Politics & Government

Is the Dallas Police and Fire Pension Crisis the Canary in a National Coal Mine?

Across the United States, states and municipalities are facing upwards of $5 trillion in underfunded pension liabilities

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.

Comments

  • DubiousBrother

    “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.” That’s called Social Security.

  • Joe Hunter

    A good and pertinent article.. The problem is the neoliberal economy that has been around for thirty or forty yeas and driven by the University of Chicago;s School of Economics,.Now for Dallas. We hear that the City just does not have enough tax money to do the basic services that the citizens and tax payers expect. Why? Just look around you and look at City Government and now it being used by a group of families that do not even live in the city. One solution is to look at the City’s bureaucracy. It is top heavy with so called managers drawing large salaries and benefits that the average citizens, who do not have these benefits and salaries ,pay for.. So first on the agenda is to go through City Hall and sweep out those underperforming department and their managers to the bare bones and use the savings to the general fund, Now don’t say that if you do that, nothing will get done. Could not be any worse than it is now. (Sorry, the above sounds like Trump and not a Socialist-Democrat.} I will leave the Council alone for today.

  • Bill Gross

    The author ignores the salient factor in the Police/Fire Retirement Fund debacle. It was the guaranteed 8% return to participants in the Deferred Retirement Option Plan. The Retirement plan for the other City employees did see that return in recent years, but it also saw not so good years. That plan had nothing smacking of snake oil as the guaranteed 8% for DROP.

    • Mavdog

      well, that and the several $100 Millions in “alternative investments” that are worth maybe 50% of their acquisition price.

      • Bill Gross

        That’s a good point. It would have been a self-correcting system if the losses on those wonderful investments could have been reflected in DROP returns. Matter of fact there would probably be no need for any further investigations, the members would have taken care of the management themselves. “If you know what I mean and I think you do.”

  • Silverado

    Anyone who thinks the backed-by-nothing US Dollar is going to last forever isn’t thinking. When the dollar fails as do all paper currencies – every one of them since the Chinese started using them back in antiquity, all the things that depend on the dollar will fail right along with it. Of course the govt would never tell you that. Nor would most of the nat’l left wing media. And you’re thinking this is going to chug along going up and down in value forever, right? It’s just the way it is, you’re thinking. News Flash for you Ace: You have to be intelligent enough to recognize this eventuality and then prepare for it. Ignoring it or denying the possibility could doom your and those you care about entire future. The “preppers” are right?? We’ll ALL see (at least for awhile) won’t we. And that’s not a question.

  • Matthew Chen

    The Dallas Police and Fire Pension Crisis is bad enough but it is a small potato compared to the US unfunded debts of over US$200 trillion.

    http://www.zerohedge.com/news/2013-09-11/lawrence-kotlikoff-us-fiscal-gap-200-trillion-our-country-broke