As I pointed out long ago, there is no possible fix to the Dallas pension mess except massive haircuts to pension payouts.
Given The pension board does not want to admit that, nor the mayor, nor the city council, it was inevitable talks would disintegrate into finger-pointing and lawsuits.
That’s precisely what happened.
The story is a bit convoluted and hard to follow without the background so for those unfamiliar here are some articles to bring the story up-to-date.
- October 16, 2016: Dallas Police Retiring in Droves, Taking Lump Sum Pensions, Fearing the Money Isn’t There (And It Isn’t)
- November 22, 2016: Dallas on Verge of Bankruptcy Due to Pensions; Just a Matter of Time (For Dallas, Houston, LA, Oakland, Chicago, etc)
- December 5, 2016: Dallas Pension Showdown: Mayor Seeks to “Target Those Who Got Rich From System”
- December 31, 2016: Criminal Witch Hunt in Dallas Pension Fiasco
With the background out of the way, please consider ‘Politics of intimidation,’ or family feud? Anger grows as Dallas Police and Fire Pension System looks for fix.
As the Dallas Police and Fire Pension Board braced for possible legal action from four of its own trustees, frustrated Chairman Sam Friar sought retribution.
Friar, in his personal capacity, circulated a resolution among police and fire associations. The document proposed to permanently ban the associations from giving any endorsements or other political support for the council members on the board for their “despicable action.”
Both his maneuver and the council members’ request to have a court take control of the pension system have added more friction to the deeply strained relationship between City Hall and active and retired police and firefighters.
Some hope still remains that they’ll find a way to save the pension system from insolvency. But so far, talks have gone nowhere, and tensions are running high.Council member Scott Griggs said Friar engaged in “the politics of intimidation.” He said the fact Friar spent time and energy on the resolution underscored why the fund needs an independent court-appointed receiver making decisions.
Deputy Mayor Pro Tem Erik Wilson said he understands why Friar drafted the resolution, even though he was “taken aback” by it.Mata said Friar had “good intentions,” but that the idea wasn’t “appropriate nor in the best interest of the DPA and the city.”
Dallas Firefighters Association President Jim McDade agreed but believes city officials are disingenuous.
“They’re trying to point fingers at us, but they need to look at themselves and ask whether they are even trying to negotiate a settlement in some way,” he said. “Clearly, they’re not.”State House Pensions Committee Chairman Dan Flynn and his staff are looking at a proposal that would pay out the lump-sum payments as annuities over retirees’ projected lifespan. The retirees might also be able to sell their stream of payments to private financial institutions in exchange for a lump sum. But it would save the pension fund from losing nearly half its value and save retirees from seeing the interest they earned disappear.
But the board still expressed some reservations about the idea. Still, none disagreed that it would be better than the city’s plan.That is, if the numbers work.
Numbers Don’t Work
The source of the bickering is clear: The numbers don’t work.
- The plan assumes 8% returns plus an extra 2% COLA in some cases.
- Projected salary increases are a “modest” 3.5% to 18.0%.
- The plan uses 5-year smoothed averages. That means the great recession was already factored out.
The Dallas police and firefighters pension fund has just 45% of the money it needs to cover benefits. The fund rates to be out of money in 15 years at the current rate of withdrawals.
Threatening lawsuits against the pension board will not change the numbers. Nor will targeting “Those Who Got Rich From the System”
To get the pension plan a mere 70% funded would require a taxpayer bailout of $1.1 billion dollars. Of course, that assumes stock prices keep rising.
Taxpayers on the Hook?
Taxpayers should not be on the hook for this mess. The promises were bound to fail from the get go.
The fault for this mess is squarely in the hands of politicians, not those running the fund.
Nearly every public pension plan in the nation is severely underfunded. There is nothing special about Dallas.
The witch hunt is on.
There is only one practical solution: cancel the plan for future employees while slashing benefits accrued.
No one wants to admit that, so lawsuits and pamphlets are flying.
Bankruptcy Law
Unlike Illinois whose pensions are in even worse shape, Texas specifically allows chapter 9 filings according to the Governing.Com article Municipal Bankruptcy State Laws.
Sensible Actions
- The sensible solution is municipal bankruptcy coupled with big pension haircuts.
