The Morning Report
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Monday, March 07, 2005 | Mayor Dick Murphy pushed back the confirmation date of his seven pension board nominees Friday at the request of an outside audit committee recently brought in to reconcile the city of San Diego’s outstanding fiscal year 2003 audit.

The announcement came two days after federal investigators called together city officials to ask for greater city cooperation in the numerous ongoing inquires.

A memo sent Friday from Murphy to members of the City Council says the audit committee requested the postponement “to allow additional time for review of our vetting process.”

Murphy on Feb. 25 announced the seven nominees that would comprise the new majority of the embattled San Diego City Employees’ Retirement System board. The 13-member pension board is at the heart of the city’s financial and legal strife, and its refusal to allow auditors KPMG access to certain documents threatens the purity of the audit.

Without the audit, the city is left in financial paralysis embargoed from bond markets and, therefore, the capital to finish mandated water and sewer projects, as well as library and fire station construction.

The new pension board is seen as a lynchpin to curing the city’s financial ills, not the least of which is the pension plan’s $1.37 billion deficit.

Some observers hoped that Murphy would make nomination to the board conditional on waiving the attorney-client privilege. A waiver would free the pension board’s documents and clear the way to an audit without the asterisks frowned upon by Wall Street. However, at the time of nomination, Murphy said it would be inappropriate to impose such a litmus test on an independent board.

The news Friday sparked suggestions that the audit committee could want to screen the new board members to gauge their support of the waiver, an idea the leader of the audit committee, Lynn Turner, reportedly supports.

“It wouldn’t be unreasonable to assume” that Turner would want such assurances, said Mitch Mitchell, vice president of public policy at the San Diego Regional Chamber of Commerce.

Turner, former chief accountant of the Securities and Exchange Commission, is one of three members of the outside audit committee. The other two members are his colleagues at the international financial consulting firm Kroll, Inc., Troy Dahlberg and former SEC chief Arthur Levitt. The mayor’s office referred comment to Turner. However he didn’t return calls Friday.

The trio began work last month, tapped to bring together a series of investigative reports and work with auditor KPMG to release the long-delayed and financially essential audit.

Two nominees interviewed Friday said they felt making the nomination conditional on the waiver would be inappropriate.

“It’s difficult for me to conceive of the circumstance in which I wouldn’t be in favor of waiving the privilege,” said Bill Sheffler, a pension actuary and member of the city’s Pension Reform Commission. “It would seem to me the waiving of the privilege has more do to with the personal interests of some of the former board members.”

However, he doesn’t know how the city could petition the nominees for such a commitment at this point. “I don’t know how a reasonable person could make that commitment without knowing exactly what they are doing.”

Thomas King joined the list of nominees Thursday when Robert Doede dropped from consideration, citing family conflicts. King, president of San Diego Community Bank, said he didn’t agree with a predetermined litmus test.

“They’ll get nobody to get on this board if that’s the case,” he said.

City officials have said that completing the fiscal year 2003 audit is the most critical issue facing the city at the moment. Meanwhile, the SEC, FBI and U.S. Attorney’s Office have been investigating the city’s financial reporting and pension plan for more than a year.

Murphy expects to City Council to vote on his nominees March 14, the memo states.

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