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City Officials Offer Pension Funding Recommendations

Dallas CFO Jack Ireland | Image by City of Dallas
Dallas CFO Jack Ireland | Image by City of Dallas

Dallas CFO Jack Ireland detailed staff recommendations to the Ad Hoc Committee on Pensions on Thursday on how to fund the Dallas Police & Fire Pension System for at least the next 30 years.

“The [Texas] Pension Review Board does have funding guidelines that require that we address both normal costs and any unfunded actuarial accrued liability over a period not to exceed 30 years,” he said. “As of January 1, 2023, the Dallas Police & Fire Pension Fund is projected to be fully funded in 82 years, which clearly exceeds PRB’s 30-year requirement.”

Among the recommendations were:

  • Using the “step-up” scenario proposed by Cheiron, an actuarial consulting firm, in which $17 million to $20 million of taxpayer money will be contributed to the fund annually over the next five years.
  • Beginning in 2026, retirees would receive supplemental pay of 1% each year the Dallas Police & Fire Pension System yields a positive rate of return until it reaches 70% funding.
  •  An adjustment of 1% in fiscal year 2025 would permanently add to the base benefit for retirees.
  • When the system reaches 70%, the cost-of-living adjustment would be tied to the consumer price index at a maximum of 1.5%. Currently, the pension is funded at 39.1%.

“And in 2024 — the year we are in now — we will contribute $185 million to the plan,” Ireland said. “The City will contribute over the 30-year period about $11.2 billion to the pension fund based on City staff recommendations and the factors that we built into our recommendations.”

Dallas Police & Fire Pension System (DPFPS) staff, however, recommended the City contribute $11.6 billion over 30 years — a difference of $419 million.

“Last week, on May 15, we did a presentation to city council on a five-year budget outlook for the general fund,” Ireland said. “So, what I’ve done, using that as my base, [is make] adjustments on staff recommendations because last week, we only talked about the five-year step up. Now, I’ve added a five-year step-up plus supplemental pay — those types of things that increase our costs just a little bit.”

The Dallas Express has reported the City faces a $38 million budget deficit in fiscal year 2025.

“Last week, I told you we had a shortfall for 2025 of $38 million,” Ireland said. “It now shows to be $38.4 million. For fiscal year 2026, last week, I told you $37.3 [million]. Now, it’s $1.2 million higher — a shortfall of $38.5 [million].”

To help ease the strain on the budget, Ireland said Dallas officials should consider issuing pension obligation bonds, monetizing assets, diverting 25% less of the City’s sales-tax allocation to Dallas Area Rapid Transit, and increasing the property-tax rate through a tax ratification election.

“Do we want to go above and beyond what I think we can absorb into the current budget?” Ireland said. “I believe … we can absorb that, and we can work with it. We will have to make reductions, but I believe we can build a budget around that. I think we need to consider additional funding sources.”

Council Member Cara Mendelsohn (District 12), who sits on the Ad Hoc Committee on Pensions, seemed vexed at Ireland’s suggestion that increasing the property tax rate of $0.7458 would be appropriate.

“My feedback is a voter referendum to raise taxes to pay for anything, whether it’s a COLA or anything else in this city, I would be completely opposed to that and find it to be extremely financially irresponsible,” she said. “The second thing is, y’all keep talking about a $38 million shortfall, but let’s be real. Our budget, according to you — just the general fund — is going to increase $60 million. The only reason we would have a budget shortfall is because you would want to continue spending money at the same rate and continue adding positions.”

Ireland agreed with Mendelsohn’s assessment.

“Yes, ma’am,” he said. “And the most significant increase in year-over-year budget is $45 million that’s going to police and fire for the meet-and-confer agreement.”

Nonetheless, Mendelsohn argued, her concerns about the long-term viability of the budget remain.

“So, the shortfall is caused by additional spending, which includes increasing the pay for police according to the agreement we made. We are for sure kicking the can down the road to think that we’re going to take $500 million to pension in some of these years. I don’t know how the budget will work,” she said.

And as far as reducing Dallas’ sales-tax contributions to DART, that is a conversation officials must continue with the agency and member cities, Ireland said.

“It would require a process. It would require us working with DART. I am aware that some other member cities have expressed an interest in reallocating some of their sales tax to DART back to the city. A quarter of a cent would generate an additional $100 million for the City because our one cent [allocation] is about $400 million. Last year, it was about $425 million,” he said.

Ireland also recommended to committee members on Thursday that the Dallas City Council assume more oversight over DPFPS.

“Those board members have a fiduciary responsibility to the fund — not to the City,” he said. “So, we believe there needs to be some additional oversight from the City to ensure we are able to manage the pension contribution increases that do become a liability… We have proposed City approval being required for items that would substantially increase our liability, changing benefits, changes to significant actuarial assumptions like the discount rate, settling lawsuits, or other things that would be a significant increase to the City’s liability and the City’s cost.”

Council Member Gay Donnell Willis (District 13) said that Dallas residents are being asked to carry a heavy financial burden.

“Our taxpayers don’t have representation on the fund board so it’s up to us here to be able to do that, and we were presented last week with a $38 million deficit,” she said. “I know we want to close that gap. The expectation is to close that gap. But we’ve got a human factor here of our taxpayers who want to see grass mowed and parks and 311 calls answered and staff responding to those calls and decommissioning homeless encampments and fixing streets and alleys. The taxpayers are on the hook, but it’s not their fault. So, we have to ask some tough questions to get through this.”

Dallas officials continue to work to resolve the shortfall in the pension, reported by The Dallas Morning News to be $1 billion. Under a state law approved in 2015 and amended in 2021, that process must include a Funding Soundness Restoration Plan submitted to the Texas Pension Review Board. Ireland said the Dallas City Council may receive a briefing on staff recommendations on June 5.

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