- Before the pension fund implodes, the sensible action for Dallas police and firefighters is to retire ASAP and take a lump sum payment.
- Point number two ensures that a run once started is likely to be fast and furious, which is where we are at today.
This is going to get interesting in a hurry.
By the Way
By the way, please note we have these problems with the stock market at an all-time high. Dallas is not unique. The entire state of Illinois is in an even worse predicament.
Even flat market performance for a number of years will bankrupt nearly every public pension plan in the country given 7.5% to 8.0% pension plan assumptions.
Mike “Mish” Shedlock
Politicians and unionistas teaming up to create a horrific result. Shocking if it hadn’t happened about a billion times previously.
Everyone else has been bailing them out, by the time honored mechanism of debasement. See how “funded” the plans would be if using stock (and other “assets”) prices from 1971 (The year Nixon kicked off the theft racket in earnest), for an estimate of how much has been stolen.
I’m IN Dallas.
Somebody on here come up with a good, workable solution….let us know!!!!
Thanks!
Did you not read what Mish said???
“There is only one practical solution: cancel the plan for future employees while slashing benefits accrued.”
its over, bud. Its O-V-E-R.
Fire all all lawyers and other leeches immediately. All those clowns do, is make the hole deeper.
Split up the money in the fund amongst those who are covered by it, according to how much each has put in.
Solved. As good a solution as is possible given current circumstances.
Then, grow the heck up and realize government, in all it’s facets, and and all they stand for, are nothing but a gang of thieves, period. Hence never give them another dime. For anything, any reason, ever. You’re Texans. You’ve got guns. defend yourselves, if public sector unionistas refuse to do so unless you pay them billions for the “service.”
Agreed! And if you really to have fun the Governor to Make Texas a ” Right to Work” State. Throw out all the unions in government services.
I believe Texas already IS a right to work state…?
You alluded to the inevitable ‘fix’: A taxpayer bailout.
Don’t forget. Judges are entitled to big pensions too.
And they aren’t going to rock the boat that might adversely impact their own public pension payouts.
These matters have already been adjudicated in California.
The pubic employees win – and the taxpayers get screwed.
Nothing to see here.
That’s the beauty of Federal bankruptcy law, state judges have no say. According to the post, municipalities in Texas can file. If they do, then haircuts will be the order of the day like in Detroit and Rhode Island. I hope Texas municipalities are smarter than their California brethren who filed (Vallejo and San Bernadino) and did not push for cuts to pensions, and thereby have only prolonged their pain. In that regard, these issues actually weren’t adjudicated in California because the municipalities involved balked at applying Federal bankruptcy law to pensions. Calpers will go down when a California municipality finally has no choice but to tell the pension fund to pound sand. That said, this a horrible, though predictable, result for all involved who are counting on the pensions. Except, of course, those who already cashed out.
Correct
States can choose whether or not to allow municipal bankruptcies, but if allowed, federal, not state laws rule what happens next.
I hope this Congress addresses the issue and allows municipal bankruptcies across the board.
Mish
These pensions take a deep haircut and you will be saying good-bye to honest police officers. Say hello to Officer Corrupt. He’s here to write you up or run you in! Unless, of course, you can meet his financial request…
That would never fly in America unless they they repealed the First Amendment and due process. There would be a nationwide revolt first.
The worst that could happen here is that the courts would force a taxpayer pension bailout.
Look, if the Ninth Circuit can effectively ignore black letter law and defy the Constitutional powers assigned the President to deny foreign aliens entry to our Country – how difficult would it be for the courts to force the taxpayers to bail out the police pensions?
It WILL happen here and much worse.
What Court? Illinois, Texas, or ultimately Supreme.
As for the 9th Circuit, it made the correct ruling.
86% of the Ninth Circuit decisions end up getting overturned.
The latest one will be no exception.
Judicial overreach. An attempted judicial coup of Presidential powers. It won’t work. Trump will get his way.
