Mismanagement, Risky Investments and Tax Hikes: the DPD Pension Fund Dilemma


On July 7, 2016, Micah Xavier Johnson gunned down five Dallas police officers during a peaceful protest of the recent killings of unarmed African-American men in both Louisiana and Minnesota. Johnson, a former Afghanistan veteran who reportedly returned home a different man, attempted to vindicate these deaths and as a result committed the deadliest attack on U.S. law enforcement since Sept. 11.

At the end of an already challenging year for the Dallas Police and Fire Department, the DPD and DFD face a new challenge: their pension funds.

The problem began in 1993: Bill Clinton had just began his presidency with promises to end the economic stagnation created by the 12 years of Republican leadership and appeared to succeed. Consumer spending increased by 4.2 percent, unemployment dropped and the housing market—an economic sector which had previously been depressed—boomed.

The seven trustees of the pension fund, embracing the economic upturn, drastically improved the police and fire pensions and created individual savings accounts with 8.5 percent interest rates, resulting in many millionaire retirees. These trustees attempted to beguile the local politicians by convincing them their plan was “cost neutral.” However, they would only be correct if the payroll increased by 5 percent each year (which it did not) and if their investments earned 9 percent annually (which they did not).

In order to secure the tremendous gains on their investments, the trustees chose to invest in ostentatious and extravagant ventures such as luxury resorts in Napa Valley, expensive properties in Hawaii and timberland in Uruguay. The pension fund also spent millions conveying officials across the globe to examine possible investments in locations such as Zurich and Italy.

Ultimately, these investments never paid off and left the pension fund with a debt of $7 billion. Now, the trustees have asked the city government to help pay off the debt while decreasing the pension rates for future retirees.

This plan has resulted in two angry groups: Dallasites who despise the possible increase in taxes and DPD and DFD members who fear the cuts to their retirement plans.

The first group has existed for several decades now as a result of Texas’ deeply-instilled cultural values of freedom and property. Often attributed to Texas’ western “cowboy” culture, Dallasites have detested taxes as theft of private property, resulting in no income taxes and relatively low taxes as a whole.

Thus, tax-averse citizens are not fans of the pension fund’s proposal to pass on $1 billion of the debt to the city, which would either precipitate tax hikes or cuts in program funding or both.

On the other hand, Dallas has long supported the police community. Following the July shooting, citizens put up signs reading, “We back the blue,” among other similarly supportive phrases. Several Hockaday students even raised $20,000 for the police.

Additionally, earlier this year, the police and fire departments asked for pay raises of 15 percent over three years and increased personnel following the shooting in order to improve security. The majority of the city councilors supported this measure and asked former city manager A.C. Gonzales to find the money. In light of the empty pension fund, the city council put this proposal on the backburner.

The second group has mobilized extensively following word of pension cuts.

For example, five cops and firefighters filed a suit against the pension system that it has violated state ordinances by increasing the size of the board to 12 trustees over the last two decades. The main concern for these five individuals—and the DPD and DFD as a whole— is the pension cuts they may face in the upcoming years. They recognize that the system has failed due to the ludicrous benefits promised to cops and firefighters over 20 years ago but want the same benefits for the future.

Furthermore, anxious police officers and firefighters have raced to liquidate all assets (since August, over $500 million dollars have been withdrawn) in the pension fund before it dries up, similar to the bank run following the 1929 stock market crash.

While Rawlings put a halt to these withdrawals in a move labelled “Draconian” by several critics, the underlying problems persist.

The city must now figure out how to proceed forward with the least resistance and the best results. Unfortunately, there are no fairy godmothers who can wave a magic wand and solve these problems, nor are there time machines that could allow us to travel back to the pension fund boardroom in 1993 and warn against such imprudent actions.

Instead, the city will have to resort to a compromise that will likely displease many people. It may be unpleasant and undesirable to one group or another, but the city cannot just rely on politically expedient courses of action or we will succumb to the sins of our 1993 predecessors.

– Mary Orsak – Asst. News Editor –