Dallas pension fund crisis reaches breaking point

Dallas - Dallas city officials are grappling with a pension crisis that has been ongoing for years, reaching a critical point recently. According to Dallas Metro News, Dallas city officials are faced with the difficult task of restoring two major funds that have suffered financial distress. This challenge was discussed in a city council budget briefing held on Wednesday, coinciding with a report showing that Dallas County lost $565 million in gross income from 2020-2021.

The crisis in the public safety pension fund began in 2016 when investments in luxury real estate failed to deliver the expected returns, pushing the fund to the brink of immediate default. This issue is separate from the $4 billion in unfunded liabilities that affect both the Police and Fire Pension Fund and the city’s employee retirement fund.

City staff note that today's situation differs from 2016, as the city has some flexibility to work on rebuilding the fund. However, time is limited. The Texas Pension Review Board is set to present a report on the pension system's status before the 2025 legislative session begins.

The pension crisis comes at an unfortunate time as city officials are advocating for increased recruitment in both the Dallas Police Department and Dallas Fire Rescue. The proposed budget includes provisions for adding nearly 300 new police officers and 100 firefighters, and allocating millions more in overtime funds.

City Manager T.C. Broadnax, in a statement on Wednesday, stressed the city's significant efforts to bolster its ranks in recent years, arguing that more employees in the department would lead to a larger contribution pool for the pension plan.

The city now faces the challenge of creating a strategy to increase contributions to the pension fund, a task that requires careful consideration of the legal landscape and a commitment to retaining officers from both departments. Balancing fiscal responsibility with obligations to public servants, the city must find a sustainable solution to ensure the pension system's long-term viability.

“I think it’s going to take a combination of perhaps some infusion of cash,” Chief Financial Officer Jack Ireland said at Wednesday’s meeting. “…as well as increased annual contributions from the city, possibly from the employee. I don’t know.”

The Irish Pension Review Board has hired a third-party actuary to conduct a comprehensive assessment of the country's pension system, according to government officials. The analysis is expected to result in a preliminary report, anticipated to be released as early as October or November of this year.

“One of the things that we are considering as part of our debt analysis is we would issue $400 million in Pension Obligation Bonds to go toward this particular need,” Director of Budget and Management Services Janette Weedon said.

The Police and Fire Pension Fund is currently facing a $3 billion unfunded liability, while the city’s employee retirement fund has an additional $1 billion deficit. Essentially, the city lacks the necessary funds to fully support the financial needs of workers nearing retirement.

Issuing Pension Obligation Bonds, like other bond programs, would require a public referendum, possibly scheduled for May or November. However, some members of the city’s bond taskforce have raised concerns about the tight timeline for such a decision.

Dallas officials believe that a November election would give staff more time to address questions and gain a better understanding of the pension situation. District 12 Council Member Cara Mendelsohn echoed these concerns, noting that staff are feeling rushed and overwhelmed by the number of questions received, for which solutions have not yet been identified. She highlighted that time is a crucial asset for understanding the pension figures and developing the most suitable resolution.

Ireland has argued that early bond approval would immediately provide funds for ongoing and new public projects. However, city staff have warned of increased financial costs if the election is held in November.

City Manager T.C. Broadnax expressed doubts about the impact of a delayed election on the pension and debt issues, viewing them as separate challenges.

City officials are eagerly awaiting the actuary’s report, which will offer further details and recommendations for addressing the pension crisis. Preliminary findings are expected as early as November.

Credit: Dallas Metro News, KERA