Rawlings and the Morning News Want Detroit-style Pension Fund Management Here

Categories: Schutze

Thumbnail image for Kwame.jpg
Former Detroit Mayor Kwame Kilpatrick was a master of the kind of public pension fund "management" The Dallas Morning News wants us to have now.
Yes, I have campaigned here ceaselessly over the years to get Dallas to be more like my hometown, Detroit, but I was talking about stuff like the farmers market. Not the pension fund, for God's sake!

Yesterday The Dallas Morning News editorial page called for the Dallas Police and Fire Pension System to open its books and its doors to the mayor and his minions, who want a bigger hand in running it. The type of arrangement the newspaper proposes, in which politicians would have major say-so in the core operations of a public pension fund, is more or less the Detroit model. Before we jump into that, we might ponder how that arrangement has worked out for the Motor City.

There, the main liaison between former Mayor Kwame Kilpatrick and the Detroit police and fire pension funds was a gentleman named Ronald Zajac, a lawyer who was general counsel to two separate pension funds for police and fire. Last year when a federal grand jury indicted Zajac and pension fund trustee Paul Stewart for bribery, a Justice Department press release provided what's probably a pretty good window on what to expect:

"During the conspiracy, Stewart accepted thousands of dollars in cash, trips, entertainment and other things of value from people seeking investments from the Police and Fire Retirement System," the press release said.

"Stewart accepted a $5,000 casino chip, a Christmas basket that included an envelope with thousands of dollars in cash, a cash payment of $2,500 during a trip to New York City, a cash payment of $2,500 during a trip to Florida, an excursion to the Bahamas for Stewart and his mistress, and a trip to Naples, Florida, for Stewart and his mistress.

"In addition, Stewart accepted a 'birthday present' of $5,000 in cash at a party at the Atheneum Hotel. Zajac organized the party, and Zajac solicited and collected the cash from people having business before the boards of trustees of the pension funds."

Also indicted in the scheme was Detroit treasurer Jeffrey Beasley,
a one-time fraternity brother and political appointee of former Mayor Kilpatrick, who was, you may remember, a resident of this area briefly before receiving a 28-year federal sentence for bribery. The feds say corrupt officials tied to the mayor cost the Detroit pension funds a minimum of $84 million.

Hey, I did not say Mike Rawlings is Kwame Kilpatrick. But think about it. There are reasons why public pension funds are supposed to be firewalled from political interference. And the political interference here could not be more transparent, even if it is more goofy than greedy, at least at first blush.

The Morning News editorial even blurts out the real reason the mayor of Dallas has been trying to batter down the firewall, citing the "$200 million Museum Tower that shined a glaring light on both the Nasher Sculpture Center and the system's investment strategy."

You know what this is about: It's the stupid silly hissy-fit between a sculpture museum downtown and a new glass condo tower across the street from it that is owned by the pension fund. The Nasher Sculpture Center says the building, Museum Tower, reflects too much sunlight. But the building obeys all of the laws on that. So the mayor, who is tight with all the rich culture vultures, is trying to bring pressure on the pension fund to do something anyway to make the culture vultures happy. What, I don't know. Tear it down? Hey, who knows? Anything is possible. Hell hath no fury like a disrespected culture vulture.

No comfort should be taken in the fact that the starting point here is all artsy and goofy instead of scary criminal. The path to a vacation in Florida for a trustee and his mistress may be strewn at first with art and goofiness. It's still the path to Naples, and it begins exactly at the moment when you open the doors and tell the mayor of the city that the pension fund is his to play around with.

Mike Rawlings would never ever in a million years go to Naples, Florida, for a vacation. He would never engage in any of the behavior that landed Kilpatrick and company in the federal long-term residential system. But Mike Rawlings isn't always going to be the mayor.

In fact, you know what? If we're going to go with the Detroit model here? I'm from Detroit. If we're really seriously going to tear down the firewall and allow the mayor and the City Council to get all knee-deep in the operations of the pension fund, then I'll tell you what I'm going to do. I'm going to run for mayor.

Laura Miller did it. She got elected. Why can't I? I've always wanted to go to Naples, Florida. And a $5,000 poker chip! Think of it. I see myself on my first day in office: "Sure, tear that sucker down! Just bring me my damn birthday basket."


