Free Minds & Free Markets

Dallas Is About To Go Broke

Detroit's pension bankruptcy may not have been a special case after all.

One city was made wealthy by Americans' love of the car and dragged into ruin by that industry's collapse. Another got rich by being a hub for companies that provide fuel for those cars, and its economy is still booming. Yet Dallas could be the next major American city to follow Detroit into the throes of bankruptcy.

Dallas Mayor Michael S. Rawlings said in November that he believes the city is "walking into the fan blades," in large part because of unsustainable pension promises made to the city's police officers and firefighters. The fund that is supposed to pay for retired cops and firemen is more than $5 billion in the red. Credit rating agency Moody's believes the fund will be out of money within 20 years, and recent retirees have taken notice: Many have started pulling their money out of the system by the millions (an ill-advised provision in the plan allows this), which is hastening the coming default.

Municipal bankruptcies, though rare, are bound to happen from time to time. But they are not supposed to happen in places like Dallas, where the population and the economy are both growing. If poorly designed pension plans are capable of wrecking an otherwise thriving city, it's time to revise our view of what places are exposed to these risks.

It's well understood that in Detroit, which filed for Chapter 9 bankruptcy in July 2013 and became the largest American city to ever do so, the problems were systemic. The city's public sector failed to shrink as the population of what was once America's fourth largest city dwindled away. Because pension costs are always deferred—you're promising to pay employees later for work they're doing now—they tend to lag behind demographic changes. A sharp decline in the number of taxpayers means promises made years ago must be borne by a smaller group of people. Unless the pensions are properly funded for decades in advance, that's going to cause serious problems.

In some ways, the Detroit bankruptcy was a unique event. With the collapse of the domestic auto industry, the city's population eroded at a rate that's practically without equal outside places that were bombed or beset by a natural disaster.

The underlying story in Dallas couldn't be more different. Over the same 60 years that saw Detroit's population diminish by more than a million people, the Texas city's population almost tripled, going from 434,000 in 1950 to nearly 1.2 million at the last census. With more people than ever paying into the system, Dallas should be sitting pretty.

Yet here we are. The city contributed just $115 million to the public safety pension fund in 2015, while paying out $283 million in benefits. And that's nothing new—the government has been shortchanging the fund for years.

The other killer for Dallas is a special loophole that lets people withdraw the money they've contributed when they retire. One officer took out more than $1 million in September. All together, panicked retirees pulled more than $230 million out of the fund in just six weeks in 2016. It's been widely described as a "run on the bank."

The fund asked for a one-time bailout of $1.1 billion—equal to the entire city budget for a year—to staunch the bleeding. When that didn't come through, officials asked retirees to vote on whether they'd be willing to accept reduced benefits, a solution that seems equally unlikely to pan out.

As in Detroit, elements of Dallas' problems are unique. But other cities can, and have, made similar mistakes. Houston, another place where the recession supposedly never happened, has the fourth-worst pension debt of any municipality in the country, according to a Moody's report published in November. That should be impossible: Houston has been growing by leaps and bounds in recent decades. But not even a rising population and a booming economy have made up for poor planning and bad financial decisions.

Officials around the country should watch closely and learn well from these mistakes: The mismanagement of public retirement programs can wreck a city, even in places that aren't already suffering from larger budgetary issues that go beyond their pension funds.

Photo Credit: Joanna Andreasson

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  • loveconstitution1789||

    Well, Dallas has a Democrat for mayor. I wonder what is the common point to these financial problems?
    Mayor Mike Rawlings(D)
    Dallas City Council

  • BYODB||

    Let us not forget the ill-advised and quickly reversed plastic bag 'ban' that amounted to a tax on every bag used. Dallas is a Democratic bastion here in Texas. Don't get me wrong, I like living in Dallas but the city government are batshit insane. Listening to the city council meetings is facepalm worthy each and every time.

  • Stephen54321||

    Well, Dallas has a Democrat for mayor.

    So? Is the Dallas city council also Democrat controlled or are Republicans in the majority?

  • Spinach Chin||

    "With the collapse of the domestic auto industry, the city's population eroded at a rate that's practically without equal outside places that were bombed or beset by a natural disaster. "

    Hizzoner, the mayor Coleman A. Young, stoked racial tensions in SE Michigan, and is primarily responsible for the White Flight to the suburbs.

  • Fatty Bolger||

    Yeah, other cities have lost their major industries and not entirely collapsed. And there are still about 5 million people living in greater Detroit. It was Detroit proper that everybody scrambled to get out of.

