By Stephen Young
By Stephen Young
By Stephen Young
By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
An outcome of this battle was that in 1997 the former actuaries, W.F. Corroon and Sedgwick James of Illinois, agreed to pay the pension board $2.2 million to settle a claim for bad advice.
When Kirk and Ware told us we could give away $125 million without new taxes, we could have looked around and found ample evidence that something was amiss. Our Afghan system of streets, curbs, sidewalks, bridges, water mains and storm sewers might have given pause. But I guess those things are hard to quantify.
But money--that's tough to fudge. Towers Perrin, the new actuarial firm, warned that the employee pension fund was in danger of collapse. The state body that oversees public pension funds in Texas concurred and issued equally dire predictions.
But by 1997, Towers Perrin had decided it didn't want to play City Hall slime-ball in Dallas anymore. The firm resigned its position, giving the pension board high marks for integrity but giving City Hall the bird. "Really, it came down to a feeling that as long as we were involved, the city wasn't going to play ball and talk to the fund," an official of the firm told The Dallas Morning News.
Criticism is silenced. Public debate on underfunded pension fund ends. Three months later we give Hicks $125 million. We think we don't have to pay for it.
But here is the really devastating piece of the puzzle. The kind of shortfall people were predicting for the fund in the late 1990s was hugely mitigated by the record bull market on Wall Street. But even the big investment earnings were not enough. The fund was still headed for collapse.
Now think about the same deal after a record bear market. Get the picture? That's how you get to the projected total deficit of more than half a billion dollars that the Dallas City Council discussed at its briefing this week.
I wish I could tell you things are different now that we have a new mayor and a new drill team on the council. But in point of fact, I sat there listening to the council members who are supposed to be our fiscal conservatives--Mitchell Rasansky, in particular--and I kept thinking about idyllic small towns nestled in the Ohio River valley.
City Manager Ted Benavides was uncharacteristically blunt about what is needed: "I need 20 million bucks," he told the council more than once. Benavides said $20 million right now will be enough to plug the hole in the dike.
Assuming the market at least stays flat, then that $20 million, through the miracle of compound interest, will grow over time to fill the gap. But Benavides needs it all before the end of 2005.
And let me add another critical detail: In 1999, over the objections of their own union, city employees voted to tax themselves with a higher contribution to the fund in order to keep it whole. They pitched in when they were not legally required to do so.
And another detail. City employees do not get Social Security. The average city pension now is $1,700 a month, according to the pension board. According to the Social Security Administration's Web page, the average Social Security pension is $1,008 a month. So the city's pension fund puts a typical retiree ahead of a Social Security recipient by less than $700 a month--not much at all if you compare it with the retirement package of people lucky enough to qualify for Social Security plus a 401(k) with a good company match.
The city pension plan is not a rich deal. The employees kicked in. This is a fundamental matter of honor. We have to kick in. We got suckered on all that stupid stuff downtown in the late 1990s. That wasn't the fault of the people who mow our parks. That was our fault. We owe this money. And this will only get worse--much worse--the longer we take to pony up.
But Rasansky was spinning all kinds of arguments about how maybe we might not have to pay. And it seemed to me he was getting some traction with our mayor and certain other council members.
In particular, both Rasansky and the mayor spoke enthusiastically of changing the makeup of the city's pension board. They like the idea of putting "experts" on the board--people with financial credentials. But in fact, the last person who's supposed to be on that board is anybody with bright ideas about investments. The whole structure is designed to keep those types away from the nest egg and leave the investing to hired fund managers. I don't get how this idea differs from John Ware wanting to bump off the actuary. There are good reasons why the bosses aren't supposed to play business with the pension fund.
Rasansky thinks the guarantees made by these funds shouldn't be taken too seriously: "Madam Mayor...I don't think there's anybody naïve enough to think that they have a guarantee, even if they get Social Security from the United States."
I called him later, and he said, "Is the whole city of Dallas just working for the employees of City Hall?"
Interpret that as: "I don't want to pay." And, "I am going to tell my constituents that they should love me because I am going to get them out of paying."