Dallas’s police and firefighters are quitting in droves, wagering that financial-market losses are about to render their promised pensions too good to be true.
With the city considering benefit cuts to help close a retirement-fund shortfall that grew by $1.2 billion last year, more than 200 workers have decided to retire or leave, about double the normal rate, said Mayor Pro Tem Erik Wilson, who sits on the Dallas Police and Fire Pension System’s board. That’s threatening to put further pressure on the fund as benefits come due, including lump-sum payouts to older employees who’ve been drawing a paycheck while earning a guaranteed 8 percent return on their pensions.
“I’ve had 40 to 50 officers in my office this week asking what they should do,” said James Parnell, 52, secretary-treasurer of the Dallas Police Association and 25-year veteran. “They’re very nervous about what is going to happen, they’re fearing a run on the money.”
This situation a reminder that blue model decay is not confined to leftwing cities and states, although it tends to be worse there. Rather, it is baked into the prevailing social system of the Western world, which is built around impossible-to-sustain retirement promises for workers.
As the Economist notes in a comprehensive survey of the looming crisis, private companies in the United States have been able to avert catastrophe by switching from defined-benefit to defined-contribution retirement plans. But “because the power of public-sector trade unions to resist lower benefits is greater than in much of the private sector,” there is no relief in sight for state and local governments, whose salary-for-life guarantees to retired workers now face a $3.4 trillion hole.
Some cities, like Detroit and San Bernardino, have been forced into bankruptcy by runaway pension costs, and others (perhaps even major ones, like Chicago) are likely to follow the next time a recession hits. But long before the bankruptcy lawyers take over City Hall, the collapse of the blue social model will degrade (and in some cases already has degraded) the quality of urban governance in more subtle ways: Hiking bond yields so cities can’t invest in long-term projects, squeezing budgets for infrastructure and education, and causing talented public servants to run for the hills.
Wonks and policymakers need to be thinking much harder about how to right the sinking ship beyond perpetually raising taxes to plug the leaks. This is not just a matter of arithmetic; it’s a matter of overhauling our social system so that states and localities can govern effectively in the twenty-first century.