As Dallas officials entertain the prospect of reducing the City’s sales-tax contribution to Dallas Area Rapid Transit to help mitigate the pension deficit, a real estate planning and permitting expert is taking them to task for how they have handled their $4.6 billion budget.
Dallas Cothrum, CEO of Masterplan and LaBarba Permit Service, in a May 25 editorial, singled out Mayor Eric Johnson, calling him “badly weakened,” and interim City Manager Kimberly Tolbert, asserting she “has no experience at this level and has never been responsible for a city budget, much less something of this magnitude.”
Cothrum argued that Dallas City Hall is trying to break something that is already broken. By reducing by 25% Dallas’ 1-cent sales-tax allocation to DART, it will cripple operations in Dallas that are already being subsidized by the agency’s suburban member cities.
“That 25% is not enough money to save the pension funds, but it is enough to damage service for those who need it most,” he claimed. “It also fails to acknowledge the DART rebated ‘excess sales tax’ revenue back to member cities after ridership dropped to nothing during the pandemic lockdown. … The city of Dallas has an obligation to the other DART member cities to demonstrate leadership, not gamesmanship.”
Additionally, Cothrum noted that Dallas is projected to lose its majority representation on the DART board by 2030 — a scenario The Dallas Express has covered:
“[Dallas] will have only itself to blame. Seats on the board are determined by the population of member cities. During a period of unprecedented prosperity Dallas somehow lost 100,000 residents. The defined contribution model is unsustainable. It’s why private industry has moved away from it. A 2022 Pew Study noted, ‘Most states continue to face steeper claims on their future revenue from unfunded pension obligations than from either unfunded retiree health care promises or debt.'”
Meanwhile, City of Dallas CFO Jack Ireland has warned the City faces a $38.4 million budget deficit in fiscal year 2025 and a $37.3 million shortfall the following year. To help reconcile those deficits, Ireland said the city council should consider issuing pension obligation bonds, monetizing assets, and increasing the property-tax rate through a tax ratification election, along with diverting 25% less of the City’s sales-tax allocation to DART.
“Solutions do not look attractive,” Cothrum wrote in his column. “The city of Dallas already has a high tax rate and, in my estimation, poor levels of service. It has substantial debt payments, a large workforce, and an aging population. It’s losing ground each year to suburban cities. Taking a stand on frugality might be the best first step forward. Breaking one thing to fix another is not.”
The City’s tax rate is $0.7458 per $100.
During a committee meeting last week, Cara Mendelsohn (District 12), a member of the Ad Hoc Committee on Pensions, shot down Ireland’s suggestion that raising the tax rate would be appropriate to help resolve the pension.
“My feedback is a voter referendum to raise taxes to pay for anything, whether it’s a [Cost-of-Living Adjustment] 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.”
And with its financial obligations increasing following voter approval of the $1.2 billion bond package this month, Dallas is “already on the debt train,” Cothrum opined.
“What is certain is that underfunded government pension funds are one of the greatest threats to the U.S. economy. Cities cannot fund their pension systems, so they respond by either raising taxes or cutting services. When they do either, they diminish the citizen experience. No one moves to a city because they admire how City Hall is handling a pension dilemma. They do, however, move away when their taxes go up and their services go down.”