Dallas adopts plan to fix $4 billion shortfall amid fight with police, fire pension system

The Dallas City Council voted 14-1 Wednesday to invest $11.2 billion over the next three decades to fix a $4 billion shortfall in the uniformed and civilian pension funds.
This comes nearly a month after the Dallas Police and Fire Pension System adopted its own plan and sued the city to determine who gets to make the final decision after a 2017 Texas Legislature measure saved the system from the brink of collapse.
The two different plans are headed to the Texas Pension Review Board, marking a new chapter of animosity between the city and the pension system.
Wednesday’s vote was embroiled in tension. Last week, DPFP’s lawsuit began a conversation among council members to possibly withhold supplemental checks intended to make up for the absence of cost-of-living-adjustments, at least until the lawsuit is dealt with.
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COLAs can be given once a fund reaches a 70% funding level. DPFP, currently, is at less than 40%.
Dallas Police Association Spokesperson Jaime Castro arrived with concerns that the city was going back on its promise to give a stipend.
“I am disgusted and angry beyond belief what the city’s pension plan proposal would be,” Castro said, adding that the police association had been working with “both sides in good faith” to alleviate fears of retirees and officers.
Council members, who said they were not expecting Castro’s comments, were visibly surprised because the discussion about withholding supplement checks was not set in stone.
They reaffirmed the city was committed to paying the supplemental checks.
Mayor Eric Johnson said the situation has multiple entities, such as the Legislature and pension system, involved in the decision-making process.
“I don’t think I’m out of line to say that everybody around this horseshoe wants to do right by our retired men and women in uniform and the active ones,” he told members of the DPFP.
“Have some faith, have some trust, have some confidence in me and in this council that we’re not trying to play any games with you guys,” Johnson said. “Your commitment that we’ve made to you will be honored.”
Chief Financial Officer Jack Ireland told The Dallas Morning News last week paying the city was committed to pay its obligations.
The budget, he said, includes money for giving retirees supplemental payments until the pensioners can access cost-of-living adjustments (COLA).
“It is already included in next year’s budget, and it will stay in next year’s budget. We’re not taking it out of next year’s budget,” Ireland said.
For months, the city and the pension system have been at odds with each other over their plans. They’ve disagreed on how quickly the city needs to invest in closing the gap, over giving the city more oversight authority and giving cost-of-living adjustments to retirees.
Ahead of the vote, council member Tennell Atkins, who also chairs the ad hoc committee on pensions, told The News that ultimately, the city’s plan was the only one that came with a funding source.
“Because we are not like any other city. We are a ‘can do’ city, and we are saying public safety is first, and we take care of our own,” Atkins said. “But in the meantime, I know our streets, our libraries — all that got to be done.”
Payments into the pension system are often fashioned as a litmus test for the city and council’s commitment to funding public safety and have pitted the civilian and uniformed pension systems against each other.
“I am deeply concerned the proposal before us overlooks our current police staffing crisis, making it more difficult for us to recruit candidates and retain officers, especially in the 15- to 25-year range of service,” council member Cara Mendelsohn said, adding that the city’s proposal was the “least favorable” plan.
Mendelsohn, who was the only council member to vote against the plan, said the City Council had approved placing a charter amendment that would add more money to the Employees Retirement Fund. Moreover, civilian employees get COLAs while public safety officers await their own.
“How can we turn our backs on former officers – people who literally put their lives on the line for us?” she said.
Civilian retirees get COLAs because their fund is 70% funded.
Ireland said city officials and DPFP staff stopped their regular calls after the lawsuit.
Atkins said he has regularly talked to DPFP Board Chair Nick Merrick. As a former pension board trustee, the District 8 council member said he understands the mindset the pension system is operating with.
“Their fiduciary responsibility is to their pension fund, and not to the city of Dallas, not to the mayor,” he said.
The lawsuit, however, complicated the city’s relationship with the pension system.
“We are human beings. If someone slapped you, do you turn the other cheek or do you forgive them?” Atkins said. “We got slapped with the lawsuit.”
During the Wednesday meeting, council member Gay Donnell Willis said DPFP introduced uncertainty in the negotiations when the pension system chose against working with the city and adopted a plan the city could not afford.
“That wasn’t part of the plan,” she said.
The pension system’s plan calls for the city to ramp up funding over three years and will require the city to contribute $419 million more than the city recommends over 30 years.
The system’s plan also gives retirees a partial cost-of-living adjustment by factoring in inflation and funding levels. If the change in the consumer price index is 2% and the funded ratio is 40%, then retirees would get a 0.8% increase in benefits.
The pension system also disagreed with the city’s request to have a bigger role in the fund’s oversight. Faster funding can help the pension invest money in assets that can bolster its investment performance, officials said.
The city’s plan will ramp up funding over five years. It will give retirees an extra end-of-year paycheck for DPFP beneficiaries and add a one-time 1% payment to retirees’ pension base in 2025 to bridge the COLA gap until the system reaches 70% funding.
They have also suggested an additional 1% stipend a year based on how the pension fund’s investment returns perform. This means an employee with a $60,000 annual paycheck may see a 13th paycheck worth $600 at the end of the year.
Both plans were part of recommendations offered by Cheiron, an actuarial firm hired to assess and recommend the best models that can help fill the gap. City officials say their plan, however, will limit cuts in services.
“To come up with another $8.5 million dollars (the difference between the pension and the city’s plan in the first year), we would have had to find something else to reduce, right?” Ireland said in an interview. “We already got pushback on some of the things that we tried to reduce, even though we really tried to minimize any service impacts to residents.”
Interim City Manager Kim Tolbert’s proposal called for a reduced workforce in City Hall and the closure of the Skillman Southwestern Library. But that move encountered fierce resistance from residents.
“I don’t know how we would say we would not have additional service impacts if we are asked to cut another nearly 9 million,” Ireland said.
Council members have also been seeking guardrails on the investments DPFP makes. The system has a 2% return on its 10-year books, one of the lowest in Texas, with most of it resulting from bad financial decisions between 2005 and 2008 that dragged the pension’s investments down.
The pension system, whose current management inherited the issues, has taken a risk-averse approach and worked to sell bad assets over the last seven years. But the hard-to-exit assets remain. Pension officials have said they expect their 10-year return to shoot up to close to 5% in the next two years.
Commerce Street, an investment firm hired by the city, told council members the city could benefit from having an outside consultant to bridge the knowledge gap around DPFP’s investment portfolio between experts and council members.
“We should have some kind of mechanism set up with large lawyers,” Atkins said.
When the pension system has plans to make large investments that experts might deem risky, the city needs to get a notification because it’s ultimately taxpayers who have to pay the bills. “If you go buy the museum tower— before you buy it, let me know what my risks are,” Atkins said.