Cash and other assets 2 - - 2 Liabilities Other liabilities 2 - - 2

DEFERRED COMPENSATION FUND Assets Investments and other assets 480 43,057 43,470 67 Liabilities Due to employees - deferred compensation and other liabilities 480 43,057 43,470 67

EMPLOYEE BENEFITS FUND Assets Cash 120 13,882 13,882 120 Liabilities Other liabilities 120 13,882 13,882 120

DALLAS TOURISM PID DEPOSIT FUND Assets Cash 991 14,778 14,530 1,239 Liabilities Other liabilities 991 14,778 14,530 1,239

TOTALS - ALL AGENCY FUNDS Assets Cash and other assets 8,448 73,138 78,235 3,351 Liabilities Due to other funds and other liabilities $ 8,448 $ 73,138 $ 78,235 $ 3,351

127 DEBT SERVICE FUND

The City maintains one fund to account for payment of principal and interest on the following general obligation debt: bonds, certificates of obligation, and equipment acquisition notes.

128

CITY OF DALLAS, TEXAS BUDGETARY COMPARISON SCHEDULE DEBT SERVICE FUND Year Ended September 30, 2016 (in thousands)

Variance with Actual Final Budget-- Budgeted Amounts Budget Positive Original Final Basis (Negative) Revenues: Ad valorem taxes$ 230,780 230,780$ 230,780$ $ - "Build America Bonds" Federal Subsidy 1,372 1,372 1,401 29 Investment income - - 220 220 Total revenues 232,152 232,152 232,401 249

Expenditures: Principal 145,521 145,521 141,255 4,266 Interest and fiscal charges 98,881 98,345 89,389 8,956 Other expenditures 10,923 10,923 10,711 212 Total expenditures 255,325 254,789 241,355 13,434

Deficiency of revenues over expenditures (23,173) (22,637) (8,954) 13,683

Other financing sources: Transfers 18,994 18,994 6,233 (12,761) General obligation bonds and premium issued - - 2,880 2,880 Refunding bonds - - ‐ - Payment to refunded bond escrow agent - - (2,880) (2,880) Total other financing sources 18,994 18,994 6,233 (12,761)

Deficiency of revenues and other financing sources over expenditures (4,179) (3,643) (2,721) 922

Fund balance, beginning of year 10,999 10,999 10,999 Fund balance, end of year $ 6,820 7,356$ 8,278$ $ 922

Adjustments necessary to convert the deficiency of revenues and other sources under expenditures and other uses on the budget basis to a GAAP basis are provided below:

Deficiency of revenues and other financing sources over expenditures and other uses-GAAP basis$ (2,721)

129 DISCRETELY PRESENTED COMPONENT UNITS

Housing Finance Corporation – organized to issue tax-exempt mortgage revenue bonds to encourage low to moderate income citizen opportunities for single family residential home ownership.

Housing Acquisition and Development Corporation – organized solely and exclusively for the public purpose of providing safe, affordable housing facilities which are incidental thereto for the benefit of low and moderate-income persons.

Dallas Development Fund – organized to assist in carrying out the economic development program and objectives of the City by generating private investment capital through the New Markets Tax Credit Program to be made available for investment in low-income communities.

Downtown Dallas Development Authority – to account for tax increment financing revenue bonds issued to finance major improvements by developers on behalf of the City.

North Oak Cliff Municipal Management District – organized to promote, develop, encourage and maintain employment, commerce, transportation, housing, tourism, recreation, and the arts, entertainment, economic development, safety, the public welfare in the district, and educational scholarships for college- bound students residing in or out of the District.

Cypress Waters Municipal Management District – organized to promote, develop, encourage and maintain employment, commerce, transportation, housing, tourism, recreation, the arts, entertainment, economic development, safety, and the public welfare in the District.

Dallas Convention Center Hotel Development Corporation – organized to promote the development of the geographic area of the City included at or in the vicinity of the Dallas Convention Center, in furtherance of the promotion, development, encouragement and maintenance of employment, commerce, convention and meeting activity, tourism, and economic development in the City, including specifically, without limitation, the development and financing of a convention center hotel to be located within 1,000 feet of the Dallas Convention Center.

130 CITY OF DALLAS, TEXAS COMBINING STATEMENT OF NET POSITION DISCRETELY PRESENTED COMPONENT UNITS As of September 30, 2016 (in thousands)

Business-type Governmental-type Activities Component Units Activities North Cypress Dallas Housing Downtown Oak Cliff Waters Convention Housing Acquisition and Dallas Dallas Municipal Municipal Center Hotel Finance Development Development Development Management Management Total Development Corporation * Corporation Fund Authority District District Governmental Corporation * Assets: Current assets: Cash and cash equivalents$ 486 $ 358 $ 2,328 $ 16,629 $ 3 $ - $ 19,804 $ 63,936 Investments, at fair value 3,402 - 11 - - - 3,413 - Receivables 712 20 170 - - - 902 8,912 Inventory ------503 Prepaid Expenses 7 - - - - - 7 762 Land held for resale - 831 - - - - 831 - Franchise Fee (net of accumulated amortization) ------29 Restricted assets: Cash and cash equivalents - - - 7,957 - - 7,957 27,259 Investments, at fair value ------37,052 Capital assets: Buildings 1,958 - - - - - 1,958 330,732 Furniture, fixtures, and equipment 98 - - - - - 98 42,093 Land 509 - - - - - 509 27,511 Construction in progress ------Less: Accumulated depreciation (281) - - - - - (281) (54,988) Total assets 6,891 1,209 2,509 24,586 3 - 35,198 483,801

Liabilities: Accrued payroll ------1,209 Accounts payable 106 25 112 - 2 - 245 1,750 Accrued expenses ------2,091 Accrued taxes payable ------797 Unearned revenue ------5,143 Accrued interest payable - - - 156 - - 156 15,626 Accounts payable Omni ------621 Other liabilities 2 - - - - 305 307 434 Long-term liabilities: Due within one year - - - 2,769 - - 2,769 5,990 Due in more than one year - - - 94,037 - - 94,037 481,780 Total liabilities 108 25 112 96,962 2 305 97,514 515,441

Deferred inflows of resources 75 - - - - - 75 24

Net position: Net investment in capital assets 2,284 - - - - - 2,284 (57,088) Restricted for debt service - 667 - 7,956 - - 8,623 - Unrestricted 4,424 517 2,397 (80,332) 1 (305) (73,298) 25,424

Total net position $ 6,708 $ 1,184 $ 2,397 $ (72,376) $ 1 $ (305) $ (62,391) $ (31,664)

* The information reported for the Housing Finance Corporation and the Dallas Convention Center Hotel Development Corporation is as of December 31, 2015.

131 CITY OF DALLAS, TEXAS COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION DISCRETELY PRESENTED COMPONENT UNITS Year Ended September 30, 2016 (in thousands)

Business-type Governmental-type Activities Component Units Activities North Cypress Dallas Housing Downtown Oak Cliff Waters Convention Housing Acquisition and Dallas Dallas Municipal Municipal Center Hotel Finance Development Development Development Management Management Development Corporation * Corporation Fund Authority District District Total Corporation * Operating revenues: Charges for services $ 913 $ - $ 1,672 $ - $ - $ - 2,585$ $ 103,913 Other revenues - 1,111 - - - - 1,111 - Intergovernmental - - - 16,796 - - 16,796 - Total operating revenues 913 1,111 1,672 16,796 - - 20,492 103,913

Operating expenses: - Personnel services 164 299 - - - - 463 - Contractual and other services 364 681 563 10,215 3 20 11,846 68,932 Interest and service charges - - - 5,657 - - 5,657 - Depreciation and amortization 80 - - - - - 80 13,426 Total operating expenses 608 980 563 15,872 3 20 18,046 82,358 - - Operating income 305 131 1,109 924 (3) (20) 2,446 21,555

Nonoperating revenues(expenses): Interest and dividends 17 - - 2 - - 19 1,118 Interest on bonds ------(32,027) City tax revenue ------9,207 Other income - (58) - - 2 - (56) 11,066 Total nonoperating revenues(expenses) 17 (58) - 2 2 - (37) (10,636) - - Change in net position 322 73 1,109 926 (1) (20) 2,409 10,919 - - Net position, beginning of year 6,386 1,111 1,288 (73,302) 2 (285) (64,800) (42,583)

Net position, end of year $ 6,708 $ 1,184 $ 2,397 $ (72,376) $ 1 $ (305) $ (62,391) $ (31,664)

* The information reported for the Housing Finance Corporation and the Dallas Convention Center Hotel Development Corporation is as of December 31, 2015.