  • Agile Cyborg||

    Cato's illegals should have resolved this issue by now. What the fuck is going on?

  • Fascist loofa-faced shitgibbon||

    the city is "walking into the fan blades,"

    jeez, the mayor's calling his own city "shit".

  • Shirley Knott||

    He's not wrong.
    Dallas is LA moved to a flat landscape.

  • CatoTheChipper||

    with a much, much better airport

  • kbolino||

    The city contributed just $115 million to the public safety pension fund in 2015, while paying out $283 million in benefits. And that's nothing new—the government has been shortchanging the fund for years.

    Is that $115 the total of all contributions or just the contributions directly from the city? It should not be on the city to pay for the fund. It should come out of employee paychecks. How much have the city employees been contributing to the fund?

  • kbolino||

    $115 million

  • Fascist loofa-faced shitgibbon||

    Stop asking important questions that any retarded journalist would already have provided answers to.

  • aistamn||

    The Dallas pension fund is likely a defined benefit plan: the employer (City of Dallas) decides what employees will get when they retire. The trade-off is supposed to be in lower payrolls today. The city is obligated to use the monies received through taxing/fee authority to fund the pension.

  • MoreFreedom||

    The government setup gold plated pension funds with benefits and options that shouldn't exist, promising government workers fabulous benefits, that the government hasn't put the necessary money aside. The politicians essentially made promises of future payments which they didn't fund, expecting future politicians to pay. Just like the US's Social Security and Medicare promises which are in the hole for over $100 trillion, making the official debt look small (note that promises to pay grandma for these aren't included in the official debt). They also invested in a lot of questionable investments, which were politically connected as well.

    The politicians I'm sure got nice campaign contributions from the government employee unions to get these benefits. But the ones who made the promises have been out of office for decades. I sure hope the government employees get a good haircut. It'll teach them to not support politicians who don't fund the promises they make. Of course, if the politicians had to fund these extravagant plans, they wouldn't have gotten elected because they'd have to either cut services or raise taxes.

    It's similar to spending on things today, and expecting our children to pay for them. If a private company did it, the management would be prosecuted.

  • kbolino||

    Many have started pulling their money out of the system by the millions (an ill-advised provision in the plan allows this), which is hastening the coming default.

    Related to my question above, is it their money or is it the city's? If so, what makes it "ill-advised" besides the hurt feelings of technocrats?

  • Fascist loofa-faced shitgibbon||

    Once an entity makes a pension contribution on your behalf, I would think it becomes your money. I could be wrong.

  • kbolino||

    This is sounding more like an 401k/IRA than a pension fund. I would think fund assets contributed by the city would not be individualized like that.

  • Stephen54321||

    That is not necessarily how these things work--just as contributing to an insurance plan does not necessarily mean you can take money out of the plan whenever you feel like it.

  • Fatty Bolger||

    I really don't know how you write this article, and not mention the word "union" even once.

  • pan fried wylie||

    what, because the mayor of dallas is too stupid to spell 'onion' correctly, right? racist.

  • Memory Hole||

    It seems to be missing "conservative cop worship" as well.

  • Fatty Bolger||

    Maybe, but that's not a common denominator here. Unions are.

  • Stephen54321||

    In what way is it a "common denominator"? What have the unions of Dallas done which caused the problem?

  • Jgalt1975||

    It specifically states, "unsustainable pension promises made to the city's police officers and firefighters." You could add the word "union," but that doesn't actually explain anything -- just because workers are unionized, doesn't mean that the city has to agree to their demands for increased pensions, and unions don't typically make employers (whether public or private) fail to sufficiently finance their pension plans. (In fact, I'm pretty sure unions would prefer that employers sufficiently finance their pension plans since even when pension plans get bailed out, they don't typically get bailed out at a $1-to-$1 ratio.)

  • ||

    Texas is arguably the strongest right to work states in the Union. Not even the teachers have unions. Instead public employees have Associations. Dallas itself has at least 3 that I know of including an association for black police officers. The reason Reason doesn't say anything about police associations in Dallas is because they haven't much if any power over negotiating contracts. The power that they do have is laughable. On a somewhat related note, the only associations/unions that I know of that has really any sway in Texas are the airline associations/unions because of the other airports around the US. Just my own observations and opinions.

  • DaveT1000||

    Texas is generally right to work, but much of what delinia states here is simply incorrect.

