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Dallas Mayor Rejects Taxpayer Bailout of Public Employee Pension Fund

Thursday April 6th, 2017   •   Posted by Craig Eyermann at 6:16am PDT   •  

Since the middle of 2016, the city of Dallas has been dealing with a Texas-sized problem for one of its public employee pension funds. Specifically, the Dallas Police and Fire Pension System was so at risk of becoming insolvent that the city’s retired firefighters and police officers were effectively conducting a run on the bank, so to speak, by using a policy that permitted them to cash out their pensions in lump sum withdrawals.

Back in December 2016, Dallas’ city government acted to stop the retired public employees’ run on the pension fund by eliminating the policy that allowed them to withdraw the balance of their pensions accounts to protect their wealth. Unfortunately, the problems for the city of Dallas didn’t end there, because the risk of insolvency for the city’s troubled Police and Fire Pension System wrecked the city’s credit rating, making it more costly for it to borrow money to fund improvements in its public infrastructure and other public programs.

To fix both problems, the city’s leaders were looking to potentially hike the municipal property tax rates that it imposes on Dallas residents by as much as 130% of their 2016 levels.

That plan however fell apart earlier this week when Dallas’ mayor, Mike Rawlings, withdrew his support for a bill before the Texas state legislature that would use a massive infusion of taxpayer funds to bail out the failing pension fund. But it wasn’t just the big increase in property taxes that would be imposed on Dallas’ residents that prompted his objections. It was a clause in the bill that would require the city to fund the pensions of “phantom” police officers and fire fighters.

What he’s adamantly against is a clause that he says would result in the city putting in another billion plus dollars to the failing fund over 30 years.

He says the clause would require the city to pay the 34.5 percent contribution rate even on officers and firefighters that it does not hire and even on raises that it may or may not give.

The clause sets a baseline number of officers and firefighters. In the case of police, that’s three officers per thousand. The clause would also automatically assume that a certain level of raises given.

“Basically you’re paying on phantom employees, not real employees,” Rawlings said. “We just can’t enter into an agreement with that degree of commitment for the city. No business would do it this way. We cannot find another pension fund in American where someone pays into a fund based on future employees. It’s just not done and it should not start here in the State of Texas.”

Given that the pension fund had partially gotten into trouble because it held a large number of phantom real estate assets for which it was forced to write down their value, that may not seem like such a bad pairing. As a matter of sound policy however, public employee pension funds should only exist for actual public employees and should only hold real assets with valuations that match what they can reasonably be liquidated for if they were forced to be sold.

The story of Dallas’ failing public employee pension fund is revealing because although it has factors that make it unique when compared to other government employee pension funds, how elected politicians are attempting to fix it is telling us a lot about how other local and state governments will attempt to fix their own failing public employee pension funds. Of which, it seems like nearly all are at risk.

The only thing we know for sure is that regular taxpayers will be stuck with the bill for bailing out the overly generous pension benefits of government employees that were promised by the public officials they worked to elect.

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April 2017