June 18, 2024

Dallas pension shortfall solution from top financial official stirs controversy

Dallas’ top financial official says the City Council should consider asking voters to change city rules as early as May to help shore up funding gaps with the pension system for civilian employees.

Chief Financial Officer Jack Ireland suggested the election as part of a series of recommendations made to a city council committee last week on how to fully fund the city’s two pension systems by 2055. But the spring election idea drew a strong rebuke from one council member, who said she believed a plan to fill a more than $3 billion funding hole facing the police and fire pension system should be the higher priority.

The pension for civilian employees, meanwhile, faces a shortfall of more than $1 billion. The City Council would have until Feb. 14 to approve any propositions that would go on the May ballot.

But council member Cara Mendelsohn said asking voters to help fix the civilian employee pension before patching the police and fire pension raised red flags.

“I have no intention of voting to put this on a ballot when we don’t have a solid plan for the police [and] fire pension fund,” said Mendelsohn, who represents Far North Dallas. “I think it’s extremely objectionable that we would even dare to do that when our most desperate staffing in this entire city is the police and fire departments, and we’re currently not meeting our staffing goals.”

She said the city needed more time to explore the possibility of shifting to other benefits models for civilian employees, such as 401Ks. She also wants an independent consultant hired to review both pensions, saying numbers being presented by city staff and the pension boards were different.

“I think every single person in management does have a conflict of interest because they’re a member of the (Employees’ Retirement Fund) and there’s a circle to protect it,” Mendelsohn said.

But other members of the ad hoc committee on pensions pushed back against Mendelsohn’s notion that city employees were picking one pension system over another. The discussion included some briefly contentious moments while Mendelsohn and Ireland talked over each other. At one point, committee chair Tennell Atkins interjected.

“We’re going to be very professional, OK?” Atkins, the council’s mayor pro tem, told Mendelsohn after she interrupted Ireland. “One person speaks, the other person listens, vice versa, OK? We’ve got people listening to this.”

Ireland and City Manager T.C. Broadnax said city officials were equally committed to making sure both pensions were fully funded. Broadnax dismissed the suggestion of a conflict of interest, calling it “not factual” and “a little bit disconcerting.”

“All employees that work for the city work for me. So I’m vested in making sure that they, whether on the police and fire side or general employee side, their pensions are met,” Broadnax said. “I appreciate the comment, but it’s offensive to think that we can’t do both.”

The ERF gives retirement, disability and death benefits for almost 7,500 active civilian employees and another close to 7,800 retirees. The Dallas Police and Fire Pension System provides the same benefits for almost 5,100 uniform employees and nearly 5,300 retirees.

Both plans are overseen by boards of trustees.

The city is in the midst of helping the two boards develop a plan to have both pension systems fully funded by 2055. Both pension boards have to submit those 30-year funding plans to the state’s pension review board by fall 2025. Board officials say it would take more than 50 years for both to be fully funded if nothing changes.

For instance, Dallas police and fire pension board officials in November said their projections showed the pension was around 41% funded, that the system won’t be able to do cost-of-living adjustments until 2073, and full funding wouldn’t happen until 2090.

The city’s police and fire pension was on the brink of collapse before the state Legislature passed a law in 2017 to overhaul the system. The issues came after its board approved unsustainable benefits and made poor investments, like owning a 3,100-acre California resort bought for close to $111 million in 2006. The pension system later sold the California resort for $22 million in 2018.

Council member Paula Blackmon said she wanted more city oversight of pension boards and city contributions to the funds to make sure “this is not going to happen again.”

“People need to be put on notice,” said Blackmon, who represents the White Rock Lake area. She agreed the city should consider hiring an independent consultant to review both pensions.

Council member Gay Donnell Willis also said she wanted the city to study shifting toward different types of retirement plans for its civilian employees.

“I definitely want us to take a look at that. I think we need to,” said Willis, whose district includes Preston Hollow and Vickery Meadow. “We have to have all the cards on the table to fulfill our obligation, not only to those receiving benefits from the funds, but to our taxpayers.”

The city staff’s recommendations for how to fully fund both pensions in 30 years largely lined up with several prior recommendations made by an outside actuary firm and a study group that included former police and fire pension members, such as that the city needs to raise its yearly contributions to both funds and not to increase police and fire employees’ contribution rates.

Ireland said considering leasing or selling city-owned property was also on the table to then use the proceeds to lower the city’s future pension contributions.

“Any cash infusion into either of the funds helps the fund, helps the city,” Ireland said. He noted that the city’s contribution to the police and fire fund for this fiscal year alone is $180 million.

Voter approval would be required to change contribution rates for the employees’ retirement fund, Ireland said.

The ERF board officials proposed to the council’s pension committee in December that elected leaders call an election to get rid of the city’s maximum contribution cap, increase the employee contribution from 13.3% to 14%, and add language to the charter that would allow the City Council to sign off on giving lump-sum payments to the pension fund.

Cheryl Alston, the ERF’s executive director, and David Etheridge, that pension’s deputy executive director, told council members during the Dec. 14 committee meeting they would prefer an election happen in May.

Ireland said the City Council could decide to call for an election in May or November.

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