    The Dallas Police Association is basically a union. The police officers in Dallas have a collectively bargained contract with the city -

    Police and firefighters in large cities are generally allowed to negotiate collectively bargained contracts in Texas. Other public employees generally are not, with some exceptions.

  • DaveT1000||

    There are, however, groups that expressly describe themselves as "unions" even for public employees in Texas who can't collectively bargain.

    There are Texas teachers unions that are affiliates of the AFT and NEA: and . Some school boards engage in a process called "elective consultation" that isn't binding on the school board but is otherwise very similar to collective bargaining

  • DaveT1000||

    There is a Texas State Employees Union, even though it can't collectively bargain -

    In Austin, the AFSCME local successfully campaigned for a Civil Service Commission and then crowed "[public employees] now have property rights to your job[s]" Not collective bargaining, but pretty much in line with the sort of terms that unions seek in contracts.

  • DaveT1000||

    A Houston public employees union collectively bargains for city employees other than police and firefighters - . That's an outlier, but it's also a notable one because Houston is the largest city in the state.

    There's currently a legislative fight about whether the state and local government will continue to collect most public union dues via payroll deductions - . For those employees who choose to join a public union, dues are currently deducted from paychecks.

    Sorry for the multiple posts, but had to break this one up due to Reason's limit on links in comments.

  • Fascist loofa-faced shitgibbon||

    "The other killer for Dallas is a special loophole that lets people withdraw the money they've contributed when they retire."

    Pretty standard option for public employee pension funds.

  • pan fried wylie||

    yeah, the withdrawing isn't the problem so much as the "money they've contributed" part, which if I understand correctly, they didn't actually, yeah

  • Jgalt1975||

    Withdrawing money yes, but being able to withdraw the entire balance at once? I thought most pension plans (public or otherwise) limited the rate of withdrawals.

  • ||

    My mom is a teacher in Texas and she was able to withdraw over $100 thousand, the entire amount by the way, from the Texas Teachers Retirement System.

  • DaveT1000||

    The option to take lump sums from defined benefit pensions at retirement is at least somewhat common. The idea is that the lump sum is equal to (or less than) the discounted present value of the expected payments. The plan should be pretty much indifferent if it's fully funded, or close to fully funded.

    One problem is that the Dallas Police and Fire pension plan is only about 45% funded. That's a bad situation under any circumstances, but it's even harder if that funding problem has to be fixed in the short term rather than over several decades.

    The Dallas plan also had a screwy provision that allowed police and fire employees to "retire" while still working and then earn a guaranteed 8% to 10% return on the pension benefits that they received while still on the job through something called a "DROP account". That's a crazily high return to guarantee someone.

  • Cynical Asshole||

    ...officials asked retirees to vote on whether they'd be willing to accept reduced benefits, a solution that seems equally unlikely to pan out.

    That may be the understatement of the century. The sun is more likely to rise in the west tomorrow than public sector retirees are to accept reduced bennies. They don't give two shits if the city goes bankrupt as long they get theirs.

  • Spinach Chin||

    In the end, they won't have a choice.

    My dad worked for the city of Detroit for 35 years and had his benefits cut, along with all the other retirees. He wasn't exactly given the option of opting out.

  • kbolino||

    I'd bet his benefits got cut by less than the bonds did.

  • Spinach Chin||

    Yeah, to be fair, his health benefits are still a pretty sweet deal. As far as I know, that's the only cut he had to take. His pension is the same. Younger retirees had to take the brunt of the cuts, I think.

  • DesigNate||

    I was in Irving a few years ago to give a presentation and while I was waiting I watched the city's municipal channel that was replaying the previous nights council session. Person after person getting up to complain about they city looking at reducing the rate of increase for the pension & benefit payouts(not even actual fucking cuts). Every single person who complained was under the age of 55. 55!

    How the fuck did anyone anywhere think that we could promise lifetime benefits to "civil servants" and let them retire at 45?

  • Dadlobby||

    While it is easy to point to the pensioners as part of the problem it is really the politicians who kick the can down the road and don't fully fund their promises. Both taxpayer and retiree suffer their incompetence. It's not only Dallas, underfunded promises and entitlements (especially medical in a growing, aging and longer living retiree pool) are a national problem at all levels of government. Young people beware, politicians are selling out your future!

