There are two big questions to which Dallas police and fire officers need to demand answers quickly, as negotiations in the legislature on a bill to reconstitute their pension fund near an end. These questions are about the two main issues looming over the debate.
The first issue, clawback, may seem to members of the fund like the more urgent one. But the second is actually bigger. It’s about the death of the fund.
Here is why some members of the fund are panicking: State Rep. Dan Flynn, Republican of Canton, who as chairman of the House Pension Committee is whip on this issue, has leaned over backward to assure pension fund members there will be no clawback or any attempt to demand repayment of benefits already paid. He has even added language at the top of his bill:
“This article does not [intend to] take away or reduce any accrued benefit contained in the plans created under former Article 6243a or under this article as it existed on or before August 31, 2017.”
But buried deeper in the same bill, there lies other language that looks like a direct contradiction:
“Notwithstanding any other provision of this article, the board shall consider and adopt rules requiring the equitable return of funds paid to or credited to the benefit of a member or pensioner under this article before September 1, 2017, to the extent the funds exceeded reasonable amounts that should be paid or credited given the circumstances of the pension system at the time the payment or credit was made, including the return of excessive interest credited to a member’s DROP account and excessive adjustments made under Section 6.12 of this article.”
So that’s not clawback? It’s an “equitable return of funds?” How is that different? Who says what’s equitable? Nothing about this is at all funny, but I can’t help wondering if the Flynn bill may not have invented the next new trial strategy for criminal defense attorneys: “Ladies and gentlemen of the jury, when my client passed his note to the teller, he was only seeking an equitable return of funds.”
The Flynn bill says the fund can seek a clawback, including but not limited to money from the famous “DROP” fund savings account, “… to the extent the funds exceeded reasonable amounts that should be paid or credited given the circumstances…”
Exceeded by whose judgement? Does somebody have evidence that significant amounts have been paid out in violation of the pension fund’s charter and/or its contract with its members and the city? Not according to anything presented so far.
So far, this is all about the city’s contention that the amounts paid out in accordance with the fund’s contractual obligations were, in retrospect, too high. That may be. But that’s 20/20 hindsight. We’re all rich, if we count our 20/20 hindsight money. But don’t the parties to a deal that’s legal have to live with outcomes that are legal?
Look, I get the argument that the pension fund supposedly was too dominated by recipients who sat on the board voting themselves too rich a deal and making bad investments. That’s a more complicated question than people may think, because former mayors and city councils were not carrying out due diligence at the time, not demanding the audits they should have been requiring, while at the same time some of them were leaning on the pension fund to invest in favored projects. There was a distinct absence of clean hands all around the table.
But that has not one damned thing to do with the average firefighter or police officer. They read the pension fund pamphlet at the academy, took it at face value, decided joining the fund was the responsible thing to do for their family and later may have decided to participate in the special savings program called “DROP.”
The DROP program is the special sweet spot that the Flynn bill sees for an “equitable return of funds.” Notice, please, that in spite of having started off promising there will be no clawback, the bill later provides specific permission and even detailed instructions for a DROP fund clawback.
For the last 20 years there has been an attitude in certain circles that the DROP program constitutes double-dipping. In fact, the “deferred retirement option plan” or DROP is a strategy by which the Dallas Police and Fire Departments, perennially plagued by under-staffing and recruitment problems, have sought to keep experienced people in the field. DROP also is a program that may have kept the pension fund itself alive.
In DROP, a police or fire officer retires but is re-hired with the same rank and seniority. He doesn’t get his pension payment, because he’s working.
If, instead, he forfeited those pension payments and just kept working, he effectively would be earning his old salary minus what he’s losing in pension. I don’t know what you’d call that – half-dipping?
In DROP, the cop or firefighter keeps working and his pension payments go into a savings account run by the pension fund. The pension fund is meeting the same obligation it was required to meet all along. The city gets an experienced first responder.
The first responder gets to go out every night and potentially get shot at or burned up in a fire instead of going fishing with all his or her buddies who keep texting every day with pictures of boatloads of sandies at Lake Tawakoni. Show me the double-dipping.
The sole argument against the legitimacy of DROP is that it paid too high a guaranteed interest rate. But knowledgeable people who talk to me about this stuff on a not for attribution basis have told me DROP probably has been keeping the pension fund afloat for years by drawing in all those savings accounts at the high promised interest rate. That was the cash inflow that covered the fund’s bad investments, according to this theory, and yes, if that’s the correct analysis, you do wind up with a certain Bernie Madoff pyramid scheme inflection.