132 CITY OF DALLAS, TEXAS CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS BY SOURCE As of September 30, 2016 (in thousands)

Governmental funds capital assets: Land $ 490,857 Construction in progress 342,557 Buildings 1,305,444 Improvements other than buildings 666,688 Equipment 536,139 Infrastructure 2,446,927 Artwork 49,501 Total investment in governmental funds capital assets$ 5,838,113

Investments in governmental funds capital assets by source: General fund $ 214,569 Other trust and agency funds - municipality 124,281 Special revenue fund 181,692 Capital projects fund 4,407,826 Transfer from enterprise funds 405,338 Gifts and forfeitures 504,407 $ 5,838,113

This schedule presents only the capital asset balances related to governmental funds. Accordingly, the capital assets reported in internal service funds are excluded from the above amounts. The capital assets of internal service funds are included as governmental activities in the statement of net position.

133 CITY OF DALLAS, TEXAS CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS SCHEDULE BY FUNCTION AND ACTIVITY As of September 30, 2016 (in thousands)

Improvements Construction Other than Function and Activity Land in Progress Buildings Buildings Equipment Infrastructure Artwork Total General government City attorney -$ $ - $ - $ 8 $ 344 $ - -$ $ 352 City auditor - - - - 112 - - 112 Office of financial services - - 4 1,419 43,221 1,491 - 46,135 Municipal Court - - 826 - 3,513 30 - 4,369 City secretary - - - - 119 - - 119 Civil service - - - - 118 - - 118 Planning and Development 24,282 - 33,699 34,324 19,286 81,307 - 192,898 Employee retirement - - - - 13 - - 13 Equipment, communications and information services - - 22,055 2,587 96,329 12,259 - 133,230 Human resources - - - - 5,653 - - 5,653 International Affairs - - - - 28 - - 28 Mayor and council - - - - 212 - - 212 Police and fire pension - - - - 30 - - 30

Public safety Fire 3,493 - 26,939 52 96,069 21 - 126,574 Police 9,329 - 94,018 50 33,373 3,181 - 139,951 Public market 4,771 - 4,355 515 199 741 - 10,581

Street, sanitation, and code 49,595 - 5,843 1,819 35,165 375,318 - 467,740

Environmental and health services 3,738 - 7,234 866 905 478 - 13,221

Public works and transportation 208,443 - 584,964 72,425 56,117 1,837,548 512 2,760,009

Culture and recreation 149,810 - 412,567 551,366 22,020 30,270 48,955 1,214,988

Library 1,178 - 63,255 29 117,010 348 - 181,820

Housing 6,787 - 9,945 1,228 97 8,566 34 26,657

Unallocated - Primarily assets acquired prior to 1977 29,431 - 39,740 - 6,206 95,369 - 170,746

Construction in progress - 342,557 - - - - - 342,557

Total Capital Assets of governmental funds 490,857$ $ 342,557 $ 1,305,444 $ 666,688 $ 536,139 $ 2,446,927 $ 49,501 $ 5,838,113

This schedule presents only the capital asset balances related to governmental funds. Accordingly, the capital assets reported in internal service funds are excluded from the above amounts. The capital assets of internal service funds are included as governmental activities in the statement of net position.

134 CITY OF DALLAS, TEXAS CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS SCHEDULE OF CHANGES BY FUNCTION AND ACTIVITY As of September 30, 2016 (in thousands)

Governmental Funds Capital Assets Governmental Funds Function and Activity October 1, 2015 Capital Assets (Restated) Additions Dispositions September 30, 2016 General government City attorney $ 352 $ - $ - $ 352 City auditor 112 - - 112 Office of financial services 43,689 2,446 - 46,135 Muncipal court 4,065 304 - 4,369 City secretary 119 - - 119 Civil service 118 - - 118 Planning and development 181,741 11,157 - 192,898 Employee retirement 13 - - 13 Equipment, communications and - information services 117,872 16,737 1,379 133,230 Human resources 5,653 - - 5,653 International affairs 28 - - 28 Mayor and council 212 - - 212 Police and fire pension 30 - - 30

Public safety Fire 124,235 6,504 4,165 126,574 Police 135,790 4,199 38 139,951 Public market 10,581 - - 10,581

Streets and code enforcement 449,775 18,612 647 467,740

Environmental and health services 13,221 - - 13,221

Public works and transportation 2,688,372 72,727 1,090 2,760,009

Culture and recreation 1,206,623 8,662 297 1,214,988

Housing 26,127 530 - 26,657

Library 178,122 3,698 - 181,820

Unallocated - primarily assets acquired prior to 1977 170,746 - - 170,746

Construction in progress 249,724 188,397 95,564 342,557

Total capital assets used in the operation of governmental funds $ 5,607,320 $ 333,973 $ 103,180 $ 5,838,113

This schedule presents only the capital asset balances related to governmental funds. Accordingly, the capital assets reported in internal service funds are excluded from the above amounts. The capital assets of internal service funds are included as governmental activities in the statement of net position.

135

“Dallas, the City that works: diverse, vibrant and progressive.”

136

STATISTICAL SECTION

THIS PAGE LEFT BLANK INTENTIONALLY STATISTICAL SECTION (Unaudited)

The City of Dallas comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's health.

Tables

Financial Trends These schedules contain trend information to help the reader understand how 1-4 the City's financial performance and well-being have changed over time.

Revenue Capacity These schedules present information to help the reader assess the City's most 5-9 significant local revenue source, the property tax.

Debt Capacity These schedules present information to help the reader assess the affordability 10-14 of the City's current levels of outstanding debt and the City's ability to issue additional debt in the future.

Demographic & Economic These schedules offer demographic and economic indicators to help the reader 15-16 Information understand the environment within which the City's financial activities take place.

Operating information These schedules contain service and infrastructure data to help the reader 17-19 understand how the information in the City's financial report relates to the services the City provides and the activities it performs.

Sources: Unless otherwise noted, the information in these tables is derived from the comprehensive annual financial reports for the relevant year.

137 CITY OF DALLAS, TEXAS NET POSITION BY COMPONENT Last Ten Fiscal Years (Unaudited) (accrual basis of accounting) (in thousands)

2007 2008 2009 2010 Governmental activities Net investment in capital assets $ 1,568,170 $ 1,657,571 $ 1,699,281 $ 2,128,770 Restricted 70,916 60,532 46,353 73,825 Unrestricted (113,329) (178,079) (207,135) (266,121)

Total Governmental activities net position 1,525,757 1,540,024 1,538,499 1,936,474

Business-type activities Net investment in capital assets 2,276,773 2,357,750 2,452,779 2,533,106 Restricted for debt service 181,481 194,824 205,547 184,874 Unrestricted 205,506 221,785 185,917 195,273

Total Business-type activities net position 2,663,760 2,774,359 2,844,243 2,913,253

Primary government Net investment in capital assets 3,844,943 4,015,321 4,152,060 4,661,876 Restricted 252,397 255,356 251,900 258,699 Unrestricted 92,177 43,706 (21,218) (70,848)

Total primary government net position$ 4,189,517 $ 4,314,383 $ 4,382,742 $ 4,849,727

(1) In fiscal year 2016, Sanitation was reclassified from governmental activities to business-type activities.

*Source: Comprehensive Annual Financial Report for the respective years unless restated, which is from the subsequent year's Comprehensive Annual Financial Report, Management Discussion and Analysis

138 Table 1

2011 2012 2013 2014 2015 2016 (1)

$ 2,144,338 $ 2,201,645 $ 2,241,628 $ 2,406,821 $ 2,520,158 $ 2,640,551 188,549 159,022 216,280 144,269 195,210 169,538 (270,121) (279,979) (294,490) (306,474) (5,393,940) (6,163,516)

2,062,766 2,080,688 2,163,418 2,244,616 (2,678,572) (3,353,427)

2,586,775 2,648,976 2,738,208 2,770,931 2,778,732 2,917,498 172,515 214,249 212,472 223,230 261,399 288,970 273,611 290,977 292,801 362,862 239,436 1,946

3,032,901 3,154,202 3,243,481 3,357,023 3,279,567 3,208,414

4,731,113 4,850,621 4,979,836 5,177,752 5,298,890 5,558,049 361,064 373,271 428,752 367,499 456,609 458,508 3,490 10,998 (1,689) 56,388 (5,154,504) (6,161,570)

$ 5,095,667 $ 5,234,890 $ 5,406,899 $ 5,601,639 $ 600,995 $ (145,013)

