The Texas-sized fiscal dilemma
Everything is bigger in Texas, they say. While most people would associate this with Texas-style barbecue, chili, football and ten-gallon hats, how many would think of bankruptcy?
Believe it or not, Texas’s third-biggest city, Dallas – ninth-biggest in the United States – may be on the verge of collapse. Michael Rawlings, the city’s mayor, went as far as to tell the state oversight board earlier this month that it seems to be "walking into the fan blades" of bankruptcy.
How could Dallas, a low-tax business hub with the fastest economic growth of America’s 13 biggest cities, be going down the tubes?
It’s a familiar story in these parts, where Central Falls had to be turned over a receiver and Providence will face bankruptcy unless it changes its ways.
According to a Nov. 20 article by The New York Times, it’s because Dallas’ pension fund for police officers and firefighters "is near collapse and seeking an immense bailout." Moody’s also reported that Dallas had more pension debt than any other major U.S. city (save Chicago).
Some pension fund investments were reportedly placed in risky ventures, and may have dropped in value. Meanwhile, a September recommendation was made to restrict fund members from withdrawing money from the Deferred Retirement Option Program. (Under this program, pensioners who work past retirement age earn interest if they defer their monthly checks.)
This caused an avalanche of concern. Numerous Dallas police officers and firefighters retired and pulled money out of their DROP accounts. In a recent six-week period, $220 million was withdrawn from the pension fund.
If this trend continues, there could be nothing left in short order.
The story noted that the Dallas Police and Fire Pension System asked the city for a one-time infusion of $1.1 billion. This would be "roughly equal to Dallas’ entire general fund budget but not even close to what the pension fund needs to be fully funded."
What a terrible situation.
But, as we say, not entirely alien to those of us in Rhode Island.
Providence has unfunded liabilities for pensions and retiree health care that total more than $2 billion combined.
To cover this pension liability, the city would theoretically need to make annual contributions of tens of millions of dollars – for decades. This would mean many of our city’s basic needs, including funding schools, alleviating poverty, and maintaining other municipal services, would likely have to take a permanent back seat.
Many U.S. cities are finding that a failure to plan effectively for the future can have dire consequences. Politicians with an eye on the next election have long promised goodies to politically powerful public employees without taking the steps (bound to infuriate taxpayers) to make sure the payouts eventually occur.
With the help of a report by the National Resource Network, Providence has begun mapping out ways to dig out of the hole. That will have to include negotiations with public employees, greater payments in lieu of taxes, and more efficient operation of the city.
We’ll see what Dallas, a city whose economy seems much more vibrant, comes up with.
– Providence Journal