Monday, March 28, 2005 | With federal investigators in finance and public corruption well-entrenched in a year-old probe into City Hall, the District Attorney’s Office joined in this week with a criminal investigation of its own. And based on the information requested by investigators, they appear to be looking at possible violations of state conflict of interest laws by pension board trustees – an issue pension critics have been trying to draw attention to for years.
So what’s the use of one more investigation?
This one is different in that it would appear to zoom in on state government code 1090, which forbids public officials from voting on matters that benefit them personally. It’s also different in its possible results. The investigation is rare in that it is a criminal one, while most 1090s are civil. Aside from the personal implications of a criminal probe, benefits could potentially be at risk, too. If the benefits are found to have been obtained illegally, they could be undone. That could mean some or all of the costly benefits granted in the controversial contract worked out between the City Council and the pension board in 2002.
At that time, the pension system’s funding was dwindling rapidly, and the city was contractually obligated to make a lump sum payment in the tens, or even hundreds, of millions of dollars. To escape this budget-busting payment, the city offered unions beefed up benefits if the pension board – populated largely by union representatives and city management – voted to let them off the hook. The deal was finalized in November 2002.
In essence, the city-employed members of the pension board voted to increase their own benefits because denying the city its request for financial relief would have vetoed the benefits, explains law firm Vinson & Elkins’ investigative report of September.
Wiggle room for pension trustees
However, pension trustees normally don’t have the sort of control over their own benefits that they did in this instance because they usually aren’t in the middle of labor discussions, making this a special case. And, the wiggle room given to trustees under law gets smaller as the group receiving the benefits gets more specific, says government ethics and law expert Bob Stern.
Let’s take a look at the benefits received by the pension trustees in 2002:
Six former or current pension board members named
These six officials of the San Diego City Employees’ Retirement System are the only people named specifically in the district attorney’s formal information request, hand-delivered to City Hall on Wednesday.
These pension board members were just a handful of an estimated 11,000 city employees to receive them, a point stressed by the retirement system’s attorney in the deposition.
However, the scope narrows with two other benefits that were included in the package.
An ordinance included in the benefit package barred employees from receiving retirement payments that exceed 90 percent of their highest annual salary, with one catch: It doesn’t apply to employees who started working for the city before age 24.
Webster, formerly the assistant auditor, is one of about 300 city employees who qualified for this exemption, said attorney Mike Conger, who took Grissom’s deposition. The exemption was grandfathered in for current employees, but doesn’t exist for new employees.
“Three hundred is different than 11,000, but it’s also different than one,” Stern said.
Presidential benefit
Lexin said in an interview that she couldn’t comment on the specifics of the investigation.
“It’s not new that there have been issues raised about the 1090, and it is a state conflict-of-interest law, so it doesn’t surprise me that the DA’s office is looking into this. It’s nothing new, just a new investigative body,” Lexin said.
Indeed, the conflicts were first detailed in a newspaper article as far back as 2003. The city’s investigation and a lawsuit filed by the San Diego County Taxpayers Association have also addressed them.
Investigations by the city’s law firm and City Attorney Mike Aguirre have uncovered more details about the behind-the-scenes machinations that led to a deal that involved many of the same faces in different roles throughout the process.
Dual roles
Likewise, Lexin sat on the board with Saathoff, but then sat across from him in negotiating with the unions as the city’s human resources director.
Lexin and former assistant auditor Webster, e-mails show, were keenly aware of the city’s need to escape the multi-million dollar payment from their roles in city management. So they were both forced into operating with conflicting allegiances to the city and the pension system at the same time, while also benefiting from the increased pensions promised to the city’s white collar workers.
In one pointed e-mail exchange with Webster, Grissom discusses attempts to increase benefits: “If, after being accused of violating everything and further attempting to ‘pad’ your own benefits, you guys feel you get another bite at the apple, go for it.”
Privileged waiving. The San Diego Regional Chamber of Commerce set up the first of what promises to be many regular press conferences Friday to firmly express their recommendations for the direction of city leadership. Dubbing their gathering “A Call to Action,” chamber leaders stood defiantly in front of City Hall, said they will speak their mind freely on issues regardless of whose toes they step on, and then delivered their first recommendation: Keep the status quo, essentially.
The topic was the pension board’s decision not to waive its attorney-client privilege. It is a crucial decision that is holding up an absolutely essentially fiscal year 2003 audit – the key to the city’s short-term and long-term fiscal health – and aggravating federal investigators who openly reward good behavior with lighter penalties.
The waiver has been asked for by Aguirre and Murphy, and seems to be one of the largest hurdles to restoring the city’s reputation and financial stability.
Originally billed as a press conference to talk about the attorney-client privilege, the gathering was advertised in morning e-mails with only passing mention to the waiver.
Chamber officials instead recommended that the pension board release all non-privileged documents to the proper authorities. And then it called on the new pension board to evaluate each document that has been requested by authorities, but labeled “privileged” by the outgoing board.
– By ANDREW DONOHUE, Voice Political Writer