Friday, February 11, 2005 | 1997 – City begins its practice of intentionally underfunding its pension plan in an agreement known as Manager’s Proposal 1. Because of annual variations in investments and benefits in a multi-billion dollar plan, the city’s contribution to the pension plan differed greatly year-to-year. The city and the San Diego City Employees’ Retirement System board reach an agreement to allow the city to pay a specific rate each year, regardless of what is actually owed. Unions accept greater benefits for their support. A funding “floor” is set so that if the plan drops below being 82.3 percent funded, the city must make a lump-sum payment to restore a proper funding level.

1997 to 2001 – The city annually pays $6 million to $8 million less than recommended to its pension plan, according to the Blue Ribbon Committee Report on City of San Diego Finances. Strong market returns obscure faults in the system’s funding mechanism.

April 2001 – Mayor Dick Murphy forms the Blue Ribbon Committee to craft an independent report on city finances and to measure the financial feasibility of his “10 goals,” which include completing the downtown ballpark and constructing a downtown library.

October 2001 – Internal e-mails between city officials begin to reveal the first concerns that the pension plan’s earnings are dropping rapidly.

February 12, 2002 – An e-mail from then-Assistant Auditor Terri Webster to then-Auditor Ed Ryan raises the possibility that the pension plan’s funding floor could be hit, possibly triggering a lump-sum payment of tens or even hundreds of millions of dollars.

February 26, 2002 – City Council begins labor negotiations.

March 2002 – Mayor Murphy and City Council receive notice that the pension plan could hit the 82.3 percent funding floor, forcing what at the time was estimated to be a $25 million to $75 million lump-sum payment. City Attorney Mike Aguirre later puts that figure at $159 million. Discussions begin about offering benefit increases to unions contingent upon further lowering the funding floor in order to avoid the lump-sum payment.

April 15, 2002 – The City Council hears the Blue Ribbon Committee’s report saying the city is fiscally sound. The report does, however, include a number of caveats. It warns the council against continuing the practice of extending benefit increases while failing to fully pay for them. A solution from the pension board is promised, as is a reconvening of the Blue Ribbon Committee in one year. The committee never meets again.

April 16, 2002 – Council meets in closed session to discuss labor negotiations, conditions benefits on the lowering the pension funding floor.

April 28, 2002 – A memo from Blue Ribbon Committee member Dick Vortmann to a Murphy aide, Webster, Ryan and fellow committee members questioning whether the committee did a disservice to the city by not articulating the gravity of the city’s pension obligations. He writes that he has a “serious and daunting concern” that the city has serious problems.

November 18, 2002 – On the same day it approves a $300 million library overhaul, the City Council also blesses the revised funding structure for the pension plan, known as Manager’s Proposal 2. It allows the city to underfund the system at a higher level than previously done while adding further burdens on the system in the form of increased benefits. The mayor and other council members would later say that had they known the full implications of the deal, they wouldn’t have approved it. The benefit increases better the benefits of six of the 13 retirement trustees, who had earlier approved the deal.

December 2002 through February 2003 – As media scrutiny of the pension plan and the November 2002 deal begins, many elected officials and retirement trustees blame the pension problems on the stock market. Whistle blower Diann Shipione claims that the deficit is in fact a product of the city’s payment and benefit policies, and that the November 2002 deal was corrupt. She warns that the effects on city finances could be disastrous and could even lead to bankruptcy. City officials promise a report with a pension solution.

April 2003 – The presentation of city’s solution to the pension plan problem is postponed. City officials cite pending litigation as reason for the postponement.

May 2003 – Cathy Lexin, the city’s human resource manager and member of the pension board, says the report wouldn’t have been ready for the meeting.

September 2003 – City Council approves the members of the mayor’s Pension Reform Commission, charged with examining the depth of the pension deficit and recommending solutions.

January 2004 – City officials learn that bond disclosures released to the public contained errors and omissions related to the true depth of the pension deficit. Murphy continues to blame pension woes on stock market losses.

February 2004 – It is revealed that the U.S. Securities and Exchange Commission and FBI have begun preliminary investigations into City Hall.

September 14, 2004 – The Pension Reform Commission releases its final report with 17 recommendations to heal the pension problem. The report blames the lion’s share of the pension problems on benefit improvements. To date, many of the recommendations haven’t been followed.

September 14, 2004 – Vinson & Elkins, the firm hired by the city to represent them in front of the SEC, released a report detailing how the pension deficit grew and inaccuracies in disclosure statements.

September 19, 2004 – Standard and Poor’s credit agency freezes the city’s credit ratings over concerns surrounding the city’s bond disclosures.

October 11 and 29, 2004 – Saying the city hadn’t properly investigated illegal acts in connection with its inaccurate bond disclosures, outside auditor KPMG refuses to release the city’s 2003 and 2004 fiscal year audits. It asks the city to employ another firm outside of Vinson & Elkins to investigate possible illegal acts by city officials.

February 9, 2005 – City Attorney Aguirre releases a report finding that Mayor Murphy and several former and current council members violated civil securities law by blessing disclosure statements they allegedly knew to contain false information regarding the city’s finances. The statements span from April 2002 to June 2003 and total more than $1 billion.

– Compiled by Voice staff

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