DALLAS – Prospects for a solvent Dallas Police and Fire Pension system improved dramatically as key Texas lawmakers agreed on a formula to extend the fund’s life for nearly half a century.

“It’s truly a great outcome considering where we were with the potential of having no retirement for our police and firefighters,” Dallas Police and Fire Pension System chairman Sam Friar said after the state Senate State Affairs Committee voted unanimously to send the Senate’s version of House Bill 3158 to the floor for a vote in the last week of the 2017 session.

The Texas House already passed the bill by Rep. Dan Flynn, R-Van, in a unanimous vote May 3. While the House version of the bill would keep the pension solvent for 40 years, the Senate version would add six years to that, according to co-sponsor Sen. Royce West, D-Dallas. The fund was facing insolvency in 10 years without a legislative fix.

The Senate's version calls for minimum contributions by the city and first responders into the fund, and requires an additional lump sum of $13 million from the city for each of the first five years. The city already pays more than $120 million a year into the system.

Contribution rates during the sixth and seventh years depend on the city's hiring plan.

Uncertainty over the future of the Police and Fire Pension has hampered hiring of police and firefighters as veterans of the force retired in record numbers for fear of losing benefits in the past year, city officials said.

A special meeting of the pension system board Monday updated members on the new version of the legislation. The board rejected the Senate plan earlier this week, but agreed to the bill after last-minute negotiations. The Dallas City Council approved the plan last week.

Dallas Mayor Mike Rawlings, who earlier opposed the House version of the bill, said the changes made in the Senate make the plan fairer to city taxpayers.

"Today I'm 100% happy," Rawlings said after endorsing the new plan.

As Dallas seeks its pension reforms, the state’s largest city, Houston, has yet to cross the goal line with a bill designed to help restore balance to pension funds.

Senate Bill 2190, worked out through lengthy negotiation between city officials and pension fund representatives, is in a House-Senate conference committee after winning approval in both chambers.

Before passing the bill, the House added an amendment that Houston Mayor Sylvester Turner says would have a $400 million impact on the system by outlawing reductions in firefighters’ benefits. Turner has called for that amendment to be stripped out in the conference committee.

David Keller, chairman of the Houston Firefighters Pension and Relief Fund, said that the city has employed a “divide-and-conquer strategy is being used to pit active against retired firefighters."

Like Dallas, Houston has suffered rating downgrades due to its rising pension crisis, though Houston’s situation is not considered as dire as that of Dallas.

Most of the unfunded pension liabilities in Houston do not involve the firefighters but come from the municipal employee retirement fund and police pension system, according to S&P Global Ratings.

The municipal system is 48% funded, while the police system is 62% funded.

Houston’s firefighter fund, by contrast, has about 81% of the money it needs to cover pension costs, making it one of the best-funded pension funds in the state.

Although Dallas and Houston fund their pensions for police and firefighters, the governance of the system is determined by state law. Rawlings and other Dallas officials said the ability of the beneficiaries to control rules for distributions all but destroyed the system.

Dallas Mayor Mike Rawlings.
After opposing an earlier version of a new state bill on Dallas' Police and Fire Pension System, Mayor Mike Rawlings declared himself "100% happy" with the amended Senate bill.

Under the Senate's version of the new bill, the system would be governed by six people chosen by the mayor in consultation with the city council. Five others would be chosen to represent the police and fire unions' interests. A two-thirds majority vote would be needed to reduce the city's contribution rates, increase member contributions or lower benefits.

The unraveling of the pension fund in the past year has brought intense pressure on the city’s bond ratings and led the Dallas City Council to postpone an $800 million bond election that had been expected this month.

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

Dallas' adjusted net pension liability is four times greater than its debt, the third highest such relationship among the 50 largest local governments rated by Moody’s and ranked by debt outstanding. The city's liability amounted to $7.6 billion as of fiscal year 2015, compared to bonded debt of $1.8 billion, according to a Moody’s report in advance of last week’s vote in the Senate Committee on State Affairs.

Relative to revenues, Dallas exhibits the second highest balance sheet leverage from debt and pensions among the 10 most populous cities in the U.S., second to only Chicago, analysts said.

“Combined, the city's debt and pension balance sheet obligations under our adjustments amounted to 588% of its total governmental revenues in fiscal 2015, up from 354% in fiscal 2005,” Moody’s said.

With time running out on the legislative session, passage of the Dallas Police and Fire Pension reform is becoming a nail biter for the city and its employees.

“If DPFP depleted its assets and the city did not increase its contributions to a level sufficient to maintain benefit payments, lawsuits against the DPFP and the city would likely ensue,” Moody’s wrote.

“A court could force the city to hike its contributions in order to keep benefit payments flowing,” it added. “Alternatively, even if the city were to legally prevail in such a scenario and continue only contributing at lower statutorily required levels, continued plan insolvency and benefit impairments to retired public safety workers could be politically and practically untenable.”

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