  • kbolino||

    the politicians who kick the can down the road and don't fully fund their promises

    1. Politicians don't fund anything. You do. Politicians just make you do it.

    2. They kick the can down the road because they can. Stop voting for them.

  • BYODB||

    #2 isn't really an option in Dallas. Part of the problem is that there's a large population of people who moved to Dallas to work at various Corporate headquarters from places like L.A. and Chicago and once they get here it's not terribly surprising that they vote Democrat. The other part of it is that liberal Texans congregate to the cities to get away from their conservative families (and to make a buck).

    It's also a well known fact that the Democrat party is actively trying to push Texas blue. They will fail by and large, but they can succeed in the major cities which is what we've seen over the last 10-20 years.

  • kbolino||

    People get the government they vote for. That's kind of my point. Voters want all these pie-in-the-sky promises and want to make other people pay for them. At some point, the math stops working out.

  • BYODB||

    I get where you're coming from, I just had to point out the reason why Dallas is the way it is. The fact that it's within Texas doesn't mitigate it's left-leaning citizens voting patterns, so we're in agreement on this one.

  • DevilDog943||

    Dallas is rapidly becoming a Democrat voting city, right behind Austin and San Antonio as the most liberal cities of the state. A few years back, there was a wholesale rush of elected city officials (judges, JP, etc.) to switch their party affiliation from Republican to Democrat as they wished to remain in office.

    My employer is in Dallas, but I refuse to live in Dallas, both the city and county are far too screwy to receive my tax dollars.

  • Diane Reynolds (Paul.)||

    Young people beware, politicians are selling out your future!

    Crazy right winger talk.

  • TGoodchild||

    "walking into the fan blades,"

    I'm not sure if such behavior is sufficiently proverbial to warrant the mayor's quote.

  • Diane Reynolds (Paul.)||

    Municipal bankruptcies, though rare, are bound to happen from time to time. But they are not supposed to happen in places like Dallas, where the population and the economy are both growing.

    Did anyone who was already broke go broke? Often, it takes wealth and money to get a credit card, let alone run up the debt.

  • Fuck You - Cut Spending||

    dragged into ruin by that industry's collapse

    The automotive industry never collapsed. It just moved the fuck out of Detroit, like anyone with money and a bit of sense did.

  • Threedoor||

    Time to sell off the fire stations to for profit coverage companies where they belong.

  • PapayaSF||

    Public employee pension funds collapsing? Increase taxes on public employees. That's fair and just.

  • Wildbill2u||

    Dallas is just another example of why someone once said that you can keep a republic until the people realize they can vote themselves benefits. In this case, as in many cities, it was the politicians who realized they could give unsustainable benefits to the employee unions in order to keep getting elected.

    And no one listened to the conservatives who warned that one day they would have to pay the piper.

  • DrZ||

    Time to get government employees of defined-benefit plans and onto defined-contribution plans like 401ks like the rest of us peons.

  • Johnny B||

    You might want to add social security to that. Lots of Ponzi schemes out there. They work out well for the first in. Not so much for everyone who comes in too late.

  • BBrooks630||

    The author failed to discuss the major reason for why the pension fund for the police and firemen is going broke to begin with. I live in Dallas and have followed the story for many years, and while I don't know all the details, the former pension administrator, Richard Tettament, invested the funds in many risky and speculative real estate deals, not the least of which were luxury rental properties in California, Hawaii and elsewhere. Naturally, he and other board members had to go on regular "site visits" to to check up on their properties, and they racked up huge travel fees while doing so. Even worse, the luxury properties failed to earn the necessary returns and actually started a big drain on the cash flow of the fund. All of that, combined with the excessive travel expenses, put the fund into a precarious position, and they had to write down many of the assets. At that point, the fund was unable to even earn nominal returns to keep the fund growing.

    So while many of the various problems are legitimate, it started with extremely poor investment decisions and the scurrilous and wasteful spending by the administrator and the board. Needless to say, Tettament is now the former administrator, but the damage he did cost the fund hundreds of millions of dollars. The fund was apparently in very good financial condition a number of years ago, but certainly many people failed to pay attention to what was going on, or looked the other way, and thus are to blame, too.

  • Mark U||

    Another important cause of this problem that was left out of this article is that the State of Texas, not the City of Dallas, has control of the Police and Fire Pension fund. This statement from coverage by local ABC news sums up how things got this way quite nicely, "Their position (the City of Dallas) is that the state set up a flawed system that gave control to the members of the pension fund, who in turn, voted themselves overly generous benefits". Dallas is now trying to get the State legislature to give the City some control over the fund.

