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Don't Connect the Dots
By Don Bauder, September 7, 2006 San Diego Reader,
Excerpt: 'Mother, this town is so corrupt/ May I probe why it rots?"/ "Yes, my darling daughter/ But don't connect the dots.
  "The City of San Diego has paid more than $30 million to consultants like Navigant, Vinson and Elkins, and Kroll, and they all followed instructions: smudge the facts, skirt the trail, hide the bodies so we can keep the establishment's lackeys in their government posts. In short:
  Don't connect the dots.
  But the consultants couldn't erase all the clues. I have had the opportunity to view some things these firms ignored -- probably deliberately.
  It's clear San Diego's corruption is not confined to city hall. It's deeply embedded in the business community, mainstream media, and the courts.
Full Story: http://www.sdreader.com/php/cityshow.php?id=1454
Hear The Whistle Blow
San Diego Reader Letter, 9/16/06
 How wonderful that Don Bauder defended Donna Frye against the bad guys in city hall ("Don't Connect the Dots," "City Lights," September 7). She has always stood her ground, despite having almost no support from her neighbors on the tenth floor.
  The very nasty editorial in the August 17 Union-Tribune (see page 6 of the September 7 Reader) was an enormous lie. And as to the left-handed compliment ("To their partial credit, council members Frye and George Stevens voted against the motion"), it was a snide slur at two people who did not have their heads in the sand.
  Donna had been blowing the whistle loud and clear, but a lot of folks who should have heard it were holding their hands over their ears.
  Donna shines a light in a cave full of crooks. She is the lone vote against many shady propositions. She is dogged in her pursuit of truth and devoted to the needs of her constituents.Go, Donna!
Catherine A. Strohlein Housing Elementium

Officials Could Lose Thousands If Benefits Judged Illegal
By EVAN McLAUGHLIN, Voice Staff Writer. Aug. 26, 2005
 Former Mayor Dick Murphy and two ex-councilmen who were convicted of corruption have registered as retirees with the city's embattled pension system and will draw upgraded benefits from the retirement plan at the heart of San Diego's legal and political troubles.
 Murphy will receive a gross payment of approximately $49,560 per year from the San Diego City Employees' Retirement System, which currently has a funding shortfall of at least $1.37 billion as a result of agreements that effectively enhanced benefits for workers but didn't provide the cash to fund them.
 Former Councilmen Michael Zucchet and Ralph Inzunza, who resigned last month after their federal corruption convictions, will receive in gross about $13,441 and $20,895 per year, respectively, from the pension plan. The 35-year-olds will receive about 60 percent of what they would have received annually had they waited until they were 55 to file for retirement.
 If City Attorney Mike Aguirre's legal efforts to declare more than a decades' worth of pension benefits illegal and void succeeds, the three former lawmakers won't get a dime from the pension system.
 Perhaps more at risk are their former colleagues, who still spend Mondays and Tuesdays in the council chambers. They -- along with City Manager Lamont Ewell and mayoral candidate Jerry Sanders, a former police chief -- each stand to lose several thousand dollars every year from future pension checks if a court affirms Aguirre's claim that certain benefits are illegal.
 The city attorney has already asked a court to repeal benefits born out of agreements in 1996 and 2002, but Aguirre said he also plans to challenge pension benefits enjoyed by elected officials that were crafted as long as 30 years ago.
 In June, Aguirre instructed the city auditor and comptroller to stop paying benefits that he believes were created illegally but to no avail. The city attorney has since won authorization from the City Council, albeit reluctantly, to challenge a sampling of those benefit enhancements in court.
 Aguirre said he will, in the coming months, challenge the legality of upgraded benefits and eased requirements that pertain specifically to elected officials -- specifically the mayor, council members and the city attorney. A separate challenge could also affect Ewell, who is slated to resign at the end of this calendar year.
 When he decides to file suit to repeal benefits for elected officials, Councilman Scott Peters said, Aguirre will have to secure the council's approval before proceeding.
 "I think the city charter is clear that the city attorney needs permission of the City Council to file a lawsuit," said Peters, an attorney.
 Aguirre disagrees, pointing to a judge's ruling on Tuesday that he claims allows him to bring litigation on his own, such as his lawsuit seeking to turn SDCERS over to a court-appointed receiver.
 The possibility remains, however, that council members would have sway over a lawsuit that could squeeze their own personal pensions. Aguirre, while qualifying for a pension at the end of his four-year term under the current rules, has decided not to join the plan, SDCERS spokeswoman Rebecca Wilson said.
 Peters said he felt that rolling back benefits from elected officials' pensions would make it more difficult to attract qualified people to run for office.
 "These conditions make it difficult to find good people to run for office, since they have to take a timeout from their career and potentially take a pay cut," he said.
 And take a pay cut Peters and his colleagues would if Aguirre were to succeed in all of his challenges. More than $20,000 could theoretically be shaved off of Deputy Mayor Toni Atkins' annual gross pension pay, according to an analysis of figures provided by SDCERS. The same applies to Councilman Jim Madaffer.
 Several officials wouldn't qualify for a pension at all.
 The two candidates running in the Nov. 8 mayoral election said it's the only way to resolve the legal and financial troubles stemming from the deficit-ridden retirement system.
  "I'd try not to have it interfere (with workers' pensions), but I'd rather have a solution that works in the best interest of the public," Councilwoman Donna Frye said.
  "It has to be in the best interest of the community to get a ruling on those benefits," Sanders said. "Whether I lose a percentage point or not is not important compared to the city's financial viability."
 To qualify for a pension as an elected official -- and thereby receive a higher benefit than general city employees -- the lawmaker must hold office for four years. Everyday city employees must accrue 10 years of service to qualify for a pension.
 Aguirre has issued opinions stating that the city charter orders that the same 10-year standard for vesting pension benefits must be applied to elected officials too, regardless of a 1971 council decision to ease the requirement.
 Rolling back the four-year rule for legislators would altogether eliminate the pension rights of five council members -- Frye, Peters, Brian Maienschein and Tony Young. Zucchet is also vulnerable under that hypothetical scenario.
 Murphy and Inzunza would still qualify under the 10-year vesting rule because they purchased service credits that put them over the hump. Buying service credits allows municipal workers to add years to their tenure with the city of San Diego, which in effect boosts their future pension checks. Murphy and Inzunza would only qualify for a 10-year stint with the city because of service credits they have purchased.
 However, Aguirre also plans to challenge the legality of the service credits because employees and officials were allowed to purchase them at a rate heavily subsidized by the city.
 Separately, he interprets the city charter to state that these credits cannot be put toward the 10-year vesting standard. Such an interpretation would override a 2002 council vote that changed the municipal code to allow that investment strategy.
 Atkins and Madaffer were council aides for almost seven years each, and both reached their 10-year plateaus with the city without the help of service credits during their first term on council. Therefore, neither would be affected by these legal challenges.
 Frye and Maienschein have both purchased service credits, but not enough to surpass the 10 years needed to gain pension rights if Aguirre wins his challenge. Young and Peters have not purchased service credits, according to SDCERS records.
 In a lawsuit already filed in Superior Court, Aguirre seeks the rollback of between $700 million and $800 million worth of pension benefits by targeting upgrades that were created in 1996 and 2002. He claims it is the only solution for dealing with a deficit that threatens to dominate the city's annual budget.

Service credits
Murphy, Inzunza and Zucchet, as well as every current council member -- excluding Peters and Young -- stand to lose thousands every year in lost pension benefits if the service credit purchases are rolled back.
For example, Madaffer is set to receive about $47,248 annually in gross pension benefits, assuming he finishes his current council term. That figure would be reduced to about $34,056 per year -- a difference of more than $13,000 -- if Aguirre successfully voids the five years of service Madaffer bought while the rest of the benefits stood.
 Ewell is in the process of completing his service credit purchase, retirement officials said.
 At least three officials -- Ewell, Atkins and Frye -- have asked the retirement system whether they need to pay more for their credits or if they should be refunded. Aguirre said he doesn't believe the cash-starved pension fund can sustain any service credit purchases.
 Multiplier for general service and public safety members
Workers' pension checks are calculated using a formula that multiplies an employees' highest annual salary, years worked and a contractually-mandated figure known as "the multiplier."
 The 1996 and 2002 benefit upgrades raised the multiplier for general employees -- from 1.45 percent to 2 percent in 1996, and from 2 percent to 2.5 percent in 2002.
 For public safety employees such as Sanders, the 1996 agreement boosted the multiplier from 2.22 percent to 2.5 percent. Sanders had already retired before the 2002 agreement, and his pension was not affected by that increase.
 Aguirre argues that these benefits were created illegally because money was not set aside to pay for the increases and that pension trustees that approved the upgrades had a conflict of interest because they were also beneficiaries. The accused trustees and their attorneys reiterate that their role on the SDCERS board was necessary under the charter and that state law protects them from conflict of interest charges because their pension votes count as decisions on salary.
 Atkins, Madaffer, Young, Zucchet, Inzunza and Sanders all stand to lose thousands of dollars if the multiplier for general and public safety members is rolled back.
 For example, Atkins' annual gross pension checks will amount to about $47,768 if she completes her current term on council. If a court decides to discontinue the 2002 benefits increase, Atkins' annual pension would drop to $45,175, a decrease of more than $2,500. If both the 1996 and 2002 benefit increases were rolled back, Atkins would theoretically draw $42,322 annually, a decrease of about $5,000.
 Aguirre said that the benefits outlined in the elected officials' retirement plan will be challenged in the months to come, and the implications for council members are significant.
 The city manager and police chief are not elected positions, and challenges to the elected officer benefits would not affect Ewell or Sanders.
 Also included in his planned lawsuit or lawsuits:
Elected officer multiplier increase
In2000, the City Council approved increasing the multiplier used in the pension formulas for legislators. The benefit was applied to the city attorney as well a year later. Aguirre claims that the increase was a charter violation because the council did not identify a founding source to offset the added cost.
 The multiplier, before 2000, was a complex formula that amounted to a figure between 3.12 percent and 3.17 percent for council members and the mayor. The result of the decision to increase benefits was a 3.5 percent multiplier, augmenting current council members' pension incomes by several thousand dollars a year. Murphy, Zucchet and Inzunza could all potentially be affected as well.
 For example, if all Maienschein's benefits remain at current levels, he will earn about $23,536 annually in gross benefits if he finishes his current council term. Repealing the increase in the pension multiplier would drop his annual gross pension to $21,244, a decrease of more than $2,000.
 The council approved applying the 3.5 percent multiplier to former council members in 2002, adding a new list of costs that the city attorney also wants to challenge. Details <http://www.voiceofsandiego.org/site/lookup.asp?c=euLTJbMUKvH&amp;b=693985> of how some former lawmakers benefited from this retroactive increase are available here

