Is Dallas Going Bankrupt?

“It’s definitely a black eye, there is no question about that.”

By Michael Marks & Laura RiceNovember 22, 2016 12:49 pm|

Dallas and bankruptcy are two words you normally wouldn’t find in the same sentence. After all, Texas is practically recession-proof and Dallas has one of the fastest-growing economies among large cities in the U.S.

But Dallas Mayor Mike Rawlings says his city may be “walking into the fan blades” of bankruptcy. It all comes down to pensions for public safety workers. Big promises to pensioners and risky investments have left the fund almost $7 billion in debt, and it’s seeking a bailout from the city.

According to Mary Williams Walsh of the New York Times, Dallas had the equivalent of a bank run this past summer. Although a pension fund is not a bank, their fund did have a feature that allowed pensioners to pull out large amounts of money on demand, once they were a certain age. Due to concerns about investments, many began withdrawing from their accounts in high numbers, which left too little for the regular part of the benefit.

“There’s been concern about investments there for a long time … and it all sort of came to a head over the summer,” Walsh says. “They got some new numbers and people started feeling like ‘No, my money is not safe there.’ It was sort of rumor-driven also – maybe some exaggerations or something. But, I mean, a pension fund is not set up to take a hit like that all at one time.

The Dallas Police and Fire Pension System are asking for a one-time infusion of $1.1 billion, which is roughly equal to Dallas’s entire general fund budget. But this would still not cover what the pension fund needs.

“It basically would mean the city would have to either have a gigantic property tax increase or issue a bond, and you can’t just issue bonds every time you want to,” Walsh says. “The rating agencies are wary of pension problems and they give you a lower credit rating. If you have a lower credit rating that just means it costs more to borrow and I think the mayor doesn’t want to get into that situation.”

But Rawlings says he doesn’t think bankruptcy will happen.

“I just don’t like the city heading in this direction,” Rawlings says. “That’s why this pension is so important. But not only because of the fiscal issues it faces, but the damage it does to our police officers’ lives. There are a lot of those guys that didn’t have anything to do with this and I want them to feel at ease.”

Rawlings says part of the problem is that faulty assumptions that were made over decades. He says the citizens of Dallas were the odd man out. The system was flawed on many fronts, he says. For example, citizens had no control over their investments.

So what would bankruptcy mean for the city Dallas as a whole?

“It’s definitely a black eye, there is no question about that,” Rawlings says. “Already, our bond ratings are down. It’s costing taxpayers more money and obviously, it would change the lives of thousands of people at the city level. This is a serious issue that we are walking towards if we don’t take action now.”

Post by Nadia Hamdan.