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G.C. Williford walks past a barrel containing waste material that was removed from the apartment where a second person has been diagnosed with the Ebola virus on October 12, 2014 in Dallas, Texas. (Mike Stone/Getty Images)

Storm Clouds Gather Over America's Cities

Harry Zieve Cohen

In recent weeks, there’s been a run on Dallas’s firefighter and police pension fund, The New York Times reports:

Over six recent weeks, panicked Dallas retirees have pulled $220 million out of the fund. What set off the run was a recommendation in July that the retirees no longer be allowed to take out big blocks of money. Even before that, though, there were reports that the fund’s investments — some placed in highly risky and speculative ventures — were worth less than previously stated.

What is happening in Dallas is an extreme example of what’s happening in many other places around the country. Elected officials promised workers solid pensions years ago, on the basis of wishful thinking rather than realistic expectations. Dallas’s troubles have become more urgent because its plan rules let some retirees take big withdrawals.

Now, 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. Nothing would be left for fighting endemic poverty south of the Trinity River, for public libraries, or for giving current police officers and firefighters a raise.

If Dallas goes under, the state authorities aren’t going to be keen to bail out the city government. Some of the bloodiest fights over the next few years will be between blue cities and red state legislatures as pension liabilities force municipalities to ask for assistance. With Republicans dominant at the state level (and now at the federal level), cities aren’t going to have an easy time getting help.

Looking at the fiscal nightmares facing places like LA, which now spends 20 percent of its annual budget to cover pension liabilities, and Dallas, we wonder how much longer residents will be willing to live in nearly-insolvent cities. There’s a lot of talk these days about urban renewal, with greener waterfronts and hipster gentrification driving up real estate values and making previously-decrepit neighborhoods hot spots of culture. But today’s urban havens are built on a very unsteady foundation of blue city governance. At what point will the costs of maintaining today’s blue cities outweigh the appeal of what we might call “Brooklynization”? It’s not just rising housing prices that could drive people out; imagine the tax rates which could be necessary to pay off pension liabilities. Particularly for families looking to make an investment in real estate, cities may start to look much riskier than

The recent election showed how much America is split between city-dwellers and rural/suburban dwellers. Even as the Constitution ensures political representation for rural areas, the wealth of cities serves as a countervailing economic power. Exactly what will happen if cities go bankrupt and rural America is asked to use its tax dollars to bail them out remains to be seen. But we predict it’s not going to be pretty.

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