Pension Board to Seek Sacramento Help, Source Says
By SCOTT LEWIS, Voice Contributing Writer, July 29, 2005
  The city of San Diego's pension board is planning to send a request to the state's Legislative Audit Committee in Sacramento as part of an endeavor that may produce a waiver of its attorney-client privilege, according to a source close to the effort.
 If the move does end up in an official waiver of the pension board's attorney-client privilege, it could mean the end to a months-long standoff between the board and several federal and local investigators.
  "Since the legislature is not an entity that would be part of the pension board's attorney-client privilege, it appears that the documents in question would no longer be covered by the board's privilege if it goes this route," said the source, who agreed to confirm the report on the condition of anonymity. 
  The source said, however, that there was still some question as to when the actual waiver would take place.
 The city of San Diego has not issued an audit of how much it spent, collected and owed in fiscal years 2003 and 2004.
  Outside auditors and federal investigators have requested the waiver of the attorney-client privilege in order to gain documents that could be relevant to the pension system's financial state and alleged wrongdoing committed by officials. Outside auditors are refusing to sign off on the city's financial statements without first seeing the documents.
 Without the audit, the city remains with a suspended credit rating and without access to cash to complete projects such as road repair, sewer upgrades and fire station construction.
  To date, the pension board has refused to waive its attorney-client privilege over concerns that doing so could open up board trustees, and the system as a whole, to litigation.
  The Legislative Audit Committee, a bi-cameral commission with authority to pass audit requests on to the Bureau of State Audits, has an Aug. 3 deadline for audit requests. The legislature, on summer break now, resumes its session Aug. 15.
 William Herms, the lead consultant to the Legislative Audit Committee, refused to comment on or confirm any requests to the committee. He said such requests are confidential until officially filed by the committee. Herms said that the committee's members would not officially consider a request until its next hearing, Aug. 24.
  The Legislative Audit Committee is comprised of both state senators and members of the Assembly. Assemblywoman Nicole Parra, D-Bakersfield, chairs the committee.
 Any member of the Legislature can request an audit of an organization, agency or government. It is unclear who the pension board would have sponsor its request. Representatives of the retirement system did not respond to requests for comment on the issue.
  City Attorney Mike Aguirre has pushed for disintegration of the pension board following its refusal to release documents protected by the attorney-client privilege.
 Aguirre said Thursday that trying to involve the state legislature seemed unnecessary.
  "I don't know why they had to go to such extremes," he said.
  The U.S. Attorney's Office and outside experts hired to look into city finances and politics have also delivered letters requesting the documents. Only one pension trustee remains on the board from the period under investigation.

Aguirre seeks resignation of three officials
By KEVIN CHRISTENSEN, The Daily Transcript, July 27, 2005
 City Attorney Michael Aguirre called for the resignation of three city officials who oversee a portion of the city's pension plan for allegedly mismanaging more than $212 million in money transfers.
 Aguirre told reporters Wednesday that funds have been diverted from employees' personal 401(k)-style plans to pay for the purchase of service credits as part of a "Ponzi scheme."
 City Manager Lamont Ewell called Aguirre's claims and assertions reckless and ill researched.
 "He takes bits of information and runs around like a madman," Ewell said.
 Aguirre called for the resignations of three representatives of the Defined Contribution Plan Trustees Board, the group that oversees the financial status of the city's Supplemental Pension Savings Plan.
 The plan is voluntary and allows city employees to save money in addition to their city pension.
 Board members whom Aguirre targeted include Ron Saathoff, president of Local Firefighter's 145, who is facing felony charges from the San Diego County District Attorney; Bill Lopez, director of risk management; and Lawrence Grissom, administrator of the San Diego City Employees' Retirement System.
 Both Grissom and Lopez have recently been named as defendants in lawsuits filed by Aguirre.
 He charged that monies were diverted from the savings accounts to artificially inflate pension system financial statements at a time when its assets were falling due to years of underfunding by the San Diego City Council.
 The city has been paying less into the pension plan than what is required to keep it fully funded since 1996.
The pension is currently facing a deficit estimated at more than $1.37 billion.
 Lopez said that the funds from savings accounts were diverted -- with employee approval -- in order to purchase a pension benefit called "pension service credits."
 In 1996, the city made a deal with the pension board to allow city employees to buy pension credits -- which equate to years of service -- for a cost lower than what it will take to pay the benefits after retirement.
 The years of service purchased are compiled with the years an employee actually worked. This total is used in the pension multiplier formula, which calculates how much employees receive in their pension packages.
 Lopez told reporters that shifting the money from the savings accounts to pay for the credits was approved by the City Attorney's office and is a common practice.
 "I'm a little surprised that Mr. Aguirre is not aware of what his own employees are approving," Lopez said.
 Ewell agreed with Lopez's assessment.
 "He needs to turn inward to his own organization. These are the people that have advised the city on these decisions," Ewell said. "They are the ones that provided the legal advice and gave us the legal clearance to move forward with these."
 When asked if representatives of the city Attorney's office approved the transaction structure, Aguirre replied, "That's something that we are going to investigate."
 Transfers from the savings accounts to the pension system totaled more than $212 million between 2002 and 2005.
 Aguirre said he was looking into how much had been diverted between 1996 and 2002.
 Send your comments, thoughts or suggestions to kevin.christensen@sddt.com
 Caught in the middle of the mess and facing a possible recall, Mayor Dick Murphy -- who won the job last fall only after thousands of write-in ballots that would have elected Frye were thrown out -- resigned July 15.
 Days later, two councilmen -- including the guy chosen to take Murphy's place in the mayor's chair -- were suspended after a federal jury convicted them of accepting bribes from the owner of Cheetahs Totally Nude, a strip club north of town with a hot-pink roof visible for blocks. Seems the club's owner felt San Diego's ``no-touch'' nude-dancing law was crimping his lap-dance business and was hoping cozying up to the councilmen could help him overturn it.
 Meanwhile, residents watch the soap opera with a mix of befuddlement and disgust.
 ``It's a circus -- you pick up the paper each day and don't know what to expect,'' said Enrique Salvatierra, a 22-year employee of the city's water department who worries his own pension benefits could be cut as the mess heads for court. ``It bothers me that city workers are being made the scapegoats.''
 Some old-timers say they saw the debacle coming for years. Local historian Parker Jackson points out that San Diego has been beset by political sleaze and a lack of civic engagement since the 1950s, when World War II veterans settled here and started the city's boom. He said ``New York City, with 8 million residents, has more cohesiveness than San Diego. People here are rarely natives, so there's never been a unity like you'd find in cities back east.''
 That lack of a communal core has fueled decades of inefficient government, said Don Bauder, who for 30 years was a financial columnist in San Diego for Copley Newspapers. The city's ``been corrupt for years, run by real estate interests. The problem is people who live here are like tourists -- they like the sun, they like to play golf, but they don't take part in local government. They live in a fairyland, believing the hype that this is really `America's Finest City.'
 ``When the city agreed to both under-fund its pension and raise benefits at the same time, anyone with half a brain would have realized you'd end up in a black hole,'' he said.
 Filing for bankruptcy is one way out, although most mayoral candidates in Tuesday's election called instead for downsizing government to try to chip away at the deficit. For now, potholes are getting filled and police are responding to calls -- and the lap dancers at Cheetahs are doing plenty of touching, even though the no-touch ordinance was never overturned.
 Still, many voters say the city desperately needs a strong leader, and that the current upheaval may provide an historic opening.
 ``This has to be the beginning of a new era of fiscal accountability,'' said Dr. Q. Crews, standing outside a polling place in the upscale Point Loma neighborhood. ``Bankruptcy would mean the loss of our good name. Once you declare it, you live with that stigma for years.''
 Others weren't as hopeful.
 ``I don't know where we go from here,'' said historian Jackson, who calls himself a ``political agnostic.'' He blasts both major parties for putting up candidates without the expertise or moral fiber required to run a city of more than 1.2 million people.
 ``I haven't voted in 30 years,'' Jackson said, ``and I won't until they put `None of the above' on the ballot.''
Contact Patrick May at pmay@mercurynews.com or (408) 920-5689.

