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Police and fire back pay lawsuit could cost Dallas billions

DALLAS — Decades ago, Dallas voters approved a pay raise for emergency workers. But did the city stiff the rank and file?

That’s the central question of a lawsuit that hinges on the legal interpretation of three key words written on a ballot almost four decades ago.

If the city loses the suit, taxpayers could be on the hook for billions in back pay.

Coupled with the current crisis going on with the Dallas Police and Fire Pension System fund, the city could be in a financial bind for years to come.

Sgt. Steve Toth and Andy Braddock signed up to serve the city of Dallas decades ago. They say, after all this time, they still look forward to going to work every day.

“The truth of the matter is a lot of us would have done it for next to nothing,” said Toth, a Dallas police sergeant. “We were doing something that most of us wanted to do our whole lives.”

“I love the fire department,” Braddock said. “I’ve told people if I won the lottery I’d still come to work tomorrow.”

They are two of the many plaintiffs in the legal battle with the city of Dallas over a pay dispute that has been pending in court 22 years.

“It is the longest case pending in Texas right now,” said Ted Lyon, a former Texas state senate and house member and police officer who’s now a plaintiffs attorney representing thousands of the city’s first responders against their employer.

The case has never reached a jury. “The city has filed so many (pretrial) appeals that it is really ridiculous,” Lyon said.

The legal fight dates back to a decision Dallas residents made nearly four decades ago.

In January 1979, Dallas residents went to the polls and voted to give police and firefighters a 15 percent pay raise. They also agreed to keep the different levels of pay among the different ranks in both departments the same.

This means every time, say, the captain’s rank gets a raise, so do the other ranks by that same percentage. The same goes for decreases in pay.

As the years passed, the plaintiffs allege, inequalities emerged in the pay grades. Raises for the lower ranks did not keep pace with the higher ranks, they allege.

“You feel like someone stole money out of your back pocket,” Braddock said. “I mean, that took money off the table for my kids.”

By 1994, the situation boiled over into a lawsuit. More suits followed.

“If they are going to get a raise in those cushy offices, the guy in the street ought to get the raise,” Lyon said.

The central issue is whether the 1979 referendum promised to maintain the pay raise structure for one year, or forever. It all boils down to how both sides interpret one short phrase: “shall be maintained.”

The city argued “shall be maintained” meant for just one year.

“This is a ridiculous lawsuit,” said Mayor Mike Rawlings during a recent city council discussion of Dallas’ financial situation. “In 1979, citizens wanted to give firemen and police officers a raise. They did not plan on it costing 4 billion dollars.”

But Ken Molberg disagrees.

Back then, Molberg, now an elected civil court judge in Dallas, was a young lawyer representing the police and firemen in their efforts to get a raise. Molberg wrote the referendum language that went before voters, and in a deposition, he says he used the phrase “shall be maintained” as an insurance policy for years to come.

“Without that, the city could have come in the next year and given all the chiefs a pay raise, and left everybody else out of the deal,” Molberg said in a videotaped deposition. “That had happened before, and they didn’t want that happening again.”

Who’s right and who’s wrong has yet to be decided. The case has never gone before a jury, but rather has been tied up in pretrial appeals for decades.

Today, the litigation represents 10,000 first responders like Braddock and Toth. Every day that passes without a resolution, more pack pay – with interest – that the city of Dallas may owe accrues.

“This is something the city has continually pushed down the line and caused it to grow,” Braddock said. “I’ve been underpaid for 22 years.”

City officials acknowledge that the litigation has the potential to be a ticking time bomb for taxpayers.

“What this means for the city, in brief, is that could mean a $4 billion cost in terms of back pay,” Elizabeth Reich, the city’s chief financial officer hired in September, told council members recently. Mayor Rawlings has said the litigation, coupled with the pension crisis, could bankrupt the city if left unaddressed.

How much is $4 billion?

We decided to put it in terms of the cost of city services Dallas residents probably enjoy.

Imagine next year’s Dallas city budget with no money for trash pickup and recycling.

No money to keep parks mowed, or library doors open or pay for any other arts or education programs.
No more water utilities and no street repair.

Now imagine extending those cuts for not one, not two, but three more years … and there’s your $4 billion dollars.

Braddock and Toth want to make one thing clear to taxpayers.

“We have no intention of wanting to bankrupt the city,” Braddock said. “That would be insane.”

He and Toth say it’s not about the money anymore. They say it’s about the city of Dallas holding up its end of the bargain with its first responders.

“We took an oath and we have never ever breached that promise to the citizens of Dallas,” Toth said.

