The law firm representing Dallas’ severely underfunded public safety pension fund said it doesn’t need city officials’ approval before submitting a plan to state regulators to fix the system.
After almost six months of meetings between city officials and pension executives trying to work together on the issue, the city only recently found out.
In a letter obtained by KERA sent earlier this year to the Texas Pension Review Board’s top executive, the fund’s lawyers said both the city and the board’s reading of legislation guiding the plan was “erroneous.”
“The System’s board has exclusive authority to adopt a pension plan,” the January letter said. “No City approval is contemplated or needed.”
KERA reached out to pension system officials on Saturday afternoon, but did not receive comment by the time of publication.
In another letter obtained by KERA sent to state regulators on May 10, Dallas City Attorney Tammy Palomino said she “only recently became aware” of the initial correspondence from the Dallas Police and Fire Pension System — and that its reading of the two state statues is “plainly incorrect.”
Palomino’s letter said ultimately the city council has to approve any plan that will be sent to state regulators.
Mayor Pro Tem Tennell Atkins, who chairs the city’s pension committee, has maintained that both parties need to come together to find a remedy. In a statement to KERA, he agreed with Palomino’s stance.
“The taxpayers of Dallas are being expected to fund the Dallas Police and Fire Pension’s gap and must have a say in this process,” Atkins’ office said. “It is affirmed by law, as well as the Texas Pension Review Board, who will ultimately be responsible for accepting the funding plan.”
District 9 Council Member Paula Blackmon told KERA that while elected officials will be keeping their promise to remedy the issue, the city shouldn’t be just finding out about this after the fact.
“So much for working together, this was sent in January and we just found out about it a couple of weeks ago,” Blackmon said. “It kind of goes to the illusion of working together, or disillusion, right?”
Blackmon said she hoped this wouldn’t harm the process moving forward and that those involved would admit it was not the best approach. But she also said Dallas taxpayers are the ones who ultimately could get hurt during this process.
“This is a serious problem and we have to take it seriously,” Blackmon said. “Antics and letters and lack of transparency doesn’t help. We need the best and brightest minds to come to the table and really look at thoughtful solutions.”
Down payment
In the letter sent from Haynes and Boone attorneys to Amy Cardona, the state pension board’s executive director, the firm said the law is silent when it comes to giving power to the city for final approval.
“In the interest of fostering a collaborative dialogue about these issues with the [Pension Review Board], the [Dallas Police and Fire Pension System] provides the following statutory analysis,” the letter said.
The 91-page report details the two state statutes that guide how pension systems come up with funding plans with government entities — like the city of Dallas. The attorney argued that one of the laws “makes no provision for adopting or amending a pension plan. Nor does it address how a plan or amendment becomes effective.”
Instead, they said the other provision is what should govern the plan process and was why they concluded the fund could submit a plan on its own without city approval. The letter said the system “is confident that a court would agree.”
Palomino said that analysis isn’t correct and under either code the city council would need to approve the plan.
“If the two statutes are harmonized, the plan must be approved by city council under the provisions of Chapter 802.20,” Palomino’s letter said. “If the two statutes are irreconcilable, then a plan must still be approved by city council under the provisions of Chapter 802.”
The letter also said if state legislators had intended for one statute to take precedence over the other, “it could have said so in 2017, 2021, and 2023, but it did not.”
Blackmon said anyone can approach the state’s pension review board, but it’s the city that is ultimately on the hook for cutting the checks to fund the pension system. She equated it to her son asking for help in buying a new car or house.
“And he is like ‘I want this very expensive thing’ but I can’t afford with helping with that down payment,” Blackmon said. “So that’s what I’m equating this to…lets sit down and have this discussion about what can be done, because at the end of the day the city is going to have to write a check that has to clear.”
Two plans and a concern
Both the pension board and city staff’s recommendations are fairly close. The goal is to start building back the retirement fund that was on the brink of collapse in 2016 due to risky real estate investments.
The main difference is whether or not to increase police and fire retirees’ benefits. City officials call that a cost-of-living adjustment, or COLA.
“No one is going to have it 100% their way or 100% our way,” Atkins said during a late April Ad Hoc Committee on Pensions meeting. “But we got to come to the conclusion that we are doing the best we can to make sure we are making the right decision.”
City staff say there are several issues standing in the way of increasing benefits — including paying more in annual contributions — and that it isn’t legal until the system is at least 70% funded.
At an April meeting, city officials said that may not happen until 2046 and it would add more than $120 million to the system’s unfunded liabilities.
As of that meeting, the pension’s unfunded liabilities have increased more than $160 million. That brings the total to $3.2 billion.
District 12 Council Member Cara Mendelsohn, who has been outspoken about the need to increase retirees benefits, said the lack of a COLA could be hindering recruitment efforts.
“Everything we need to do on this plan has to be formed around that principal of how are we going to keep our officers, how are we going to attract new ones,” Mendelsohn said during the April meeting. “We are very close to having a public safety situation. I don’t want to say crisis, but we are very close.”
But city staff said at the time that while the police department may be falling short of hiring quotas, Dallas Fire Rescue doesn’t seem to be having that issue. City staff said not being able to hire officers is a nationwide issue — not just in Dallas.
That board is made up of 11 members — six of which are appointed by Dallas city officials. Some council members have also raised concerns over the system’s oversight.
“It’s really a false premise because they are absolutely obligated to the fiduciary duty to the [pension] fund,” District 13 Council Member Gay Donnell Willis said during an April meeting. “But the taxpayer is really not represented there.”
A deadline
The plan to fix the system is due to state regulators in November. That leaves just around six months for both pension executives and Dallas city officials to get on the same page.
Earlier this year some officials questioned how the fund was going to rebuild and asked about active investments. As of February the fund still had about 25% of its assets tied up in private investments. Those include an energy fund, natural resources — and assets in real estate.
Pension officials said the target for private equity is set at 15% for the fund. And while the investment allocations had been around two-thirds of the system’s portfolio, and officials have managed to liquidate some of those real estate assets over time — they’re still hindering the fund.
Got a tip? Email Nathan Collins at ncollins@kera.org. You can follow Nathan on Twitter @nathannotforyou.
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