Posted on 02/23/2017 11:03:57 AM PST by TigerClaws
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.
More Democrat urban mismanagement.
Dallas thinks its broke now, wait until their federal $$$$ get pulled for protecting illegals.
those devoted cops and firemen.....poor dears....having to pull a million dollars out...
So , let it run out. I really don't get these public sector pension sob stories. If the money isn't there, the pensions don't get paid.
RELATED ARTICLE:
US state public pension unfunded liabilities to hit $1.75 trillion: Moody’s
Houston too. It looks like most of the democrat run cities, the blue areas on the electoral map, are in financial trouble. If they are looking for this president to bale them out...well.
The public unions and pension funds need to collapse.
Used to have some of these guys (different city) working for me on temp jobs (where I had to have Teamsters). One guy (RIP) told me a job I should apply for. Dang, I’m only $1 million dollars short of having $1 million dollars now.
Behind Detroit, here’s a few more teetering on-the-brink:
1. Compton, Calif.
Compton has teetered on the brink of bankruptcy after it accrued a general-fund deficit of more than $40 million by borrowing from other funds, depleting what had been a $22 million reserve.
2. East Greenbush, N.Y.
A New York state audit concluded that years of fiscal mismanagement — including questionable employment contracts and illegal payments to town officials — left East Greenbush more than $2 million in debt.
3. Fresno, Calif.
Fresno had the ratings of its lease-revenue bonds downgraded to junk-level by Moody’s, which also downgraded its convention center and pension obligation bonds due to the city’s “exceedingly weak financial position.”
4. Gulf County, Fla.
Fitch Ratings warned that Gulf County’s predominately rural economy is “narrowly focused,” with income levels one-quarter below national averages and economic indicators for the county also comparing unfavorably to national averages.
5. Harrisburg, Pa.
Harrisburg is at least $345 million in debt, thanks largely to municipal bonds it guaranteed in order to finance upgrades to its problematic waste-to-energy trash incinerator.
6. Irvington, N.J.
Irvington has a violent crime rate six times higher than New Jersey’s average, with Moody’s citing “wealth indicators below state and national averages and tax-base and population declines due to increased tax appeals and foreclosures.”
7. Jefferson County, Ala.
Jefferson County, home to the city of Birmingham, has been dealing with the collapse of refinancing for a sewer bond. It filed for bankruptcy protection in 2011 over a $3.14 billion sewer bond debt.
8. Menasha, Wis.
Menasha defaulted on bonds in 2007 it had issued to fund a steam plant which has since closed and left the city permanently in the red and, as of 2011, had $16 million in general fund revenue, but had $43.4 million in outstanding debt.
9. Newburgh, N.Y.
Newburgh was cited by Moody’s for “tax base erosion and a weak socioeconomic profile,” with 26 percent of its population below the poverty line and its school district facing a $2 million budget gap.
10. Oakland, Calif.
Oakland is trying to get out of a Goldman Sachs-brokered interest rate swap that is costing it $4 million a year. According to a recent city audit, Oakland has lost $250 million from a 1997 pension obligation bond sale and subsequent investment strategy.
11. Philadelphia School District, Pa.
Philadelphia’s school district, the nation’s eighth-largest, faces a $304 million deficit in its $2.35 billion budget, and is seeking $133 million from labor-contract savings to prevent further cutbacks.
12. Pontiac, Mich.
Pontiac, where the emergency manager has restructured the city’s finances, was downgraded by Moody’s, reflecting the city’s history of fiscal distress and narrow liquidity.
13. Providence, R.I.
Providence, rumored to be filing for bankruptcy for more than a year, experienced consecutive deficits through fiscal 2012, has a high-debt burden and significant unfunded pension liabilities, as well as high unemployment and low income levels.
14. Riverdale, Ill.
The credit rating for Riverdale is under review by Moody’s because the city has not released an audit of interim or unaudited data for the year that ended April 30, 2012.
15. Salem, N.J.
Salem is under close fiscal supervision after it issued bonds to finance the construction of the Finlaw State Office Building, which was delayed by construction issues, and its leasing revenues are not enough to cover the debt payments and the maintenance fees.
