Dallas, Texas – The long-standing pension crisis that Dallas city officials have grappled with for years has reached a critical juncture. City officials are now facing the arduous task of restoring two major funds that have been languishing in financial distress. The details of this daunting challenge were outlined in a city council budget briefing held on Wednesday, the same day when a report showed that Dallas County lost $565 million in gross income from 2020-2021.
The Dallas pension fund is in crisis since 2016 when it nearly collapsed
The crisis in the public safety pension fund stems from a near-collapse in 2016, when investments in luxury real estate failed to generate the expected returns. This placed the fund on the precipice of immediate default. The current situation is distinct from the $4 billion in unfunded liabilities that plague both the Police and Fire Pension Fund and the city’s employee retirement fund.
City staff have indicated that the situation today is somewhat different than it was in 2016. Unlike then, the city has some leeway to work towards rebuilding the fund. However, this grace period is not infinite. The Texas Pension Review Board is expected to present a comprehensive report on the pension system’s status prior to the commencement of the 2025 legislative session. The clock is ticking.
The timing of this pension crisis is particularly inopportune as city officials are vigorously advocating for increased recruitment to both the Dallas Police Department and Dallas Fire Rescue. The proposed budget includes provisions for the addition of nearly 300 new police officers and 100 firefighters, and the allocation of millions more in overtime funds.
City of Dallas is trying to recover the pension funds
City Manager T.C. Broadnax emphasized that the city has put forth significant efforts in recent years to augment its ranks, according to a Wednesday’s statement. He argued that the increased numbers of employees within the department would lead to a larger contribution pool for the pension plan.
The city is now tasked with the challenge of devising a strategy to enhance its contributions to the pension fund. This undertaking must be approached with a careful consideration of the legal landscape and a commitment to retaining officers from both departments. As the city strives to strike a balance between fiscal responsibility and meeting its obligations to its public servants, it must also find a sustainable solution to ensure the long-term viability of the pension system.
“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 Pension Review Board has commissioned a third-party actuary to undertake a comprehensive analysis of the pension system, according to an announcement made by the country’s government officials. This assessment is expected to culminate in a preliminary report, which could be released as soon as October or November of this year.
Alternative funding sources might be the solution to the Dallas pension fund recovery
In response to the ongoing pension crisis, city officials have taken into account alternative funding sources.
“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.
Currently, the Police and Fire Pension Fund is grappling with a $3 billion unfunded liability, while the city’s employee retirement fund faces an additional $1 billion deficit. In essence, the city does not possess the requisite funds to fully support the essential financial services for workers approaching retirement.
Similar to other bond programs, the issuance of Pension Obligation Bonds would necessitate a public referendum, potentially slated for May or November. Some members of the city’s bond taskforce have expressed concerns over the accelerated timeline for such a decision.
A November election would afford staff additional time to respond to inquiries and enhance their understanding of the pension situation, according to several Dallas officials. District 12 Council Member Cara Mendelsohn voiced similar concerns, stating that staff feel rushed and overwhelmed by the volume of questions they have received, for which they have yet to identify solutions. She further emphasized that in this context, time is a valuable commodity, enabling a deeper comprehension of the pension numbers and facilitating the development of the most appropriate resolution to the problem.
Ireland has argued that early bond approval would provide immediate funds for the completion of existing public projects and the initiation of new ones. However, city staff have cautioned that a November election would entail greater financial costs.
T.C. Broadnax, the City Manager, expressed skepticism regarding the potential impact of a delayed election on the realities of the pension and debt issues, categorizing them as separate challenges.
City officials are currently awaiting the actuary’s report, which will provide further details and recommendations for addressing the pension crisis. They anticipate receiving preliminary information as early as November.