Pension board's budget held up S.D. council wants access to documents
By Jonathan Heller & Jennifer Vigil, UNION-TRIBUNE, 6/15/05
  The San Diego City Council adopted a get-tough stance with the city's pension board yesterday, withholding approval of the board's budget until next week, giving the board time to consider releasing documents deemed central to ongoing investigations.
  The council wants the board to allow auditors and investigators access to sensitive documents related to the pension deficit, which is at least $1.4 billion. The deficit is a key component of federal and local probes into the city's financial practices that have so far crippled its ability to borrow money on the municipal bond market.
  The city's independent auditor has said that the documents are crucial to completing overdue audits for 2003 and 2004 and finishing the investigations, which will allow the city to return to the bond market. If the board refuses to release the documents, city officials indicated, the next step could be to place the system in receivership – in which a judge would take control of the system's management.
  The board of directors for the San Diego City Retirement System might consider the matter in a closed session Friday. It has not yet responded to numerous requests from the city to produce the documents, which its members say are protected under attorney-client privilege. Steve Meyer, the board's president, said the board was well aware of the city's position. "We get their message loud and clear," Meyer said. "We're still trying to work through it." The council was scheduled to vote on the pension system's proposed $28 million budget for fiscal 2006 yesterday.  The budget pays for the system's administrative costs, but not the actual pensions paid to recipients.
  The council, at the urging of City Attorney Michael Aguirre, opted to delay that vote until Monday, when it resumes budget deliberations for next fiscal year. "I want to send a message to (the board) that your time has run out," Councilman Jim Madaffer said. "Either waive (attorney-client) privilege or some serious things will start happening Monday morning."
  Larry Grissom, the pension fund's top administrator, said the system can go on without the city's money. If the council withholds approval of the pension system's funding beyond the start of the fiscal year, July 1, Grissom said, "it then becomes a legal question." He would not elaborate.
  The council voted 8-1 to withhold approval of the budget. Councilman Michael Zucchet voted no, likening the action to extortion. "This is a very troubling road to go down," he said. Such a move perhaps would be improper under normal circumstances, but extraordinary times call for extraordinary measures, said Arthur Levitt, a member of the city's three-member Audit Committee.
  The committee consists of private consultants hired to coordinate the city's cooperation in the investigations and with the independent auditor, KPMG. Levitt said the city might have to consider, as a last resort, placing the pension system in receivership.
  In any event, delaying the release of the sought-after documents could harm the system's pension recipients by prolonging the city's financial turmoil, Levitt said. "This could interrupt the flow of funds that go into the system, and they would be the ultimate losers," he said. Meyer, the board president, said the board has a responsibility to protect the system's participants, and has asked staff members to study waiving attorney-client privilege.
  The newest member of the board, Richard Kipperman, was appointed by the council Monday on a 6-3 vote. He told the council before its vote that he hadn't yet decided how he would vote on waiving privilege.
  Two council members – Donna Frye and Toni Atkins – said they wouldn't approve of any candidate who would not pledge to waive privilege. The mayor and the council appoint the majority of the pension board's 13 members.
  But Mayor Dick Murphy said the previous city attorney, Casey Gwinn, advised him that the council can't appoint someone to the independent board on the condition that the appointee vote a certain way. "I tried to pick people who were truly independent of me," Murphy said. "I didn't pick my friends."
  Levitt, whose committee has talked to pension board members several times, said an "atmosphere of fear" exists on the board, and it's unwarranted. William Sheffler, a board member, said some members fear becoming the target of personal lawsuits. "I think that's partly correct, specifically that various members of the board feel that they would have personal liability for waiving privilege," he said.
  The City Council has voted to waive its own attorney-client privilege. The Securities and Exchange Commission, U.S. Attorney's Office and FBI are investigating possible disclosure violations and corruption concerning the pension deficit and decisions made by city officials that led to it. Six former and current pension board members are facing felony conflict-of-interest charges.
  District Attorney Bonnie Dumanis has accused them of collaborating with the council in 1996 and 2002 to allow the city to underfund the pension system in exchange for boosting employee retirement benefits.  The city opted to begin underfunding the pension system in 1996. Six years later the council voted to extend the plan, though increases in employee benefits and stock market losses were starting to threaten the fitness of the fund.
  Aguirre has pursued an internal investigation since he took office in December.

"96 memo details pension strategy
By Jennifer Vigil, Union Tribune, June 9, 2005
 The top administrator of San Diego's pension fund worked with the city manager nine years ago to develop the now infamous plan to underfund the employee retirement system, according to a 1996 draft memo released by the city attorney.
 City Attorney Michael Aguirre says the memo, which will be part of his sixth report on the pension crisis, shows that the administrator, Lawrence Grissom, played an improper role in helping shape the plan when he should have been "acting as an independent representative of the board."
  Grissom denied the allegation, as did other former city officials.
  The seven-page memo from Grissom to a former pension board president presents an early strategy to spare San Diego officials from having to spend millions of dollars from the operating budget on the city's share of pension contributions.
  The idea of granting increased benefits to employees while allowing the fund to shift to a more favorable accounting method is also detailed in the memo. Dated March 1, 1996, the document refers to a meeting between Grissom, former City Manager Jack McGrory and pension board President Keith Enerson, then one of the top brass at the Police Department.
   "What this demonstrates is a coherent, well-orchestrated plan, and that the administrator was acting more as a subordinate of McGrory," Aguirre said.
  He called it "a two-fisted fraud." "They diverted money illegally to create the deficit.
 Second, they increased benefits with no funding," he said.
  "They're defrauding the taxpayers and defrauding the employees."  Grissom said yesterday he never acted under McGrory's orders and that he was documenting proposals at the time for review by outside experts. "Actions like this are not something the board should do by itself," he said.
"We need to get third-party people to come in and advise." McGrory said Tuesday the memo represents one step in a lengthy series of negotiations between the city and the pension board, contact which he described as frequent. "It's bizarre not to expect that there weren't all kinds of meetings and discussions ongoing between city staff and representatives of the retirement system," McGrory said. "Those kinds of discussions happened all the time, every year."
  He added that city, pension and outside fiduciary advisers and attorneys reviewed the plans. "It was well vetted through every possible legal channel available to the city at the time," McGrory said.
  Three months after the memo, the pension board approved a revised version of the plan. John Kaheny, a former San Diego assistant city attorney, questioned Aguirre's evaluation of the memo. "I don't understand where he thinks there is fraud," said Kaheny, who supported Aguirre's opponent, Leslie Devaney, in November's runoff for city attorney.
  Michael Conger, an attorney who successfully sued the city to stop underfunding of the pension fund, said Grissom plays a minor role in other documents regarding the use of city pension contributions for operating expenses.
  The City Council extended the program in 2002. "In the scope of responsibility, he's a smaller player," Conger said. The memo also anticipates early legal and "perception" problems that could result from pension underfunding. "The negative perception should at least be partially offset by increasing benefits," Grissom wrote. He noted that he had no idea how outside legal counsel would respond to the plan but suggested that they "should consider this carefully and thoughtfully strategize (an) approach."
  Aguirre said that statement shows Grissom and the others were "thinking more like politicians than administrators."
  Grissom said he was trying to show that the city and board needed to have specifics to present to attorneys and fiduciary advisers for a thorough review of the plans.
  He said he did not try to deceive anyone. "Absolutely not," he said. "It's not my job, not my purpose, not my style of what I do." The memo, which is briefly cited in a 2004 report the city commissioned on the pension problem, recounts a Feb. 26, 1996, exchange between Grissom, McGrory and Enerson.
  It mentions Rick Roeder, the pension's actuary, and Ed Ryan, the city's former auditor, who resigned in January 2004, days before the city revealed errors and omissions in bond statements. Filled with pension jargon and often technical in language, the memo estimates the city would save $45 million over five years if it stabilized its contribution rates to the system.
  The plan also created a funding reserve to pay for employee perks such as a 13th pension check paid annually to retirees and insurance premium costs.
  The plan also would allow the city to take advantage of "tremendous earnings we are currently experiencing," an apparent reference to the surging stock market. In summary, Grissom wrote, "This is a good plan." Subsequent underfunding of the pension system, along with increases to employee benefits, have helped create an unfunded liability of at least $1.4 billion.
  The system is also saddled with at least $500 million in unfunded retiree health care costs. Losses on Wall Street also contributed to the deficit, but in 2002, two years after the stock market slump began, the City Council granted additional employee benefits and overrode a fail-safe in McGrory's plan. That clause would have required the city to make a balloon payment now estimated at $500 million if the pension fell below a funding threshold of 82.3 percent, a measure of assets compared to liabilities.
  Three years ago, the system was 89 percent funded. Now the figure has fallen to at least 65 percent, despite a $130 million payment from the city in the current fiscal year and a planned payment of $163 million next year.
  The pension crisis has prompted multiple investigations, including Aguirre's. He has so far released five reports accusing the City Council and others of mishandling city finances.
  District Attorney Bonnie Dumanis filed felony conflict-of-interest charges against five former and one current pension board members last month in connection with votes they made in 2002.
  The U.S. Attorney's Office and the FBI have launched probes about possible corruption linked to the pension, and the Securities and Exchange Commission is examining whether the city misled investors in bond offerings worth $2.3 billion, dating to 1996.
  The city also has not been able to complete audits of its last two years of financial statements, a development which has crippled its ability to enter the bond market and borrow at the favorable rates.

