Is Dallas the next Detroit?

[bingybear]

Is Dallas next?

Dallas has been having retirees take large withdraws from public pensions. Is this the start of the next major city to declare bankruptcy?

 

[Bamaman]

Who knows? Sounds as if it's just another example of a city or state that promised their employees the pie in the sky--but without the apples to make it a pie.

Scores of cities and states are in the same position. But when it's said and done, if there's no money to pay retirees--it's not going to happen.

It's not like they can just increase property taxes in Dallas to make up the pension shortfall. Property taxes there are already debilitating. My best friend sold his big house in University Park when his property taxes hit $50K per year.

 

[NW-Bound]

Wow!

... the Dallas Police and Fire Pension System has asked the city for a one-time infusion of $1.1 billion, an amount roughly equal to Dallas's entire general fund budget but not even close to what the pension fund needs to be fully funded.

...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...

...23 years of unmet goals had left Dallas with a hidden pension debt of almost $7 billion.

8.5% return guaranteed? This might have looked like a modest goal during the heyday of the stock boom of 1983-2000.

I guess they did not run FIRECalc.

 

[Lakewood90712]

I don't think so. The Detroit tax base , population and industrial base has been dying for 30 years. Not a good comparison IMO. Unless the oil industry moves out of Texas, then all bets are off. IIRC, Chevron has been moving jobs from California to TX.

As far as the pension system, most public pension systems , including the one I draw from are living in a fantasy world. Bond yields , the pension foundation of decades ago died off, and the equity markets just aren't going to return 7-8 % like the pension systems are counting on. The municipal pension system I belong to keeps shopping for new actuaries when they don't tell the city fathers what they want to hear. The current actuary firm is using 15 year " Smoothing " , whatever that means. Funding level is supposedly now at about 80% for the pension and 75% for the retiree medical. Was at 102% in 2002. The pension system let the city stop putting city money in for 2003, 2004. Employees had to keep contributing during the same period.

 

[DrRoy]

The situation is very different. Detroit has lost 2/3 of its population over 60 years, but had many retirees and debts from when it was larger.

 

[Surewhitey]

Who knows? Sounds as if it's just another example of a city or state that promised their employees the pie in the sky--but without the apples to make it a pie.

Scores of cities and states are in the same position. But when it's said and done, if there's no money to pay retirees--it's not going to happen.

It's not like they can just increase property taxes in Dallas to make up the pension shortfall. Property taxes there are already debilitating. My best friend sold his big house in University Park when his property taxes hit $50K per year.

University Park is not Dallas...and $50k puts his house in the $2.2 mil range. Again, not Dallas. "Park Cities" are incorporated cities of the rich folk. The most of Dallas metro is growing in the 2.2% in 2014-15. DFW is at 6.4 million and 2 of the 15 fastest growing cities are just north in McKinney & Frisco.

Property taxes are 2.2-5%, but we have no income tax saving many thousands for the working. Property values are kind of rediculous right now, but I figure it will level out soon. We live in the White Rock Lake area a couple of miles from U-park and you can get a modest home from $250k up to a nice place for $500k. Or go another 3 miles and pay as little as $125-150k. Plenty of choices.

Pensions here are probably not great, but there's a bigger mess in other cities, I'm sure, say Chicago or other dwindling tax base cities. Dallas skyline is riddled with cranes for high-rise condos which makes me think of Miami in 2007

 

[Fermion]

As long as property owners are willing to bail out the pension funds there won't be a problem.

We voted with our feet and no longer pay property tax. I guess we do feel it in increased fees at some state and county parks, but you can drive around Detroit and Dallas if need be.

 

[eta2020]

As long as property owners are willing to bail out the pension funds there won't be a problem.

We voted with our feet and no longer pay property tax. I guess we do feel it in increased fees at some state and county parks, but you can drive around Detroit and Dallas if need be.

Maybe that is why ton of FI Bloggers are renters for ever. Allegedly financially they come up on top as renters.

I guess if you want to vote with your feet and you are an owner it will cost you 6% commission

 

[Surewhitey]

As long as property owners are willing to bail out the pension funds there won't be a problem.

We voted with our feet and no longer pay property tax. I guess we do feel it in increased fees at some state and county parks, but you can drive around Detroit and Dallas if need be.

The pension fund trustee took some risky bets (timberland in Uruguay?!?)

Make them take responsibility for goofy "investments". I would vote with my feet if they upped my taxes... they'll get a boost with this year's appreciations for sure.

 

[soupcxan]

Maybe that is why ton of FI Bloggers are renters for ever. Allegedly financially they come up on top as renters.

I guess if you want to vote with your feet and you are an owner it will cost you 6% commission

I'm pretty sure landlords still pay property tax, and build that into their calculations when setting the rent...

 

[W2R]

Property taxes are 2.2-5%, but we have no income tax saving many thousands for the working.

Wow! The sum of my property tax PLUS my state income tax together are only 1.5% of what I paid for my home last year (which is the tax assessor's valuation of it).

But then, I live in Louisiana. While I love it here, some might say that you get what you pay for.

 

[Dawg52]

But then, I live in Louisiana. While I love it here, some might say that you get what you pay for.

Ha....most would say that about where I live. But that's OK too.

 

[Bamaman]

Our state's completely broke but property taxes are ridiculously cheap. $225K house taxes are maybe $650 per year, and disabled folks have no property taxes.

Yep, some states get what they pay for with sub-standard schools and gov't.

I just feel so bad for those that may have their "day of reckoning" when their pensions dry up and are not there. It's got to happen in so many places eventually.

 

[explanade]

Do current cops and firemen get the same deal, 8.5% return?

Surprised no politician would try to renegotiate that.

