Thursday, June 02, 2005 | The legality of a decade’s worth of pension benefits crowded center stage again Wednesday in the city of San Diego, filling dialogue at the press conferences of mayoral candidates across town and lining one new hopeful’s pledge to take San Diego directly into Chapter 9 municipal bankruptcy.

La Jolla attorney Pat Shea, husband to pension whistleblower Diann Shipione, told reporters at Torrey Pines Golf Course that “structured reorganization” – bankruptcy – is the only true solution to solving the multi-billion pension deficit. It is the unique route that avoids tax increases, slashes in services and the selling of prized public land, he said during his campaign kick-off event at the seaside, city-owned course.

Later, City Councilwoman Donna Frye called on Mayor Dick Murphy to hold a special council hearing Saturday to address legal opinions from City Attorney Mike Aguirre and outside law firm Luce Forward Hamilton & Scripps that say pension benefits given from 1996 to 2002 are vulnerable to a court challenge.

The benefits could be voided because their creation violated numerous local and state laws, the reports said. However, little public dialogue has occurred on the subject outside of Aguirre speeches and the mayoral campaign.

And earlier in the day, former police chief Jerry Sanders called on a hybrid approach to Murphy and Aguirre’s divergent tactics.

He proposed a judicial review of the controversial labor contracts struck in 1996 and 2002, both of which allowed the city to pay less than annually recommended into its pension system while gifting enhanced benefits to employees. He would also ask the labor unions to head back to the bargaining table and rework contracts ratified by the council Tuesday.

Frye asked that Murphy and Aguirre sit down and find a way to seek declaratory relief in the courts.

“We need to get our house in order now and we need to do it quickly in a court of law,” she said.

Murphy, who showed a new level of camaraderie with members of the Municipal Employees Association white-collar union during a council hearing yesterday, declined Frye’s request for a hearing.

Sanders said his proposal has “the potential to lead us out of this mess and help restore the city’s finances.”

Aguirre is preparing what he calls “comprehensive legal action” to cease the payment of the benefits he has deemed illegal. A repeal of these benefits could halve a pension deficit estimated to be between $1.37 billion and $2 billion, he says.

However, a majority of city officials view such a move as risky. Union members and attorneys have promised a brisk legal fight if such benefits are challenged.

“The current stalemate at City Hall on this issue is the result of two conflicting strategies,” Sanders said.

Whatever the tact, it is becoming more evident that some action must be taken. The deficit is predicted by those close to the system to grow next year.

The city’s annual contribution to its pension plan is dominating the ongoing fiscal year 2006 budget deliberations. Despite a $40 million increase in revenues over last year, the city is facing the prospect of eliminating 355 positions and severely curtailing services in order to begin paying adequate annual contributions into the pension fund.

Such a scenario is likely a sign of things to come – as a backlog of deferred infrastructure maintenance continues to grow – unless changes are made in balance between expenditures and revenues.

Recently, talk has surfaced among some council members and union leaders that city real estate be sold to cover the pension deficit. Councilman Tony Young has asked for a report on city real estate assets as part of the budget deliberations and on Tuesday, labor attorney Ann Smith suggested the city look at selling some of its real estate “jewels” to cover pension benefits.

Shea served as one of the lead players in the reorganization of bankrupt Orange County in the 1990s, responsible for recouping funds for a pool of 215 entities that included school districts and cities.

He said that despite polls showing the public’s distaste for bankruptcy and its negative perception, he will be the only candidate to candidly address the city’s financial situation.

“You cannot cut enough services, you cannot raise enough taxes and you cannot sell enough city parks to buy your way out of this monster, and best of all you don’t need to,” Shea said.

Both Sanders and Frye have stated that bankruptcy is a final option if all else fails. Both have stated that raising taxes isn’t feasible in the short-term and that they would sit back down with labor leaders and attempt to renegotiate benefits – likely to be a tough task considering that some of the recent deals worked out with unions span three years.

Sanders proposed Wednesday, as the second part of his financial recovery plan, a number of labor concessions he would seek. The concessions didn’t vary greatly from what Murphy and a majority of City Council members had originally sought going into labor talks this spring.

Sanders said the difference will be his leadership. “I think that the message hasn’t been put across in a way that is looking for a lot of interaction right now. And I think I can bring the people to the table,” said Sanders, who began his career as a rank-and-file police officer.

He said he would consider selling public lands, but would prefer to first use them as collateral on loans that would go toward paying down the pension deficit.

Frye has said the city must do away with its current accounting practices, which pension critics say artificially lowers the pension deficit, and present the true numbers to labor leaders so they understand the gravity of the situation.

In her speech Wednesday, she went a step further in seeking a legal declaration on the pension benefits granted between 1996 and 2002.

“We cannot afford to wait any longer for a resolution. There comes a time, in every crisis, when disaster can be avoided. For the city of San Diego, that time is now,” she said.

Shea said Chapter 9 would force unions and others to the negotiating table and drive deals to be made.

“Either you’re at the table or you’re on the menu,” he said.

His job would be to convince voters that Chapter 9 is a positive tool that can be used to reorganize San Diego in a time of crisis, Shea admitted.

“I want voters to understand it’s a process, it’s not just something that happens to you like getting hit by a bus,” said Shea, a friend of Aguirre. “It’s a process, there’s a structure to it. There are protections in it for taxpayers; there are protections in it for your assets.”

Meanwhile, there remained no clear indication coming from City Hall as to what the next move would be to deal with the pension deficit.

“Time will tell who was right in this crisis, but now we need resolution,” Frye said.

The primary election to replace the resigning Murphy is scheduled for July 26.

Please contact Andrew Donohue directly at

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