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47 comments
ruddski
ruddski

If Obama had a city, it would look just like Detroit.

mra15
mra15

Mr. Schutze it is obvious you have not done your research concerning this article. Detroit pensions are in much better financial condition than ours. You need to read Moody's report where they recalculated the unfunded liability for our 2 pensions. $1.14 billion is what our 2 pension combined reported in 2011 ($885 million from DPFP and $255 million from DERF), Moody's readjusted this unfunded liability to $4.29 billion.


They also calculated this readjusted unfunded liability as a % of annual operating revenue, here's a few of the rankings and how the city of Dallas stacks up to the rest:


1.   Chicago          -     678.2%

7.   Houston          -     312.4%

8.   Dallas             -     292.5%

22. Detroit            -     157.3%

26. San Antonio   -     123.9%

28. New York City -    106.2%

40. DISD               -       58.4%

50. Washington D.C.-   10.9%


http://www.palmbeachschools.org/treasury/documents/2013-09-26MoodysAdjustedPensionLiabilityMeasuresfor50LargestUSLocalGovernments.pdf

underachiever
underachiever

Has anyone considered why the auditor has asked for the birth date and gender of plan participants and that is the information the DPFP is reluctant to part with.  That what is stated in the demand letter from the auditor.  For the life of me I can not come up with a reason why that information is relevant to the valuation of investments.  This is also the type of information that identity thief's love to get hold of.  

mbds25
mbds25

Mr. Schutze you have hit the nail right on the head.  This matter with the DPFP system is nothing but an unwarranted attack by the arts society and their lackeys.  Don't forget that the DPFP system offered to pay for the only feasible fix for the glare.  The Nasher would hear nothing of it and would except nothing but the ridiculous louver solution, or as you suggest; tearing the building down.  Anyone interested in the actual state of the DPFP fund should check: http://www.texastransparency.org/application.php/pension/search.  They will find that the system is in good shape, not great, but not the disaster many are claiming.  In fact the DPFP fund is better off than a lot of other funds. 

holmantx
holmantx topcommenter

The reporter over at the DMN posted up this little jewel:

"Early last year, the Dallas Police and Fire Pension System’s administrator, Richard Tettamant, was looking over a policy brief by the Texas Public Policy FoundationIt showed a dozen local retirement systems in Texas that have codified their plans in state statute, including the one run by Tettamant. Many of them “are in poor fiscal condition,” the brief said. It recommended that the legislature put “authority over these plans back to the respective local community of each.”

I liked the punch line:

"Here’s what Fuerst told me. A plan at 90 percent funded could be in danger if its sponsor is not strong enough financially to contribute and move it back toward 100 percent. Conversely, a plan at 70 percent could be fine if it’s a small plan with a very large, healthy sponsor that can easily bail it out."

Our pension system is too big to fail.


moore583
moore583

Kilpatrick looted your home town. We've seen what happens here if politicians start taking cash filled envelopes. Off to the jail house they go. The problem in Detroit is they put up with fraud, stealing and mismanagement for decades. If the goal here is to make sure the books are balanced I have no problem with it. If the goal is to line somebody's pockets I've got big problems with it.

Tim.Covington
Tim.Covington

Mr. Schutze,

You've hit the nail on the head. People need to think about very objectionable people ending up in office before they call for changes in laws. Unfortunately, to many people on the left and right think that once they are in power they will stay in power.

dfw_maverick
dfw_maverick

If there are issues with the way the current pension plan is being run, ie a high percentage of speculative real estate deals, how are the participants going to be protected if the investments are not open to scrutiny?

Oscarcharlie
Oscarcharlie

@Wyle.... why have you taken it upon yourself to be the voice against the pension. What is your angle? Who are you? If you are a concerned citizen why put a face with your thoughts and feeling and fight the pension in person?

ozonelarryb
ozonelarryb

Of course, Amarillo Cab Gonzales, and Carolyn Davis et al, are surely better qualified to run it than the ones chosen by the pension board.

James080
James080

Someone please correct me if I am wrong, but I believe the pensioners have a defined benefit plan with pension payments based on a guaranteed (8.5% ? ) rate of return. If the fund managers fall short of producing the guaranteed rate of return, the City of Dallas is legally obligated to make up the difference.


It's no secret that the pension fund invested in some five star, high cost projects in Napa and Hawaii among other places, which they can not sell for any amount approaching their cost. The fund managers seem to enjoy treating themselves to regular junkets to these swank, five star properties, all expenses paid (due diligence, don't you know). In any event, the fund is reportedly appraising the value of these projects on their balance sheet at the total cost of the project, instead of using fair market value, which it is alleged would be significantly less. 


