Friday, April 08, 2005 | The third installment of City Attorney Mike Aguirre’s investigation into San Diego politics and finances essentially deemed void Friday all retirement benefits granted to city employees in controversial deals in 1996 and 2002 on the grounds that the gifting of such benefits broke a bevy of state and local laws governing budgeting and the behavior of public officials.

Such a determination would make illegal the continued payment of benefits above a pre-1996 level to any city employee. That apparently would include employees who have retired since 1996 and base their retirement checks off of the 1996 and 2002 contracts, however Aguirre wasn’t available to comment on the report. “The city should cease observing the terms of these agreements,” the report states.

Any attempt to reverse benefits would almost certainly be fought viciously by the city’s four employee labor unions in court.

“We have our lawyers standing by,” said Joan Raymond, president of the Local 127, which represents the city’s approximately 4,000 blue collar workers.

Also Friday, City Manager Lamont Ewell released a five-year financial outline aimed at setting the city on sound financial footing that focused on labor concessions, downsizing and new taxes.

Aguirre, who has become the most mercurial of all figures in his four months in office, opined that six pension board members who are also city employees broke the state’s conflict-of-interest law that forbids public officials from voting on items that benefit them personally.

A good deal of the report clearly synthesized much of what has already been known about the rising pension deficit and how it came to be, namely the city’s historical practice of paying less than is recommended into the fund while at the same time adding expenditures in the form of more benefits.

These historical practices, which date back to the 1980s and 1990s, are the prime culprits in the city’s oppressive $1.37 billion pension deficit. The debt is at heart of the city’s financial and legal woes, as it is under federal investigation for failing to fully disclose the depth of the deficit in financial statements to investors and for possible public corruption.

“The deficit arose not only as a result of gross oversight and inattention, but also, unfortunately, by not following the requirements of relevant laws,” the report states.

The report also accused the pension system of manipulative accounting. The report cites this accounting as being used as a way to shrink the city’s annual payment obligations to the pension system and as prime factor in its billion-dollar deficit.

“The [San Diego City Employees’ Retirement System] has been the subject of open and obviously manipulative pension accounting,” the report states.

Because of the long-term planning that goes into figuring pension data, it is advised that market gains be kept in the system during strong market years to protect the system during tough market times. However, during the robust market years of the 1990s, the city deemed these assets “surplus earnings” and began spending them on a number of items. When the market crashed in 2001, the accounting and payment practices previously obscured by strong market gains were revealed.

Aguirre and the report’s co-author, Deputy City Attorney Don McGrath, determined that a number of state and local laws were also violated in the way that the pension plan was budgeted and administered because, among other reasons, state and local laws forbid adding expenditures to the budgets without identifying methods to pay for them.

The conflict-of-interest finding relates to a 2002 deal made between the city and pension board in which the city was relieved of having to make a lump-sum payment of tens of millions of dollars into the pension fund in exchange for a package of new benefits given to employee unions. Although the pension board doesn’t usually have such control over benefits, the deal, called inappropriate by a self-investigation in September, put city employees on the board in the position to approve or veto contracts that benefited them personally.

The six city employees on the board at the time who voted for the controversial deal are also under investigation for the same charges by the District Attorney’s Office. They are Ron Saathoff, Mary Vattimo, Cathy Lexin, Terri Webster, John Torres and Sharon Wilkinson. The district attorney investigation is criminal.

“That is what my lawsuit was about,” said April Boling, former chairwoman of the Pension Reform Commission who brought a lawsuit against the pension board claiming the same violations in January. “If he follows through on this he renders the lawsuit moot, because he has established the 1090 violation.” The code in the state law forbidding this conflict of interest is numbered “1090.”

Mayor Dick Murphy wasn’t available for comment, and it remains to be seen what, if anything, the City Council does with Aguirre’s report.

Aguirre also suggested raising new revenues in his report, so that the pain of curing the city’s financial ills is felt by both city taxpayers and employees. He said if such a program isn’t instituted, municipal bankruptcy could be the city’s only eventual solution.

The city manager’s five-year forecast said the city can upgrade its bleak financial outlook by putting tax increases before voters and getting its way in the ongoing labor negotiations.

New streams of revenue could be generated if voters were to approve tax measures, but not in time to help balancing the budget for the 2006 fiscal year, the report stated. Among the ideas offered, the city’s business license tax could be doubled to raise $5.3 million annually; the per-ton fee paid by refuse haulers could be increased by a $1 to raise an additional $850,000 per year; a 10-percent fee could be levied on parking lot owners to generate an estimated $19.6 million annually; the property transfer tax could be raised to create $15.3 million a year; or a trash collection fee of $13 per month could produce $45 million annually.

The city’s financial outlook would also benefit from winning key points in its negotiations with the city employees’ unions, the forecast said. The forecast assumes the city will institute a one-year salary freeze and a two-year freeze on benefits for all city employees.

“It’s a step in the right direction. If they actually stick to this road map, then it’s a positive for the residents of San Diego. The scariest number is if they don’t get the concessions from labor,” said Mitch Mitchell, vice president of public policy at the San Diego Regional Chamber of Commerce, speaking of projected deficits in the tens of millions of dollars if labor concessions aren’t struck.

Johnny Perkins, director of governmental relations for the Local 145 firefighters union, said the union is willing to take cuts in order to be part of the solution, but wants a full accounting of the city’s budget burdens before it concedes anything. He said such an accounting would allow for a full assessment of the city’s revenues and expenditures.

Voice staff writer Evan McLaughlin contributed to this report.

Please contact Andrew Donohue directly at

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