139 CITY OF DALLAS, TEXAS CHANGE IN NET POSITION Last Ten Fiscal Years (Unaudited) (accrual basis of accounting) (in thousands)

Expenses 2007 2008 2009 2010 Governmental Activities: General government $ 164,498 $ 188,879 $ 211,380 $ 193,144 Public safety 612,318 659,915 688,891 658,225 Streets, lighting, sanitation, code enforcement (2) 166,335 176,503 159,930 156,411 Environmental and health services 29,099 33,230 37,590 12,128 Public works and transportation 60,490 70,931 40,749 52,285 Equipment and building services 41,265 31,047 21,001 27,194 Cultural and recreation 127,043 146,418 158,040 139,581 Housing 936 1,706 1,270 17,298 Human services 26,785 25,547 32,384 34,018 Interest on long-term debt 87,320 89,525 93,412 90,822 Total governmental activities 1,316,089 1,423,701 1,444,647 1,381,106 Business-type activities: Dallas water utilities 360,886 396,771 425,165 425,750 Convention center 83,429 84,608 81,926 77,056 Airport revenues 44,702 43,144 46,808 43,760 Sanitation (2) - - - - Municipal radio 3,466 3,313 2,976 3,031 Building inspection 23,897 24,018 21,638 16,659 Total business-type activities 516,380 551,854 578,513 566,256 Total primary government expenses 1,832,469 1,975,555 2,023,160 1,947,362 Program revenues Governmental Activities: Charges for services General government 66,803 80,647 88,636 94,646 Public safety 32,451 52,475 68,455 75,160 Streets, lighting, sanitation, code (2) 94,223 99,803 88,010 98,043 Environmental and health services 5,856 5,895 5,946 - Public works and transportation 23,567 11,977 9,968 10,004 Equipment and building services 1,007 994 1,707 561 Cultural and recreation 29,894 15,499 17,950 15,182 Housing 807 40 868 637 Human Services 21,339 14 21 13,197 Operating grants and contributions 71,041 71,772 79,204 104,839 Capital grants and contributions 2,912 15,821 4,986 342,031 Total governmental activities 349,900 354,937 365,751 754,300 Business-type activities: Charges for services Dallas water utilities 411,998 451,408 467,929 467,527 Convention center 22,473 20,392 16,754 19,104 Airport revenues 38,581 48,224 51,836 59,229 Sanitation (2) - - - - Municipal radio 3,675 3,227 2,640 2,887 Building inspection 23,261 21,819 15,609 18,469 Operating grants and contributions - - - - Capital grants and contributions 33,467 29,779 26,195 30,519 Total business-type activities 533,455 574,849 580,963 597,735 Total primary government program revenues 883,355 929,786 946,714 1,352,035

Net (Expense) Revenue Governmental Activities (966,189) (1,068,764) (1,078,896) (626,806) Business-type activities 17,075 22,995 2,450 31,479 Total primary government net expense (949,114) (1,045,769) (1,076,446) (595,327) General Revenues: Taxes: Ad valorem tax 553,033 623,625 662,433 637,304 Sales taxes 224,078 231,108 208,169 205,933 Franchise taxes 118,745 127,551 124,891 123,721 Tax increment financing, intergovernmental 6,090 8,857 10,764 6,739 Interest on investments 62,776 47,644 35,762 9,045 Miscellaneous 30,755 41,273 27,063 20,531 Transfer 3,302 2,973 8,289 21,508 Total general revenues 998,779 1,083,031 1,077,371 1,024,781 Business-type activities: Hotel occupancy tax 49,641 49,235 41,969 42,114 Motor vehicle tax 4,495 4,471 4,171 4,373 Alcohol beverage tax 7,569 7,856 7,533 7,398 Investment Income 39,970 27,720 20,909 4,097 Miscellaneous 7,014 1,295 1,141 1,057 Transfer (3,302) (2,973) (8,289) (21,508) Special item - - - - Total business-type activities 105,387 87,604 67,434 37,531 Change in Net Position Governmental activities 32,590 14,267 (1,525) 397,975 Business-type activities 122,462 110,599 69,884 69,010 Total primary government $ 155,052 $ 124,866 $ 68,359 $ 466,985 *Source: Comprehensive Annual Financial Report for the respective years unless restated, which is from the subsequent year's Comprehensive Annual Financial Report, Management Discussion and Analysis

(1) Fiscal year 2014 beginning net position was not restated because information was not available.

(2) In fiscal year 2016, Sanitation was reclassified from governmental activities to business-type activities.

140 Table 2

2011 2012 2013 2014 (1) 2015 2016

$ 180,347 $ 190,927 $ 191,643 $ 263,147 $ 220,164 $ 339,671 640,010 690,906 684,636 684,808 594,747 1,345,492 175,984 177,005 194,248 192,981 213,665 195,187 23,304 20,689 19,026 16,747 18,067 19,431 59,553 120,640 66,755 62,168 74,130 88,141 26,848 22,999 28,259 35,369 36,917 50,829 128,323 119,466 135,934 142,519 160,527 222,921 7,849 10,230 12,998 10,367 17,529 32,694 32,911 25,640 21,995 24,006 20,451 26,789 105,350 84,824 74,193 75,133 63,404 80,890 1,380,479 1,463,326 1,429,687 1,507,245 1,419,601 2,402,045

431,565 429,313 436,858 429,034 499,585 586,505 80,532 80,412 93,115 90,377 92,661 105,869 63,219 65,526 77,516 91,807 103,950 137,143 - - - - - 116,152 3,123 2,390 2,312 2,047 2,254 3,009 16,793 17,579 21,021 23,647 28,704 45,988 595,232 595,220 630,822 636,912 727,154 994,666 1,975,711 2,058,546 2,060,509 2,144,157 2,146,755 3,396,711

100,470 92,813 101,896 100,673 104,237 115,901 59,955 64,196 74,746 59,061 74,126 102,308 103,828 108,354 102,117 102,621 109,391 18,984 4 - - - - 71 10,356 8,113 13,361 13,143 5,572 6,551 571 911 807 882 979 1,157 16,286 16,862 19,503 21,021 19,972 21,467 2,557 1,899 3,488 2,234 1,994 2,973 9,333 1,728 142 146 118 122 118,369 112,654 77,534 70,935 77,038 75,560 32,267 13,823 39,035 85,718 59,712 31,092 453,996 421,353 432,629 456,434 453,139 376,186

524,281 527,374 551,498 564,546 573,327 607,329 20,640 28,727 27,936 24,207 28,211 32,858 64,456 64,052 70,553 84,426 109,777 123,757 - - - - - 102,283 3,008 2,398 1,920 1,908 1,975 1,608 23,107 23,429 26,867 28,208 31,378 33,648 - 606 5,192 5,699 5,937 6,343 33,754 21,734 53,977 16,586 21,135 37,317 669,246 668,320 737,943 725,580 771,740 945,143 1,123,242 1,089,673 1,170,572 1,182,014 1,224,879 1,321,329

(926,483) (1,041,973) (997,058) (1,050,811) (966,462) (2,025,859) 74,014 73,100 107,121 88,668 44,586 (49,523) (852,469) (968,873) (889,937) (962,143) (921,876) (2,075,382)

659,400 649,459 659,693 687,573 735,913 791,420 217,148 231,327 243,697 257,467 275,250 285,669 128,757 129,508 131,009 136,951 132,719 140,184 6,601 6,172 6,937 4,108 4,892 6,473 6,830 6,469 2,526 2,667 7,550 10,089 18,252 17,558 14,448 11,235 43,588 16,771 15,787 19,402 21,478 32,008 23,120 32,856 1,052,775 1,059,895 1,079,788 1,132,009 1,223,032 1,283,462

44,969 40,047 45,182 50,374 53,931 59,225 3,470 - - - - - 7,656 6,728 7,648 10,256 11,247 12,058 4,439 3,626 1,964 2,416 5,901 6,786 887 866 908 208 314 699 (15,787) (19,402) (21,478) (32,008) (23,120) (32,856) - (13,664) (22,066) (6,372) - - 45,634 18,201 12,158 24,874 48,273 45,912

126,292 17,922 82,730 81,198 256,570 (742,397) 119,648 91,301 119,279 113,542 92,859 (3,611) $ 245,940 $ 109,223 $ 202,009 $ 194,740 $ 349,429 $ (746,008)

141 CITY OF DALLAS, TEXAS FUND BALANCES, GOVERNMENTAL FUNDS Last Ten Fiscal Years (Unaudited) (modified accrual basis of accounting) (in thousands)

2007 2008 2009 2010 General Fund Nonspendable $ 6,020 $ 7,904 $ 9,612 9,034$ Restricted 19,902 19,692 4,253 2,599 Committed 2,660 2,459 2,233 1,988 Assigned 42,262 25,036 18,111 19,201 Unassigned 62,858 63,247 69,789 59,150 Total general fund 133,702 118,338 103,998 91,972

All Other Governmental Funds Nonspendable 15,477 12,504 12,054 12,538 Restricted 781,779 882,170 893,870 793,287 Committed 11,208 14,915 15,544 13,994 Total all other governmental funds 808,464 909,589 921,468 819,819

Total all governmental funds $ 942,166 $ 1,027,927 $ 1,025,466 911,791$

(1) In fiscal year 2016, Sanitation was reclassifed from governmental funds to enterprise funds.

