Bankruptcy Threat Averted, City Attorney Larry Casto Chats With the Observer

Dallas City Attorney Larry Castro briefed the Dallas City Council on the Dallas police back pay and pension crises in December 2016, two months after taking the job.
Dallas City Attorney Larry Castro briefed the Dallas City Council on the Dallas police back pay and pension crises in December 2016, two months after taking the job.
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When Dallas City Attorney Larry Casto walked into his new, seventh-floor office at Dallas City Hall in October 2016, a pair of swords dangled over his head. Dallas faced two existential threats, both with roots going back decades. Either could have bankrupted the city. Less than two years later, thanks in large part to work done by Casto and his office, the city is back to facing problems that, while important, don't threaten catastrophe.

By the time Casto took over the city attorney's job from Warren Ernst, Dallas' police and fire pension system faced a shortfall that could've been as high as $5 billion, depending on who was doing the counting. Thanks to a series of dubious investment decisions spearheaded by the former director of the fund, Richard Tettamant, and the level of benefits guaranteed to retired cops and firefighters, the fund faced insolvency in less than two decades. If that happened, the city would been forced to fight in court over whether it was responsible for making good on the promises to retirees. 

"From day one, the pension just slapped me and the whole office in the face," Casto said during an interview with the Observer last week.

He lamented not keeping a journal as he fought to keep the pension system solvent and to avoid a multibillion-dollar verdict in a number of quarter-century-old police lawsuits filed against the city in Collin and Rockwall counties.

"Just beginning to get a handle on it and understand it was tough. The noise surrounding the issue was unlike anything I've ever been through."

Casto faced a steep learning curve and sides that were already dug in after years of sniping. The city's official position, supported by Ernst, was that it didn't owe the retired police and firefighters anything if the fund went belly up. The fund's leadership and legal team believed the opposite, leading to an ongoing public fight that wasn't helping the chances of a potential settlement.

"The venom and the vitriol being spewed out by all sides, combined with the infeasible and unrealistic solutions that were being put out, made just the beginnings of a fix very difficult," Casto said. "Shutting down that noise was the first thing we had to try to do."

Throughout the spring, Casto and the attorneys in his office worked with Dallas Mayor Mike Rawlings, police and firefighters, representatives of the pension fund and the state Legislature to create a compromise that would restore financial stability to the fund, helping both parties in the fight avoid disaster.

"We got there. I don't think anybody is celebrating the pension fix," Casto said. "I'm proud to have played a roll in stabilizing the fund, but we have a lot of work to do."

The deal worked out among the city, the pension board and the pensioners requires members of the fund to contribute more of their earnings to their retirement and get less money back when they retire. The city is expected to pump an extra $900 million or so into the fund.  The city also got control of the board in the deal, with the mayor and City Council getting power to appoint six of its 11 members.

Casto called the deal necessary but hesitated to call it equitable, pointing to the $500 million pensioners took out of their Deferred Retirement Option Program accounts in the weeks and months before the deal was reached. Retirees who contributed their money to the interest-earning DROP accounts had been able withdraw any part of the money at any time. Under the deal, DROP contributions and earnings are now distributed over the life of the retirees' pensions.

"It was the best that we could do under the circumstances," Casto said. "Equitable is such a fuzzy term. One of the qualities of human nature that I don't admire that much is that we tend to discount and minimize other people's pain. If you have to prick my finger in the name of the public good, I'll scream bloody murder, but if you have to take someone else's arm or leg in the name of the public good, I'll say, 'Thank you for your sacrifice, but I've got other things to think about.' I'll move on. ... One of the ironies is the retirees who were loyal to the fund, who didn't make a run on the bank and left their money in there, are the ones that've had their money trapped."

With the pension crisis on ice — at least until the city and the fund get back together, as now required by law, in seven years — one might have thought the city's legal team could step back from the brink and take a breather. That wasn't the case; clearing the pension hurdle only meant facing lawsuits filed against the city by police and firefighters almost a quarter-century ago. The plaintiffs say the city violated a1979 ordinance that locked the difference in pay levels among the ranks at what they were when the ordinance was approved by voters. Over the years, the pay differentials among the ranks drifted out of bounds, with some higher ranks getting bigger raises. The plaintiffs claimed they were owed potentially billions of dollars in back pay to get the pay ranges back in line with the ordinance.

"I knew [the lawsuits] had been hanging around for a long time. It was affecting the morale of the police and fire departments. It needed to be solved," Casto said. "When you combine that with the pension crisis, I firmly believed that we needed to get back in a place of trust with our first responders."

Casto told his staff that he wouldn't sign off on any additional motions to continue the first case, in Collin County, meaning it could at long last go to trial. That was step one. Next up, Casto said, was repairing the city's relationship with the plaintiffs enough to allow negotiations to succeed.

"I think people in government tend to underestimate how much damage we can do by opining, tweeting and inserting thoughts on a matter that aren't solidly based on fact," Casto said. "You had comments like, 'We can win. Let's just fight, or we can delay and kick it down the road. Let's not go do the tough executive session with council and get beat up.'"

The city attorney spent hours reading through background on the six cases — he jokes that the documents from pay suits are measured in "filing cabinets, not three-ring binders" — just trying to develop a fair opinion.

"I would spend long hours and nights just reading thousands and thousands of pages of documents," Casto said. "I wanted to wrap my arms around it just to understand, from an objective approach, what our risks were and what our strengths were. I had never really seen that presented to council."

Casto came away from his examination of the case believing that going to trial would've been bad for both sides because of the limited range of decisions available to juries in contract cases. Had the city won the lawsuits, police and firefighters would've received nothing for the decades of work they've put into this case. Had the first responders won their suits, Dallas would've been on the hook for multibillion-dollar judgments that likely would've bankrupted the city.

"Either one was not good for either party," Casto said. "A zero verdict would've been hard for morale; it may have not served the long-term interests of the city. And verdict for the plaintiffs very well could've put us in bankruptcy, and they might not have seen their money, if at all, for decades. So we came to the realization that somewhere in the vast expanse we were negotiating, there had to be a sweet spot. Once council concluded, not on a specific number, but that there was a sweet spot, we opened up negotiations."

Once the two sides sat down, it was just a matter of figuring out a number that was "fair and could be afforded" by the city, Casto said. In the end, the two sides settled for $235 million, an amount Casto feels balanced the city's risk — thanks to the judicial doctrine of res judicata, the plaintiffs only needed to win one of the six cases to secure summary judgement in their favor for the remaining five suits — with those of the plaintiffs who were faced with the potential of years of additional delays, in addition to the possibility that they could lose at trial.

With the threats of the pension and pay lawsuits averted, Casto said he's been able to put his "bankruptcy briefing" away.

"It's there, just in case I need to pull it out," Casto said, "but there isn't anything on the horizon."

Outside of steering Dallas away from financial disaster, Casto's biggest call over his first year-plus in the city attorney's office was his decision to buck the mayor and require that the city open the future management of Fair Park up to bidding, rather than handing it over to Walt Humann and the Fair Park Foundation.

Casto wouldn't call Rawlings' attempted handoff to Humann a mistake, but he said opening up the bidding process to everyone was important, despite the pressure to get something done quickly with the park.

"I think we as a community are so anxious and enthusiastic about finding some way forward for Fair Park. That neighborhood deserves it. The city deserves a backyard for all of us to go to and enjoy," Casto said. "We can feel it, that that would be such a wonderful thing if it occurs, that maybe sometimes you feel like you're pushed to go down a path to get to that point, but that doesn't mean you shouldn't make a fix or potential fix available to the whole world to join in and say here's what we need to do."

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