 

[Sunset]

Wow! The sum of my property tax PLUS my state income tax together are only 1.5% of what I paid for my home last year (which is the tax assessor's valuation of it).

But then, I live in Louisiana. While I love it here, some might say that you get what you pay for.

Grumble Grumble.... Our property taxes are 2.5% of the market value, and State income tax is now "down" to 3.75%. A total of 6.25%

And Chicago is famous for deep dish pizza and being the murder capital of the country

Maybe we should pay less.

 

[Texas Proud]

I know I will get flamed from the LEO and if we have any firefighters who are here...


But, why are these two pensions so untouchable What about the other workers who were promised something and then get it reduced.... I think that the same should happen to all pensions of any city that needs to go into BK....


From what I remember (and from what I can read) the police and firefighters of Detroit lost nothing.... other pensions took a cut, but not that much...

April: The city’s Police and Fire Retirement System votes to support terms of a bankruptcy mediation settlement that would spare its members from pension cuts, but is not yet on board with other elements of the city’s plan.



​

The plan to guarantee 8.5% was just nuts... and it should have been changed many years ago.... but, the unions of the P&F are smart and get state laws passed to prevent fixing the stupidity of the politicians....



It does seem like Houston has taken the first step to get its pension plan back in line.... It will be interesting to see what the pension plans come up with to save money, since the plan calls for them to figure it out!!!

http://www.bizjournals.com/houston/...yor-rolls-out-7-7-billion-pension-reform.html

 

[travelover]

...........

From what I remember (and from what I can read) the police and firefighters of Detroit lost nothing.... other pensions took a cut, but not that much...

April: The city’s Police and Fire Retirement System votes to support terms of a bankruptcy mediation settlement that would spare its members from pension cuts, but is not yet on board with other elements of the city’s plan.

As I recall, the police and fire pensions had separate funding mechanisms and were in better shape. Politics may have also played a part as here in MI, we have a one party control at state level and police / fire workers tend to support that party, where as rank and file city workers support the other party.

​

The plan to guarantee 8.5% was just nuts... and it should have been changed many years ago.... but, the unions of the P&F are smart and get state laws passed to prevent fixing the stupidity of the politicians................

You can blame the unions or you can blame the politicians that irresponsibly promise these benefits knowing they will be long gone when the time bomb goes off. There really needs to be some adult supervision over these deals as they really screw things up down the road both for the cities and the retirees who depend on the promises.

 

[Fermion]

The politicians are long gone but so are some of the residents who voted for them. The ones who stay are left holding the bag even though they are not the ones who directly or indirectly promised those benefits.

Perhaps we need to have a new housing law though that spells out what you are getting into before you sign a contract to buy a house in an area with underfunded public pensions.

 

[Senator]

But then, I live in Louisiana. While I love it here, some might say that you get what you pay for.

When I got out of Tech school in the USAF, a few of us got orders to go to Barksdale AFB, LA. We were all high-fiving and the instructor wondered what we were so happy about. We said we were headed to LA, as in Los Angeles, CA. At 18, we were thinking about beaches and girls.

The instructor broke the news to us. He said if the world had a place to spray deodorant, it would be in Louisiana, i.e. LA. I actually grew to like Louisiana, and it wasn't too hot back then, as I did not know any better.

 

[travelover]

..........Perhaps we need to have a new housing law though that spells out what you are getting into before you sign a contract to buy a house in an area with underfunded public pensions.

I like this idea.

 

[HawkeyeNFO]

I'm pretty sure landlords still pay property tax, and build that into their calculations when setting the rent...

Rent is set by what the market will accept, unless you are talking about rent-controlled areas like NYC. Taxes are irrelevant in a landlord's offer.

Grew up not far from Detroit. Dallas and Detroit are apples and oranges.

 

[Senator]

Rent is set by what the market will accept, unless you are talking about rent-controlled areas like NYC.

Grew up not far from Detroit. Dallas and Detroit are apples and oranges.

As property taxes go up, rents must go up too. But rents are a function of wages, and if wages do not go up, and property taxes do, then property values go down. Of course, property taxes may not go down down just because valuations are lowered.

It works the same way with interest rates. When rates go up, payments go up, and rents may or may not go up. If wages go up along with interest rates, rents go up too.

At some point, property values could fall, just as they did in 2008. Regardless of what the root causes were, it boiled down to property values (i.e. payments) in excess of what a person could pay. Cash buyers were king, and they made a TON of money.

 

[eta2020]

I'm pretty sure landlords still pay property tax, and build that into their calculations when setting the rent...

I am aware of that. What I am saying moving for renter is relatively trivial compared to owner.

Renter does not pay 6% commision for this privilege.

 

[exnavynuke]

I am aware of that. What I am saying moving for renter is relatively trivial compared to owner.

Renter does not pay 6% commision for this privilege.

The renter also doesn't pay any of the other closing costs for buying/selling a home.. one study I read years ago said the costs to sell a home and buy another home of equivalent value ranged from ~7-11% of the home's value, with cheaper homes costing more as a result of some fixed cost items being a larger share of the home value, and most "average" priced houses ran around 10%. That's a huge hit for many people and one of the reasons I'm glad real estate agents are starting to move towards flat fee services and away from "we're taking a percentage of your home value" pricing structures (albeit much slower than I wish they would).

 

[W2R]

Grumble Grumble.... Our property taxes are 2.5% of the market value, and State income tax is now "down" to 3.75%. A total of 6.25%

And Chicago is famous for deep dish pizza and being the murder capital of the country

Maybe we should pay less.

We have a lot of murders and good food here too. But do you have decades old potholes big enough to swallow a truck? If so, then I'm convinced. You deserve a break.