The four city council members who sit on the Dallas Police and Fire Pension Fund joined the legal fray today with a lawsuit of their own against the failing pension fund.
The council members are asking the court to stop to a plan that would allow millions of dollars to flow out of special high-interest earning accounts beginning in March. They are also asking the court to appoint an independent receiver to take over and recognize the fund.
“This is about saving this system,” said Councilmember Philip Kingston, who sits on the pension board. “Everybody with their pie in the sky ideas about where a billion dollars is going to fly in from magically needs to put up or shut.”
The council members are intervening in the lawsuit already filed by Mayor Mike Rawlings. He filed that lawsuit as a private citizen. That lawsuit also sought to stop withdrawals from the high-interest accounts known as the Deferred Option Retirement Plan.
The council members’ lawsuit failed a day ahead of the monthly pension board meeting, drew an immediate condemnation from Board President Sam Friar, a Dallas firefighter.
“Here they go again,” Friar said in a statement. “Rather than work collaboratively with state legislators and the pension board to find a long-term solution based on shared sacrifice, the Mayor and city officials continue to push a confrontational litigation strategy to get their way.”
Pete Bailey, president of the Dallas Police Retired Officers Association, said it just goes to show “the city never intended to try and fix the pension” and shows “the end game all along has been to take over the pension.”
The pension fund has unfunded liabilities of $3.7 billion. If no charges are made, the fund is projected to run out of money in about 10 years.
The council members lawsuit was not unexpected. Last month, the Dallas City Council unanimously approved a resolution laying the groundwork for it by promising to pay any legal bills of the four city council members on the board.
One of the lawyers representing the four council members is former State Rep. Steve Wolens, the husband of former Dallas Mayor Laura Miller. Miller, in addition to former mayors Ron Kirk and Tom Leppert, are heading up a group largely made up of business interests who are supporting the city’s proposal. The city’s proposal includes clawing back, most if not all, of the interest paid on DROP accounts.
The council members contend that the board has failed in its “fiduciary duty” to protect monthly pension benefits that are protected under the State Constitution. They say that the board has “allowed hundreds of millions of millions, if not billions of dollars of trust assets to be lost through mismanagement and bad investment choices.”
Further, they say the board has allowed the “massive distribution of assets for payment of non-constitutionally protected claims while ignoring their constitutional duty to protect the benefits of monthly pensioners.” That’s a reference to the more than $500 million withdrawn from DROP accounts by worried retirees last year.
The lawsuit faults the board for repeatedly failing to limit or restrict withdrawals from DROP accounts last year. It wasn’t until Rawlings filed a lawsuit in December that the board voted to stop withdrawals from DROP accounts.
The council members contend that the board has adopted a “completely wrong-headed approach to the current crisis” which involves selling off “income-producing assets” to fund withdrawals from DROP accounts which they say depletes the fund’s assets and impairs its ability to pay monthly pension benefits. All four council members opposed the plan that was approved last month to resume DROP distributions in March.
It accuses some of the of those trustees who voted in favor of the new DROP policy of having a “conflict of interest” because of money they or their family members have in DROP accounts.
DROP was a program created in the early 1990's to help retain veteran public safety workers. It allowed officers and firefighters to retire from the pension fund but continue working. The checks they would have received were then deposited in high-interest earning savings accounts.
The lawsuit cites what it calls “imprudent borrowing” including a $200 million line of credit from the Bank of America, as well as another $140 million in loans from other lenders. It also cites tens of millions in other unsecured loans made by the pension.
“This level of borrowing reflect the board’s penchant for operating like a private hedge fund rather than a statutorily create pension system constrained by prudent and conservative management and limitations on the occurrence of debt,” the lawsuit says.
The lawsuit puts the pension fund back before District Judge Tonya Parker, asking her to take immediate action to try to slow the fund’s red ink.
“The condition of the DPFPS is dire,” the lawsuit says. “Years of mismanagement, self-serving actions and waste have left the system in a precarious financial position that will inevitably lead to insolvency if not firmly and immediately corrected.”
In his statement, Friar blamed the mayor and city officials for that run on the bank, saying it magnified the funding shortfall and made solutions more difficult. He blamed the mayor’s lawsuit for helping defeat a proposal that would have significantly reduced the pension fund’s shortfall.
Friar also accused former city council members and the mayors who appointed them of being “missing in action” and failing to argue against questionable investments and promised benefits.
Friar blamed city officials for the city and the pension board for failing to come to an agreement on how to save the fund, saying each time an agreement was near city officials “moved the goalposts or filed litigation."
The city and the pension have not been able to agree to a joint legislative fix. It requires legislative approval because the pension is governed by state statute.
“There is a lot of blame everywhere in the past for the current situation. But the answer is not in burdensome and counterproductive lawsuits,” Friar said.