Tuesday, March 01, 2005 | MONEY. In a long, busy day at City Hall, the much-delayed financial audit of fiscal year 2003 forced the San Diego City Council to further extend contracts with its auditor, KPMG, by an additional $800,000.

The council voted unanimously, with Councilman Ralph Inzunza absent, to add the extra money to the original contract of $500,000. To date, KPMG has received $2.2 million from the city.

“You cannot afford to not pay for these services,” City Manager Lamont Ewell said to Mayor Dick Murphy and council.

The council was also slated Monday to authorize giving an additional $1.2 million to law firm Vinson & Elkins, bringing its total bill to $3.8 million for the 2005 fiscal year. The firm is representing the city in the Security and Exchange Commission’s investigation into the city’s erroneous financial disclosures. In its second role, it is investigating the possible illegal acts, an investigation mandated by KPMG.

The council delayed voting on this measure until Tuesday.

Vinson & Elkins already had a crack at the KPMG-mandated investigation once last September, when it released the once-scathing report into the city’s disclosure practices and pension problems. But the more time passes, the more it becomes apparent that the investigation was conducted by the city’s paid defense counsel. It failed to assign blame or look into illegal acts, something that auditor KPMG has asserted since last October is absolutely critical to completing the essential audit.

The first “V&E” report was released last September and trumpeted as the end-all investigation into the pension mess. Turns out it wasn’t going to end that September, when the city had only paid Vinson & Elkins about $1.5 million of the $3.8 million it has now, and when KPMG had collected a little more than $1.2 million of the $2.2 million it has now.

Ewell said Vinson & Elkins have had to go through the hard drives of more than 40 city computers to determine if illegal acts did indeed occur.

City officials are now waiting for Vinson & Elkins to complete this investigative supplement to the first report. From there, hired consultant Lynn Turner ($250,000 to $300,000 so far) will combine the law firm’s reports with City Attorney Mike Aguirre’s investigation and present his conclusions to KPMG.

Technicality. City documents at Monday’s council meeting state that “correctible statements” found in previous financial statements were to blame for the delayed audit.

Hint. Assistant City Attorney Les Girard said at the end of the council meeting Monday that the office now approves of the council going into closed session to discuss the SEC investigation, because it is the appropriate time “to give authority and direction to those who will be negotiating with the SEC on behalf of the city.”

Bizarro City Hall. The raucous feud between Aguirre and Murphy appears to have completely denigrated into a personal battle. It’s started to take on the shape of a brutal election mudslinging affair. In a press conference Monday, Aguirre reasserted last week’s calls for an open public meeting to air all the recommendations for extracting the city from its financial mess – both his plan and the mayor’s.

He mentioned several times that the city lost its credit rating under the leadership of Murphy, and then said Murphy and City Councilman Scott Peters have now hired criminal defense attorneys from the Sheppard Mullin law firm to defend themselves.

But bewildered aides to both Murphy and Peters say that’s lunacy, as the two have merely hired civil counsel in connection with the SEC investigation – just as Aguirre told them to do in December when he said he wouldn’t be representing them.

Aguirre said Murphy’s new nominees to the San Diego City Employees’ Retirement System are merely Murphy’s political pawns, and will result in political cover operations such as the Blue Ribbon Committee and Pension Reform Commission. He also said that Murphy’s plan overstates its fiscal impact by several hundreds of millions of dollars. (Murphy has stated it will knock about $600 million from the pension’s $1.37 billion deficit.)

For his part, Murphy seems to cringe when Aguirre’s name is mentioned during press conference questioning. In a statement released Monday, he refused to hold the Thursday and Friday public hearings that Aguirre had demanded to air all recommendations for the city’s financial fix.

Fine, said Aguirre. So he’s found a new forum: Frye’s open government committee, which meets March 14.

“I don’t think going back and forth with press conferences accomplishes anything,” Aguirre said at his press conference.

Speakeasy. The battle for non-specific public comment continued Monday, as about 30 folks showed up – many upon Frye’s urging – to voice their desire to keep public comment the way it currently is: at 10 a.m. every Tuesday and unlimited in time.

A majority of the council voted two weeks ago to move the public comment to the end of the sometimes-marathon Tuesday sessions, saying that those people that head down to council for specific items oftentimes have to sit and wait through the long public comments.

Ironically, Frye’s public comment supporters fell victim to the waiting game – though public comment wasn’t to blame, just the usually long list of docket items that aren’t predictably timed or noticed. Their item turned out to be placed as one of the last on the list, meaning it didn’t come around until 7 p.m., after about 25 of the 30 supporters had left.

In the end, the council voted on a compromise that will split the public comment up, some at the start of the Tuesday meetings and some at the end. The vote was 6 to 3, after Inzunza finally showed up, with Frye, Councilwoman Toni Atkins and Councilman Tony Young wanting to leave the current plan in place.

“Perception is important,” Young said as many speakers classified the council’s actions as attempts to squelch public participation.

However, for the next 30 to 45 days, pending further council action, the old program stays in place: non-agenda item public comment commences at 10 a.m.

Downsizing. Ewell said on March 14 he will present a five-year plan of the city’s estimated revenues and expenditures. On Monday the mayor, council and Ewell discussed the city’s mid-year budget report, which showed that the city’s expenses have out-paced its revenues by more than $10 million in fiscal year 2005.

Continued tight times will likely call for service cuts and layoffs in fiscal year 2006 – for which budget talks begin March 7. On that day, the public will have the opportunity to state what they believe the city’s priorities should be.

“We are going to have to downsize the organization and I know no other way,” Ewell said.

Throughout the budget talks, it was apparent that increased revenue sources are one thing that will be sought – a tough sell to a public that’s lost its trust in City Hall. However, many insiders say, if the public expects services it will need to pay.

For too long, they say, there has been a lack of political will to raise taxes while adding expenditures for large public projects.

“We can’t cover the expenses of what the public wants with what we have,” said City Councilman Jim Madaffer. “…At some point in all of this you have to realize you can’t have more.”

Dude, where’s my whistleblower? In a letter Monday to the mayor and council, pension whistleblower Diann Shipione reiterated her desire to be reappointed to the pension board. Murphy left her off his list of seven nominees Friday, nominees that will go before the council for approval March 7.

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