City manager accused of cover-up
San Diego Daily Transcript, October 3, 2005
San Diego City Attorney Michael Aguirre released documents Monday produced by two U.S. Grand Jury subpoenas, including a potentially damaging memo by City Manager Lamont Ewell regarding the city's pension crisis.
  Aguirre said the 2002 memo demonstrates an attempt by Ewell to cover up allegedly illegal acts. Aguirre stopped short of officially asking the city manager to resign.
 "I'm hoping that the council and the city manager will do what is responsible," Aguirre said. "At some point, the council members are going to be embarrassed into doing justice. Perhaps with this latest revelation, the tipping point will have been reached and we can move in another direction.
  "We will never make progress so long as we have the current person as our city manager. He is unable to make progress. We are now seeing a focusing in on his actions by the U.S. Attorney's office, by the grand jury, and I hope that we will see some remedial action taken."
 Ewell was out of town on a family emergency Monday and unable to respond to Aguirre's latest accusations.
 Ewell's Dec. 6, 2002, memo to then-Mayor Dick Murphy and City Council was in response to pension trustee Diann Shipione's opposition to increases proposed by the San Diego City Employees' Retirement System board. Aguirre said the memo contained at least 12 false statements.
 Aguirre suggested more indictments might be forthcoming as a result of the ongoing investigations by the U.S. Attorney's office and the Securities and Exchange Commission.
 "These people that have created the problem are proving every single day that they are ill equipped to be a part of the solution," Aguirre said. "And then when someone described the problem in detail to them, they came back and issued through the city manager a blatantly false document thinking they would never be held accountable."
 Ewell is being represented by the San Francisco law firm of Shartsis, Friese and Ginsburg. Grand Jury Subpoenas City Manager Documents
KFMB STATIONS: Local 8 | 100.7 JACK FM | 760 KFMB
OCTOBER 03, 2005 | SAN DIEGO, CA Last Updated: 5:37PM
 City Attorney Mike Aguirre says he cannot rule out criminal charges against City Manager Lamont Ewell. Aguirre released a federal grand jury subpoena Monday that demands documents related to Ewell's response to the pension crisis.
 The city attorney claims Ewell misled the public and the city council about details of the financial crisis back in 2002.
 Ewell is out of town on a family emergency, and did not respond to the accusations.

City's audit committee calls for new actuary
By KEVIN CHRISTENSEN, The Daily Transcript, June 7, 2005
  The audit committee of the city of San Diego suggested Tuesday that the actuary to the city's retirement system be replaced.
  Troy Dahlberg, a member of the audit committee, issued a letter to the board of the San Diego City Employees' Retirement System suggesting that "retention of a new actuary should be a priority for the board.
  "Rick Roeder, a partner with local firm Gabriel Roeder Smith, has served as the actuary for the system for more than a decade and has provided advice on the system's financial projections while the system's deficit increased to more than $1.37 billion."Our main concern stems from the belief that assumptions and professional judgment used by the actuary in the past raise substantial questions as to the soundness of future actuarial valuations," Dahlberg wrote.
  Dahlberg points out that Roeder on a number of occasions, most recently in the approval of the contentious Manager's Proposal I in 1996 and Manager's Proposal II agreements in 2002, expressed concerns over the agreements then accepted their implementation.
  "It appears that that actuary went against his own professional judgments," Dahlberg wrote.Larry Grissom, administrator for the retirement system, said the letter has been received and it will be distributed to the board at the next meeting.
  Neither Dahlberg nor Roeder were available for comment by press time.City Attorney Michael Aguirre said that the suggestion puts into serious question the validity of the salary ordinance currently before the San Diego City Council.
  The salary ordinance includes the four labor contracts recently approved by labor unions for three- and one-year contracts."It's a huge surprise because it knocks out the salary ordinance," Aguirre said. "There is no reliance on the meet and confer process that took place this year."
  Aguirre said the retirement board should hire a new independent auditor to complete a fresh calculation of the financial status of the pension system.
  "I hope to work in a cooperative way to move this through the crisis," Aguirre said.

Report finds legal violations in pension deal negotiations
By KEVIN CHRISTENSEN, The Daily Transcript, May 25, 2005
  A legal opinion released to the public Wednesday states that two agreements between the City Council and the city's retirement system board of administrators "arguably" violated state conflict of interest codes and two sets of city laws.The legal document was originally requested by the city to assist in an investigation into possible illegal acts and was kept under wraps under the attorney client privilege, which was waived in a late night Tuesday council meeting.
  Luce Forward Hamilton & Scripps provided the report to the city in February for $127,000.
  Specifically, Luce Forward examines legal issues surrounding two agreements between the council and retirement board -- called City Manager's I in 1996 and City Manager's II in 2002 -- where the city paid less than the system's actuary advised contribution to the pension and at the same time boosted retirement benefits.
  The report provides that "there is significant risk" that the city and
members of the SDCERS violated state conflict of laws and "arguably"
violated the city charter and municipal code when the bodies approved
underfunding the pension.Luce also concluded that paying benefits using the "waterfall" -- money earned from investments, such as interest received on bonds or cash dividends from stocks -- is not an actuarially approved method and "creates risk" that a court could find violates city codes.The report was released following a request by District Attorney Bonnie
Dumanis, who filed felony charges against one current and five former
members of the SDCERS.
  City Attorney Michael Aguirre said the report illustrates that the benefits that were created as part of the agreements are illegal."This is devastating for the City Council," Aguirre said. "The point is, the people of San Diego have to understand that the creation of the benefits in 1996 and 2002 were illegal and should be rescinded.
  "The benefits from the two agreements make up about 41 percent of the a pension deficit facing the city that is estimated at more than $1.37 billion, according to a city report released in September 2004.More concerning, Aguirre said, is the city was given the report in February and moved forward negotiating labor contracts with the city's five unions to pay for the benefits that are likely to be illegal.
  If the six board members charged by Dumanis are found to be guilty, the City Manager's II benefits could be repealed,  Aguirre said. However, if the new labor contracts are signed, that would, in effect, supply a funding source for the benefits and keep them on the books, Aguirre
said."To prevent that, I'm not going to sign those," he said.
  Bill Kay, lead labor negotiator for the city, said that if the defendants
are found guilty in Dumanis' case, the benefits could be rescinded, but the contracts would go directly back to negotiation. Aguirre said, however, in recent days that he and the City Council have had "communications" illustrating a willingness to challenge the increased
retirement benefits granted in two City Manager's agreements in court.
  "I already have the case written," Aguirre said.
  The Luce Forward report examines three legal facets of the agreements and depends largely on the work on Vinson and Elkins and depositions taken in a case filed against the retirement system.
  The report states that the city must fully fund the pension system to the
rate advised."[T]he retirement system established under the Charter [SDCERS] must be based on actuarial experience studies and valuations," the Luce Forward report said.
  The fact that the city voted not to fund to the full actuarial valued amount "arguably" violates the code.
  "The City did not contribute an amount that was specifically 'determined' by the SDCERS actuary based on the actuary's calculated rate," the Luce report said. "As a result, for fiscal years 1997 through 2004, the City contributed less to SDCERS than the City would have contributed if it applied the actuaries calculations.
  "The report also looks into possible violations of the State Government Code 1090, which states that elected or appointed public officials shall not be financially interested in any contract they make in their official capacity. If a conflict arises, they must recuse themselves or the conflict must be stated on the record.Luce Forward found that a conflict of interest violation may have occurred because the members of the retirement board did not disclose their financial benefits resulting from the agreement.
 The waterfall method of paying for certain retirement benefits potentially "violates the City Charter and Municipal Code because it creates a pension system that is not truly actuarially based, and further risk to the system is rendered," the report said.

Pension charges are just the beginning
By Lisa Briggs, Union Tribune, May 22, 2005
  The six current and former trustees of San Diego's underfunded retirement system and their attorneys appeared before Superior Court on Wednesday, one day after being charged with felony violations of the state's conflict-of-interest law.
 Yet another chapter in San Diego's fiscal crisis was written last week when District Attorney Bonnie Dumanis issued criminal charges for six current and former San Diego City Employees' Retirement System board members. The legal basis for these charges is California Government Code 1090 which prohibits certain actions by public employees/officials where there is a conflict of interest.
  So what is 1090 and why might it hold the key to resolving a portion of San Diego's pension crisis?
 Let's be clear: The individuals charged are innocent until proven guilty. While media coverage, city attorney reports and other documents now in the public view set the parameters of the case, proving a 1090 violation is not a simple matter. Also, while establishing that a 1090 violation exists would go a long way toward helping the city's fiscal mess, such a finding would not automatically cure all of San Diego's financial woes.
 These charges are the beginning of this story, not the end. 
 Government Code section 1090 states: "Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members."
  In simple terms: if you are a public official/employee, you can't vote on a contract or deal that will grant you a financial benefit.
 There are exceptions, but on the whole, California courts have interpreted 1090 very broadly to include all but the most remote of financial interests. Where such a conflict is proven, Government Code 1092 states that any contract made in violation of Gov. Code 1090 "may be voided."
  The objective of these two statutes is not only to "void contracts which are actually obtained through fraud or dishonest conduct" but also to "remove or limit the possibility of any personal influence, either directly or indirectly, which might bear on an official's decision." (Finnegan v. Schrader (2001) 91 Cal.App.4th 572, 579-580.) Section 1090 is aimed at eliminating temptation. Section 1092 is aimed at curing the results of any violation.
  It is the symbiotic relationship of these two statutes that may offer some relief to San Diego's beleaguered pension system. If a 1090 violation can be proven, then the underlying contract – and the pension benefits it conferred – may be deemed "void." Thus, the financial obligations that these benefits currently impose on the retirement system would be eliminated.
  Before we can have that discussion, the district attorney must establish that there was a 1090 violation committed by any one of the six city employees who served on the San Diego City Employees' Retirement System boaard in 2002. The crux of the case is establishing a link between two events: 1) The SDCERS board agreeing to allow the city to underfund the pension and 2) the City Council granting enhanced retirement benefits.
  Certain facts are now well established. In the spring of 2002, the city negotiated labor agreements with three of the four unions representing city employees that contained enhanced retirement benefits. The benefits included an approximate 11 percent increase in the formula for calculating retirement benefits for general members. This increase was retroactive and resulted in general members receiving an approximately $150 million benefit.
 Two other retirement benefit enhancements also occurred. The cap that limited a retirement allowance to 90 percent of a member's highest one-year salary was waived for employees who began working for the city before age 24. Also, presidents of the city's recognized employee unions were permitted to have their salary earned from their respective unions included in their high one-year compensation. In addition, the pension board members requested that the city agree to indemnify them against liability, and the city agreed to do so.
  While the city was negotiating these benefits with the unions, city management also asked the SDCERS board to accept a "contribution deferral agreement" with the city. This agreement would allow the city to pay less than was actuarially required into the pension fund as well as avoid a balloon payment which was required under a previous contribution deferral agreement known as Manager's I. This 2002 underfunding request was referred to as "Manager's II" and was approved by the SDCERS board in the summer of 2002. On Nov. 18, 2002 – after the SDCERS board approved Manager's II – the City Council approved both Manager's II and the labor agreements with the pension benefit increases.
  The six individuals charged last week were on the SDCERS board in 2002 and voted in favor of allowing the city to underfund the pension. All are city employees who saw their pension benefits increase when the council approved the underfunding deal and salary ordinance in November 2002. In addition, one of those members was, and is, a union president. Another individual began working for the city before the age of 24.
 There is nothing unusual about employees serving on a pension board. In that role, it is appropriate and expected that those employees will make decisions that impact the pension fund, up to and including deciding what level of funding to demand from the fund sponsor – in this case, the city of San Diego. A 1090 danger arises when those decisions are linked to contracts or agreements that benefit the pension board members.
  In the case at hand, in order to establish a 1090 violation, the evidence must show that the city's adoption of the enhanced retirement benefits was contingent upon the board of SDCERS entering into an underfunding agreement with the city. The 2002 SDCERS board was within its rights to vote on the level of funding that the city was to contribute to the pension fund. (That the board agreed to underfunding is, arguably, a violation of the board members' fiduciary duty – but that's another story.) According to District Attorney Dumanis and others, the 1090 violation occurred because the city made enhanced retirement benefits contingent upon the SDCERS board's agreement to Managers II. This meant that six trustees had a substantial and direct financial interest in the contract entered into by the board.
  This action was extraordinary because retirement board members are authorized only to administer the pension trust fund – to collect contributions from employees and employers, invest the contributions prudently, pay pension benefits to those entitled to receive them, and defray the reasonable expenses of performing those administrative tasks. They have no responsibility to make decisions or contracts affecting the level of retirement benefits. Such decisions should be made solely by elected members of the City Council.
  This interpretation of the facts is not new nor is the district attorney the first to make these assertions. The current city attorney has put forward a series of reports that detail his theory that the 2002 benefits are tainted and should be eliminated. In January of this year, the board of the San Diego County Taxpayers Association filed a civil action alleging this same 1090 violation and requested that the court declare the 2002 benefits void. The association later withdrew that suit without prejudice at the request of the City Attorney's Office in order to allow the city to focus on release of certified 2003 accounting records. The board of the Taxpayers Association believed then and still contends that a 1090 violation occurred in 2002.
  With the charges filed by the DA's office, it will now be up to the court to determine whether these assessments of the facts are accurate and establish that approval of the benefit enhancements in the labor agreements were contingent upon the trustees of SDCERS approving the underfunding in Managers II. If that 1090 case is made, then San Diego can begin to ask the follow-up question of whether the benefits that flowed from a tainted process will stand. Despite the opinions and desires of various interests, the answer to that question also will be in the hands of the court. — Briggs is the president and CEO of the San Diego County Taxpayers Association. SDCTA is a nonprofit, nonpartisan organization that promotes cost-effective and efficient government and opposes unnecessary new taxes.