Source: Comprehensive Annual Financial Report for the respective years unless restated, which is from the subsequent years' Comprehensive Annual Financial Report, notes to the financial statements

142 Table 3

2011 2012 2013 2014 2015 2016 (1)

$ 8,515 $ 9,289 $ 9,324 $ 10,044 $ 9,894 $ 10,659 7,431 11,431 8,506 11,236 8,485 9,593 1,740 1,490 1,250 1,250 10,570 1,250 20,446 25,621 17,086 28,905 29,603 15,836 83,289 101,205 120,839 129,239 141,550 153,693 121,421 149,036 157,005 180,674 200,102 191,031

11,974 13,116 13,647 13,885 17,119 17,484 668,328 521,775 546,308 367,619 650,698 761,184 10,748 11,540 14,406 14,541 14,602 13,781 691,050 546,431 574,361 396,045 682,419 792,449

$ 812,471 $ 695,467 $ 731,366 $ 576,719 $ 882,521 $ 983,480

143 CITY OF DALLAS, TEXAS CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS Last Ten Fiscal Years (Unaudited) (modified accrual basis of accounting) (in thousands)

2007 2008 2009 2010 REVENUES: Ad valorem taxes $ 551,476 $ 619,207 $ 658,195 $ 643,517 Tax increment financing, intergovernmental 5,714 8,857 - 6,739 Sales taxes 224,078 231,108 208,169 205,933 Franchise fees 118,745 127,551 124,891 123,721 Licenses and permits 3,028 3,696 3,569 5,349 Intergovernmental 73,953 76,779 94,954 114,928 Service to others 213,951 196,787 215,197 230,373 Fines and forfeitures 51,378 37,876 37,774 41,364 Investment income 60,659 46,440 34,996 8,962 Contributions and gifts 3,610 13,526 6,988 5,824 Confiscated money awards 2,788 2,924 2,101 3,758 Other revenues 17,970 17,596 8,468 4,676 Total revenues 1,327,350 1,382,347 1,395,302 1,395,144 EXPENDITURES: Current: General government 159,819 158,125 178,832 177,777 Public safety 575,215 611,754 629,199 640,205 Streets, street lighting, and code enforcement 152,178 158,997 149,060 149,969 Environmental and health services 27,938 34,057 37,639 20,009 Public works and transportation 21,928 18,766 15,452 13,803 Equipment and building services 34,352 23,331 12,280 21,260 Culture and recreation 109,995 124,750 124,073 107,140 Housing 834 1,487 1,303 8,257 Human services 25,797 24,593 28,991 32,819 Debt Service: Principal 123,179 141,780 150,909 202,748 Interest and fiscal charges 64,495 83,410 96,037 89,580 Payment to refunded bond escrow agent - - - - Capital outlay 199,146 331,020 279,211 230,864 Total expenditures 1,494,876 1,712,070 1,702,986 1,694,431 Excess(deficiency) of revenues over expenditures (167,526) (329,723) (307,684) (299,287)

OTHER FINANCING SOURCES(USES): Transfers in 57,083 37,017 85,603 72,376 Transfers out (53,192) (31,762) (72,925) (46,244) Proceeds from sale of capital assets 9,509 9,240 33,762 5,943 Premium on debt issued 13,690 17,496 7,945 32,032 Issuance of long-term debt 368,431 387,034 250,838 303,686 Payment to refunded bond escrow agent - (74,151) - (182,181) Proceeds from repayment of notes receivable - - - - Refunding bonds issued - 70,610 - - Total other financing sources(uses) 395,521 415,484 305,223 185,612 Net change in fund balance $ 227,995 $ 85,761 $ (2,461) $ (113,675) Debt service as a percentage of noncapital expenditures 14.53% 16.31% 17.34% 19.97%

(1) In fiscal year 2016, Sanitation was reclassifed from governmental funds to enterprise funds.

*Source: Comprehensive Annual Financial Report for the respective years unless restated, which is from the subsequent years' Comprehensive Annual Financial Report, notes to the financial statements.

144 Table 4

2011 2012 2013 2014 2015 2016 (1)

$ 659,793 $ 650,701 $ 660,496 $ 687,891 $ 734,885 $ 791,087 6,601 6,172 6,937 4,108 4,892 6,473 217,148 231,327 243,697 257,467 275,250 285,669 128,757 129,508 131,009 136,951 132,719 140,184 5,798 6,185 6,271 6,232 6,047 6,232 128,400 118,042 102,879 99,326 87,633 98,329 232,350 224,869 236,911 255,997 261,685 182,959 38,781 36,336 35,525 34,079 34,879 39,262 6,664 6,350 2,454 2,542 7,235 9,804 22,236 8,555 19,367 32,057 25,848 15,270 1,784 2,883 2,253 3,493 4,764 3,256 5,705 4,764 3,215 7,671 9,401 12,640 1,454,017 1,425,692 1,451,014 1,527,814 1,585,238 1,591,165

162,471 170,268 172,910 227,195 203,780 224,342 622,299 623,260 643,510 656,941 685,444 700,430 159,052 157,829 165,875 175,853 186,631 129,472 23,419 20,623 18,629 16,662 17,757 18,576 15,681 20,336 28,548 19,467 17,257 18,046 19,827 17,406 21,290 25,648 23,439 24,375 105,253 101,776 110,676 120,198 129,866 140,566 7,249 8,327 9,499 10,290 13,551 11,932 33,035 26,677 22,747 20,741 20,440 25,285

152,193 154,600 147,293 147,177 168,962 165,234 99,080 88,608 78,611 79,256 84,543 93,109 - - 3,204 - - 2,880 207,362 237,055 240,196 265,262 204,012 228,726 1,606,921 1,626,765 1,662,988 1,764,690 1,755,682 1,782,973

(152,904) (201,073) (211,974) (236,876) (170,444) (191,808)

42,946 48,093 38,508 57,022 41,053 54,465 ( 21,498) (23,330) (14,178) (18,647) (15,357) (19,265) 10,662 8,157 17,427 2,238 32,976 610 21,613 3,261 69,304 - 95,392 31,556 159,816 47,888 517,671 41,616 388,895 230,310 ( 217,974) - (380,859) - (271,433) ------6,143 58,019 - - - 204,720 2,880 53,584 84,069 247,873 82,229 476,246 306,699 $ (99,320) $ (117,004) $ 35,899 $ (154,647) $ 305,802 $ 114,891

17.95% 17.50% 15.88% 15.10% 16.34% 16.62%

145 Table 5 CITY OF DALLAS, TEXAS ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY Last Ten Fiscal Years (Unaudited) (in thousands)

Personal Real Property Property Total Total Estimated Estimated Less: Taxable Direct Market Market Tax-Exempt Assessed Tax Fiscal Year Value (2) Value (2) Property (2) Value (1) (4) Rate (3) 2007 $ 84,505,792 $ 11,694,227 $ (20,075,828) $ 76,124,191 0.7292

2008 91,914,767 14,177,424 (21,565,257) 84,526,934 0.7479

2009 100,983,132 14,859,528 (25,364,727) 90,477,933 0.7479

2010 97,533,425 15,055,400 (25,324,730) 87,264,095 0.7479

2011 94,008,753 13,706,221 (24,289,495) 83,425,479 0.7970

2012 92,312,007 13,741,870 (24,060,131) 81,993,746 0.7970

2013 94,522,089 14,203,657 (25,044,024) 83,681,722 0.7970

2014 98,764,424 14,903,530 (26,416,432) 87,251,522 0.7970

2015 106,519,690 14,900,052 (28,281,532) 93,138,210 0.7970

2016 115,476,547 15,323,489 (30,481,099) 100,318,937 0.7970

Notes:

(1) Total Taxable Assessed Value represents original certified taxable value determined by the Dallas, Collin, Denton, and Rockwall Central Appraisal District.