Because (I believe) the city has liability for any shortfalls in revenue by the pension fund, I believe the mayor has every right to demand open access to the books. 

WylieH
WylieH

Jim, I like you like a brother... father.... semi-crazy uncle????  And 99% of the time, your instincts are dead on.  In this case, unfortunately, you are wrong.  Not just partially wrong--- 100% off base.


The two Dallas pension funds collectively represent the City of Dallas' #1 off-balance sheet liability.  If they are mismanaged, the potential exists for the City to go bankrupt.  Don't believe me... Google the terms "bankruptcy" "municipal" and "pension fund" and take a quick read.


The Dallas Police & Fire Pension System has an extremely high (approximately 50%) concentration of investments in something called "alternative investments."  This is an issue because, unlike common stocks, the value of these investments isn't readily determinable.


Let's say I was managing a $100,000 IRA for you, and I had 50% invested in Ford Motor (because you love Detroit), a 25% interest in Pedro's Oakcliff Nuevo Taiwanese/Honduran Menudo Dumpling Tea House, and a 25% interest in Santiago Calatrava's new concept single family housing development in Preston Hollow, where every house features a small Calatrava bridge as a signature element leading from the street over the ditch row to the house.


That means we've invested $50,000 in Ford stock, 25% in the restaurant, and 25% in the new housing development. With me, so far?


Okay.... now, it's three years later.   What is the value of the your IRA (which you are depending on for your retirement)?  The Ford stock is easy to value--- just Google the price.  If you want to sell at that price, you just hit a button and sell (or, tell me as the manager to sell).  In under a minute, you have a cash credit in your IRA for the full amount.


Now.... what about the interest in the restaurant, and the housing development???? What are THEY worth... and, more importantly, how do you get your hands on the money for your retirement???  (because you can't pay your nursing home bill with interests in a dumpling tea house, or a single family housing development--- even if it IS in Preston Hollow).


What if someone got food poisoning at the restaurant, or Calatrava became disgraced and imprisoned for a new felony crime known as "architectural fraud?"  Business goes down at the restaurant-- it's losing money.  And no one wants the Calatrava homes... because bubbles.


Now, remember, I'm your manager, and I don't want to be fired!  So... what do I tell you?  Well,  I might be tempted to say "Jim, don't worry about the Tea House... just a temporary setback, Oak Cliff is growing, and Leslie Brenner is going to come out with an article on the growing demand for menudo dumplings.... Wilonsky told me (and he loves 'em!).  Now, about the Calatrava homes... they are still admired... didn't you see Steve Brown's column in which he called them an architectural jewel?!?"


So, you say, "Alright, Wylie... that all makes sense.  I trust your instincts, because you've managed the fund for over 20 years, and before that, you were a staffer for the City of Dallas, so you must be awesome.  But, by the way, I'm required by state law to have a highly experienced, competent actuary double-check the valuations of the restaurant and houses, just to make sure everything is kosher and that the retirement funds will be there when I need them.. ok?"


Now... if my response as your retirement manager is anything other than "great, send them over and let me know how I can help them complete the required audit," I would suggest that there may be a problem.  If, instead, I lawyer up and tell you to go "F yourself," I would suggest there it is likely a problem exists (if for no other reason than I would be violating a very reasonable state law).


That is exactly what appears to be happening here.  Look at the state law for yourself:  http://www.statutes.legis.state.tx.us/Docs/GV/htm/GV.802.htm


Focus on Sec. 802.1012.  


I have no idea what is motivating Rawlings... and you have reason to be cynical.  But does it really matter if someone is doing the right thing for the wrong reasons?

Sharon_Moreanus
Sharon_Moreanus topcommenter

I'd like to recommend anytime the city get sued for police or fire misaction, it comes out of this fund.

dallasdrilling.wordpress.com
dallasdrilling.wordpress.com

I wouldn't be surprised if DMN is sitting on more information than it's willing to publish out of fear/intimidation/retribution from the big boys like Matthews, Smith, Beck, Perot Jr, and others that we don't even know about that are buds with Belo.

How's that VA land deal coming along Jim......you did see Hill casting out demons(DMN's Wilonsky) on Monday at the Uber meeting?

btzp
btzp

I was once told that Jack Matthews (Developer) had a blank check at the DPFPF because of his relationship with Richard Tettamant (Administrator of DPFPF).


Why wouldnt DPFPF embrace transparency and full disclosure if there were not something to hide?

