Tuesday, March 29, 2005 | With the City Council in the middle of a two-week legislative recess, a number of important city issues remain at the forefront of local interest. Here’s an update of where they stand:

Fiscal year 2003 audit. Most agree this is hands-down the most immediate issue pending at City Hall. City Councilman Michael Zucchet said the audit is essentially done, but auditor KPMG is waiting to bless the city’s financial statement until they receive a judgment from the city’s outside accountant that the numbers are reliable and untouched by foul play. The outside accountant, former Securities and Exchange Commission accounting chief Lynn Turner, will review three investigations into city finances and turn in his opinion to KPMG.

The city’s law firm, Vinson & Elkins, released an investigation in September that identified errors and omissions in the city’s financial statements to prospective investors. The report found that the errors were the result of negligence, not wrongdoing. However, KPMG said the investigation didn’t go far enough to look into wrongdoing on the part of city officials.

City Attorney Mike Aguirre then released his investigation, concluding that Mayor Dick Murphy and several council members committed securities fraud by knowingly signing off on financial statements that failed to describe the true depth of the city’s pension deficit. Turner is waiting for Vinson & Elkins to wrap up its second investigation, this one into possible illegal acts by city officials.

The city has essentially been barred from Wall Street since September because of disclosure inaccuracies and needs the audit to regain access to financing for projects such as library and fire station construction and mandated water and sewer projects.

Also hindering the audit is the San Diego City Employees’ Retirement System board’s refusal to waive its attorney-client privilege, a move that has kept facts and documents from the auditors.

“KPMG’s concern is: ‘Do they have all the pertinent facts to form an opinion?’ When you execute an audit you need to have access to all data that could somehow impact the financial statements or disclosures or opinions,” said Stephen Austin, a local audit expert who also served on the city’s Pension Reform Committee.

He doesn’t believe an audit can be completed without access to this information.

Labor negotiations. Negotiators for the city and the four labor unions are currently at the table, attempting to hammer out new contracts. Wall Street has deemed these talks critical to the city’s fiscal health. The City Council hopes to win a series of concessions that they say would wipe away hundreds of millions of dollars from the $1.38 billion deficit, although no backup documentation has yet to be provided to the public.

The council has unanimously agreed to pursue the following:

A two-year salary freeze for all employees.

A two-year freeze in any benefit increases.

Either increase employees’ contribution to the retirement system, thereby decreasing the city’s share of the contribution, or reduce salaries 3.2 percent. (The mayor has said the savings would be used to finance the annual payments on bonds that would be sold to deal with the pension deficit.)

Either exclude new hires from the pension system for their first three years of employment or adjust a number of current factors in the figuring of retirements, including eliminating the controversial DROP, or Deferred Retirement Option Plan. (The City Council can decide to end DROP for new employees, but whether they can remove the option for those currently employed by the city could be tricky legally.)

Reduce retiree medical benefits.

Impose a five-day unpaid work furlough for city employees.

They have until June 30 to work out new agreements. In the event of an impasse, the council can impose a one-year contract on all or some of its four employee unions, and officials from the Municipal Employees Association and the American Federation of State, County and Municipal Employees Local 127 have talked about striking if an agreement can’t be worked out. They represent the white and blue collar workers of the city, respectively. The other two city unions represent police and fire fighters.

New downtown library. The mayor’s office has determined it needs to raise $27 million in private donations by the summer or his downtown library plan shouldn’t move forward.

The city’s $300 million library overhaul plan was approved by the City Council in 2002, ironically on the same day the now-famous Manager’s Proposal II was approved, thereby extending the city’s historic underfunding of its pension system. The centerpiece of Murphy’s plan is the new downtown library, estimated to cost about $150 million.

The city’s downtown redevelopment arm, the Centre City Development Corp., has pledged $80 million toward the cause, and the city received a $20 million state grant. The goal is to raise a total of $50 million in private donations to complete the financing.

CCDC recently floated the city $6.5 million to meet costs, as the city is limited in its borrowing ability by its finance and disclosure problems.

No date has been set for groundbreaking, but Murphy said in his State of the City speech in January that he wants to start construction this year. The library is slated to open in 2008, though the feasibility of the plan has caused much debate in the shadow of the city’s financial crisis.

Living wage. The union push to raise the wages of the lowest-paid employees of city-funded contractors has caught hold with City Council members and will be up for approval April 12.

Murphy and groups such as the San Diego Regional Chamber of Commerce are opposed to the proposal, saying it would be irresponsible in this financial environment. Supporters hope to institute the plan in phases so that financial impacts won’t be felt until 2007, and say that taxpayer dollars shouldn’t go toward jobs that pay poverty wages, regardless of the city’s current financial state.

The progressive think tank Center on Policy Initiatives has figured that a single person needs to make $11.38 an hour in San Diego to stay above the poverty line. The proposal shoots for $10 as the minimum city wage, although it would only apply to contracted employees, not workers directly employed by the city.

A CPI spokesman believes they have the votes needed on council to ensure its passage, although the opposition is expected to be strong.

Strong mayor. As if there wasn’t enough going on at City Hall right now, the mayor and friends must also dedicate what might be city government’s most challenging year transitioning to a whole new form of government.

The system removes the mayor as a voting member of the City Council and puts him or her in the CEO role, where the city manager currently sits. The council then becomes an eight-member legislative body. The mayor will propose budgets and hire the city manager.

The city has hired a consultant to ease it through the transition. At its April 11 meeting, it will discuss the role of the new and yet-to-be-named independent budget analyst. The council’s April 18 hearing will include discussion over the possibility of also bringing in an independent legislative analyst.

Investigations. The Securities and Exchange Commission continues its probe into city financial disclosures and the errors and omissions contained within. City officials have been scolded by the SEC for their failure to fully cooperate with the investigation, an ominous sign from an organization that has said it loves cooperation and that has fined the non-cooperative heavily.

Whether the SEC would stick a municipality with a multi-million dollar fine is a matter of speculation right now, as some believe it doesn’t do any good to harm the taxpayers for the misdeeds of city officials. Others believe the SEC could make San Diego an example for future municipal cases.

City Attorney Mike Aguirre said the U.S. Attorney’s probe into possible public corruption in connection with the pension problems has dramatically picked up in pace. Recent document requests show they have zoomed in on the workings behind November 2002’s Manager’s Proposal II. Meanwhile, District Attorney Bonnie Dumanis launched her own investigation last week into the conflicts-of-interest of six former or current pension board members who are also city employees.

Aguirre is also investigating conflicts on the City Council, as several members and the mayor have purchased years of service credits. All city employees were given the option to purchase years of credit at what Aguirre calls “deep discounts.” He has called the benefit illegal.

The City Council could be asked to disband the benefit in the future, and Aguirre wants to know if a conflict exists for the council because they could have a financial stake in the decision.

– By ANDREW DONOHUE, Voice Political Writer

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