(2) Values for each fiscal year reflect the tax rolls of the previous year (i.e., 2016 fiscal year reflects 2015 tax roll). See Note 1 in the Notes to the Financial Statements for more information.

(3) Per $100 of valuation.

(4) Exemptions are granted by the City within the constraints of Texas Constitutional law SC 5.

Source: Dallas Central Appraisal District

146 Table 6 CITY OF DALLAS, TEXAS CITY TAX RATE DISTRIBUTION Last Ten Fiscal Years (Unaudited) (Per $100 of Assessed Value) (in thousands)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 General Fund$ 0.5448 $ 0.5196 $ 0.5230 $ 0.4918 $ 0.5324 0.5379$ $ 0.5439 $ 0.5601 0.5646$ $ 0.5646

Debt Service Fund 0.1844 0.2283 0.2249 0.2561 0.2646 0.2591 0.2531 0.2369 0.2324 0.2324

Total City Tax Rate$ 0.7292 $ 0.7479 $ 0.7479 $ 0.7479 $ 0.7970 0.7970$ $ 0.7970 $ 0.7970 0.7970$ $ 0.7970

Source: Dallas Central Appraisal District

147 Table 7 CITY OF DALLAS, TEXAS PROPERTY TAX RATES - ALL DIRECT AND OVERALAPPING TAX RATES (PER $100 OF ASSESSED VALUE) Last Ten Fiscal Years (Unaudited)

City Direct Rates (2) Overlapping Rates (1)

Dallas General County Dallas Dallas Dallas Operating Obligation Community Independent County County Total General Debt Dallas College School School Hospital Ad valorem Fiscal Year Rates Service County District District Equalization District Rate 2007$ 0.54480 $ 0.18440 $ 0.21390 $ 0.08100 $ 1.50264 $ 0.00503 $ 0.25400 $ 2.78074

2008 0.51960 0.22830 0.22810 0.08040 1.19964 0.00471 0.25400 2.51004

2009 0.52300 0.22490 0.22810 0.08940 1.18340 0.00493 0.25400 2.50280

2010 0.49180 0.25610 0.22810 0.09490 1.27134 0.00521 0.27400 2.61624

2011 0.53240 0.26460 0.24310 0.09923 1.23781 0.01000 0.27100 2.64814

2012 0.53790 0.25910 0.24310 0.09967 1.29035 0.01000 0.27100 2.70112

2013 0.54390 0.25310 0.24310 0.11938 1.29035 0.00994 0.27100 2.72083

2014 0.56010 0.23690 0.24310 0.12470 1.28209 0.01000 0.27600 2.72289

2015 0.56460 0.23240 0.24310 0.12478 1.28209 0.01000 0.28600 2.73297

2016 0.56460 0.23240 0.24310 0.12365 1.28209 0.01000 0.28600 2.73185

Source: Dallas Central Appraisal District

(1) Overlapping rates are those of local and county governments that apply to property owners within the City of Dallas.

(2) The City's basic property tax rate may be increased only by a majority vote of the City Council up to the limit of the State law, after which the City's residents may petition for a vote. Rates for debt service are set based on each year's requirements.

148 Table 8 CITY OF DALLAS, TEXAS PROPERTY TAX LEVIES AND COLLECTIONS Last Ten Fiscal Years (Unaudited) (in thousands)

Collection Within the Collections Actual Taxes Levied Fiscal Year of the Levy in Total Collections to Date Fiscal Levy for the Current tax Percentage Subsequent Total Tax Percentage Year Year Fiscal Year collections of Levy Years Collections of Levy 2007 2006$ 555,098 $ 539,974 97.28% 6,599$ $ 546,573 98.46%

2008 2007 632,177 606,659 95.96% 6,445 613,104 96.98%

2009 2008 676,684 647,697 95.72% 4,413 652,110 96.37%

2010 2009 652,648 631,848 96.81% 5,590 637,438 97.67%

2011 2010 664,901 647,605 97.40% 6,562 654,167 98.39%

2012 2011 653,490 638,999 97.78% 5,561 644,560 98.63%

2013 2012 666,943 650,496 97.53% 4,572 655,068 98.22%

2014 2013 695,395 678,179 97.52% 4,258 682,437 98.14%

2015 2014 742,312 724,668 97.62% 4,468 729,136 98.23%

2016 2015 799,542 780,733 97.65% 4,431 785,164 98.20%

Source: Dallas County Tax Assessor/Collector

149 Table 9 CITY OF DALLAS, TEXAS PRINCIPAL PROPERTY TAXPAYERS Current Year and Nine Years Ago (Unaudited) (in thousands)

2016 2007

Percent Percent of Total of Total Taxable Taxable Taxable Taxable Assessed Assessed Assessed Assessed Name of Taxpayer Nature of Property Valuation Rank Valuation Valuation Rank Valuation Oncor Electric/Texas Utilities Electric Utility $ 789,299 1 0.85% - - -

Northpark Land Partners Developer 643,717 2 0.69% 569,401 5 0.67%

Crescent Real Estate Real Estate/Developer 642,212 4 0.69% 576,908 4 0.68%

AT&T Corporation Telephone Utility 583,581 3 0.63% 1,049,366 1 1.24%

Southwest Airlines Company Air Transportation 552,374 5 0.59% 560,593 6 0.66%

Texas Instruments Electronic Manufacturing 548,171 6 0.59% - - -

PC Village Apartments Dallas, LP Developer 475,467 7 0.51% 255,151 10 0.30%

Walmart Stores, Incorporated Retailer 402,250 8 0.43% - - -

Galleria Mall Investors, LP Developer 396,588 9 0.43% 431,782 7 0.51%

Post Properties, Incorporated Real Estate/Developer 313,299 10 0.34%

Raytheon/Texas Instruments Electronic Manufacturing - - - 878,794 2 1.04%

Texas Utilities Electric Utility - - - 747,855 3 0.88%

YPI Thanksgiving Tower/Central Expy Etal Real Estate/Developer - - - 370,561 8 0.44%

Teachers Insurance Insurance - - - 329,791 6 0.39%

$ 5,346,957 5.75%$ 5,770,202 6.81%

Source: Dallas County Tax Office

150 Table 10 CITY OF DALLAS, TEXAS DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT Year Ended September 30, 2016 (Unaudited) (in thousands)

Estimated Estimated Share of Debt PercentageOverlapping Governmental Unit Outstanding Applicable (1) Debt Direct Debt: City of Dallas Debt repaid with property taxes General Obligation Bonds$ 1,641,422 $ 1,641,422 Certificates of Obligation 18,011 18,011 Pension Obligation Bonds 380,840 380,840 Other Debt Capital Leases Payable 59,117 59,117 Commercial Paper 10,220 10,220 Long-term Notes Payable 42,893 42,893

Subtotal, direct debt 2,152,503 100.00 % 2,152,503

Overlapping Debt: Carrollton-Farmers Branch ISD 265,850 7.15 % 19,008 Cedar Hill Independent School District 116,208 1.03 % 1,197 Collin County 379,084 4.39 % 16,642 Collin County Community College District 31,600 4.39 % 1,387 Coppell Independent School District 212,351 1.08 % 2,293 Dallas County 80,009 50.13 % 40,108 Dallas County Community College District 321,510 50.13 % 161,173 Dallas County Hospital District 715,358 50.13 % 358,609 Dallas Independent School District 2,447,228 74.07 % 1,812,662 Denton County 619,619 1.67 % 10,348 Duncanville Independent School District 209,393 44.29 % 92,740 Garland Independent School District 493,460 2.41 % 11,892 Grand Prairie Independent School District 441,586 2.71 % 11,967 Highland Park Independent School District 83,942 9.10 % 7,639 Irving Independent School District 494,410 2.37 % 11,718 Lancaster Independent School District 143,105 1.97 % 2,819 Mesquite Independent School District 414,061 1.25 % 5,176 Plano Independent School District 852,635 11.22 % 95,666 Richardson Independent School District 391,681 57.78 % 226,313

Subtotal, overlapping debt $ 8,713,090 $ 2,889,357

City Of Dallas (direct debt) 2,152,503 100.00 % 2,152,503

Total direct and overlapping debt$ 10,865,593 $ 5,041,860

Ratio of Direct and Estimated Share of Overlapping Tax Debt 5.03% to Taxable Assessed Valuation Per Capita Direct and Overlapping Tax Debt (not in thousands) 4,008

Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the City. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of the City. This process recognizes that, when considering the City's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account.

