Dallas Stares Down a Texas-Size Threat of Bankruptcy

Dallas, the city with the fastest economic growth out of the nation’s 13 largest cites, is in trouble. It could soon join Detroit as one of the largest American cities to go bankrupt.

Mayor Michael S. Rawlings recently testified at a state oversight board meeting that the city may be “walking into the fan blades” of municipal bankruptcy. Dallas’s pension fund for its police officers and firefighters is asking for a bailout of $1.1 billion. This figure is almost as much as Dallas’s entire general fund, but even this number won’t be enough to fully fund the pension fund.

In the last few months, retired Dallas residents have pulled over $200 million out of the pension fund because of talk of risky ventures that were worth significantly less than disclosed. The city seems to have its hands tied. It can’t take back money from retirees in fear of litigation nor can it raise property taxes, which are already capped. Unfortunately, Dallas has no power to overhaul the fund because it is controlled and maintained by state lawmakers in Austin.

While some believe that this crisis has struck the city overnight, it can be traced back to 1993 when the legislature added individual savings accounts with an 8.5 percent interest per year when the police officers and firefights reached the age of 50. This was made to appear plausible by fixing the city’s annual pension contributions at 36 percent of the payroll of the officers and firefighters, assuming the payroll grew by 5 percent every year, and the fund earned 9 percent on its investments annually. Needless to say, this didn’t happen and the city is now paying the price.

The pension fund was audited, revealing extravagant global investment tours and questionable investments in risky properties. Undoubtedly, Dallas has a serious financial reckoning ahead.

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