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February 8, 2005 | In December 2001, the free-falling earnings of the City of San Diego’s pension plan so concerned then-Assistant Auditor Terri Webster that she simply signed an e-mail detailing a startling earnings decrease to the pension administrator, “Sincerely, Sleepless in San Diego.”

But that same month, despite her insomnia-inducing worries, Webster worked to convince Blue Ribbon Committee members to paint a rosier picture of city finances and excise the “doom and gloom” of the panel’s highly-touted 2002 report that was supposed to candidly assess the city’s financial state, according to internal e-mails.

At the time, committee member April Boling was frustrated by changes Webster and her boss, former-Auditor Ed Ryan, who abruptly retired a year ago shortly before it was revealed city financial disclosures contained errors and omissions, made to her drafts of the panel’s final report. In a January 2002 e-mail, Boling dismissed the edits as “well-meaning.”

Now, she views Webster’s efforts differently. “I thought she was just overstepping her bounds as staff… and not fully understanding that she was changing meaning. Now I believe she totally understood she was changing meaning and doing it intentionally.”

Boling often voices frustration that the media is focused on the past, instead pointing toward the need for attention to solutions, specifically the long list of recommendations she crafted with the Pension Reform Commission to place the retirement system, and the city, on the lengthy road to financial recovery.

However, Webster still plays a prominent role in the city’s financial future as its acting chief fiscal officer and a member of the embattled San Diego City Employees’ Retirement System board. And to the ever-expanding throng of City Hall critics, her preservation is a prime example of the lack of action taken by city officials to begin rectifying a bona-fide financial crisis.

“I was 100 percent certain she shouldn’t be there a couple of weeks ago, and now I am 105 percent certain she shouldn’t be there, and I don’t know how much more evidence people need to draw some conclusions,” said Boling, an accountant who also served as chairwoman of the Pension Reform Commission and is currently a plaintiff in a lawsuit against the pension board.

“If someone in my office did this, they would not be in my office anymore.”

Mayor Dick Murphy and the City Council took a step toward silencing critics late Tuesday afternoon when they announced the hiring of a new auditor, John Torell, to help restore the city’s financial credibility. He begins work March 19.

During a press conference, Murphy said he didn’t know what Webster’s future would be in the office. “She’ll have to discuss that with the new auditor,” he said.

Working drafts of the Blue Ribbon Committee’s final report and e-mails obtained by the Voice of San Diego, as well as other documents released publicly as part of the ongoing investigations into City Hall, provide a snapshot of efforts to squelch early concerns of the city’s deteriorating finances. Although Webster appeared seriously concerned over the finances of the pension plan in private e-mails with other retirement system and city officials, she muffled these concerns during her work with the blue ribbon committee, and in fact worked to persuade concerned, and now even prescient-looking, panel members to adopt the accepted notion that the city stood on solid financial ground.

“I do think there are some legitimate questions about the quality of the information brought before the committee,” said Andrew Poat, a panel member who now serves as the city’s director of governmental relations.

The documents show a sort of tug-of-war between two camps: Those who believed staff reports that the city was “financially stable, fiscally sound and prudently managed” and those like Vortmann who pushed for a more critical report, suggesting in a December 27, 2001 draft: “In conclusion, the city’s fiscal health is not as sound as it first appears.”

In the end, somewhat of a compromise was reached, but not without efforts to convince Vortmann he was wrong.

For example, after reading Vortmann’s corrections, Webster sent an e-mail to committee Chairman Joe Craver on Dec. 31, 2001. She writes, “Maybe you can talk to Dick before Fri and turn him” after Vortmann had reported negatively in all six of his conclusions regarding the pension system. “Doom and gloom…we’re a good looking apple that is rotten once you bite into it…..not an accurate or fair representation at all,” she writes. “The retirement topic is very technical,” she writes to Craver. “Call if you need me to explain.”

A Jan. 7, 2002 e-mail from Webster to Ryan says, “I don’t see the value of arguing with him (Vortmann) on the wording of the other issues any more and it is too complicated for the rest of the committee to grasp and help change Dick’s mind.” It continues: “We gave a good shot at changing him … he just didn’t fall for it… all.”

“We relied heavily on her,” Craver said of Webster in an interview. “She basically put everything together.”

Neither Webster nor Vortmann returned phone calls to comment for this story. In April 2002, two weeks after presenting the report for the last time to the City Council, Vortmann would write a memo to the mayor’s office and his fellow panel members saying he was afraid “we possibly did our city a disservice by not ringing a very loud bell” that the city’s fiscal health was not what it appeared to be and that there were, in fact, serious problems.

Although the committee, which was convened upon Mayor Murphy’s inauguration in 2001 to measure the economic feasibility of completing his coveted “10 goals” for San Diego, was scheduled to meet a year later, it never did.

Since the report was released, the auditor’s role in city business has grown in public importance. The city’s credit rating was frozen last September, days after it was revealed that the office failed to fully disclose the enormity of the pension plan’s deficit in financial statements prepared for potential bond investors.

The Securities and Exchange Commission is currently investigating the city’s financial disclosures, while the FBI and U.S. Attorney’s Office are investigating possible public corruption.

The retirement board two weeks ago sued the city to regain boxes of documents seized by City Attorney Mike Aguirre as part of his investigation into city finances. Aguirre and Murphy have publicly called for the board to waive its attorney-client privileges in connection with the ongoing investigations. The city’s auditor, KPMG, has reportedly told Aguirre that the move would greatly assist the release of the city’s long-delayed 2003 and 2004 audits.

The city needs to complete the audits in order to rejoin the bond market. It currently cannot raise money to complete or start a long list of projects, from water and sewer upgrades to library and fire station construction.

Please contact Andrew Donohue directly at andrew.donohue@voiceofsandiego.org with your thoughts, ideas, personal stories or tips.

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