16. Strafford County, N.H.
Strafford County regularly borrows money to cover its short-term cash needs after it spent two-fifths of its budget on a nursing home, which lost $36 million from 2004 to 2009.
17. Taylor, Mich.
Taylor has a large deficit and is vulnerable due to significant declines in the tax base, limited financial flexibility, and above-average unfunded pension obligations.
18. Vadnais Heights, Minn.
The St. Paul suburb of Vadnais Heights had its debt rating downgraded to junk last fall by Moody’s after the city council voted to stop payments to a sports center financed by bonds.
19. Wenatchee, Wash.
Wenatchee defaulted on $42 million in debt associated with the Town Toyota Center, a multipurpose arena, and has ongoing financial issues due to the default.
20. Woonsocket, R.I.
Woonsocket faces near-term liquidity shortages necessitating an advance in state aid, a high-debt burden and unfunded pension liabilities, with Moody’s citing the city’s continuing difficulties in making spending cuts because of poor management and imprecise accounting.
If it’s the officer I’m thinking of. that million dollars wss what the cop had contributed *from his salary* over the course of a 30+ year career. It was his money, and he won’t be getting any more from the city so in the long run it actually would reduce the city’s expenses.
Would you be equally as dismissive if the man had been saving prudently for retirement his entire career and the bank complained about him withdrawing it when he did retire? He didn’t get interest payments in this case.
Wouldn’t you love to know all the kickbacks?
Simple math, if you spend more than you make year after year, you go bankrupt.
Dallas Police & Fire board backs cutbacks to avoid collapse
2/21/17
The Dallas Police & Fire Pension System is getting behind a Texas lawmaker’s plan to save the retirement system from financial collapse.
The fund’s board voted 9-0 on Monday to back a proposal by Dan Flynn, chair of the pensions committee in the state’s House of Representatives, that would raise the retirement age to 58 from 55, eliminate cost-of-living adjustments and lower a multiplier used to determine the size of officers’ and firefighters’ benefit checks, according to a summary on the pension fund’s website.
The plan would also increase Dallas’s annual contribution to 34.5% of payroll plus $11 million per year. The city contributed 27% in 2015, according to audited financial statements. Employee contributions would climb to 13.5% of their pay from 8.5%.
The $7 billion shortfall in the police and fire pension plan triggered downgrades to Dallas’ credit rating from Moody’s Investors Service and S&P Global Ratings. The system was battered by losses on exotic investments including Hawaiian villas, Uruguayan timber and undeveloped land in Arizona. The pension fund, which counted on annual investment returns of 8.5% to cover promised benefits, had an average 1.5% loss over the past five years, according to S&P.
Despite the poor returns, the city’s annual contribution is capped by state law, limiting its ability to boost contributions to make up for the investment losses.
As the fund’s financial health deteriorated, retirees concerned about its solvency and potential benefit cuts pulled more than $500 million in the last five months of 2016. The withdrawals were made from the deferred retirement option plan that allows employees to reinvest their pensions if they remain on the job after they’re eligible to retire, while earning 8% to 10% interest. In December, the pension fund suspended the withdrawals. Mr. Flynn’s plan would roll back the program.
Mr. Flynn is still working on legislation that would enact his plan, according to a spokeswoman who declined to comment on the pension fund’s vote.
Dallas: hey everyone, we’re running out of money. Quick, let’s build another park or bridge we don’t need.
In some ways, the Detroit bankruptcy was a unique event. With the collapse of the domestic auto industry,
...
The industry didn’t collapse. It moved to the suburbs, away from the Democrats.
All of Texas has economic problems because of the depressed oil market. Still too many unemployed engineers and scientists looking for work. Engineering and oil companies all fishing for resumes, waiting for an upturn in the economy, but none are hiring. Many oil engineers and scientists leaving their profession and moving away from Texas. Time for prez Trump to kick start the national energy independence program that will really MAGA.
Socialism is all fun and games until you run out of your grandkids and your great grandkids money.
Without a crook like Obama to cover up the pension crimes in a “stimulus” bailout, more and more urban areas are going to go bankrupt in the next 8 years.
Houston is not looking for a presidential bail out — just give the go-ahead to start the program to make America energy-independent and the Bayou City will take care of itself.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.