(1) The percentage of overlapping debt applicable is estimated using taxable assessed property values. Applicable percentages were estimated by determining the portion of another governmental unit's taxable assessed value that is within the City's boundaries and dividing it by each unit's total taxable assessed value. Debt outstanding data was obtained from each governmental unit. 151 CITY OF DALLAS, TEXAS RATIO OF OUTSTANDING DEBT BY TYPE Last Ten Fiscal Years (Unaudited)

Governmental

General Certificates Equipment Pension Capital Long-term Revenue and Fiscal Obligation of Acquisition Obligation Leases Commercial Notes Refunding Year Bonds Obligation Notes Bonds TIF Bonds Payable Paper Payable Bonds 2006 957,404$ 52,313$ 51,503$ 412,751 $ 11,319 12,587$ $ - - $ 1,960,874

2007 1,241,302 43,145 45,943 413,940 9,410 10,914 - 169 2,055,809

2008 1,447,695 80,590 58,180 413,618 7,451 10,732 - 11,609 2,107,537

2009 1,553,177 75,888 71,088 412,559 5,397 9,526 - 9,774 2,121,743

2010 1,564,938 58,915 45,802 412,018 - 7,072 - 7,833 2,234,823

2011 1,467,092 36,456 43,038 412,720 - 6,231 - 5,826 2,280,946

2012 1,343,278 50,031 22,385 410,168 - 6,526 25,000 4,702 2,368,889

2013 1,452,292 36,477 9,375 407,301 - 17,737 - 31,635 2,423,049

2014 1,318,947 26,457 4,685 404,248 - 26,991 26,475 32,402 2,316,892

2015 1,558,578 21,871 - 400,411 - 52,488 27,880 44,208 2,577,258

2016 1,641,422 18,011 - 261,102 - 59,117 10,220 42,893 2,701,953

Details regarding the City's outstanding debt can be found in the notes to the financial statements.

(1) These ratios are calculated using personal income and population data (See Table 15).

(2) See Table 5 for property value data.

152 Table 11

Business-Type

Percentage of Estimated General Pension Long-term Total Percentage Total Actual Obligation Obligation Commercial Notes Primary of Personal Per Bonded Property Per Bonds Bonds Paper Payable Government Income (1) Capita (1) Debt Value (2) Capita $ - $ 137,009 160,538$ -$ $ 3,756,298 12.88% 2,981$ $ 1,610,980 2.27% 1,279

- 140,195 179,698 - 4,140,525 13.10% 3,235 1,884,525 2.48% 1,472

- 140,087 67,242 15,733 4,360,474 13.15% 3,409 2,140,170 2.53% 1,673

- 139,729 169,983 14,535 4,583,399 13.87% 3,509 2,252,441 2.49% 1,725

- 139,545 58,000 12,539 4,541,485 13.17% 3,451 2,221,218 2.55% 1,688

- 139,323 36,860 10,760 4,439,252 14.78% 3,699 2,098,629 2.52% 1,749

- 138,642 - 8,985 4,378,606 14.20% 3,628 1,964,504 2.40% 1,628

- 137,815 - 6,867 4,522,548 14.65% 3,670 2,043,260 2.44% 1,660

- 136,868 122,840 4,708 4,421,513 13.15% 3,663 1,891,205 2.17% 1,567

- 135,617 90,458 2,508 4,911,277 14.41% 3,948 2,116,477 2.27% 1,701

8,396 119,738 48,322 266 4,911,440 12.82% 3,904 2,048,669 2.04% 1,629

153 CITY OF DALLAS, TEXAS LEGAL DEBT MARGIN Last Ten Fiscal Years (Unaudited) (in thousands)

2006 2007 2008 2009 2010 Total Assessed Valuation $70,843,802 $76,124,191 $84,526,934 $90,477,933 $87,264,095

Overall debt limitation - 10% of assessed valuation 7,084,380 7,612,419 8,452,693 9,047,793 8,726,410

Net Debt Subject to Limitation 1,486,233 1,728,963 1,905,673 2,006,271 1,938,126

Legal debt margin within 10% limitation (1) $5,598,147 $5,883,456 $6,547,020 $7,041,522 $6,788,284

Legal Debt Margin as a Percentage of the Debt Limit 79.0% 77.3% 77.5% 77.8% 77.8%

Notes:

(1) Chapter XXI, Section 3 of the City of Dallas Charter states, "The maximum bonded indebtedness of the City outstanding at any one time, and payable from taxation, shall not exceed 10% of the total assessed valuation of property shown by the last assessment roll of the City."

154 Table 12

2011 2012 2013 2014 2015 2016 $83,425,479 $81,993,746 $83,681,722 $87,251,522 $93,138,211 $100,318,937

8,342,548 8,199,375 8,368,172 8,725,152 9,313,821 10,031,894

1,798,332 1,666,007 1,691,184 1,547,227 1,700,335 1,774,889

$6,544,216 $6,533,368 $6,676,988 $7,177,925 $7,613,486 $8,257,005

78.4% 79.7% 79.8% 82.3% 81.7% 82.3%

155 Table 13 CITY OF DALLAS, TEXAS SCHEDULE OF REVENUE BOND COVERAGE DALLAS WATER UTILITIES Last Ten Fiscal Years (Unaudited) (in thousands)

Net Revenue Available for Debt Service Debt Service Requirements (2) Revenue Fiscal Gross Net Bond Year Revenue Expense (1) Revenue Principal Interest Total Coverage (3) 2007$ 427,887 $ 204,221 $ 223,666 83,265$ $ 76,550 $ 159,815 1.40

2008 462,424 206,213 256,211 91,215 77,606 168,821 1.52

2009 490,729 245,846 244,883 95,330 75,940 171,270 1.43

2010 478,512 240,117 238,395 96,115 73,987 170,102 1.40

2011 508,040 228,844 279,196 96,115 80,444 176,559 1.58

2012 535,289 235,821 299,468 96,115 77,250 173,365 1.73

2013 554,686 233,177 321,509 89,510 84,269 173,779 1.85

2014 569,822 246,141 323,681 94,545 84,134 178,679 1.81

2015 568,841 287,983 280,858 96,675 86,186 182,861 1.54

2016 619,890 306,085 313,805 100,980 79,705 180,685 1.74

Notes:

(1) Operating expenses do not include depreciation or any PILOT payments or similar payments that are not considered expenses of the operation and maintenance of the Water and Wastewater System.

Operating expenses includes payments for the Water Transmission Facilities Financing Agreement in, as explained in note 10.R. Per Texas Government Code, Section 1502.056(c), "a contract between a municipality and an issuer, as defined by Section 1201.002, under which the municipality obtains from the issuer part or all of the facilities or services of a utility system to that payments made by the municipality from the revenue of the utility system are an operating expense of the municipality's utility system."

(2) Includes principal and interest of revenue bonds only. It does not include the general obligation bonds reported in the enterprise fund.

(3) Revenue bond coverage is equal to net revenue available for debt service divided by total principal and interest.

156 Table 14 CITY OF DALLAS, TEXAS SCHEDULE OF REVENUE BOND COVERAGE CONVENTION CENTER FUND Last Ten Fiscal Years (Unaudited) (in thousands)

Net Revenue Available for Debt Service Debt Service Requirements (2) Revenue Fiscal Gross Net Bond Year Revenue Expenditures (1) Revenue Principal Interest Total Coverage (3) 2007 $ 89,327 $ 44,971 44,356$ 14,265$ 20,096$ 34,361$ 1.3

2008 87,068 40,212 46,856 15,820 18,543 34,363 1.4

2009 73,871 40,170 33,701 1,725 18,696 20,421 1.7

2010 73,783 38,196 35,587 1,730 17,791 19,521 1.8

2011 77,332 38,354 38,978 2,205 16,487 18,692 2.1

2012 75,947 44,975 30,972 2,775 16,421 19,196 1.6

2013 85,820 52,850 32,970 3,675 16,282 19,957 1.7

2014 90,356 54,606 35,750 4,640 16,098 20,738 1.7

2015 99,805 57,479 42,326 5,740 15,866 21,606 2.0

2016 110,653 70,164 40,489 6,945 15,579 22,524 1.8

(1) Convention Center Revenue bond covenants require only Convention Center expenses be considered when calculating bond coverage. (2) Includes principal and interest of revenue bonds only. It does not include the general obligation bonds reported in the enterprise fund. (3) Revenue bond coverage is equal to net revenue available for debt service divided by total principal and interest.