“It’s about following through on what the citizens voted for and carrying that out,” Braddock said. “We’re not fat cats. This is not a scheme about how to scam the city of a few dollars. We love our job. We want to come to work.”

“We’re just saying, ‘Mayor, we just want what’s fair and what was promised to us, what the citizens voted in 1979,’” Toth said.

The city is turning to the state for help, but lawmakers have indicated a bailout from Austin is highly unlikely.

The plaintiffs in the pay referendum litigation say they have made several attempts to settle the case, to no avail. If no settlement is reached, the case could to go trail this spring.

If the city loses, taxpayers cold be left to pick up the multi-billion-dollar tab.



New legislation would make attacking police a hate crime


DALLAS – A bill filed in the Texas House of Representatives on Monday would make it a hate crime to target police officers or any first responders.

“We’re going to ask that it become an emergency legislative item for the governor so that as soon as we get to Austin in January, we pass it right away, make it law right away,” said State Rep. Jason Villalba, R-Dallas.

It is the first legislation of its kind to be filed and it comes 24 hours after a San Antonio detective was murdered inside his patrol car at police headquarters there.

Gov. Greg Abbott first called for legislation like this in July after five police officers were ambushed and killed in downtown Dallas.

The Combined Law Enforcement Associations of Texas, the Texas Municipal Police Association, and the Dallas Police Association helped craft Villalba’s bill.

If passed, HB 429 would increase the penalty for attacking a cop, firefighter or paramedic.

“Texas will arm our prosecutors, D.A.’s and judges with every tool they need to punish to the fullest extent possible those who harm our first responders,” explained Villalba.

Nationwide, 58 police officers have died from gunfire this year, according to the Officer Down Memorial Page. Seven of them happened in Texas.

Law enforcement is taking immediate steps of its own to protect officers.

“In the wake of the tragic ambush that occurred in San Antonio along with the other three police shootings that happened across the nation yesterday, I have reminded our officers to take extreme caution as they perform their duties and to always be aware of their surroundings and cover each other,” wrote Dallas Police Department’s interim chief, David Pughes, to his team.

In Fort Worth, all calls for help – no matter the nature – will have two officers responding now.

“Any time you put on the uniform there’s that sense of fear,” said Ofc. Jimmy Pollozani, Fort Worth Police.

Fort Worth is the latest department to actually change its police response after what happened in San Antonio on Sunday.

“We are planning to send a multitude of officers to San Antonio and convoying down there with squad cars to represent the Fort Worth Police Department and the Brotherhood for the Fallen,” said Pollozani.

That Brotherhood is a non-profit which has spent thousands of dollars this year sending Fort Worth officers to funerals for the fallen.

“We just started in July and we’ve been to over a dozen of them already,” he said.

Dallas Police and Fire Pension Board approve plan to help failing retirement fund

Dallas fire & police

The Dallas Police and Fire Pension Board approved a plan Thursday asking its police and firefighters to help rescue their failing retirement fund.

Sixty-five percent of police and firefighter would have to agree to the changes that would cut benefits and increase contributions.

If no changes are made, the $2.39 billion dollar fund would be bankrupt by 2028.

“We do not like the idea of cutting benefits,” said Sam Friar, the board’s chair and a member of the fire department. “However, it is something that we absolutely have to do.”

The changes will only cover about 55 percent of the funding shortfall, which is why taxpayers will end up footing a huge portion of the bill.

The city is also going to be asked to contribute at least a $1 billion to rescue the failing fund. That’s up from about $650 million a couple of months ago. It’s likely that the city would have to ask voters to approve a bond issue to do so.

“We cannot do it ourselves,” Friar said. “We’re aware of that and we’re sorry for that, but this is just the situation that we’re in.”

The unfunded liabilities of the fund are about $4 billion.

“It’s a lot of money any way you look at it,” said Scott Griggs, a council member who served on the board.

Still, the hits just keep coming.

A so-called “run on the bank” has exacerbated its woes – and it’s why the amount taxpayer will ultimately have to put more into the fund.

Over the last two months, more than $400 million dollars in lump-sum withdrawals have been made by retired police and firefighters, who were concerned about the ongoing problems of the fund. That includes the $22 million dollars withdrawn just in the past week.

And it’s coming just as the pension’s fund woes have made it more expensive for the city of Dallas to borrow money. This month, two credit ratings agencies, Moody’s and Fitch, cited the mass withdrawals from the fund as a key reason they were reducing the city’s bond rating.

