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Saturday, April 16, 2005 | The wall that usually holds the photographs of the members of the city of San Diego pension board stood bare, except for 13 empty brass hooks and 13 faceless nameplates. Across the reception here Friday, on the fourth floor of the Wells Fargo Building downtown, an almost completely new board took control of a system embroiled in accusation, investigation and red ink.
The awkward manifestations of newness were present. The board president fumbled with the system’s high-tech, touch-screen voting system. Logistical hiccups abounded. Audience members rubbernecked to see the names of the board members speaking behind the dais.
But on the agenda were the same old unresolved issues: A $1.37 billion pension deficit, the jeopardized tax-free status of the system, pending lawsuits with the board’s legal counsel and the City Attorney’s Office, and a request from federal investigators that the board turn over documents that hadn’t been handed over by the previous board.
Underscoring the gravity of the once-obscure board’s first meeting, City Attorney Mike Aguirre kicked off the new era armed with a letter from Carol Lam, the U.S. Attorney for the Southern District of California.
The letter dated Thursday formally requested the San Diego City Employees’ Retirement System board waive the attorney-client privilege the previous board had asserted toward communications between the board and its in-house and outside attorneys regarding the controversial Manager’s Proposal II. The proposal is a deal between the city and pension board made in 2002 in which Mayor Dick Murphy and the City Council granted its employee unions increased benefits in exchange for relief from a pending lump-sum payment of tens of millions of dollars.
The deal is at the heart of criminal corruption and conflict-of-interest investigations being conducted by the federal government and the county District Attorney’s Office, respectively. Aside from allegations of wrongdoing in the workings of the deal, it further aggravated a dwindling pension system that had been underfunded and overburdened since the days of former Mayor Susan Golding.
The board emerged from its long first day with a verdict around 8 p.m.: It had voted 8-to-4 to maintain its attorney-client privilege and hold on to the documents sought by investigators.
Many around the city were hopeful that the board would waive the privilege, thereby easing a yearlong investigation into the city’s financial disclosures and politics. Officials from the Securities and Exchange Commission are known to reward entities that cooperate in investigations by way of the waiver, while they have a lengthy record of punishing non-cooperation.
But it wasn’t to be with the new board. The action is sure to fuel the political fire at City Hall, where Aguirre has said the seven new board members, handpicked by the mayor, are political pawns in a cover-up game. Whatever the ideology, the move means that the clouds of investigation are likely to lurk over C Street longer.
The letter from Lam also requests attorney communications for two other lawsuits: one a class-action suit brought by retirees and settled last year, the other a malpractice suit against the board’s outside council for its advice on Manager’s Proposal II. A settlement has been reached in that case but is pending court approval in the face of objections from at least one union and two former board members.
Aguirre also suggested at the meeting that the new board cede legal control to him and replace longtime retirement administrator Lawrence Grissom, a move not well received by several board members.
“I personally have not seen anything in the record that would call for such drastic measures,” said John Torres, the one holdover from the 2002 board.
Many of the board members showed a keen knowledge of tax and finance specifics – one of the goals envisioned when the voters approved in November a restructuring of a board that was formerly populated by an employee-majority.
They voted in a public session to take two actions related to the system’s compliance with Internal Revenue Service regulations.
It has been suggested that a provision that allows unions to pay contributions into the system for the benefits of its presidents could violate tax code, which would jeopardize the tax-free status system of nearly $3 billion in assets. The board voted to ask for an IRS judgment on the presidential benefit. It will also ask for a broader look at its system as a whole for other potential issues, particularly flagging other pieces of the system, such as the Deferred Retirement Option Plan, that have raised concerns.
“The IRS will be able to look at absolutely everything and they probably will,” said trustee Peter Preovolos, chairman of a financial management consulting firm.
The board also handled the mundane day-to-day business of the system and approved a fiscal year 2006 budget. Board members interviewed thought the meeting went well and complimented the staff. If nothing else, the new board differed from the old in public acrimony, though some trustees did find the long hours in the chairs uncomfortable.
“We’ve got to have a resident masseuse,” said trustee Thomas Page, a former San Diego Gas & Electric executive. The request caught the trained ear of fellow trustee Mark Sullivan, a vice unit sergeant in the San Diego Police Department.
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