TDonuts
TDonuts

No where do I see a call for the mayor to run the pension in the editorial. All it says is that the pension needs to submit to the state mandated audit. Open it books and prove that everything is up to snuff. Lets see if the people currently running it are the real crooks.

Wine_Curmudgeon
Wine_Curmudgeon

Finally. You're taking my advice and running for mayor. Where can I sign up?

mavdog
mavdog topcommenter

The City of Dallas is a stakeholder in the Pension Fund, and currently has the right to place 4 members on the Board at the DP&FPS. There are also members of the Board from the Police ranks, and from the fire ranks. The structure exists for the Fund to be independent of any one individual.

The current dispute is rooted in the manner the DP&FPS has been managed, and the attempts by those at the Fund to not be transparent regarding their investments.

The Museum Tower notwithstanding (let's not get immersed in the controversy about this specific investment), the Fund has not been forthcoming about the investments it has made and the performance of those investments. The Fund has committed about 50% of its assets in "alternative investments" that include real estate and privatized toll roads (they are investors in the LBJ and NorthTarrant projects). That percentage is unusual in its concentration.

The Mayor is right to push for this audit. The DP&FPS is wrong to obstruct an audit. The pensioners and the citizens both deserve to know where the Fund stands in its ability to pay its obligations.

WylieH
WylieH

The actuary needs to determine the soundness of the plan. The valuation requires a measurement of the assets AND liabilities. The assets are the investments; the liabilities are the obligations to retirees. To determine the amount of the liability, detailed estimates of the future retirement dates and life expectancies of all plan beneficiaries are required-- this is why the birthdates and genders are required.

WylieH
WylieH

@mbds25 I checked, it appears to be one of the weakest large systems in the state of Texas.  What data, specifically, are you referring to?

WylieH
WylieH

@Tim.Covington No one is calling for a change in the law.  The issue at hand is that the pension fund appears to be refusing to submit to an actuarial review that is required under existing state law.

RobertStinson
RobertStinson

@OscarcharlieShow me a government or business scandal in The City or County of Dallas and I will tell you how in intersects with a real estate deal. Our business community's believe to "keep the shovels flying" is destroying our faith in local public and private institutions. 

WylieH
WylieH

@Oscarcharlie You have it all wrong, I am FOR the pension, and making sure it stays strong.  If the pension plan weakens, it will make it harder for the City of Dallas to attract and retain strong members of DPD and DFR-- they will simply go to other area police & fire departments with stronger, better plans.

WylieH
WylieH

@primi_timpanoThe operations of the Dallas & Fire Pension System appear to have come under a great deal of scrutiny out there.  I have a very bad feeling about how all of this is going to ultimately play out.

WylieH
WylieH

@primi_timpano I agree with you.... I sense things have the potential for becoming far worse than most people here in Dallas can imagine.

WylieH
WylieH

@James080This is generally on point.  As of the end of last year, Dallas Police & Fire had an estimated total UNFUNDED liability exceeding $1 billion... yes, I said $1 BILLION.  See:  http://www.prb.state.tx.us/files/reports/board/avreportnovember2013.pdf  This works out to nearly $200,000 in unfunded liabilities per active member-- one of the largest amounts of any major public pension systems in the State of Texas.


But wait, it get's worse:  that $1 billion in unfunded liabilities assume that the Fund can make 8.5% per annum on its assets to honor its obligations to first responders.  The City of Dallas supplements paycheck deductions with over $100 million in annual transfers out of the general fund to honor its commitment and begin to close the gap, hoping to "beat the clock" before the number of retirees starts to overwhelm the current contributions.  If the fund CAN'T make 8.5% per annum, the problem becomes worse; if the fund's assets aren't really worth what the fund's management says, the problem becomes worse still.



WylieH
WylieH

@James080This is generally on point.  As of the end of last year, Dallas Police & Fire had an estimated total UNFUNDED liability exceeding $1 billion... yes, I said $1 BILLION.  See:  http://www.prb.state.tx.us/files/reports/board/avreportnovember2013.pdf  This works out to nearly $200,000 in unfunded liabilities per active member-- one of the largest amounts of any major public pension systems in the State of Texas.


But wait, it get's worse:  that $1 billion in unfunded liabilities assume that the Fund can make 8.5% per annum on its assets to honor its obligations to first responders.  The City of Dallas supplements paycheck deductions with over $100 million in annual transfers out of the general fund to honor its commitment and begin to close the gap, hoping to "beat the clock" before the number of retirees starts to overwhelm the current contributions.  If the fund CAN'T make 8.5% per annum, the problem becomes worse; if the fund's assets aren't really worth what the fund's management says, the problem becomes worse still.

russell.allison1
russell.allison1

@WylieH Menudo dumplings just don't sound appetizing...no wonder the restaurants in the tank.

holmantx
holmantx topcommenter

@WylieH  

"I have no idea what is motivating Rawlings"

The Nasher people.

