As if the doom and gloom from the almost-over election isn’t bad enough, the city of Dallas has an economic crisis brewing that will most likely mean higher property taxes in the future. How would that affect our local real estate market? I was speaking to a prominent agent last week about the sticker shock our property taxes give most transplants even with the lack of a state income tax.
“These California buyers are starting to look at our property taxes and think twice about our so-called affordable living,” she said.
Last Thursday, Mayor Mike Rawlings was in Austin, sitting before the Texas Pension Review Board. He was pretty doom and gloom over unfunded liabilities in the Dallas Police and Fire Pension Fund that have also send our bond rating down, making it more expensive for us to borrow money. The fund was, he says, ripped off by a “Bernie Madoff scheme” in which fund members guaranteed themselves 8- to 10-percent returns on their investments, then took the money and ran. Of course, the police elected their board members and city councilmen from years past sat on the board.
Now the pension board wants the city to cough up $1.1 Billion (with a “B”) to replenish the police fund.
If we do that, Mayor Rawlings says the city would have no choice but to increase its current property tax rate by 130 percent to cover the difference.
Pension plans across the country are facing similar issues. The biggest drag on the DP&FP relates to the DROP drain. What is DROP? It was a plan conceived in the 90’s (when Laura Miller was Mayor) that allows “cops and firefighters with more than 20 years of service to take their accrued pension benefits and stick them in an account that guarantees at least an 8 percent annual interest rate, and up to 10 percent. The plan was conceived in the 1990s as a way to keep veterans from doing their 20 years and quitting.” What a sweet deal!
That target was more feasible when there were fewer DROP members and the fund was pulling in bigger returns. But the system, like many others, took a big hit when the markets came crashing down during the 2008 financial crisis. And DROP, which has also been touted as a recruiting tool, has become an albatross on the pension system. In January (2015), DROP accounted for 42 percent of the entire fund. A handful have been getting wealthy in their advanced ages. Pension officials also said in January (2015) that one person’s DROP account had more than $3 million in it. An additional 13 had more than $2 million. And 283 had more than $1 million.
So because of wild-brained ideas more than a decade ago, we stand to pay through the nose for real estate taxes that will naturally send buyers scurrying.
Would a 130% increase on property taxes in Dallas hurt real estate values? I got my tax bill last week, and am now trying to figure out where the money to pay it will come from.
