Wednesday, May 11, 2005 | Rolling on. Three high-level city officials became the first city workers to relinquish a share of their personal pension benefits Tuesday. City Attorney Mike Aguirre announced that City Manager Lamont Ewell and Councilwomen Donna Frye and Toni Atkins will review or undo their purchases of a controversial pension benefit that has had some impact on the city’s pension deficit. “This represents a major breakthrough,” Aguirre said. “… We think that will set a good example.”
Aguirre has begun a campaign asking city workers to voluntarily rework a number of benefits that he believes were illegally granted on a number of grounds in the past decade. The employees broke no laws by purchasing years of service credit, which allowed employees to add years to their pension formula without working them. The pension system’s actuary later determined that the benefit was significantly subsidized by the city.
The city attorney has said the only way the city can manage its pension deficit – calculated between $1.37 billion and $2 billion – is through repealing existing benefits he has deemed “illegal” and raising revenue to cover legal benefits.
Read Voice’s in-depth look at the service credit and the financial interests of council members and Mayor Dick Murphy.
Speaking of benefits. At 9 p.m. Tuesday night, Murphy and a group of employees from the city’s white-collar union, the Municipal Employees Association, announced a tentative deal on a three-year labor contract. Pending approval from union membership, the deal includes a two-year salary and benefit freeze and an increased pension contribution for employees.
The MEA represents 6,000 of the city’s estimated 11,000 employees, and winning concessions from City Hall’s four labor unions is a key cog in the outgoing Murphy’s plan to tame the pension deficit. He believes that if the other three unions follow suit, the city can shave $350 million from the deficit.
“That is really just a good down payment on the program. These employees have made a great sacrifice as part of paying down the pension deficit, and the city council will have to do more,” Murphy said.
The agreement also calls for doing away with a number of the more controversial pension benefits, including the Deferred Retirement Option Plan, or DROP; the 13th check; and the purchase of service credits.
A consultant for the consultant. Although they had hoped aloud that Valentine’s Day was going to be the last day they did so, the City Council voted Tuesday to add more consultants to the list of out-of-town folks helping them weave through their myriad of legal and financial problems.
On Feb. 14, the council approved a $250,000 contract for Kroll, Inc., with the understanding that Kroll consultants – including two former leaders at the Securities and Exchange Commission – would reconcile investigations conducted by Aguirre and the city’s law firm, Vinson & Elkins. The move was an effort to push out the long-delayed 2003 fiscal audit, clogged by outside auditor KPMG pending investigations into possible wrongdoing in connection with erroneous financial statements filed by the city.
But the investigation is taking longer than expected and Kroll needs its own legal counsel to help it with disclosure and criminal legal analysis. That forced Kroll officials, who include former SEC commissioner Arthur Levitt and chief accountant Lynn Turner, to come back and ask for $1.5 million more. They also asked for $500,000 to hire attorneys.
Aguirre objected, saying the move was a sleight-of-hand to slide Vinson & Elkins out of the picture. Questions surrounding the law firm’s ability to complete an independent investigation have hung around City Hall since last fall. According to documents released by Aguirre’s office, Vinson & Elkins has been paid more than $3.7 million for their work, which has satisfied neither KPMG nor the SEC, whereas KPMG has been paid $3.2 million. Both firms started off with contracts of $250,000 or less.
Many council members wondered if the long-delayed audit, crucial to restoring the city’s credit rating and returning it to the bond markets, would ever get done.
“The city is so far down this path that we’re going to have to just drive on through this,” Ewell said.
The vote was 5-to-2, with Frye and Councilman Tony Young dissenting. Councilmen Michael Zucchet and Ralph Inzunza had already returned from their corruption trial, but were absent.
What a privilege. Also Tuesday, the council voted to formally tell the board of the San Diego City Employees’ Retirement System “in the strongest language possible” to waive its attorney-client privilege in connection with the federal, local and audit investigations into the pension system and city finances.
The board’s refusal to turn over key documents to investigators has reportedly slowed the 2003 audit, as well as investigations by the SEC and the U.S. Attorney’s Office. Investigators are apparently after documents that would reveal what was known about the size of the pension deficit and the details of a 2002 deal in which the pension board allowed the city to continue to underfund its pension system in exchange for enhanced retiree benefits.
“We need you to do this so that the city can do its business,” Atkins said.
– ANDREW DONOHUE, Voice Political Writer
Please contact Andrew Donohue directly at