The Dallas City Council voted to settle its legal fight with the Dallas police and fire pension system Wednesday, nearly a month after the pension system’s board members narrowly accepted the terms of the city’s “best and final” offer.
It’s now up to the pension system leaders to approve the deal.
Council member Kathy Stewart, who chairs the ad hoc committee on pensions, said an agreement by both parties “will end years of uncertainty and resolve long-standing disputes” that have weighed on the pension system, the city and current and retired first responders. “It also protects taxpayers by creating a legally sound and sustainable funding model,” she said.
City and pension officials have been at the negotiating table for close to two years to come up with a 30-year plan to close a $3 billion funding shortfall. They’ve diverged on giving cost-of-living adjustments to retirees. The Texas Legislature’s intervention in 2017, when the fund was at risk of collapse, froze those increases and called for adjustments to take effect when the system is 70% funded.
However, the pension system, which is only 32% funded, is still burdened by risky investments from decades ago that have continued to affect the fund’s overall performance. A boost in cash from the city could allow the pension system to invest in markets that offer better returns.
Political Points
The two sides reached an impasse last year after the pension system sued the city, seeking to let the courts decide who had the final say in approving a plan. The pension system won the first fight after a Travis County court ruled in its favor earlier this year. Last month, judges at an El Paso court went over arguments again after the city appealed the lower court’s decision.
That same week, in a surprise breakthrough, all six mayoral appointees at the pension board voted in favor of accepting the city’s terms. The remaining five, representing police and fire associations, voted against the measure.
But the approval came with a caveat. The board will have to vote again to finalize a settlement and a funding agreement, and the pension board is divided.
Tina Hernandez Patterson, a pension board member appointed by the first responders, wrote in an op-ed in The Dallas Morning News she disagreed with how the November vote played out. She questioned a settlement at a time when the pension system appeared to have the upper hand, as evidenced by the lower court’s judgment in its favor.
In an op-ed written by Mayor Eric Johnson, the city’s top elected official urged his colleagues in the City Council and at the pension board to come to an understanding, as the years of infighting had cast doubts about the city’s ability to look after its first responders. “Ultimately, this solution still won’t make everyone happy. And it won’t be cheap. But this plan is the best possible deal for taxpayers, for retirees and for our first responders — and it’s a solemn promise kept,” Johnson wrote.
City and pension officials have been sparring over how quickly the city will contribute an “actuarially determined” amount to pay benefits and address a backlog of expenses, ensuring the pension system is fully funded in 30 years. If the fund performs well, then the city could contribute less. If it doesn’t, then the city has to spend more.
City officials have built the city’s budget around pension payments for the past two years. They have said the system’s plan, which calls for cost-of-living adjustments and higher city investments in the early years, would increase budgetary pressures and force the city to cut services. The city later offered retirees stipends to offset the pressure on their pocketbooks.