157 Table 15 CITY OF DALLAS, TEXAS DEMOGRAPHIC STATISTICS AND ECONOMIC STATISTICS Last Ten Fiscal Years (Unaudited)

Per Capita Median Assessed Fiscal Personal Household Median Valuation Labor Unemployment Year Population (1) Personal Income Income Income Age (in thousands) Force Unemployment (2) Rate (2) 2007 1,280,500 $ 31,616,825,500 (3) $ 24,691 (4) $ 38,276 (3) 31.9 (3) $ 76,124,191 612,088 28,768 4.7 %

2008 1,279,910 33,154,788,640 (3) 25,904 (4) 42,670 (3) 32.1 (3) 84,526,934 606,506 29,719 4.9 %

2009 1,306,350 33,048,042,300 (3) 25,298 (4) 40,473 (3) 32.0 (3) 90,477,933 592,403 43,838 7.4 %

2010 1,316,350 (5) 34,473,231,975 (3) 26,189 (4) 39,813 (3) 31.8 (3) 87,264,095 605,307 52,662 8.7 %

2011 1,200,530 (6) 30,042,062,720 (3) 25,024 (4) 42,911 (3) 31.6 (3) 83,425,479 (7) 607,860 52,884 8.7 %

2012 1,207,420 30,842,940,190 (3) 25,545 (4) 43,804 (3) 31.7 (3) 81,993,746 (7) 580,975 44,955 7.7 %

2013 1,232,243 30,868,803,800 (3) 25,051 (4) 41,318 (3) 32.0 (3) 83,681,722 (7) 591,278 39,966 6.8 %

2014 1,232,360 33,615,083,720 (3) 27,277 (4) 41,666 (3) 32.3 (3) 87,251,522 (7) 596,473 34,977 5.9 %

2015 1,244,270 34,081,929,000 (3) 27,391 (4) 43,103 (3) 32.1 (3) 93,138,211 (7) 642,785 26,917 4.2 %

2016 1,257,730 38,299,687,300 30,451 (4) 44,461 (3) 32.5 (3) 100,318,937 (7) 661,622 25,627 3.9 %

(1) North Central Texas Council of Governments estimate

(2) U.S. Bureau of Labor Statistics

(3) Personal Income, Median Household Income, and Median Age are averages of previous two years. Personal income is the aggregate income in the past 12 months. Census Bureau.

(4) Per Capita Personal Income is derived from Population and Personal Income values. Census Bureau.

(5) The 2010 North Central Texas Council of Governments estimate difference from the 2010 Census value.

(6) The 2011 North Central Texas Council of Governments estimate in based on 2010 Census and is NOT a continuation of previous 2001-2009 estimates. 2014 data obtained from United States Census Bureau.

(7) Consolidated Appraisal Value from Budget Office

All values by year are current estimates as published by the source at the date of publication. Updates to the values after publication date by their source are not reflected.

158 Table 16 CITY OF DALLAS, TEXAS PRINCIPAL EMPLOYERS Current Year and Nine Years Ago (Unaudited)

2016 2007

Percentage Percentage of Total of Total Name of Employers Employees Rank Employment Employees Rank Employment Wal-Mart Stores 25,534 1 3.01% 31,700 1 3.93%

American Airlines Group, Incorporated 25,000 2 2.94% 22,265 2 2.76%

Dallas Independent School District 20,000 3 2.35% 19,535 3 2.42%

Texas Health Resources 19,131 4 2.25% 13,582 7 1.68%

Baylor Scott & White Health 16,860 5 1.98% 15,065 5 1.87%

Bank of America 14,465 6 1.70% - - -

Lockheed Martin Aeronautics Company 13,700 7 1.61% 15,085 4 1.87%

City of Dallas 13,000 8 1.53% 12,311 10 1.53%

Texas Instruments, Incorporated 13,000 9 1.53% - - -

JPMorgan Chase Bank N.A. 12,600 10 1.48% - - -

United States Postal Service - - - 14,939 6 1.85%

AT&T Corporation - - - 13,300 9 1.65%

Verizon Communications, Incorporated - - - 13,500 8 1.67%

173,290 20.40% 171,282 21.23%

Source: Dallas Business Journal Book of Lists 2016 (July 2015), 2006. Estimates for total employment based on 2014 Logitudinal Employer

* Include employees in all of DFW - payroll employment.

** AT&T Corporation, Fidelity, State Farm, and Frito Lay did not submit information. They are believed to be among the largest North Texas

159 CITY OF DALLAS, TEXAS CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM Last ten fiscal years (Unaudited)

Function/Program 2007 2008 2009 2010 Public Safety Police Stations 7 8 8 8 Fire Stations 55 56 56 56

Public Works Streets - Paved (miles) 3,511 3,519 3,585 3,541 Lane miles 11,580 11,607 11,633 11,672 Traffic signals 1,296 1,298 1,315 1,329 Street Lights 85,693 86,500 86,902 86,514

Parks and Recreation Parks 374 376 376 368 Parks Acres 23,018 23,040 23,042 23,080 Miles of trails (jogging, hiking & biking) 90 99 99 107 Number of lakes 18 18 18 18 Swimming pools 27 22 22 22 Spraygrounds "Water-enhanced playground" 7 8 8 8 Athletic fields (soccer, football, baseball & rugby) 277 277 277 278 Tennis centers 5 5 5 5 Number of tennis courts 81 81 81 81 Neighborhood Tennis Courts 177 177 177 171 Multi-use courts 154 154 154 154 Golf courses (18 holes) 6 6 6 6 Recreation centers (community) 47 47 43 43

Water Water mains (miles) 4,840 4,862 4,980 5,024 Fire Hydrants 27,222 27,969 28,373 27,800

Wastewater Miles of sanitary sewers 4,831 4,831 4,267 4,293 Miles of storm sewers 1,755 1,744 1,749 1,768

Source: City capital asset records

160 TABLE 17

2011 2012 2013 2014 2015 2016

8 8 8 8 8 8 8 56 56 56 57 57 58 58

4 ,020 4,020 4,028 4,031 4,033 4,041 4,034 11 ,804 11,804 11,676 11,701 11,771 11,754 11,775 1 ,328 1,328 1,333 1,342 1,348 1,354 1,354 86 ,321 86,321 86,406 87,263 87,355 87,790 87,790

371 371 378 374 381 380 389 23 ,080 23,080 23,164 23,331 22,842 23,470 23,147 107 107 125 130 130 144 153 18 18 18 18 13 13 13 22 22 22 20 18 18 19 8 8 8 10 10 11 11 278 278 278 272 272 271 278 5 5 5 5 5 5 5 81 81 81 81 81 81 81 171 171 177 177 177 177 154 154 154 156 156 153 154 6 6 6 6 6 6 6 43 43 43 43 43 43 43

5 ,166 5,166 4,915 4,922 4,922 4,925 4,937 27 ,800 27,800 29,028 29,243 29,626 29,666 29,857

4 ,364 4,364 4,020 4,017 4,017 4,017 4,020 1 ,788 1,788 1,790 1,791 1,791 1,800 1,820

161 CITY OF DALLAS, TEXAS OPERATING INDICATORS BY FUNCTION/PROGRAM Last Ten Fiscal Years (Unaudited)

Function/Program 2007 2008 2009 2010 Public Safety Police Calls for Service 872,162 728,404 690,768 596,742

Fire Calls for Service - Fire 116,813 120,203 117,721 115,462 Calls for Service - EMS 170,352 172,278 163,100 166,585

Recreation Number of Membership Scans N/A N/A N/A N/A

Building Permits Permits issued 30,563 31,160 28,408 26,997 Estimated Value $3,035,761,645 $2,895,410,156 $1,841,471,331 $1,843,819,294

Airport Airport Operations 242,914 231,656 176,977 168,373 (Takeoffs and Landings)

Utilities (millions of gallons) Water Usage - Peak 575 670 626 638 Water Usage - Average 388 416 406 388

Source: Department annual records

Note: N/A - Information not available

162 Table 18

2011 2012 2013 2014 2015 2016

632,365 589,865 591,997 590,443 599,319 628,871

145,298 59,784 46,127 42,346 41,049 43,228 173,666 172,032 193,820 195,802 189,894 202,212

N/A N/A 348,830 545,998 564,684 632,246

34,786 43,064 38,478 36,044 37,951 41,480 $3,083,719,959 $2,310,325,994 $2,652,432,543 $3,305,921,947 $4,097,419,967 $4,636,962,395

178,054 177,067 178,232 176,889 209,121 223,997

683 649 583 535 619 592 428 395 391 369 374 369

163 Table 19 CITY OF DALLAS, TEXAS HEADCOUNT OF CITY GOVERNMENT EMPLOYEES BY FUNCTION/PROGRAM Last Ten Fiscal Years (Unaudited)

