by Mish
Mayor Mike Rawlings is right to ask for a state criminal investigation into shady practices by the Dallas Police and Fire Pension System’s prior management.
The fund is on the verge of a potentially catastrophic collapse that could leave public safety workers, taxpayers and the City of Dallas on the hook for billions of dollars. And the reason stems from abuses under the former administrator Richard Tettamant, who was ousted in 2014.
The fund’s former managers bet heavily on risky investments such as luxury homes in Hawaii, a resort and vineyard in California and Dallas’ Museum Tower itself, and promised its hardworking police and fire employees unrealistic returns while enjoying lavish perks.
Those returns didn’t materialize, saddling the retirement fund’s new managers with $2 billion to $5 billion in unfunded liabilities. Frightened police officers and firefighters began a run on the fund, pulling more than $500 million out of it in recent weeks at a pace that would have drained the fund’s cash to dangerous levels.
The city of Dallas contends it is not legally responsible for the actions of the pension fund’s former managers, in part, because the city doesn’t control the fund, which was set up decades ago by the Texas Legislature. But the city is on the hook nonetheless; a failure of the fund would betray promises made to current and retired public safety workers and would make it much more difficult for the city to recruit new police officers and firefighters.
Too many people are at risk and those who put them there need to be called to account for their actions.
Criminal Witch Hunt
I am not here to defend the investment schemes of the fund managers. And I certainly take exception to alleged lavish perks. But this case is going nowhere.
If one wants to place blame, then blame rests squarely on the shoulders of the legislature that authorized the plan and established the absurd pension assumptions.
Perks did not cause the pension plan to be ridiculously underfunded. Rather, ridiculous plan assumptions steered the managers into risky assets.
In hindsight, it’s easy to say the fund should have thrown it all at Google, Apple, etc. Care to make the same case going forward?
Taxpayers on the Hook?
Taxpayers should not be on the hook for this mess. The promises were bound to fail from the get go.
The fault for this mess is squarely in the hands of politicians, not those running the fund.
Nearly every public pension plan in the nation is severely underfunded. There is nothing special about Dallas.
However, politicians will never point the finger at themselves. So the witch hunt is on.
The only realistic solution to this mess is massive haircuts on pension assumptions, one of two ways: Voluntary or in bankruptcy court.
Mike “Mish” Shedlock
