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Thursday, May 19, 2005 | Portraying San Diego’s pension problem as a deliberate fraud carried out on the highest levels of city government throughout many years, City Attorney Mike Aguirre released a report Wednesday declaring that a number of benefits elected officials created for themselves and their predecessors between 2000 and 2002 are illegal and void.
Aguirre continued his personal pillaging of the pension system – and the raft of benefits he has declared illegal and void – the day after six former and current pension board members were charged with felony violations of California conflict-of-interest law.
“What has happened is that the pension plan has somewhat become a personal benefit slush fund for council members and for senior officials,” Aguirre said at a press conference.
It is the fifth in a series of reports Aguirre is using to demonstrate how the city arrived to have a pension deficit estimated to be between $1.37 billion and $2 billion. The reports also explore reasons behind the fact that the deficit wasn’t fully disclosed to investors. They also call on the council to cease paying what he says are illegal benefits created between 1996 and 2002.
Aguirre promised a sixth report in weeks with details stretching back to the original Manager’s Proposal 1, which in many ways started the historic pension underfunding. He said “comprehensive legal action” would follow, as would involvement from his criminal division.
The report released Wednesday details three changes made in the special retirement program for elected officials made between 2000 and 2002 that Aguirre said are illegal and void because no accompanying funding was provided and proper legislative guidelines weren’t followed.
The first change noted by the city attorney was made in 2000 by the City Council near the end of the administration of former Mayor Susan Golding. The change allowed elected officials to increase one of the key numbers – known as the multiplier – in the equation used to figure a retiree’s annual package.
The size of an employee’s pension check is determined by multiplying three figures: years of service, final annual salary and the so-called “multiplier.”
The City Council at the time changed the multiplier from a complex formula that usually equaled about 3.1 percent or 3.2 percent to a flat rate of 3.5 percent. (General employees at the city had their multiplier changed from 2.25 percent to 2.5 percent as part of the Manager’s Proposal 2 deal that led to the charges filed Tuesday.)
The modification also allowed elected officials to begin drawing retirement benefits at age 55 rather than 60.
The City Council in 2002 under Mayor Dick Murphy then moved to extend this benefit retroactively to the 18 former council members in the pension system, 12 of which were retired. The remaining six were waiting to reach the proper retirement age.
The council’s move, which Aguirre said was initiated by Councilman Jim Madaffer, meant annual pension increases of between $186.49 and $4,847.04 for their predecessors. The average former council member received a 15.7 percent pension boost. Read a sampling of the figures.
“I’ll go to bat for retirees,” Madaffer said when asked about the action.
“Clearly if I suggested or did anything it was with the full support of the City Attorney’s Office,” the councilman continued. “I can appreciate what’s going on here. Now there’s a new sheriff in town and he’s saying it’s all wrong. I relied on the legal advice of the previous city attorney.”
Former City Attorney Casey Gwinn finished his second and final term in 2004.
Aguirre criticized his predecessor for allowing the changes to be made, and said the deputy city attorney who handled many of the pension matters, Michael Rivo, has been granted immunity by U.S. Attorney’s Office and is cooperating fully with the federal investigation into possible political corruption.
The Securities and Exchange Commission is also investigating errors and omissions in the city’s financial statements. The District Attorney’s Office filed its first charges Tuesday as part of an ongoing, 11-month investigation into City Hall.
The third benefit created by recent councils in fact went directly to Gwinn, according to Aguirre’s report.
The benefit, created by the City Council in October 2001, wrapped Gwinn into the Legislative Officers Retirement Program. The move forced the plan to be renamed to the Elected Officers Retirement Program and allowed Gwinn to similarly collect benefits after four years of service and before the age of 62.
Council members had been able to do so since 1971, which Aguirre said is also a violation of the city charter’s provision that stipulates that all city employees must work at least 10 years before qualifying for the pension system and can’t collect a check until turning 62 years old.
The city attorney said his investigators didn’t come across the changes to elected officials’ pension packages.
“I can tell you that we never would have discovered what we consider a serious transgression had it not been for personnel in the pension system itself. We are starting to get some modest cooperation,” he said.
Aguirre’s reports, which are often dismissed out of hand immediately by city and union officials, appear to be gaining traction as time passes.
His repeated assertion – in the form of two investigative reports and one memorandum of law – that hordes of benefits granted in the last decade are illegal and should be rolled back has become one of the early themes of this year’s young mayoral campaign. Both of the declared candidates, Councilwoman Donna Frye and former police chief Jerry Sanders, have adopted some form of the stance.
Aguirre asserts that the massive debt created by these benefits – which largely haven’t been paid for throughout the last decade – is ruining city finances for generations to come. City officials must cut illegal benefits and raise taxes to cover the legal ones if the city is to survive financially, he says.
Mayor Dick Murphy’s original plan to knock $600 million off of the pension deficit in the next two years by gaining concessions from labor unions took a serious hit this week as contracts with all but one of the unions were agreed upon.
The savings expected dropped to $350 million after negotiations were completed and rely on the release of $200 million of pension obligation bonds, said Deputy City Manager Bruce Herring. The city remains unable to float bonds without an audited fiscal year 2003 financial statement and with a suspended credit rating from one of the three major rating firms.
A majority of council members would have to vote to declare the benefits void and instruct the city treasurer to cease payment, Aguirre said. Such a move would knock off about half of the pension deficit, the city attorney said.
However, no one besides Frye, Aguirre’s long council ally, agree with him.
“I think that’s seductive. But you don’t get to make benefits illegal by snapping your fingers and making them illegal,” said Councilman Scott Peters.
He said such a declaration would mean a drawn-out legal battle with labor unions – a battle with an uncertain end.
“The city attorney’s opinion is different from that of other attorneys we’ve talked to,” Peters said.
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