Trio linked to pension resign
San Diego Daily Transcript, May 16, 2005
 Three city employees whose names consistently popped up in reports to the City Council regarding alleged violations of federal disclosure laws have resigned from their posts at the city, according to a memo from City Manager Lamont Ewell.
 These employees include Patricia Frazier, former financial management director; Mary Vattimo, former treasurer and trustee of the San Diego City Employee Retirement System; and Cathy Lexin, former human resources director and also a former trustee of the retirement system. City Attorney Michael Aguirre said the resignations steps are in the right direction.
 "This is the beginning of the cleaning up of our financial reporting and
internal control system," Aguirre said. "That process is now gaining
momentum and setting the stage for a new day in which we will re-establish our financial standing with the credit agencies and the financial markets."
 The city has not completed it's overdue 2003 financial audit by accounting firm KPMG, and is currently under investigation by the SEC and the U.S. Attorney's Office.

Michael Aguirre and his approach to his office
Letters to the editor, Union Tribune, May 22, 2005:
Regarding "Aguirre's rattling of City Hall extends to members of his office"
Regarding "Aguirre's rattling of City Hall extends to members of his office" (News, May 14): In the past, the City Attorney's Office won awards more for its comfortable work environment than for its bottom line performance. Its willingness to throw the book at petty criminals while standing aside as special interests raided public assets finally caused citizens to act. Into this country club atmosphere came Mike Aguirre, raising standards and demanding an elite special forces style commitment toward the defense of public good. With such a change, it is natural to see people leave. After all, not everyone is ready or willing for such a commitment. Just ask a Navy SEAL or Marine drill instructor, who must be curious about your treatment of a kindred warrior, Michael Aguirre. — JOHN McNAB, SD, Letters to the editor, UT, May 22, 2005

I am one of the new deputy city attorneys hired by Mike Aguirre. I asked him to hire me because I care about San Diego and because I wanted to be part of the solution that I knew he would strive to accomplish. Bottom line, the deputy city attorneys working for Aguirre are hard- working, talented men and women who have set aside any differences they have with him because their desks are piled too high with work for them to concern themselves with office politics and the personnel matters of a few individuals and because they understand and appreciate his dedication to their clients, the people of San Diego. Yes, there was uncertainty and unrest at first. Yes, Aguirre does not have the tact of Sen. Dede Alpert or the humility of Mother Teresa. But he is respected. Aguirre told me, "Follow your moral compass. When in doubt, let your moral integrity guide you to do the right thing." Aguirre works to achieve the best for the people of San Diego. That is the kind of public servant for whom I want to work. —KAREN HEUMANN, Deputy city attorney, SD, Letters to the editor, Union Tribune, May 22, 2005

Regarding "Aguirre: Leader or bully?" by Robert J. Caldwell (Insight, May 15): The City Attorney's Office would not be in such tumult were it not in need of radical change after years of decay. Yes, some people will have to go. The same should be happening at the city and pension board, but is not, because this reform stuff is hard. To Mike Aguirre, don't get too concerned about the hurt feelings of your colleagues in the office. I had colleagues on the pension board who whined to the press while plotting diabolically to protect their own interests. Reform is a tough job. Neville Chamberlain and Winston Churchill were both British prime ministers. One was nice and got along with his colleagues. The other fought World War II and saved England. Which type do you want here? DIANN SHIPIONE La Jolla  SD,

Letters to the editor, Union Tribune, May 22, 2005As a friend and fan of City Attorney Michael Aguirre, I take exception to the negative tone of Caldwell's column. In particular, I am disturbed by the headline, which implies that he gave equal time to an examination of Aguirre's considerable leadership abilities. I have spent most of my 20-year career as a public sector attorney and have never worked at a job that I have enjoyed more or have been prouder of doing. These feelings I attribute to the inspirational leadership of Aguirre. Although both before and after he hired me as a deputy city attorney, we have at times disagreed about the way in which he has handled some matters and responded to some colleagues, I have never doubted his sincerity, honesty or affection for the people who work for him and the city for which he works. Admittedly, at times the staff experiences tension and anxiety. However, these reactions are not surprising given the changes that Aguirre is bringing to the office. In the recent past the city attorney has not accepted the proactive role in government that the city charter contemplates. The quality and scope of the work that the staff is now producing reflect Aguirre's desire to fully realize the extent to which the independently elected city attorney can be a constructive force in San Diego. His demands on staff for excellence and hard work – standards to which he holds himself – can understandably cause stress. However, this stress is tempered by his quickness to praise and to laugh. He has an open door policy for all employees and strives to achieve equality in the workplace. Based on my daily experiences, I believe that my colleagues are beginning to accept Aguirre's vigorous, hands-on and somewhat flamboyant management style, which is quite different from that of his predecessor. With certainty, I can tell you that Aguirre recognizes that his employees are highly competent professionals, dedicated to ensuring that the public receives the best possible service. I respect Aguirre's intelligence and the energy with which he approaches his job, but most of all I respect his desire to do what is best for his, and my, hometown. Because of his love for San Diego and its people, I am able to forgive the sometimes rough edges of his personality. I hope that others can join me in doing so.
MARILYN RILEY, SD, Letters to the editor, Union Tribune, May 22, 2005

Aguirre: Stop paying legal fees
San Diego Daily Transcript, May 19, 2005
 City Attorney Michael Aguirre on Thursday asked the board of administrators of the City Employees Retirement System to stop payment on legal fees for board members charged with criminal violations.
  District Attorney Bonnie Dumanis filed charges against five former and one current trustees of the retirement system. The defendants -- Ronald Saathoff, John Torres, Sharon Wilkinson, Cathy Lexin, Mary Vattimo and Teresa Webster -- have been charged with three felony counts of violating the state's conflict of interest laws. "A public entity such as  SDCERS is not required to pay for criminal defense counsel for board members charged with criminal violations of law," Aguirre wrote in a May 19 letter. Aguirre urged the retirement board to docket the item at its next meeting.

