Dallas Bond Election Delayed by Pension Woes

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DALLAS – Beset by an accelerating crisis with the city's Police & Fire Pension System, Dallas officials are postponing an $800 million bond election that had been expected in May.

Mayor Mike Rawlings, who had urged the City Council to delay the bond election as the pension crisis worsened, prevailed in an informal vote Wednesday to wait until November to submit proposals to voters.

"It's not just calling the election," Rawlings told the council. "We've got to make sure we can win the election. I think we lose in May."

To remedy the pension crisis, Dallas needs legislative action in the session that begins this month in Austin. State law controls the structure of the Police and Fire Pension Board.

Dallas Police and Fire beneficiaries currently control the fund, which Rawlings has described as the "fox guarding the henhouse."

In testimony before the Texas Pension Review Board in November, Rawlings also compared the management of the fund to a Bernie Madoff Ponzi scheme.

The Texas Rangers law enforcement unit is investigating actions taken by the pension board and staff. Rawlings called for the investigation in December, but officials with the fund said an investigation was already underway.

"The past administration of the Dallas Police & Fire Pension System committed a grave breach of trust with our first responders with serious ramifications impacting current and former police and fire personnel and their families, as well as all Dallas taxpayers," Rawlings said in a statement Dec. 30. "As I have learned more in recent years and months about how the pension fund reached its current crisis, I have come to believe the conduct in question may rise to the level of criminal offenses."

At Wednesday's City Council meeting, a majority of council members raised their hands when asked if they favored delaying the vote. However, council members also described the need for street repairs in their districts as urgent.

In December Dallas received its third downgrade in two months when Moody's Investors Service lowered the city's general obligation rating to A1 from Aa3, maintaining a negative outlook.

Moody's cited two threats to the city's finances that Rawlings outlined at the November meeting of the Texas Pension Review Board.

In addition to the potential failure of the public safety pension system, an unfavorable ruling on a lawsuit involving back pay for police could cost the city $4 billion, according to Rawlings.

The Moody's action came the same day S&P Global Ratings placed Dallas' AA rating on watch for possible downgrade.

Rawlings told the pension review board in November that the combined impact of the pension fund and court case could come to $8 billion, which could lead to a potential bankruptcy. Rawlings and the city maintain that Dallas is not legally responsible for the $4 billion pension liability.

As the Legislature nears its 2017 session, state Sen. John Whitmire, D-Houston, is advising the Dallas Police and Fire Pension board on legislative remedies. Under state law, the board is allowed to hire Whitmire, dean of the Senate, as a professional advisor.

Kelly Gottschalk, the pension fund's executive director, said the fund will cooperate in the investigation by the Rangers, which handles securities investigations for the Texas Department of Public Safety.

Gottschalk has estimated that about a third of the pension plan's underfunding came from investment decisions. Other factors were overly generous benefits, an aging population, unrealistic return assumptions and other plan design issues.

The $2.1 billion fund's speculative investments in real estate have drawn special scrutiny. A lack of regular appraisals concealed the properties' true value, with losses estimated at $545 million.

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