Yes, Dallas is facing bankruptcy. So are three other Texas cities.
The mayor of Houston holds a press conference to declare the pension problem solved, and folks just go along with it.
The truth is that the two cities are in equally dreadful trouble, headed for bankruptcy, as are Fort Worth and El Paso, thanks to delusional forecasting, ludicrous system design, and meddlesome union-funded lawmakers from across the state who’ve stripped big-city voters of their right to govern their own finances.
How mismanaged are these city’s pensions?
Take Portland, Oregon, for comparison. Portland has put no money aside for its retired police and firefighters. Zero, ever.
Yet all four Texas cities have bigger pension debt compared to tax revenue than Portland.
Much of Dallas’ recent bad press mentions that the city is now second to Chicago in pension debt-to-tax revenue ratio (Houston was fourth), but this isn’t really new. Crain’s Chicago Business reported that fact a year ago, and Watchdog.org reported on a similar study that put Dallas third in the nation, El Paso fourth, and Houston fifth.
Of the 25 biggest cities in the country, Fort Worth and El Paso tell themselves the biggest official lies about how much money they should be setting aside for pensions, according to a 2016 study by Joshua Rauh, a professor of finance at Stanford University. Then come Los Angeles, Houston, and Dallas on the list of the delusional.
The Times story gets into just how unrealistic Dallas’ plan was: 9 percent investment returns forever and a yearly bill set by state law that didn’t begin to cover expenses.
For the last 10 years, the city’s contributions to the Dallas Police and Fire System haven’t even covered the benefits paid out that year, much less added to the savings for future years, according to the fund’s annual report.
The liability for public safety pensions has reached a staggering $9.5 billion.
But in 2015, the city paid just $115 million into the fund, while the fund paid $283 million in benefits. That sort of imbalance drained the fund’s assets from $3.9 billion in 2013 to $2.7 billion in 2015. Well, that and a half-billion-dollar write-down on bad real estate assets.
The Dallas fund is designed to leak. That’s what’s brought in the national press recently.
Unlike most every other system, the Dallas fund allows retiring police and firefighters to take lump sum withdrawals on their way out.
In years past, those piggy bank raids by retiring workers were usually under $100 million, but this year, they’re up past $500 million, according to the most recent report.
A new study by Truth in Accounting offers another measurement confirming that Dallas is hardly the only Texas city in trouble.
The group looked at the 20 largest cities in the country and found that Dallas had the fourth highest debt per capita, Houston the sixth, Fort Worth seventh, and El Paso 15th (El Paso and Houston look much worse, when you include bond debt, which TIA mostly leaves out).
However, unlike the Moody’s study and the Rauh study, both of which re-calculate debt using their own standards to be sure of apples-to-apples comparisons, the TIA study goes the more common route of using the figures found in the Comprehensive Annual Financial Report.
These vary from city to city. Recent accounting reforms were meant to force cities to calculate unfunded liabilities, using conservative discount rates (and if you’re still reading, let’s assume you know what those are), but Sheila Weinberg of Truth in Accounting says she has seen hardly any cities start using what’s known as a “blended” rate.
Dallas is one of the very few that’s doing so. It used a 4.54 discount rate, which makes its debts appear large — almost as large as they actually are.
One doesn’t actually have to understand the math to understand the problem. As Weinberg put it, “Maybe you shouldn’t be promising things that you can’t even calculate.”
And though the calculations differ, wherever they’re standardized, they show something similar. Four major Texas cities are at the leading edge of what even the most left-leaning newspapers are now recognizing to be a major crisis.
The Texas Legislature has caused this problem by stripping local control, and it has no incentive to restore control.
Indeed, state Sen. John Whitmire, who speaks for the Houston firefighters, is telling the public that the worst case scenario is that “this whole thing will come crashing down, and we’ll play right into the hands of those who would like 401(k)s or defined contribution plans.”
That’s closer to the best case. The worst case is Detroit.
Both Dallas and Houston will be making a major push for help next legislative session, either through bailouts (Dallas) or a new state-directed system (Houston).
But so far, there is little sign that anybody in the legislature — whether left, right, or center — is ready to take action.
Contact Jon Cassidy at email@example.com or @jpcassidy000.