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Texas Rangers launch criminal probe into Dallas' pension shortfall

Mayor Mike Rawlings blames former pension administration for a "grave breach of trust," but it's unclear who is the target of the state inquiry.

Dallas Mayor Mike Rawlings

*Correction appended 

The Texas Department of Public Safety is investigating whether criminal behavior at least partially contributed to the multi-billion-dollar shortfall facing Dallas' police and fire pension funds.

A Texas Rangers spokesman declined Friday to provide more details of the investigation, which comes as Dallas' first responders and city officials continue grappling with the financial, legal and public relations fallout of a years-long unraveling of pension fund woes which are threatening City Hall's overall finances.

The inquiry also comes on the heels of a state report that said cities facing large pension crises, like Dallas and Houston, aren't likely to get financial help from the state.

Dallas Mayor Mike Rawlings said in a statement Friday that he asked DPS to launch the investigation into unspecified conduct he believes "may rise to the level of criminal offenses." The statement said the mayor would not be available for comment. A spokesman for the mayor said no one in his office could give more details Friday.

A Texas Rangers' spokesman confirmed its investigation into the matter with The Texas Tribune. 

Rawlings spokesman Scott Goldstein said he couldn't comment on whether the investigation will focus on previous system administrators that the mayor blamed for "a grave breach of trust."

"Anyone brazen enough to commit crimes that harmed those who sacrifice so much to keep our city safe must be brought to justice," Rawlings said in the statement. Rawlings also said he's worked in "close cooperation" with the FBI regarding the pension woes. That agency earlier this year served a search warrant on the offices of the pension system's former advisers

Goldstein also said he couldn't comment on whether the new investigation would look at real estate investments in which former pension fund leaders heavily invested. A 2013 investigation by The Dallas Morning News found such investments, which included luxury properties, to be an "unusual" strategy considering they represented about half the system's assets.

"Among large public pension funds, the median real estate allocation is less than 5 percent. And these investments are more typically in properties such as office and apartment buildings, which produce steady rental income," reporter Steve Thompson wrote

An audit later found that the fund lost $196 million on "risky" real estate ventures that included a California vineyard and luxury homes in Hawaii, according to The News. 

"The ventures prompted the fund’s staffers and board members to travel extensively over the years, trips they said were necessary to scope out and protect the investments," Thompson reported in 2014. "They traveled to the Napa area more than any other out-of-state destination — making 45 trips there from 2009 to 2012." Amid questions over how the fund was managed, former pension administrator Richard Tettamant stepped down in 2014.

City Council member Philip Kingston, who also sits on the pension board, blasted Rawlings for further complicating a situation already entangled in a serious of lawsuits and investigations.

Kingston said the pension fund is suing its former financial advisers in hopes of recovering at least some money for police and firefighters. He said Rawlings, who earlier this month sued the pension board as a private citizen, did not tell officials of his request for a Texas Rangers investigation.

Kingston fears it will make it more difficult for the pension board to recover money through its civil suit.

"It would make people much less likely to help us if they're worried about going to jail," Kingston said. "They're going to be much less likely to help us in terms of discovery."

Fellow council member and pension board member Erik Wilson said while it's possible a new investigation could complicate the civil suit, there's merit in figuring out whether there was any criminal wrongdoing.

"We want to make sure where there's any smoke, there isn't any fire," Wilson said.

Investments have not been the sole source of the pension system problems. Rawlings previously called for a halt to lump-sum withdrawals from the fund, after police and firefighters pulled more than $500 million from the system.

That threatened the fund's liquid assets. The pension board ultimately halted such withdrawals, a move that drew ire from current and retired first responders. Pension officials this week agreed to reinstate monthly withdrawals for those who had already signed up for them. 

Credit rating and financial analysis firm Moody's earlier this year ranked the nation's most debt-burdened local governments based on pension shortfalls compared to annual operating revenues. Dallas was the second worst, with an estimated $7.6 billion pension shortfall. Houston was fourth worst, with a $10 billion shortfall according to Moody's.

Dallas has also had its credit rating downgraded multiple times in recent years in large part due to the pension funding shortfall. Dallas officials earlier this month suggested that they may turn to the state for help. But the Texas House pension committee released a report that made clear the state isn't likely to contribute any money to bail out troubled funds. The committee suggested cities use pension obligation bonds or large lump-sum payments to help shore up the funds.

The House pension committee warned that if troubled funds aren't addressed now, some cities could have to end cost-of-living increases for retirees and freeze current city employees' salaries. Retired Dallas police officers formed a new association this month to advocate for retirees and lobby elected officials. 

Correction: This story initially said that a spokesman for Dallas Mayor Mike Rawlings said no one was in the mayor's office on Friday. The spokesman said no one in the mayor's office could give more details Friday on the investigation.

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