Pat and Rolando Sanchez drove two and half hours north for the meeting in Austin.

Together they have 65 years as Dallas police officers.

They are fearful of what's going to happen to their pensions.

“We have worked for 30 and 35 years and now they’re changing the rules,” Pat Sanchez said.

Behind all the talking points and political grandstanding, they are the real people affected by the failing Dallas Police Fire and Pension Fund.

The Sanchez's were there to hear Mayor Mike Rawlings and the head of the pension fund Kelly Gottschalk address the state Pension Review Board Thursday.

“The news I have today is not good news,” Rawlings said. “We have not reached an agreement.”

Two marathon days of mediation meetings Monday and Tuesday ended without the city and the pension agreeing to a joint legislative fix. It requires legislative approval because the pension is governed by state statute.

The city's proposal would fully fund the pension over 30 years. It involves an infusion from taxpayers of $1 billion dollars. Rawlings and Gottschalk say they agree on many of the details of a litany of benefit cuts and increases in contributions.

But the devil’s in the details.

One of those devilish details involves the city’s proposal of a $1 billion claw back of interest paid on special savings accounts known as DROP. The city calls it an “equity adjustment.”

“We have asked retirees with the DROP accounts to participate in the solution by taking haircuts in the future,” Rawlings said. “Our contention is this small percentage of the 9,600 members of the pension system already got their future benefits early.”

Pension officials have agreed to the claw back concept, although they are skeptical that it will pass legal muster. They are asking that it be fast-tracked to the Texas Supreme Court to decide that question.

The biggest sticking point: What to do if the courts reject it? Where would that money from?

Police and pension officials have not been able to agree to a backup plan.

Retirees have vowed to fight it, contending that it violates their constitutional property rights. Many are still angry that the board has limited its access to their own money.

“How can be it be legal to deny us access to our own money?” Pat Sanchez said. “If you went to the bank and asked for some of your money and they said sorry you can't have it, how would you feel?”

The Deferred Option Retired plan was a program created in the early 1990s 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.

Retired Deputy Chief David Elliston took offense to the mayor’s description of retirees taking a haircut.

“That’s putting it lightly,” Elliston said. “A lot of us have framed our whole new lives around our DROP accounts and what we have built up there.”

Another big sticking point is the city's push to reinstate its sovereign immunity so that it's protected against decades old back pay lawsuits filed by police and firefighters. A loss on the back pay lawsuit is projected to cost the city billions.

The board supports the city in its effort, but not in the way they want to do it.

“The way the city has proposed it is if sovereign immunity doesn’t pass then the pension system is off the table,” Gottschalk said. “That is not acceptable to us because we want everybody to have a retirement. The sovereign immunity is not a pension problem.”

Pete Bailey, president of the Dallas Retired Police Association, said the mayor is trying to make retirees responsible for the bad decisions made by the city.

“They are facing a $4 billion loss because they violated the law and the will of the voters,” Bailey said.
The mayor, however, said the city believe it’s important to solve both the pension and the back pay lawsuit problem in one fell swoop.

“It has to do with the solvency of the city,” he said.

The pension board also supports changing the governance of the board to a 50-50 split between the city and the membership. Currently, city council members constitute a third of the board.

The recent run on the DROP accounts by worried retirees further exacerbated the pension’s problems.
More than $500 million was withdrawn in just a few months before the mayor’s lawsuit forced the board to call a halt to it.

The mayor was critical of the board’s recent decision to begin allowing some withdrawals from DROP.

“That will encourage the pension system to liquidate assets to pay out its assets to DROP members,” he said. “In addition, the board last year made in excess of $40 million in investments in response to cash calls. …I believe under the circumstances these payments also are irresponsible.”

Gottschalk blamed the mayor for a large portion for the run on the bank, saying the withdrawals accelerated after he began making public comments about the city going bankrupt.

She defended the decision to pay the cash calls saying that they were private equity investment agreements made before she took over. She said a decision was made that it would cost more to default on the contract than paying it.

The mayor’s comments came one day after the Dallas City Council unanimously approved a resolution laying the groundwork for the four city council members who sit on the pension board to file a lawsuit against the board over those very issues. The mayor suggested that may be what it takes to “preserve the fund we can achieve a permanent solution in Austin.”

He reiterated that the city is not responsible for the fund’s failure, point out that the city does not have control of the fund. He talked about how prior pension leaders, including the former chairman of the board, had misled its members about the financial viability of the pension. He read from a letter the former chairman wrote in 2011 saying that the pension “fund is now string and will remain that way” to illustrate the depth of the deception.
Gottschalk called the resolution a “distraction” that takes the focus off saving the pension.

“We believe that the current board has acted appropriately,” Gottschalk said. “What prior boards have done in the past including the council people on the board is irrelevant in solving the problems we face today.”

Gottschalk expressed opposition to a proposal the city made last week to abandon the current fund and create a new one. It would move new hires and some current employees into a new plan. But it would leave about 5,000 current retirees and about 1,700 active public safety workers without a pension check by 2024 when the fund went bust.

“That is absolutely not ok with us,” she said.

The mayor said it was not an idea he supported, but said he thought it was something the city should explore in a worst-case scenario.

“We all know that failure is not an option,” Rawlings said. “We must have come up with a solution to this pension crisis.”

The Sanchezes left with no better answers and still very worried about their futures.