That is a misread of the stats. The 9th did more than 110k rulings from 99-08 and what fraction were appealed? 107 cases. Out of that fraction, what fraction of a fraction of the original rulings are then overturned or vacated? Looked like 140 of them, so…less than .1% were heard by the supreme court, and even of those, 35 were affirmed. Good talking point if it were true, but it’s not. I’m not sure how you’d label a 99.9988% “sustained” percentage but I’d say it’s pretty good.
apologies – 175 cases total appealed up to the Supreme Court, not 107. Rest of stats correct
Mike….so they did 110,000 decisions in 10 years ?…. about 11,000 per year…? And they work about 240 days a year…? meaning they decided on 46 cases every single working day……Hmmmm….
……that means they look at, listen to, deliberate and decide on an average case…..
….. in exactly 11 minutes – IF they work a full 8 hrs a day, without break.
Do you REALLY believe that BULLSH!T?
I’ve had a case in one of those courts…it don’t operate like that….I believe even you would understand that.
“As for the 9th Circuit, it made the correct ruling.”
Plenary power is not subject to review by the court. No court is above the Constitution.
Wrong, Mish. Even if the policy is bad, the president has the right to make it. The courts are not legislatures.
From a legal perspective, the Ninth Circuit decision is a heaping pile of crap. I predict the full court en banc will withdraw it — that’s how embarrassing it is.
http://www.hoover.org/research/flawed-restraining-flawed-order
Survivable defeat incites petty evil from those who’ve been waiting for evil opportunity.
I said goodbye to honest police officers when Clinton made the war on drugs a revenue stream.
And nobody knew this was coming (wink, wink). Just look for the union label.
Politicians are equally to blame, but most of all the people who voted for them.
Where was there a choice? Both Republicans and Democrats were in bed with public unions.
True. And in the south, cops and firefighters vote almost uniformly Republican.
Party affiliation means very little in these negotiations. What matters is the threat of a smear campaign if one does not vote the way the union desires.
Voting against these contracts and pension deals means you don’t “support” law enforcement, etc…
Well said and well thought out. Retire early like 5:00pm Friday February 10, 2017 if you already haven’t done so. Take the lump sum? You bet. Relying on bankruptcy court and union solution’s for help and settlement, Forget about it, Remember who got you into this mess the union and the government. Government is the problem, and unions well their time is past. Take the lump sum. Buy physical gold and silver from Goldmoney.com store it outside USA banks. Get yourself a sail boat with sleeping quarters and kitchen galley. Get a couple good deep sea fishing rods and a fly rod. Make your own lures down below in the galley. Cast off in the Caribbean and forget about everything.
Now THAT is one helluva plan 🙂
Got room for me?
At least someone has his head screwed on right… 🙂
In addition ro rods and lure, bring some guns as well. When you get bored of floating around all alone, your community of seasteaders could use a bit of a defensive force…
Bankers are winning their war on retirees, and future retirees. Corporate pension plans are already nearly extinct, next will be muni pensions.
The people need a gold standard to protect them from bankers confiscating their stuff via the printing press.
Your bankruptcy plan has a problem Mish. Bankruptcy discharges large chunks of debt. Whether that debt is to pensioners or municipal bond holders. When municipal bond holders don’t get paid, money for road and water improvements come to a stop. Then residential development stops. You risk gutting local business with no guarantee that the pensions will be brought in line.
Pensions are very workable if moderate. Note that the problem here is only with fire and police who over the last 20 years have been given extravagant pensions because “they are our heroes”.
Municipal bond covenants should have variable interest rates such that any increase in unfounded pension liabilities automatically results in significantly increased interest rates. That would put politicians in the right frame of mind.
Upside is, governments, the Federal one in particular but also munis, have been able to borrow way too cheaply for way too long, based on their assumed unlimited taxing (and printing, in the Fed’s case) authority. More realistic risk premiums for those guys, can only be a good thing.
The endangered beneficiaries must defend their income.
As long as taxpayers allow ever increasing taxes to cover the pension shortfalls, the system will limp along. Politicians will first kick the can down the road until the bitter end. Don’t expect anyone to do anything about this anytime soon.
I got my Cook County tax bill today. The Dallas 45% funding looks good in comparison to most of the pensions here – and there aren’t any high-profile fights going on here.
Even flat market performance for a number of years will bankrupt nearly every public pension plan in the country given 7.5% to 8.0% pension plan assumptions.