Aguirre Alleges Murphy, Several Council Members Committed Securities Fraud, Allegations stem from inaccurate bond disclosures approved by the council
By ANDREW DONOHUE, Voice Political Writer, 2/10/5
City Attorney Mike Aguirre traced the roots of the City of San Diego's Wall Street deceit all the way up to its highest branches Tuesday, accusing Mayor Dick Murphy and several former and current City Council members of civil securities fraud for allegedly failing to articulate the true depth of the city's financial problems in disclosures to prospective investors.
By authorizing bond offerings that contained information they allegedly knew to be false concerning the true status of the city's troubled pension plan and its effect on city finances, Murphy and the council members failed to take "steps to prevent the dissemination of materially false or misleading information" to the bond market, according to the 118-page report released late in the evening.
Aguirre, a securities fraud litigator by trade, didn't speak to reporters after the release of the report, titled "Interim Report No. 2 Regarding Possible Abuse, Illegal Acts or Fraud by City of San Diego Officials."
"Mr. Aguirre's allegations are untrue, irresponsible and defamatory… The City Council and I properly relied on the advice of the securities law experts," said Mayor Dick Murphy at a news conference. Murphy spoke from a prepared draft and didn't take questions from reporters.
The report uses documents collected largely during the last two weeks since the mayor and City Council waived their attorney-client privilege, upon the City Attorney Office's advice, in order to aid ongoing investigations by the Securities and Exchange Commission into errors and omissions in city bond disclosures and a Justice Department investigation into possible public corruption.
The documents show that Murphy and the council were made aware by city staff of the growing fiscal worries surrounding the pension plan as early as March 2002.
The report focuses on the now-controversial November 2002 action by City Council in which employee unions were offered a handsome set of benefits as long as the San Diego City Employees' Retirement System board, populated largely by union representatives and city staff, allowed the city to forgo a required $159 million payment into the troubled system. The move essentially exasperated the pension's growing deficit, adding more debt to the system while paying less than was advised. The pension plan's deficit was most recently measured at $1.37 billion.
The report then lists seven bond disclosures approved by the council between April 2002 and June 2003 in which they "failed to take reasonable steps to ensure proper disclosure." The disclosures, according to the report and an earlier investigation commissioned by the city, contained out-dated and sunnier pension details.
Because the mayor and council members were aware of the problems, the report alleges, they were ultimately responsible for insuring the authenticity of all bond documents. The disclosures are prepared by the City Auditor's Office.
Specifically, Aguirre finds Murphy and City Councilman Scott Peters especially at fault because of their economics and law degrees. He lists Council members Brian Maienschein, Jim Madaffer, Ralph Inzunza and Toni Atkins as involved in the fraud, as well as former Councilmen Byron Wear and George Stevens.
Absolved of guilt in the report are Councilman Tony Young because he took office in January, Councilman Michael Zucchet because he took office late in 2002 and Councilwoman Donna Frye because she voted against the benefit increase and the bond release to complete Petco Park.
As would be expected, the rebukes to Aguirre's accusations were strong. However, few, if any, council members were made available for questions from the press. Many pointed out that Aguirre isn't the SEC and shouldn't be interfering with its ongoing investigation.
"The bond offering documents were each hundreds of pages long and filled with thousands of pieces of information," Peters said in a press release. "We properly sought out and relied on experts."
Madaffer said in a press release that it was imperative for the city attorney and the council to work together to cooperate with investigators and KPMG. The firm is handling the city's delayed 2003 and 2004 fiscal year audits, which have been postponed because of the disclosure problems and ongoing investigations.
"Mr. Aguirre would better serve the people of San Diego by leaving investigations to the professionals - the SEC and the U.S. Attorney's Office - and concentrating on the clearly defined responsibilities of the office of the City Attorney," the statement said.
The report states that it was compiled to comply with KPMG requests that the city independently investigate the possibility of illegal acts by city officials through the bond disclosure process.
A report from the city's law firm, Vinson & Elkins, detailing how the pension and disclosure problems came about didn't satisfy KPMG, and the firm has since balked at releasing the overdue 2003 and 2004 audits. Finishing the audits is considered the first step in restoring the city's finances.
Civil securities fraud cannot alone result a prison sentence, however, such accusations can lead to criminal charges.
Please contact Andrew Donohue directly at andrew.donohue@voiceofsandiego.org with your thoughts, ideas, personal stories or tips.
Mike Aguirre issued a report yesterday, a copy of which is available on the City Attorney web site, reaching various conclusions regarding securities law issues.
Some people have suggested that the City Attorney has no business addressing federal legal issues. In the event that point bothers anyone, I think it worth noting that the State of California also has securities laws.
For those of you who might be interested, set out below are some of the provisions of the California Corporations Code that may be pertinent.
Corp. Code §25401. It is unlawful for any person to offer or sell a security in this state or buy or offer to buy a security in this state by means of any written or oral communication which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.
Corp. Code §25402. It is unlawful for an issuer or any person who is an officer, director or controlling person of an issuer or any other person whose relationship to the issuer gives him access, directly or indirectly, to material information about the issuer not generally available to the public, to purchase or sell any security of the issuer in this state at a time when he knows material information about the issuer gained from such relationship which would significantly affect the market price of that security and which is not generally available to the public, and which he knows is not intended to be so available, unless he has reason to believe that the person selling to or buying from him is also in possession of the information.
Corp. Code §25403. (a) Every person who with knowledge directly or indirectly controls and induces any person to violate any provision of this division or any rule or order thereunder shall be deemed to be in violation of that provision, rule, or order to the same extent as the controlled and induced person.
(b) Any person that knowingly provides substantial assistance to another person in violation of any provision of this division or any rule or order thereunder shall be deemed to be in violation of that provision, rule, or order to the same extent as the person to whom the assistance was provided.
(c) It shall be unlawful for any person directly or indirectly to do any act or thing which would be unlawful for that person to do under any provision of this division or any rule or order thereunder through or by any other person.
(d) Nothing in this section shall be construed to limit the power of the state to punish any person for any conduct which constitutes a crime under any other statute.
Corp. Code §25540. (a) Except as provided for in subdivision (b), any person who willfully violates any provision of this division, or who willfully violates any rule or order under this division, shall upon conviction be fined not more than one million dollars ($1,000,000), or imprisoned in the state prison, or in a county jail for not more than one year, or be punished by both that fine and imprisonment; but no person may be imprisoned for the violation of any rule or order if he or she proves that he or she had no knowledge of the rule or order.
(b) Any person who willfully violates Section 25400, 25401, or 25402, or who willfully violates any rule or order under this division adopted pursuant to those provisions, shall upon conviction be fined not more than ten million dollars ($10,000,000), or imprisoned in the state prison for two, three, or five years, or be punished by both that fine and imprisonment.
(c) Any issuer, as defined in Section 2 of the Sarbanes-Oxley Act of 2002 (Public Law 107-204), who willfully violates Section 25400, 25401, or 25402, or who willfully violates any rule or order under this division adopted pursuant to those provisions, shall upon conviction be fined not more than twenty-five million dollars ($25,000,000), or imprisoned in the state prison for two, three, or five years, or be punished by both that fine and imprisonment.

Shining the light elsewhere at City
HallRUBEN NAVARRETTE JR., UNION-TRIBUNE, April 20, 2005
The city's pension scandal is a confusing mess, and I'm not sure I understand it all. And so I guess I should be thankful that San Diego City Manager Lamont Ewell recently took the time to meet with the Union-Tribune Editorial Board and break it down. It turns out the debacle is not as complicated as I thought. It amounts to five simple words: It's all Mike Aguirre's fault.
In a two-hour meeting, the city manager blasted the city attorney's remarks, temperament, professionalism and leadership style no less than 20 times. That's once every 6 minutes. Aguirre-bashing isn't new.
This week, Mayor Dick Murphy even seemed to blame Aguirre for Murphy being named one of the three worst mayors in the country by Time magazine. To hear Murphy explain it, there are San Diegans with contacts in New York (read: Aguirre) who'd like to see him embarrassed. Dear Mr. Mayor, here's a tip. If you're tired of being embarrassed, stop embarrassing yourself. Ewell blamed Aguirre for delays in finishing San Diego's financial audit for 2003, which now may not be released until next year. He blamed Aguirre for creating "false impressions" that city officials are guilty of wrongdoing, allegations which have to be investigated by the auditors. He blamed Aguirre for "undermining" the city's efforts to get beyond the scandal with hyperbole and accusations. And he blamed Aguirre for running to the press with "tantalizing" tidbits of incomplete information.
That didn't leave much time for Ewell to take on the real issues, chiefly: How did the San Diego City Employees Retirement System wind up with a deficit of at least $1.4 billion? Is it the result of sheer incompetence, or a shameful quid pro quo between city officials and municipal employees unions? And, most importantly, how do San Diegans get out of this ditch?
Ewell said that he has tried to work with Aguirre to come up with solutions, but that he has not gotten very far. And whose fault is that? Who do you think? "There doesn't seem to be this holistic, comprehensive approach to problem solving," he said of Aguirre. But there is, according to Ewell, a thirst for the limelight. The way the city manager sees it – along with the mayor and the City Council – the most dangerous place to be in San Diego is between Mike Aguirre and a television camera. I don't buy it. For one thing, Aguirre's harshest critics tend to be politicians and other public officials.
This is not a species that is adverse to press attention, especially when it's favorable.
They know how to get out their side of the story. Like asking to meet with editorial boards. That's what Ewell did. And once he sat down with editors and reporters, one of the first things he did was criticize Aguirre for calling press conferences. Apparently – and, even as a journalist, I didn't know this – there is a big difference between calling press conferences and calling an editorial board meeting.
Besides being hypocritical, Ewell was evasive. He had this tendency – whenever he had trouble with a question – to try to steer the conversation back toward Mike Aguirre. That was sneaky. Ewell knows that Aguirre has a penchant for loose talk and tantrums, and Ewell seemed to be trying to use this fact as a smoke screen to cloud what may have been his own role in mismanaging the city's financial future. After hearing Ewell go on and on about Aguirre, it was easy to forget your question – or to forget to ask a follow-up about why he hadn't answered it.
One question that Ewell seemed to have trouble answering in any half-believable way had to do with the shredding of documents by someone in his office last December. That was in the middle of a slew of federal investigations.
It was also around the same time that Aguirre took office.
Just a coincidence, Ewell would have us believe. What we should be worried about, he insisted, is the way that Mike Aguirre approaches every aspect of his investigation with "his grassy-knoll, everyone-in-the world-is-corrupt theory."
There's that name again. For the record, I don't think everyone in the world is corrupt. I don't even think everyone in San Diego city government is corrupt. But it should be pretty clear by now that Aguirre is a convenient foil for those who would prefer that these matters be sorted out just where they have always been sorted out, and where the deals involving the pension system were cut in the first place: behind closed doors.

