Dallas, Texas might be the next major American city to go bankrupt. This month, mayor Michael S. Rawlings testified to a state oversight board that his city appeared to be “walking into the fan blades” of municipal bankruptcy. Dallas has the fastest economic growth of the nation’s 13 largest cities. Cranes can be seen in the skyline showing the city’s continued growth. Hundreds of multinational corporations are headquartered in Dallas with the most recent being Jacobs Engineering. Many corporations choose Texas cities for their headquarters because of low taxes. Yet, somehow, the city’s pension fund for its police officers and firefighters is near collapse and seeking a bailout.
Over a recent six-week period, Dallas retirees have panicked and pulled $220 million out of the fund. The run was triggered by a July recommendation that retirees will no longer be allowed to withdraw big blocks of money. Prior to the July recommendation, there were reports that the fund’s investments were worth less than previously stated. Some funds were placed in high risk speculative ventures.
What’s occurring in Dallas is an extreme example of something that is happening in many places around the country. Elected officials promised solid pensions to workers on wishful thinking rather than realistic expectations. Dallas’s issues have come to the forefront of urgency because some retirees did take big withdrawals under the plan. The Dallas Police and Fire Pension System has asked the city for a one-time amount of $1.1 billion. That amount is almost equal to the entire general fund budget of the city, and would leave nothing to fight poverty, fund public libraries, or give current police and fire employees a raise.
The only American city that is struggling more with pension debt relative to its resources is Chicago. Dallas City Council member Lee Kleinmann said “The City of Dallas has no way to pay this. If the city had to pay the whole thing, we would declare bankruptcy.” There are some other ideas circulating about how to come up with the money, but they include raising property taxes, borrowing from the pension fund, delaying public works or taking money back from retirees. None of those options seem favorable and Dallas has already capped property taxes. The city’s borrowing capacity is limited, and retirees are certainly not going to redeposit the withdrawals they have made. The city is expected to call for an overhaul in December, but it has no power to make the necessary changes. The fund is controlled by the state lawmakers in Austin. The Texas Legislature only convenes bi-annually, although the next session starts in January.
Sources:
