By Mike “Mish” Shedlock
Dallas is on the verge of bankruptcy due to untenable pension problems.
The Dallas police and fire plan is only 45% funded. Lump sum withdrawals have escalated, and it’s only a matter of time before such withdrawals are halted.
The fund needs a billion dollars in funding this year, the equivalent of the entire city budget, just to keep up with outflows.
Bankruptcy is inevitable. No one should be surprised.
Please consider Dallas Stares Down a Texas-Size Threat of Bankruptcy.
Picture the next major American city to go bankrupt. What springs to mind? Probably not the swagger and sprawl of Dallas.
But there was Dallas’s mayor, Michael S. Rawlings, testifying this month to a state oversight board that his city appeared to be “walking into the fan blades” of municipal bankruptcy.
Over six recent weeks, panicked Dallas retirees have pulled $220 million out of the fund. What set off the run was a recommendation in July that the retirees no longer be allowed to take out big blocks of money.
Now, the Dallas Police and Fire Pension System has asked the city for a one-time infusion of $1.1 billion, an amount roughly equal to Dallas’s entire general fund budget but not even close to what the pension fund needs to be fully funded.
“It’s a ridiculous request,” Mr. Rawlings, a Democrat, said in testimony this month to the Texas Pension Review Board, whose seven members are appointed by Texas governors, all Republicans for the last 20 years.
This month, Moody’s reported that Dallas was struggling with more pension debt, relative to its resources, than any major American city except Chicago.
“The City of Dallas has no way to pay this,” said Lee Kleinman, a City Council member who served as a pension trustee from 2013 until this year. “If the city had to pay the whole thing, we would declare bankruptcy.”
The city is expected to call for an overhaul in December. But it has no power to make the changes, because the fund is controlled by state lawmakers in Austin. The Texas Legislature convenes only every other year, and Dallas is preparing to ask the state for help when the next session starts in January.
Beset by Withdrawals
The Wall Street Journal reports Dallas Police and Fire Pension Fund Beset by Withdrawals.
Dallas police and firefighters are withdrawing hundreds of millions from their retirement plan following a series of investment blunders, heightening the risk that a major U.S. pension fund could run out of money.
“Everybody suspected it was in trouble” and “nobody knew what was going to happen,” said former officer Keith Strickland, 56, who retired in August and withdrew his savings. Officers and firefighters have withdrawn $508 million in the past four months.
Dallas Police and Fire Pension Actuarial Valuation
Let’s dive into the Dallas Police and Fire Pension Actuarial Valuation as of January 1, 2016.
Contributions vs. Benefits and Expenses
Dallas Pension Assets Marked to Reality
Dallas Pension Net Liability
Dallas Pension Assumptions
The above charts are before $500 million was pulled.
Dallas is not the only city in trouble, but Dallas mayor Michael S. Rawlings stands out from the others in honest assessment of the situation.
I have written about zombified cities over the last few years. In most cases the can has been kicked.
- Philadelphia: 5th Largest City in US is Effectively Bankrupt; Mayor Holds Closed Meeting With Wall Street to Discuss Asset Sales
- Houston: CPAs state Houston is Bankrupt
- LA: Mayor of Los Angeles Says “Bankruptcy is Not an Option” (Of Course It Is)
- New York Cities: Public Pension Ponzi Scheme – New York Cities Borrow From Pension Plan to Make Contributions
- Baltimore: Time for Baltimore to “Pull a Vallejo” and Declare Bankruptcy
- Miami: Miami Commissioner Says Bankruptcy is City’s Best Hope; Chris Christie Says New Jersey Careens Towards Becoming Greece
- Chicago: Chicago’s Mayor Daley Discusses Bankruptcy For City Pensions
- Scranton: Scranton Mayor Slashes All Public Worker Wages to $7.25 per Hour, Including Police, Fire, His Own; City Effectively Bankrupt
- Harrisburg: Pennsylvania State Capital Files for Bankruptcy
- Zombified Cities Roundup: Detroit Becomes Dumping Ground for the Dead; Financial Urgency in Miami; Oakland Pension Time Bomb; How Pensions Crashed Stockton and San Bernardino
There is absolutely no way Chicago, Oakland, Baltimore, Philadelphia, LA, Houston, and numerous other cities can meet pension obligations without a major restructuring of promises.
Given that public unions seldom if ever agree on even the smallest of pension concessions, expect many of those haircuts to happen in bankruptcy court.
85% of Pension Funds to Fail in Three Decades
On April 11, 2014, I wrote 85% of Pension Funds to Fail in Three Decades.
The analysis was not mine, it came from Bridgewater Associates. My conclusion was Bridgewater is overly optimistic.
Massive Number of Municipal Bankruptcies on Horizon
I wonder what Bridgewater’s model would predict starting with losses for the next seven to ten years, because that is what I think is highly likely.
Given the only way to shed pension obligations is bankruptcy, one hell of a lot of municipal bankruptcies are on the horizon unless some other legal maneuver is found.
Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. He also writes a column at Townhall.com. Article appeared at his blog.
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