'IT'S A BOMBSHELL', Ignored memo warns of pension danger—and Mayor Murphy knew
by Daniel Strumpf, City Beat, 2/2/05 Excerpt: Just 14 days after Mayor Dick Murphy’s 2002 Blue Ribbon Committee on Finances presented its final report on the city’s fiscal health to the City Council, a fax machine in the mayor’s office spit out a memo expressing one committee member’s “growing and daunting concern that we possibly did our city a disservice by not ringing a very loud bell.”
The memo, written by shipbuilding executive Richard Vortmann, was itself a call, one that Murphy’s staff ignored.

Council moves takes steps to complete finance audit
By KEVIN CHRISTENSEN, The Daily Transcript, March 8, 2005
The San Diego City Council approved a series of resolutions Tuesday in hopes of expediting the completion a long-awaited 2003 financial audit.
The council unanimously approved naming a recently hired team of accountants as the city's Audit Committee, responsible for analyzing information to shepherd the completion of the city's 2003 financial audit.
The council also approved signing a "letter of cooperation" between city officials that would direct all future complaints and allegations to the committee.
The council approved the measure 7-1, with Councilwoman Donna Frye opposing and Councilman Tony Young absent.
City Attorney Michael Aguirre also said he would not sign the letter.
The city and accountant KPMG are working to pass its 2003 financial audit. The city is also currently under a civil investigation by the U.S. Securities and Exchange Commission and a criminal query by the U.S. Attorney General into financial disclosure practices.
Lynn Turner, a former accountant for the SEC and new head of the Audit Committee, said in recent meetings KPMG and federal investigators have conveyed concern over the disclosure of documents and contentious relationships in the city. Specifically, the agencies noted the problems are having "a negative impact" on the investigation.
Officials of the SEC and KPMG met with City Manager Lamont Ewell, Aguirre, Mayor Dick Murphy and council members Scott Peters and Toni Atkins last week.
Approving the two resolutions would "send a very clear message to KPMG and two very important law enforcement agencies that we can put a process of cooperation in place that would allow us to have a successful completion to a very full and thorough investigation of the entire matter," Turner said.
The new Audit Committee includes Turner; Arthur Levitt, former chairman of the SEC; and Troy Dahlberg, formerly a partner in charge of the global investigations and dispute advisory practice for Ernst & Young LLP.
Concerning the second resolution, Frye and Aguirre voiced concern over potential impacts on their first amendment rights to speak out at public meetings.
The letter states that "the appropriate means of making any accusation of illegal conduct relating to the city's disclosure obligations, conduct of pension matters, or the city's financial condition is through the Audit Committee."
"The one area I think there is a potential problem," said Aguirre, "is the area of what I call managing the first amendment expressions of all of us. I think that is very restrictive."
Turner said KPMG and the SEC have expressed concerns over frequent allegations between city officials in the press. He asked that future allegations regarding city officials be reported to the Audit Committee.
KPMG and the SEC have expressed concern with inadequacy of document disclosures. Turner said investigators "do not believe that there has been satisfactory cooperation."
Frye said she would not sign or support a letter that potentially muzzles the ability to speak out.
"I do not feel comfortable in placing a semi-gag order on me," Frye said.
Councilman Brian Maienschein said he will sign the letter because, "It is my view that we need to put the best interest of the city in front of any selfish political interests."
The letter also sought a continuance on two lawsuits that have recently shared center stage in City Hall disputes.
The San Diego City Employees Retirement System filed a lawsuit against Aguirre and the city of San Diego arguing that the retirement system is legally a separate entity from the city, entitled to its own counsel and privacy privileges.
Also, the San Diego County Taxpayers Association has filed a lawsuit against the city seeking to repeal retirement benefits given as part of the now-infamous City Manager's II agreement made in 2002.

