Dallas: America’s Next Bankrupt City?
This week’s “Slap in the Face” Award goes out to the folks who’ve been managing the public pensions for our police, firefighters and municipal employees and, in some cases, state employees.
For the past five years, I’ve been warning about how badly prepared baby boomers are for retirement. Public pensions have either paid out too much or promised too much – and have been underfunded and mismanaged for years.
Well, a big one finally popped…
In Dallas. This is a place most consider a vibrant, wealthy, “mover and shaker” kind of city.
The funding ratio recently dropped to 35% for the Dallas firefighters and police pension. That’s how much a pension fund has compared to its liabilities.
In 2016 alone, it dropped from 45% to 35%, but it has been slipping badly since 2011.
The entire system is now expected to run out of money in 2027.
The big drop is being blamed on consistent underfunding combined with poor management and administration of the pension’s fund.
According to reports, there have been large losses and excessively high Deferred Retirement Option Program (DROP) benefits included in the program.
About 68% of the program’s assets are in what’s described as “alternative” and “real estate” investments, as compared to 22% of assets in other plans.
The pension board recently requested that, in exchange for benefit cuts, the city of Dallas contribute $1.1 billion to help with the underfunding issue. But $1.1 billion is virtually all of the city’s general revenue funds.
And even if the Dallas Police and Fire Pension does get the full $1.1 billion requested, it will raise the ratio to only 53% of its liabilities and extend the life of the fund for a few more years.
All of this could have been avoided if checks were worked in the system and if the system compared its investments to those of other plans.
If you’ve followed me here at the “Slap,” you know that Dallas is not the exception.
Public pensions all over the country are in the same boat… Their situations may not be as severe as Dallas’ (right now at least)… but they will be if corrective actions aren’t taken.
And when you add in the fact that most boomers don’t have a pension (or retirement savings of any kind), it’s clear that the mess I’ve been writing about is exploding before our eyes.
Don’t expect it to improve anytime soon.
If you aren’t taking your retirement funding seriously, I would recommend you take a look at what the police and firefighters in Dallas are facing…
What a mess!