Is there a way to calculate the solvency of these pensions if the plan assumptions were changed to 3.5% to 4%? (Still above the 30-year bond). Seems like this is the first thing people would be trying to do if they had any interest in cooperating, but neither side does.
Beneficiaries taking a lump sum need to act fast – any withdrawals within 90 of BK are subject to preference.
There’s a bright side for Dallas politicians. They can broaden the tax base by annexing nearby growth areas, like Frisco. Texas law encourages cities to forcibly annex their suburbs. “Get the money”
Our Super Bowl party was heavily tilted towards Illinois Judges and Teachers, already in retirement cause it was so lucrative. Ok, so add in 1 legislator.
the debate heated up as atlanta drove far ahead. They all reminded me their benefits are guaranteeds by IL consitituion.
I kept asking ok, so it is. What if the state and local givt are out of money.The natural answer is tax more.
Next question was how many among us or others we know well already established residence in FL or TX or NV (a motherload of floor traders from Chicago area have apartments in Vegas). That answer was a lot. Ok
Next question is Where is the population growing, well immigrants, and in general the lower economic end.
OK geniuses-who is left to pay taxes in any significant ammount.
Furthermore, we do not know what the real assets are worth anyway. The, what if, jus tby some wierd situation we go into a bear bond and stock market for more than 6 months?
They all stil believed all will be ok.
Any questions why the education system is floundering? It is not just the kids , and parents, it is th esystem including the teachers, not all,
But then some people think they are great businessment or politicians yet businesses somehow go bankrupt and our local state and federal governments are not bastions of well run operations.
Rahn wanted to be Mayor for a long time; he has been Mayor for 6 years and look who he has improved things. Wrong way, wrong direction Rahm.
Mish, there is in fact an easy (although not painless) solution: Surtax on pension payouts. Pensions are a pretax commitment, not an after tax one.
Probably surtax above some level above basic, hopefully steeply progressive.
Hypothetical example below:
No surtax on first $1k/mo
X% surtax on next $1k/mo
2X% surtax on next $1k/mo
3X% surtax on next $1k/mo
4X% surtax on next $1k/mo….keep going ad infinitum.
Every year, solve for X necessary to reduce the degree of underfunding by ~1/4. The most abusive public pensions would be hard hit. At certain extreme levels it may even be advantageous to voluntarily reduce your (abusive) pension to avoid an even more painful surtax.
As the SCOTUS Obamacare decision taught us all, the power to tax is very, very broad and powerful.
I absolutely agree with you.
In fact, I proposed that solution long ago.
Mish
Once a run on pensions takes place in Dallas, runs in other municipalities across the US will take place.
Well…..down here is God’s Country….we’ve always thought of ourselves as being first in line………
@#$%^&%$#@#$%^& !!!
people stil do not understand that sinc ethis is all severly underfunded, many things, there wil be losers and winners.
all sortss of elected offcials, from school boards that caved when teachers went on strie, to mayors and city councilmnet , to state legislators and Federal elected congrss and Pres and VP–they have all screwed up. Media too and the people who should have seen this coming.
In order to settl ea strik ewhere there was no current money to give, these extraordinary promisses were made 20-30 years ago. screw the future, now is now. Whether its soc security or medicare or state employee pensions, its all underfunded.
now, whatever happens it kills th eeconomy. If taxes are increased, the txpayers are th elosers and have less to spend, much less to spend over the years. If the pensions get dinged, then the pensioneers get dinged and have less to spend far less.
its time to forget blame and figure out a way to handle this
the only “fair way” I see is to split the difference in the middle and the pensioneers loss that half and the taxpayers get dinged on the other half. This way nobody is happy.
now if we do that, both sides will want to wring the necks of whomever thought this up.
Somewhere along the ling our elected leaders are going to have to say many people wil get screwed and the economy will be screwed for years going fwd because people spend money they thought they ould have , or people paying tax wil have far less to spend.
as they say, time to cut to the Chase and figure out a way to handle this.
THERE IS NO SIMPLE OR EASY WAY OUT.
wait till the stock market and fixed income markets implode.
BTW–As I wrote this I realize hoe important real currency wil be needed, not just precious metals but necessities of life wil become rather important to have in storage.
How am I wrong in this thesis?