Dallas City Council Concerns Over Underperformance of Police and Fire Pension Fund

DALLAS – In less than two months, the Dallas City Council will vote on a plan to ensure funding soundness for the Dallas Police and Fire Pension. Concerns have been raised over the fund’s continued underperformance, with a council member questioning the root causes.

The pension fund’s underperformance traces back to past mismanagement. Poor real estate investments and other financial missteps from 2016 still affect the fund’s returns, keeping them below the national and Texas averages. The city faces a pressing challenge: devising a plan to inject more than $11 billion into the pension system over the next 30 years.

City CFO Jack Ireland detailed to council members how the fund began to falter in 2016. “Poor real estate investments, drop structure, run on the bank,” he explained. The former Board and Pension Director, Richard Tettamant, had lost hundreds of millions with risky real estate investments, causing a $7.5 billion shortfall in 2016.

Councilmember Paul Ridley pointed out that these investments still weigh heavily on the fund. Despite sweeping changes to retiree benefits and the board governance structure in 2017, Ridley believes the fund’s performance should have improved. “Performance has been 2% at a time the stock market has soared. I don’t understand how professional fund managers could earn so little on such a large fund,” he said.

Ridley supports increased oversight, criticizing the fund’s current 1.5% three-year return. This is lower than similar funds in Houston, Austin, and San Antonio, as well as below national and Texas returns for comparable-sized funds. “We need to fire whoever is managing this investment fund and get someone who can meet… Our actuarial assumption is 6.5%, and we are only at 2%,” Ridley asserted.

The city hired Commerce Street Investments to investigate the pension fund’s underperformance. Kelly Gottschalk explained that since 2016, the fund has managed to sell $1.4 billion in bad assets. However, they remain entangled in oil and gas investments from the previous management. These assets can’t simply be abandoned, as the fund still needs the money.

The city is exploring various strategies to address the $11 billion shortfall. Options include selling city assets, issuing pension obligation bonds, reallocating a portion of the sales tax rate from DART to the city, and potentially asking voters to approve a property tax rate increase.

As the Dallas City Council prepares to vote on the new funding plan, they hope these measures will stabilize the pension fund and secure the financial future for Dallas police and firefighters.