But, again, how is that the fault of the average pension fund member? If that’s what it was, why on earth did the city of Dallas allow its first responders to get suckered into a Bernie Madoff deal?
And now here is where the bite comes and where the pensioners have got to get some answers. The Flynn bill carves out a window for clawback. They call it that other thing, but, c’mon. Dollars, walkie-walkie.
How do they intend to do the clawback? My understanding is that the clawback will not be carried out through wholesale attachments, like seizures or repossessions, but through the slow-bleed of garnishment — the withholding of future pension payment amounts.
OK, so you tell the pensioners you’re not going to claw back their pensions. But you are going to claw back something else. But in order to claw back the something else, you’re going to claw back their pensions.
The bill as it is presently written is going to leave a big delta – as much as $450 million – that a newly constituted pension board will have to resolve within two years. If the new board does not resolve that delta, the city will be absolved of its obligation to contribute to a repair of the fund.
The fund dies. It withers. It goes away. The officers who counted on it are out of luck. In fact, since as public employees they don’t get social security, and since DROP was for many of them their savings and investment account, some will be pauperized.
The city could resolve the delta by carving off a minor portion of the sales tax it devotes every year to DART, our regional mass transit agency. Hole filled, problem solved. But for whatever reason, the mayor and his supporters behave as if taking one nickel away from DART is the greatest sin the city could ever commit.
I don’t get that at all, not even remotely. If DART is your $35,000 bass boat, then the cops and the firemen are your house. If your house is threatened, the bass boat goes on Craigslist, right? Right? The refusal to even consider diverting DART money is so counterintuitive to me, so contradictory of rudimentary common sense, so contrary to values of decency that I can’t help wondering if the people who oppose it just don’t want to see the $450 million delta fixed.
If the city won’t budge on the DART sales tax, leaving the new pension board to fix the $450 million hole by itself, then maybe Flynn and the city are telling the truth in sort of a sick way. They’re not going to claw anything back. They’ve set it up so the pension board will have to do the clawback itself on its own members.
That will not happen. It’s politically and morally impossible. The pension board will not do a clawback on its own members. The new pension board set up by the Flynn bill will be evenly split, supposedly, between pension fund members and representatives of the city, with one “tie-breaking” member. But there is never going to be a tie on this question.
There will never be a majority of the pension board or even half of the board willing to vote to pauperize retirees and their dependents. To suggest otherwise is an absurdity, and I think everybody knows that.
Putting the $450 million delta on the back of the new pension board, leaving the board with clawbacks as their only meaningful way to fill the hole, is a poison pill, plain and simple. Under this plan the new board will fail to meet the two-year deadline to fill the hole. The city will withdraw support.
So here is that second and even more important question for pension fund members to insist that pension fund officers answer: Is the fund already a dead man walking?
If you like this story, consider signing up for our email newsletters.
SHOW ME HOW
You have successfully signed up for your selected newsletter(s) - please keep an eye on your mailbox, we're movin' in!
What are the conditions in the bill that would allow the city to withdraw support from the fund, effectively bringing about its demise? If the fund dies, does this bill leave the city free to replace the pension fund with the kind of city-run 401K-like program that the mayor and his supporters have seemed to favor from the beginning? Does this bill either allow or enable that outcome?
Almost from the beginning – with their talk of bankruptcy, their “ice floe strategy” and explicit references to letting the fund die, with the characterizing of pension fund members as guilty of something or other – the mayor and his supporters have exhibited a hostility to the fund and an obvious desire to get rid of it.
Retired Dallas Police Lieutenant Ramon Hargrove said to me yesterday: “We just seem to be getting no support from anybody. You kind of get the impression that he [the mayor] doesn’t care, or he’s got it in for the police or something. I have been retired for ten years now, and I don’t have many friends still there, but they say people are leaving and the people that ain’t leaving are looking. That’s going to hurt the city. I get the impression that the mayor doesn’t seem to realize that. If this city’s not safe and it gets a bad reputation, those big companies aren’t going to come here.”
Does the Flynn bill deliberately cause the demise of the pension fund, enable or allow it to happen? Or this question may be where the better evidence is to be found: Members, ask your leaders if there is one thing in the Flynn bill to stop that from happening. Because if there isn’t – and there isn’t – everything else is grease.