The city of Dallas may need to come up with millions sooner than expected to fix the grossly underfunded police and fire pension system. That’s after a Travis County court said Thursday the city must move forward with the funding recommendations by the Dallas Police and Fire Pension System.
Under that proposal, the city would need to pay almost $13 million more in 2025 than what Dallas city staff recommended to fix the billions in unfunded pension liabilities. The pension system’s recommendation costs $419 million more over the 30-year funding period, according to a June city council briefing.
It was risky real estate investments — made by pension officials — that almost led to the fund’s collapse that landed the city in this position to begin with.
The ruling — although likely to be challenged in a higher court — comes as the city faces financial issues and significant changes to how local government operates.
“The city is aware of the court’s decision. Because the litigation is ongoing, the city has no additional comment at this time,” Nick Starling, a city public information officer, told KERA.
Earlier this year, pension executives sent a letter to state regulators stating the Dallas pension board has “exclusive authority to adopt a pension plan.” City officials didn’t know until May, according to letters obtained by KERA.
In August, the pension system’s leadership approved the legal action in early August to find out who has the final say in what plan gets adopted.
"This by no means indicates a departure from working with the City of Dallas,” Nicholas Merrick, chairman of the DPFP Board of Trustees, said in a press release at the time.
"However, there is a legitimate and very important disagreement that exists with respect to the interpretation of our statutory mandate. We believe this clarification by the courts is critical to moving forward with a plan for the pension of the City’s valued first responders,” Merrick continued.
The main difference between the city and pension system’s plans are when retirees will get a cost-of-living adjustment (COLA).
The Dallas City Council approved a plan in September that includes a five-year ramp up in contributions into the system to reach 70% funding — that’s the legal requirement before the city can pay out a COLA.
That may not be until 2046.
Dallas’ plan also includes funding for a “stipend” to help retirees bridge the gap until the city is legally allowed to increase their benefits. But when the council voted on the plan, it added a caveat that the stipend would only be paid out on approval by elected officials.
“The way this has been structured is in a way that takes into account the fact we’ve been sued, by what is supposed to be one of our partners,” Dallas Mayor Eric Johnson said at the time. “We want to make sure we are not getting out of line in terms of what we may, or may not be, required to do at some point.”
There has been tension between the pension board and city officials for years over the system’s issues. And now, despite claiming to be negotiating in good faith, those tensions are still in plain view.
City officials hired a firm to figure out why the fund’s investments aren’t yielding more revenue. That firm, led by Dorey Wiley, has been met with significant pushback from some inside City Hall and pension executives.
In August, Wiley briefed the council about the fund’s investment standings. Pension officials didn’t agree with that report and said at the time that “a lot of the information was omitted from the final report” — and that the system’s staff were more than capable of figuring out a funding solution.
And when some council members suggested there should be more eyes on the investments — pension officials balked.
“We’ve got an investment consultant, we have a staff working on the portfolio every day, I’m not sure how adding another person in there is going to provide anything more than is available,” Kelly Gottschalk, the system’s executive director, said at the time.
Throughout that meeting, pension executives rebutted Wiley’s presentation — so much so that one council members addressed it.
“Your body language in defense to these recommendations, when the objective is to try and fix something that none of us had a part of, is confusing to me,” District 3 Council Member Zarin Gracey said. “You ought to want as much help as you can [get].”
Gracey said it was fine for the executives to be defensive — but the end goal is to fix the fund.
“So I am encouraging you all, mind the body language,” Gracey said. “You are defending this as if you did it, and that is concerning.”
Thursday's ruling is likely to widen the distance between the city and pension officials. And It is unclear how long the legal battle between the city and pension fund will continue.
But the city must start implementing a plan to fix the system starting in 2025.
Got a tip? Email Nathan Collins at ncollins@kera.org. You can follow Nathan on Twitter @nathannotforyou.
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