“If we’re not able to fix it, then our bond rating will continue to collapse,” Griggs said. “That means you’ll pay more for less. As you know we borrow significant amounts of money to fix our streets and our interest rates will go up and taxpayers will have to pay more.”

And things are so bad that the pension board recently voted to ask the city to pay its administrative costs of about $36 million annually.  The board did so after receiving a letter from its actuaries indicating that paying administrative costs was negatively impacting the fund’s ability to pay benefits.

“That’s written in our plan that if the pension fund were to have administrative issues that actually strained our plan, that administrative fees would be paid for by the city,” Friar said. “That’s not something we just dreamed up. They are on the hook for it.”

City officials said they were aware of the action by the board, but had not received an “official notice.” Once the request is received, the City Council will be briefed, officials said.

“That’s a big chunk of change,” Griggs said. “That’s money right now that’s already allocated in the city’s budget to things such as libraries and parks and fixing our streets.”

The massive withdrawals totaling in excess of $400 million dollars were taken out of accounts known as the Deferred Retirement Option Fund, or DROP. The mechanism allowed veteran police and firefighters to effectively retire from the fund while they kept working.

Their pension funds were deposited into DROP accounts. Those accounts were paid a guaranteed interest rate of at least eight percent for many years, even in years when the overall pension fund was earning much less, or even took losses.

The discussion about the proposed changes caused many retired police and firefighters to panick and withdraw their money. Some police and firefighters retired just so that they could withdraw their money from their DROP accounts.

DROP now accounts for in excess of 50 percent of the pension’s assets, up from 30 percent just six years ago.  Pension board members have been trying to quell the fears of retired police and firefighters to try to slow the run on the DROP money.

A YouTube video presentation released last month by the pension fund explains how the situation got so bad.

In July 2015, the fund’s actuaries projected it would run out of money in 2040.

But things continued to get worse, mostly due to poor real estate and private equity investments. By January, the fund was projected to run out of money by 2030.

The city is almost certainly on the hook to protect benefits. The Texas Constitution mandates that it is the city and the pension system’s responsibility to “protect benefits from being reduced or otherwise impaired.”

City contributions are not currently even enough to pay current retirees, much less those who retire in the future, the video says.

One-third of the problems are related to bad investment decisions, it says.

It attributes the remaining two-thirds to other factors:  Benefits that were “too rich” including the exorbitant interest rate paid on DROP accounts and the “the uncontrolled growth of drop account balances; the 2008 global financial collapse; decreased hiring; lower pay raises; longer life expectancy of members and the fund’s failure to recognize how severe the problem were quickly so that they could be addressed.

The plan would increase the contributions of police and firefighters who are not in DROP from 8.5 percent to 9 percent.

The contribution of active police officers and firefighters who are in DROP would rise from 4 percent to 9 percent.

The plan calls for ultimately increasing the contribution to 12 percent by 2018, but that requires legislative approval and the city making it legally obligated to provide funding to the plan.

The city has already agreed to increase its contribution from 27.5 percent to $28.8 percent – the highest percent allowed by state law.

It would also spread the pain to retirees. They would see their cost of living adjustments drop significantly drop.

Big changes would be coming for DROP.

Under the plan, the interest paid on DROP for active police and firefighters would be 3 percent for seven years. Payments could be deferred into DROP accounts for active members for a maximum of 10 years. There are now limits.

It would also make significant changes to the DROP program for those who are retired.

For years, the lucrative pension fund also was a selling point to convince rookies to take jobs with the police and departments, even when pay was significantly higher at other area departments.  That is no longer the case and it’s impacting the recruitment efforts of the police and fire departments.

The police department is currently about 400 officers short with more and more officers heading out the door.

Friar said he believes that with “proper explanation” police and firefighters will approve the changes. He also said that the head of the legislature’s pension commitment has made it clear that not making changes is not an option.

“They told us that point blank,” Friar said. “They will take of it for us if we don’t.”

Ken Sprecher, a retired Dallas police sergeant, said he’s hopeful the changes will steer the fund toward a path that leads to solvency.

“It’s pretty well documented that we’re in a severe financial predicament,” Sprecher said.

The proposed changes would also give the city the right to approve any plan that results in an increase in the pension’s liability, but that is contingent on the city committing fund to rescue the fund.

It is likely, however, that the city will demand more control given the vast sums of money involved.

“I think that’s going to be inevitable,” Griggs said. “The pension system is certainly going to require some infusion of cash from the city of Dallas. Obviously, the city of Dallas is going to want a greater control over the governance.”