Failed land-development deals in Idaho and Colorado have cost the Dallas Police and Fire Pension System approximately $100 million, officials for the system say.
The deals account for a significant portion of the half-billion-dollar losses the fund has endured in recent years because of bad bets on real estate and private equity.
The fund has spent $25 million just in fees to advisers and managers of the land deals. Earlier fund managers intended to build sprawling housing developments, but the plans were ruined when the housing bubble burst.
The ventures are examples of the risky investment strategies that, along with overly generous benefits, led the pension to the brink of insolvency, The Dallas Morning News reports . Speculative investments in past years also included luxury homes in Hawaii, a resort near Napa and high-rise condos in Dallas.
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Kelly Gottschalk said she was left in disbelief when she toured thousands of acres of empty land outside Boise, Idaho, shortly after she became director of the fund in 2015. She was left to wonder how prior leaders could allow a public pension, tasked with protecting the retirements of those who safeguard the city, throw away so much money on vacant land.
"It was really shocking," Gottschalk told the newspaper. "I don't know what they were ever thinking."
When pension board members toured the ranchland north of Boise in 2005, the fund was coming off a couple of good years. In 2003 it had posted a return of 31 percent, ranking it the best performer among similar funds.
The fund ultimately bought more than 17,000 acres and the plan was to turn 6,750 acres of foothills into a new community called Spring Valley. It would nearly double the size of the town of Eagle, a picturesque suburb of Boise. A partnership with a development firm brought a vision of a community featuring a 500-room hotel, office space, restaurants and a vineyard.
Dallas' public safety workers would finance it and spend $42 million on the land. Projections held that the fund would more than double its money.
The venture was a departure from the norm. Pensions have traditionally invested in risk-averse mixtures of stocks and bonds. The Dallas fund wasn't the only one betting on real estate, but it was doing so on a much larger scale.
But by 2007, the demand for real estate was vanishing, just as the pension had ramped up its investments in Idaho and elsewhere past $900 million, equivalent to more than a quarter of its $3.4 billion net worth at the time.
No lots were ever sold in Idaho and no homes were built.
Six years later, Dallas Mayor Mike Rawlings spurred the city to audit the pension fund's investments and prompted the removal of several members from the pension board. New appraisals of the land in Idaho and Colorado revealed more than $110 million invested by the pension "was no longer reflected in the value of the property," according to court records.
The Texas Legislature this month agreed on a fix to the fund that will deeply cut benefits and require city taxpayers and first responders to pay millions more each year to fill the financial hole left by the risky investments in prior years.