How badly has our real estate market been harmed by this news? Why did he wait until now, or was Rawlings’ timing impeccable?
The news about Dallas’s Police and Fire Pension System goes from bad to worse. And it continues to be negative national news that could potentially hurt our housing market. In particular, the Wall Street Journal ran a backwash of Dallas Morning News reporting blaming everything on the “bad real estate investments.”
Those “bad real estate investments” are not the whole reason why the fund is in trouble and asking taxpayers for $1.1 billion. It’s mismanagement, and an incredibly thoughtless accounting trick that has enabled retirees and mature pensioners to essentially rob from the young.
In that recent New York Times piece that has the world talking about “Dallas’ bankruptcy”, the blame is put on the state legislature in 1993:
To many in Dallas, the hole in the pension fund seems to have blown open overnight. But in fact, the fuse was lit back in 1993, when state lawmakers sweetened police and firefighter pensions beyond the wildest dreams of the typical Dallas resident. They added individual savings accounts, paying 8.5 percent interest per year, when workers reached the normal retirement age, then 50. The goal was to keep seasoned veterans on the force longer.
Guaranteed 8.5 percent interest, on tap indefinitely for thousands of people, would of course cost a fortune. But state lawmakers made it look “cost neutral,” records show, by fixing Dallas’s annual pension contributions at 36 percent of the police and firefighters’ payroll. It would all work as long as the payroll grew by 5 percent every year — which it did not — and if the pension fund earned 9 percent annually on its investments.
Buck Consultants, the plan’s actuarial firm, warned that those assumptions were shaky, and that the changes did not comply with the rules of the state Pension Review Board.
The DROP accounts were like savings accounts with a guaranteed interest rate. But few news reports critiqued it. . The media only blamed the “shaky real estate investments.” (more…)