If you follow Dallas politics at all, the scope and scale of the impending Dallas Police and Fire Pension Crisis has probably sunk in by now. Even if you don’t quite grasp the finer details of the problem and the various plans to fix it, it is easy to see that the pension situation threatens to leave Dallas in a very precarious financial position.
This city is already struggling to keep its streets from degrading even further than they already are, and has a huge inventory of general maintenance and repair needs, plenty of underfunded or mismanaged departments, and a litany of other problems and issues. Thanks to the pension, Dallas could find itself in an even deeper financial hole if it is on the hook for contributing 34.5% of computation pay plus $11 million per year towards the pension, which is what State Rep. Dan Flynn’s remedy for the crises proposes.
The word “bankruptcy” has been floated around. But even if it doesn’t come to that, a severe tightening of the municipal belt buckle could impact even the basic services we take for granted.
That’s the scary news for Dallas. Perhaps what’s scarier is that Dallas isn’t alone.
Across the United States, municipalities and states are struggling with similar unfunded liability crises regarding pensions and civil service retirement packages. For example, Los Angeles is facing $15 billion in debt for its public safety, water, power workers, and general employees pension. In South Carolina, a state plan that serves one in nine South Carolina residents is looking at a $24.1 billion shortfall. Philadelphia woke up last year to the fact that its municipal pension was $5.7 billion in the red. The state of Oregon’s pension is underfunded by $22 billion. Late last year, the Laura and John Arnold Foundation published a report that looked at the Dallas Police and Fire Pension Crisis in light of the situation in other Texas cities. The report found that Texas municipalities owe $18 billion in pension debt.
All told, by some estimates, state and local governments in the United States are looking at a cumulative total of over $5 trillion in unfunded pension liabilities.
Why are so many pensions facing similar financial situations? According to one retirement policy commentator writing in Forbes, the same pension management cultural that led to create the Dallas fund’s situation is endemic in many state and local pension funds:
Proponents of market-value liability figures, which include most economists as well as many policy analysts concerned about pension funding, argue that current actuarial methods understate pensions’ true benefit liabilities and encourage pensions to take excessive investment risk.
But the pension crises don’t stop at state and municipal funds. Even corporate pension plans at some of the country’s largest companies are facing huge funding gaps. According to a report by S&P Dow Jones Indices LLC and Citi Research, S&P 500 corporate pensions went from being fully funded in 2007 to an aggregate $375 billion underfunded in just 8 years. Locally, AT&T and American Airlines Group made the top 25 of the Citi Research report’s list of S&P 500 companies with underfunded pension obligations.
What does it all mean? Perhaps the answer lies right under our noses. Attempts to fix the Dallas Police and Fire Pension Fund debacle have ranged from reneging on promises made to public servant retirees to raiding our investments in the very services that hold greatest promise for the region’s future sustainability and growth. In other words, Dallas faces choices between rocks and hard places, as well as inevitable periods of austerity, the potential of higher taxes, even more crumbling or poorly maintained infrastructure and a slow corrosion of the very services and infrastructure that give cities their competitive advantage.
And we haven’t even talked about the strain on social and medical services created by pensioners facing dwindling resources — precisely at a time when the social safety net is being gutted.
Now multiply that to a national scale. What do you end up with? I kind of can’t even bring myself to think of it.