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Local Government

Dallas City Council to Discuss ‘Travesty’ of the Police & Fire Pension Fund

It's a not-so-good-news briefing.
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Wednesday’s Dallas City Council briefing is chockfull of the sort of bad news and head-numbingly dense financial talk that makes you wonder why anyone would voluntarily serve in municipal government. They’ll discuss the city’s bond ratings. Those determine how much the city must pay for debt service, and one was recently downgraded.

While Dallas still rates as “high quality,” all of big three agencies cite unfunded pension liabilities as a major concern in the city’s future. Just how unfunded?

Well, you’ve doubtless heard a little something about the Police & Fire Pension System and how under former director Richard Tettamant the fund made reckless real estate investments in exotic locales. Last week Mayor Mike Rawlings told the Morning News editorial board that he feels a “moral responsibility” for these city workers who will likely see the retirement benefits they’d been counting on disappear if drastic steps aren’t taken:

“This is a travesty. This is one of the worst travesties in the last 20 years. We’re easily a billion short. And this is citizens’ money that was spent with hubris and no regard for good investment principles.”

Here’s the projected value of Police & Fire Pension assets:

Police and Fire Pension Asset Values

So, not so good. Which results in a ridiculous underfunding of liabilities:

 

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Of course, Dallas is hardly alone. Municipalities across the country are facing the prospect of workers getting screwed over — their promised pensions cut. However, the more conservatively run Employees’ Retirement Fund, which serves Dallas city workers who are outside the police and fire departments, is looking at a much smaller unfunded liability right now.

Employees Retirement Fund liabilities

Generally a public plan that’s at least 80 percent funded is considered to be sound. Earlier this year, ERF executive director Cheryl Alston explained her approach to D CEO:

“We look at risk, return, and liquidity,” Alston explains. “A lot of investors like illiquid investments and in [the financial crisis of] ’08, that hurt them. They had to sell assets to make their payout.”

To see what she means, look at the differences between how the Police & Fire and the ERF have performed since the disastrous year of 2008, when our economy threatened to collapse. Here’s the P&F:

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And now here’s ERF:

Employee Retirement Fund Returns

Look at how much stronger a bounceback the ERF had in 2009 and subsequent years. When it comes to placing bets on behalf of employee retirement, take the less sexy approach.

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