The pension mess, Excerpts from City Attorney Michael Aguirre's report
JOHN GASTALDO / Union-Tribune, February 20, 2005
During October 2004, KPMG requested that the City launch an independent investigation of potential illegal acts by City officials that led to the City's failure to discharge its financial disclosure obligations.
Thus, the Mayor's Blue Ribbon Committee Report on City of San Diego Finances contained a material false statement that the San Diego City Pension Plan's
funding ratio was 97% when in fact it was 89.9% funded as of 30 June 2001. The report also failed to disclose that by 11 October 2001 the audit staff of the City had determined that the investment portfolio of the City's pension plan had dropped significantly. Finally, the possible triggering of the City's duty to make a sizeable balloon payment to the plan was not mentioned.
This failure...raises serious questions of misconduct by City officials.
On 11 October 2001, Assistant City Auditor Terri Webster understood that the City of San Diego faced a probable pension funding crisis.
By 11 October 2001, Assistant City Auditor Webster had learned of a significant drop in the pension fund earnings for the first two months of fiscal year 2002. She knew that during July and August 2001, pension plan earnings had dropped 71% from the same period (in) fiscal year 2001. Because the losses pushed the City toward having to make balloon payments of several hundred million dollars, this development was ominous.
"EEEK"
An e-mail exchange (between Webster) with City of San Diego Human Resources Director Cathy Lexin entitled "EEEK"..."a 71% drop! BEFORE 9-11-01! It will be tight even to meet the base undistributed earnings distribution for FY '02" The pension plan's funding level fell from 97.3% as of 30 June 2000; to 89.9% as of 30 June 2001.4 In fiscal year 2002 it fell to 77.3% , in fiscal year 2003 to 67.2%, and in fiscal year 2004 to 65.8%.
...the City faced the prospect of having to contribute $159 million to the pension plan in order to restore its funding level to 82.3%. Clearly the growing problem with the pension plan's funding ratio created a financial crisis for the City.
The descending funding ratio would have required the City to pay the $159 million in 2004 and another $371 million in 2005.
This 1996 agreement violated the Charter provision requiring the City to fully fund the pension plan. The plan's fiduciary counsel permitted the 1996 agreement, which provided for the City to underfund its pension, only on the proviso that if the funding ratio fell below 82.3%, the City would pay the amount needed to restore the funding level to 82.3%
The Council, Mayor, City Auditors Ed Ryan and Terri Webster, City Treasurer Mary Vattimo, pension plan administrator Lawrence Grissom, pension plan board member and Blue Ribbon Committee member Richard Vortmann, pension board Chairman Fred Pierce, and other City and pension officials watched with consternation as the pension plan's financial condition deteriorated throughout fiscal year 2002. Together these officials decided not only to keep the people of San Diego in the dark about the situation, but also to withhold the adverse financial facts from investors in the City's bonds.
One month later, on 12 February 2002, Terri Webster wrote Auditor Ed Ryan about the full gravity of the financial disaster enveloping the pension plan. As documented in the most recent actuarial report, there was a swing of $486 million against the City.
On 28 February 2002, in light of the further slide of the funding ratio, auditors Ed Ryan and Terri Webster had a discussion with City officials involved in the employment negotiations with the unions representing City workers. The topic of this discussion was the need to include the effect of the trigger on the meet-and-confer labor negotiations.
"A fiscal time bomb"
On 26 April 2002, auditor Webster admonished Human Resources Coordinator Cathy Lexin not to discuss the funded ratio until they both could get their stories straight.
When City officials learned of the impending trigger and multi-million dollar balloon payments, they developed a plan to negate the trigger and avoid the payments. To induce the pension board to take these actions, the City extended new benefits to both City workers and to three union presidents. Thus City officials intended to increase benefits even though the pension plan was unable to pay for hundreds of millions of dollars in benefits already granted.
Richard Vortmann, President of National Steel and Shipbuilding Company (NASSCO), was assigned to be the committee's lead person on the Unfunded Pension Liability issue.
Mr. Vortmann faced substantial pressure not to reveal the whole truth about the pension funding crisis.
On 12 February 2002, Mr. Vortmann was notified that the pension plan funding ratio had dropped from 97.3% to 89.9%. Fifteen days later, on 27 February 2002, he presented the City Council Rules Committee with the Blue Ribbon Committee's report, which misrepresented the pension plan's funding ratio to be at 97.3%.
Despite the fact that the Committee Report was partially revised on 14 February 2002, it was not changed to show that the plan's funding ratio had dropped to 89%.
When the report was presented to the Rules Committee, Mayor Murphy made comments revealing his personal knowledge of some of the pension funding issues.
In the days following the report's release, Mr. Grissom joked with Ms. Webster about telling a San Diego Union-Tribune reporter that the City was failing to properly fund the pension plan: Lawrence Grissom 3/07/02 (4:58 PM):
"Hi Terri. Just got a call from Ray Huard at the Tribune wanting comment on the Report's statement that the City is seriously funding [sic] its retirement plan. I told him that I had not had the opportunity to read the report and would like to before I made any comment.
"Think [sic] I'll tell him that we are seriously underfunded due to the City not paying it's fair share..........OK with you???
"Seriously, is there any 'party line' for me to communicate?"
The pension problem reported on by the Blue Ribbon Committee was shuffled from one part of City government to another. On 27 February 2002, the report went to the Rules Committee. From there it was sent to the City Manager. On 20 March 2002, the City Manager returned the report to the Rules Committee. The Rules Committee then sent the Report to the City Council. The Council passed it on to the Pension Board. A year later the board brought it back to the Rules Committee. The Rules Committee then sent it to the City Manager. The Manager returned it to the Mayor. Then the Mayor gave the report to the Pension Reform Committee. And finally it was returned to the City Council. Mayor Murphy attributed his failure to take on the pension problem in 2002 to a desire not to violate "protocol."
Unlike deferred maintenance, these are mandatory costs which ultimately must be paid; and these amounts explicitly grow with interest when they are deferred.
I have a growing and daunting concern that we possibly did our City a disservice by not ringing a very loud bell that:
1) the City's fiscal health is not what it appears,
2) there are serious problems,
3) their solutions will be painful in terms of reduced services and/or increased taxes and fees, and
4) a comprehensive multi-year strategic plan to deal with the situation must immediately be developed; difficult decisions must be made now.
Was this letter shared with Mayor Murphy? Mr. Vortmann has declined a request from the City Attorney to be interviewed about this matter. Mr. Gibson, Mayor Murphy's Senior Policy Adviser, who received a copy of the letter, has also refused the City Attorney's request for an interview.
The Mayor was quoted in The San Diego Union-Tribune as stating that Mr. Gibson had not shared Mr. Vortmann's 29 April 2002 letter with him.
The report for the 29 April 2002 Closed Session Council meeting shows votes were taken on ten meet-and-confer issues. On nine (9) of the issues the vote was nine in favor none opposed. On the issue of retroactively awarding 2.5% and allowing retirement at age 55, Council District 6 (Ms. Frye) voted in the negative.
The "Presidential Leave and Retirement Benefits" refers to a proposal approved by the City Council in 2002 that gave certain special benefits to the Presidents of the Firefighters Union and the Municipal Employees Association (MEA@).
For fourteen (14) years Judie Italiano, president of the Municipal Employees Association, has been making contributions to the retirement system based upon her MEA salary. Her payments to and participation in the City employee pension plan have been found to be unlawful under federal tax laws. MEA, Ms. Italiano's union employer, is not a San Diego City Employees' Retirement System employer. Therefore, the pension plan should not have accepted the MEA as a plan participant. This decision threatens the tax-exempt status of the San Diego City Employees' Retirement System.
Rather than putting a stop to the illegal practice of accepting payments from non-plan participants during the 2002 meet and confer process, the Council was asked to extend the scheme to Ron Saathoff, president of the Firefighters Union.
Although at the 29 April 2002 closed door session the Management Team appears to have recommended against allowing Firefighter Union president Ron Saathoff to include his union income in his City retirement benefit, the Manager changed his position and eventually recommended in favor of Mr. Saathoff. The revised position of the Management Team is described in the 13 June 2002 memorandum from Human Resources Director Cathy Lexin to the Mayor and City Council.
It appears that at the 29 April 2002 Closed Session meeting the Council unanimously approved the proposed retirement benefit that would allow the POA President to include his Union salary in City retirement calculation. Minutes of the 30 April 2002 Closed Session meeting of the City Council shows that the presidential leave proposal was approved for the MEA and POA presidents on a nine in favor, zero opposed vote: "Presidential leave MEA & POA only Mgr. Recommendation – base retirement on high 1 year union salary. 9-0-0." The same minutes show that the presidential retirement issue for Firefighter president Ron Saathoff was trailed one week: "145-Trail 1 wk."
The City Council's proposal to wipe out the trigger and balloon payment protection for plan beneficiaries ran into difficulties at the pension board because the board's outside counsel balked at passing on the proposed arrangement.
The SDCERS outside fiduciary counsel was not going to approve the Mayor's and Council's proposal to lower the trigger and eliminate the balloon payment:
"We had hoped the SDCERS Board would accept our proposal to lower the funding ratio floor to 75% with a commitment from the City to bring forward a long term solution within the next year. It does not appear that the fiduciary counsel will support this request."
Ms. Lexin urged the Mayor and Council to back the 1.00% per year increased funding proposal in order to avoid having to make the balloon payment:
"If we do not make this offer, it is likely that the SDCERS Board will not approve the proposal based upon a negative report from their fiduciary counsel. It is also a possibility that the funding ratio calculated for year ending FY02 will fall below 82.3% and trigger the full actuarial rate in FY04."
In no uncertain terms Ms. Lexin informed the Mayor and Council that the Meet and Confer benefits were a quid pro quo for a waiver of the trigger and balloon payment.
Mr. Vortmann also asked for a clear statement from the City officials about why they feel it is necessary to violate their previous '96 agreement. Mr. Vortmann next asked the obvious question: "What is so compelling to violate the '96 safeguard? Is not that why the safeguard was part of the '96 deal?" Mr. Vortmann then put his finger on the issue that the Mayor and Council were unwilling to face:
"The problem is very simply that the City does not want to pay currently for what they want to give the employees. They clearly are addicted to the give now, pay later or burden the future years's taxpayers' when they no longer have any say in the decision – i.e. the decision being locked down now, with the mandatory bill being paid later.
"Since the City is in essence asking the Board to be an 'enable' to the City in their 'addition,' the Board at least deserves to hear everybody enunciate the truth – not a bunch of smoke about tough economic times, the State is screwing us, etc."
This change was approved by a vote of nine (9) in favor, none opposed.
On 11 July 2002 the SDCERS Board approved the modified version described in Ms. Lexin's 8 July 2002 memorandum to the Council. The motion passed 9-2 with one abstention. Mr. Vortmann and Ms. Shipione had departed the meeting prior to the vote.
On 18 November 2002 the City Council approved the modification passed by SDCERS.
The Mayor and Council granted substantial benefit increases including general salary increases and an 11% per year increase in pensions for general members, and special retirement benefits for the incumbent presidents of the MEA, POA, and Firefighters' unions.
When the ordinance received its second reading on 18 November 2002, it was approved by an 8-1 vote, with Councilmember Frye voting against it. The Presidential Benefit was passed by Council Resolution Number 297212 that same day. When the ordinance received its second reading on 18 November 2002, it was approved by an 8-1 vote, with Councilmember Frye voting against it.
On 26 November 2003 Paul Maco, the City's outside legal counsel, informed auditor Terri Webster that an SEC enforcement action against the City of Miami found that disclosures like those included in the City of San Diego's financial statement footnotes could be the basis of a fraud violation.
In addition to failing to make these disclosures until the voluntary filing on 27 January 2004 the City misstated that its "corridor" funding method was "excellent" when in fact had a long-standing practice of reducing employer and employee contributions to its pension plan thus pushing the liability onto future generations of city employees and taxpayers. The City adopted prolonged amortization schedules and used creative accounting practices, such as adopting a method for computing the unfunded liability (the PUC method) that allowed the City under report the amounts due from the City to the pension plan.
In order to avoid the trigger and balloon payment, the Mayor and Council granted general and special benefits to pension board members to induce the board members to waive the trigger and allow the City to escape the balloon payments. Upon these premises, the San Diego City Attorney finds there is substantial evidence consistent with a finding that pension board members failed to hold the funds and assets of the City pension fund "for the exclusive purposes of providing benefits to participants in the pension or retirement system and their beneficiaries in violation of California State Constitution Article 16 & 17(a). These actions were not consistent with the duties imposed upon the City by the 23 July 1996 agreement. The City failed to live up to its commitment to keep the funded ratio at 82.3% and pension board members joined in that failure. With the City failing to contribute the funds needed to keep the pension plan funding ratio at 82.3% it plunged to 65% as of 2004.
By choosing to allow the plan's funding ratio to fall below the floor agreed to in Manager's Proposal I, the Board breached its fiduciary duty to the City and the plan participants to protect the fund's assets.
The City's duty to keep the plan at the 82.3% funding ratio which would required the City to contribute over $500 million to the pension plan was acknowledged by the plan's fiduciary counsel, board member Ron Saathoff, and the plan's actuary. The City Auditor and the plan's administrator misinformed the Council that the balloon payment was $25 million.
Investors were kept in the dark about the trigger and balloon payment to the pension plan.
The City should have disclosed that the payment of retiree health care benefits with pension funds, the allowing of non-participant union employers to participate in the plan, and the payment of special benefits to union presidents in exchange for their agreement to violate or aid in the violation of fiduciary obligations threatened the tax exempt status of the pension plan. The City should have informed investors that pension plan participants were granted the right to buy pension credits at deep discounts when there was no identified funding source. Investors also should have been told that the City had granted pension benefits retroactively without providing a funding source.
The Mayor and the City Council were reminded that the County Board of Supervisors in neighboring Orange County had been found to have violated federal securities laws in connection with bond offerings in 1996.
Conclusion
Based upon these premises, the San Diego City Attorney concludes that there is substantial evidence consistent with a finding that the Mayor and Council authorized the issuance of City bond offering and related disclosure documents, identified above, that the Mayor and City Council Members knew to be false, as set forth above.
recklessly disregarded facts indicating a risk that the disclosures might be misleading, as set forth above.
had knowledge of facts set forth herein that brought into question the City's ability to repay the bonds sold by the City of San Diego, identified above. The City Attorney of San Diego finds that under these circumstances there is substantial evidence supporting a finding that it was reckless for the Mayor and City Council, with regard to the bond offerings identified above, to approve the related disclosures to investors without taking steps to prevent the dissemination of materially false or misleading information regarding those bonds. In this matter, such steps should have included becoming familiar with the disclosure documents and questioning the City's officials, employees, or other agents about the disclosure of the material facts.
Upon these premises the San Diego City Attorney concludes that there is substantial evidence consistent with a finding that the Mayor and City Council engaged in civil violations of federal securities laws. There is no finding of any wrongdoing by Council Member Tony Young. He was not elected to represent the Fourth Council District until 4 January 2005 and therefore there is no evidence of his involvement in any of the alleged securities law violations.
There is no finding of any wrongdoing by Council Member Michael Zucchet. He did not take office until 2 December 2002. He was not a Council Member during the period of time in which the information about the trigger and balloon payment was provided to the Council. The remaining council members fall along a continuum...
Finally, it should be stressed that much of the evidence set forth in this report was made available to the investigation only because the Mayor and Council made the honorable decision to waive the confidentiality privileges held