Function/Program 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 General Government City Manager's Office 49 45 39 45 30 20 14 15 14 12 City Attorney 156 170 156 120 116 122 144 144 149 153 City Auditor 36 36 36 31 28 20 19 22 22 22 City Controller's Office N/A N/A N/A 42 42 44 42 42 42 41 City Secretary 24 21 20 16 14 14 15 14 15 17 Code Compliance 345 361 410 461 408 401 388 397 404 440 Communication & Info. Svcs. 160 186 196 197 164 168 173 170 163 170 Economic Development 47 50 47 41 40 40 41 41 39 36 Environment & Health Service 432 435 438 ------Environmental Quality 19 21 22 ------Equipment & Bldg. Services 413 433 413 384 360 381 435 461 461 452 Financial Services 156 242 236 26 28 30 39 39 47 30 Human Resources 163 164 79 54 50 40 41 47 49 53 Housing 76 71 72 428 412 391 364 357 367 357 Cultural Affairs 98 98 65 46 47 56 64 61 64 63 Emergency Management 7 5 6 ------Municipal Court-Judiciary 51 43 31 40 37 32 34 33 32 29 Courts & Detention Services 185 182 175 170 155 161 151 145 152 158 Business Development & Procurement Service 48 46 47 42 40 39 39 41 41 40 Planning & Urban Design ------23 28 Library 488 511 487 360 278 259 264 266 348 391 Management Services - - - 145 137 164 160 164 160 181 Subtotal 2,953 3,120 2,975 2,648 2,386 2,382 2,427 2,459 2,592 2,673

Public Safety Police-Uniform 3,155 3,369 3,455 3,662 3,510 3,470 3,463 3,524 3,483 3,354 Police-Civilian 987 980 712 582 550 541 557 540 545 550 Fire-Uniform 1,648 1,693 1,768 1,776 1,738 1,874 1,870 1,867 1,901 1,878 Fire-Civilian 253 199 95 84 84 85 82 92 104 102 Subtotal 6,043 6,241 6,030 6,104 5,882 5,970 5,972 6,023 6,033 5,884

Development Services 279 294 292 198 197 224 237 264 269 280

Public Works Public Works & Transportation 428 469 448 305 272 140 143 144 138 137 Sanitation 493 517 503 456 451 458 460 472 488 483 Streets Services 583 522 514 371 400 496 485 491 510 508 Trinity Watershed Management - - - 141 147 172 170 193 205 207 Subtotal 1,504 1,508 1,465 1,273 1,270 1,266 1,258 1,300 1,341 1,335

Parks and Recreation 1,477 1,319 955 634 594 581 598 614 661 729

Water Utilities 1,403 1,455 1,459 1,425 1,369 1,406 1,440 1,432 1,463 1,439

Convention & Events Services 109 110 102 101 83 80 71 74 80 98

Aviation 154 165 174 180 170 178 196 187 203 206

Other Mayor & Council 30 36 35 36 35 37 37 36 39 37 Employee Retirement 20 19 19 20 20 21 22 19 23 25 Civil Services 21 23 21 14 13 15 18 20 24 22 Risk Management - - - - - 23 24 24 22 27 Police & Fire Pension 1 1 1 1 ------Subtotal 72 79 76 71 68 96 101 99 108 111

Total 13,994 14,291 13,528 12,634 12,019 12,183 12,300 12,452 12,750 12,755

Source: City HR Records

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“Dallas, the City that works: diverse, vibrant and progressive.”

Publication 1617:57

APPENDIX C

FORM OF CO-BOND COUNSEL’S OPINIONS

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[Form of Co-Bond Counsel Opinions]

[Date]

$______CITY OF DALLAS, TEXAS GENERAL OBLIGATION REFUNDING AND IMPROVEMENT BONDS SERIES 2017

WE HAVE represented the City of Dallas, Texas (the “City”), as its co-bond counsel in connection with an issue of bonds (the “Bonds”) described as follows:

CITY OF DALLAS, TEXAS, GENERAL OBLIGATION REFUNDING AND IMPROVEMENT BONDS, SERIES 2017, dated the date hereof and issued in the principal amount of $______.

The Bonds mature, bear interest, are subject to redemption and may be transferred and exchanged as set out in the Bonds and in the ordinance adopted by the City Council of the City authorizing their issuance and the Pricing Certificate executed pursuant to the Ordinance (together, the “Ordinance”).

WE HAVE represented the City as its co-bond counsel for the purpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds from gross income for federal income tax purposes. We have not investigated or verified original proceedings, records, data or other material, but have relied solely upon the transcript of proceedings described in the following paragraph. We have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the City’s Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein.

IN OUR CAPACITY as co-bond counsel, we have participated in the preparation of and have examined a transcript of certified proceedings pertaining to the Bonds, on which we have relied in giving our opinion. The transcript contains certified copies of certain proceedings of the City; an escrow agreement (the “Escrow Agreement”) between the Issuer and U.S. Bank, National Association. as escrow agent (the “Escrow Agent”); the report (the “Report”) of Grant Thornton LLP, Certified Public Accountants (the “Verification Agent”), verifying the sufficiency of the deposits made with the Escrow Agent for defeasance of the obligations being refunded (the “Refunded Bonds”); customary certificates of officers, agents and representatives of the City and other public officials and other certified showings relating to the authorization and issuance of the Bonds. We have further examined such applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), court decisions, United States Department of Treasury

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regulations, and rulings of the Internal Revenue Service (the “Service”) as we have deemed relevant. We have also examined executed Bond No. 1 of this issue.

BASED ON SUCH EXAMINATION, IT IS OUR OPINION THAT:

(1) The transcript of certified proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution and laws of the State of Texas presently effective and, therefore, the Bonds constitute valid and legally binding obligations of the City;

(2) A continuing ad valorem tax upon all taxable property within the City, necessary to pay the principal of and interest on the Bonds, has been levied and pledged irrevocably for such purposes, within the limit prescribed by law, and the total indebtedness of the City, including the Bonds, does not exceed any constitutional, statutory or other limitations; and

(3) Firm banking and financial arrangements have been made for the discharge and final payment of the Refunded Bonds pursuant to the Escrow Agreement on the date of delivery of the Bonds, and therefore, the Refunded Bonds are deemed to be no longer outstanding except for the purpose of being paid from the funds provided therefore pursuant to such Escrow Agreement

THE RIGHTS OF THE OWNERS of the Bonds are subject to the applicable provisions of the federal bankruptcy laws and any other similar laws affecting the rights of creditors of political subdivisions generally, and may be limited by general principles of equity which permit the exercise of judicial discretion.

IT IS OUR FURTHER OPINION THAT:

(1) Interest on the Bonds is excludable from gross income for federal income tax purposes under existing law; and

(2) The Bonds are not “private activity bonds” within the meaning of the Code, and as such, interest on the Bonds is not subject to the alternative minimum tax on individuals and corporations, except that interest on the Bonds will be included in the “adjusted current earnings” of a corporation (other than an S corporation, regulated investment company, REIT or REMIC) for purposes of computing its alternative minimum tax liabilities.

In providing such opinions, we have relied on representations of the City, the City’s co-financial advisors and the initial purchasers of the Bonds with respect to matters solely within the knowledge of the City, the City’s co-financial advisors and the initial purchasers,

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respectively, which we have not independently verified, and have assumed continuing compliance with the covenants in the Ordinance pertaining to those sections of the Code that affect the exclusion from gross income of interest on the Bonds for federal income tax purposes. If such representations are determined to be inaccurate or incomplete or the City fails to comply with the foregoing provisions of the Ordinance, interest on the Bonds could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusion occurs.

Except as stated above, we express no opinion as to any federal, state or local tax consequences resulting from the receipt or accrual of interest on, or acquisition, ownership or disposition of, the Bonds.

Owners of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, low and middle income taxpayers otherwise qualifying for the health insurance premium assistance credit and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the United States may be subject to the “branch profits tax” on their effectively-connected earnings and profits (including tax-exempt interest such as interest on the Bonds).

The opinions set forth above are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement these opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Service; rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given as to whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures, the Service is likely to treat the City as the taxpayer. We observe that the City has covenanted in the Ordinance not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, may result in the treatment of interest on the Bonds as includable in gross income for federal income tax purposes.

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CITY OF DALLAS, TEXAS (Dallas, Denton, Collin, Rockwall and Kaufman Counties) • GENERAL OBLIGATION REFUNDING & IMPROVEMENT BONDS, SERIES 2017