    One other bad investment made by the pension fund is the 42 story Museum Tower in Dallas. A few years ago while the tower was still under construction, news coverage and lawsuits started about how sun reflections from this tower were frying the art and visitors at the Nasher Sculpture Center immediately south of where the tower was being built.

  • tlapp||

    It's a result of the folly of trusting politicians with your retirement needs. Any time the budget "needs" a some extra money it is easy to short the amount put into the pension fund which won't be a problem until some future date. Any time a politician "needs" some votes it's easy to offer a pension increase that will be paid at some future date.
    The real lesson of these pensions and federal entitlements is that libertarians were correct all along. Self reliance is the answer. No one will look out for your interests and your future better than yourself. Even better we can do it without leaving a burden on future generations.

  • Empress Trudy||

    While it's endemic of public sector pensions generally, this notion that somehow cops and firefighters are entitled to anything they can imagine because of the inherent risk of their jobs needs to be revisited. Moreover, the view that any public sector worker is necessarily owed a lavish pension because historically, public sector workers earned less now compared to the private sector isn't even true any more. Public sector workers often earn as much or more than private sector employees who are fighting for their lives against cheap foreign labor here or abroad. And pensions in the private sector are essentially gone, forever. They don't exist. If the funds aren't raided by management then it's only because they're token amounts that would be used up in a year or two of retirement. So let's take a fresh look at the largess we give not only our 'first responders' but all 'civil servants'.

  • jbsnc||

    I am sure others are ahead of me but: We haven't seen anything Yet! Feds $100 trillion in unfunded liabilities, $20 trillion in debt and both rising, cities and states with sometimes very, very generous salaries and retirement benefits (or should I say re:elect politician's benefit programs). Massive pollution constraints on American businesses but less so on Chinese and Indian businesses in Obama's drive to 'fundamentally transform' America (into poverty). Look ahead at what?

  • LB||

    It is dubious that the city of Detroit was "dragged into ruin by the car industry's collapse," although that is the narrative repeated endlessly as fact rather than opinion by out-of-state and foreign journalists. They'll show the images of the collapsing buildings, trees growing on roofs, graffiti, empty fields, and deserted streets and handily explain it away as a testament to the decline of the automotive industry, ignoring obvious inconsistencies with that explanation. The population of metro Detroit did not descend into abject poverty or disappear into thin air; its White citizens simply moved out of Detroit into the suburbs in the 60s and 70s, which sprawled and prospered for the next 30 years while Detroit crumbled into dust. These were the same people who had been employed by the auto industry. Factory employment did decrease (as it has nationally), but most of the Detroit's former residents did not move out-of-state as the automotive industry declined, and could've continued living in the city and commuted to their new jobs. They fled the city because it became extremely unsafe to continue living there. There was rampant destruction of property, violent crime, falling school performance, and an embarrassing parade of ceaselessly re-elected absurdly corrupt municipal government officials incapable of maintaining basic first-world services.

  • LB||

    The city itself depopulated, but the overall metro population did not drop precipitously, at least not more than other northeastern cities' with gradual migration to the Sunbelt. All will ignore the fact the adjacent city of Windsor Ontario (protected from the destruction by the international border) did not experience the same virtual obliteration, in spite of the same economic reliance on the automotive industry. And the other neighboring Michigan suburbs that experienced hardship because of plant closures without descending into complete ruin. Occasionally some right-wing pundit will blame the city's decline on labor unions or the alleged socialist policies of elected left-wing democrats. But there were other changes that accompanied Detroit's decent into chaos besides the decline of an industry. You can bet those same journalists won't show images of a healthy 26-year old father of 4 sitting on what's left of his front porch at 11 AM on a Tuesday (without bothering to break off the sapling growing up through it) while there's a help wanted sign in the McDonald's window right up the street.

  • Slocum||

    "With the collapse of the domestic auto industry, the city's population eroded at a rate that's practically without equal outside places that were bombed or beset by a natural disaster."

    No, that's not it. The auto industry and the 5 million people are still in SE Michigan, but more than a million moved out of the city and to the suburbs after 1950, and particularly 95% of the white population who had most of the money. The auto industry has had many boom and bust periods during that time , but the city kept shrinking regardless.

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    If the DEMOCRATS should run us in the ground and Dallas goes broke then I just have to through this out there.......before you let your home go into foreclosure be sure to call Cash Home Buyers Dallas or go to to get an all cash offer fast!


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