RTGolden1
RTGolden1 topcommenter

@Sharon_MoreanusLogically then, you'd have no problem forking over your future benefits from Social Security and Medicaid everytime the US government is sued.  Or, perhaps, if everytime you need police, fire or EMS service, you wouldn't mind making a 10-20k 'donation' to the pension fund?

WylieH
WylieH

@Sharon_Moreanus That would be punishing the majority of fantastic first responders for the actions of a few.  The lawsuits also frequently result from failures in municipal management and damages appear to be frequently increased due to poor claims management by the City Attorney's Office.

RobertStinson
RobertStinson

@dallasdrilling.wordpress.com Most business and publishing decisions at the DMN are not made because of a 1950s-style smoke-filled room of business leaders. Admittedly, it's a fun stereotype to explore and exploit. Yes, these folks have an influence with the publisher and, therefore, the editorial staff. But it's not what you think, pal.


I'm not convinced DMN is "sitting on information" like they did with the Trinity Tollway story. What's in it for them? It would not benefit the paper to keep this information under wraps. 


The Dark Side of the Force tells me that this pension fiasco could seriously and further erode our faith in the City of Dallas. I wonder what Lord Vader Leppert thinks about the destruction he has left for us?

btzp
btzp

@WylieH  


I guess this is why he is an "underachiever"! 

mbds25
mbds25

@WylieH   I was referring to the funded ratio data, Check Ft. Worth, Austin, Corpus Christi, El Paso and Lubbock's pension system's funded ratio data.  One is at and the others are below the DPFP systems funded ratio.  I would consider those large pension systems. 

James080
James080

@WylieH@James080  

Which in turn explains why Richard Tettamant and the majority of the pension fund trustees (who are police and fire representatives) are willing to make enormously risky bets on high risk real estate projects. They have no skin in the game, no risk of loss. If the pension fund loses money, the City of Dallas is required to make up the difference. Let's not forget that the pension fund financed the entire Museum Tower project because no lender was willing to make the loan. I wonder how closely Museum Tower's financial performance is meeting its proforma?

RobertStinson
RobertStinson

@holmantx That's a pretty simplistic explanation. You're not giving the Mayor enough credit.

mra15
mra15

@mavdog @James080@WylieH You are absolutely wrong, the city would be "required to make up the difference" if the Pension Fund is unable to meet its financial obligation.  This is the same reason that our pension's unfunded liability is carried as a liability by the City of Dallas, and could very well effect the city's bond rating.


WylieH
WylieH

@Sotiredofitall @James080 @WylieH Unfortunately, as a public pension plan, the first responder beneficiaries who participate in this plan are not covered by PBGC insurance.  The only source of protection beyond their own contributions is the general fund of the City of Dallas.

Sotiredofitall
Sotiredofitall topcommenter

@James080 @WylieH Let's add to the mix the consulting actuary who is paid to bless the formula and 8.5% annual return assumptions thus reducing the required funding contributions.  Again increasing risk and placing any default/shortfall on the public (PBGC).

James080
James080

@WylieH 

Most current governmental employees have been blessed with defined benefits pension plans under which they have been given very lucrative guaranteed returns, and taxpayers have been put at great risk. But the worm is turning and the new trend is to give defined contribution pension plans where the employer makes or matches a set contribution, and the government makes no guarantee of future returns.

WylieH
WylieH

The plan is a defined benefit plan: https://www.dpfp.org/profile.html

The City's required contributions (as apparently negotiated by Suhm and Gonzalez) appear to be driven by elements largely out of the City's control. I wouldn't be surprised to see the City's current required annual contribution (exceeding $100 million) ratchet sharply upwards.

James080
James080

@mavdog@James080@WylieH 

Not if it's a defined benefit plan. If it is a defined contribution plan I would agree with you. I don't believe you are correct.

mavdog
mavdog topcommenter

@James080 @WylieH

I do not believe it is accurate to say the City is required to "make up the difference" if the Pension Fund is unable to meet its financial obligations, the City has a defined contribution to pay the funds it is obligated for. That obligation is set by the number of employees participating in the Plan.

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