The Morning Report
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Wednesday, July 06, 2005 | The standoff between city officials and the pension board roiled yesterday during a special hearing, with City Attorney Mike Aguirre threatening to sue the board’s trustees if they continued to keep protected documents from auditors and investigators. The board later voted to continue their discussion July 15.
The vote marked the fourth meeting of a pension board reconstituted in April as part of city officials’ efforts to reform the troubled system. The new board has chosen not to release documents protected by the attorney-client privilege each time.
The city’s outside auditors, KPMG, won’t certify the city’s long-delayed 2003 fiscal year audit until the pension board grants investigators access to its archives. Without the audit, the city cannot regain its credit rating and return to the financial markets.
Without access to the financial markets, the city cannot borrow money to do the things that cities do, such as fix roads, build fire stations and replace sewer pipes.
“You are leaving the city with no option but to take the matter to court, which I promise you I will,” Aguirre told the board. “If you do not waive the attorney-client privilege today, the next time you will see me is after you are sued and we’re taking your deposition.”
The pension system, which carries a deficit of at least $1.37 billion, is at the heart of a raft of ongoing investigations.
The city has hired a group of attorneys and auditors to investigate its financial reporting practices and the pension system. Aguirre is conducting his own investigation into City Hall. District Attorney Bonnie Dumanis in May charged six current and former pension board members with felony conflict-of-interest charges as part of an ongoing probe.
For more than a year, the Securities and Exchange Commission has been investigating errors and omissions found in the city’s financial statements, while the FBI and U.S. Attorney’s Office are jointly investigating possible political corruption.
The new pension board, by a vote of 7-to-4, chose Tuesday to continue its debate until its regularly scheduled monthly meeting July 15.
Retirement administrator Larry Grissom said the board hopes to come to some conclusion at the next meeting, although meetings have been scheduled weekly for the month of July. The board usually meets monthly.
Bill Lopez, the city manager’s representative on the board; Mark Sullivan, a detective representing the Police Officers Association; Bill Sheffler, a volunteer trustee; and Joe Flynn, the retiree representative, voted against the continuance. The four trustees have all publicly supported the waiver.
Trustee Robert Wallace was absent, while John Torres, one of the six pension trustees charged by the district attorney, recused himself.
“The board takes its responsibility to protect the trust fund, its members and beneficiaries, very seriously. Giving up this historically protected right dating back to the Roman times should not, and will not, be made lightly,” said Peter Preovolos, the new board president, in a prepared statement.
The pension system’s woes date back to 1996, when the city began a pattern of annually paying less into the pension system than was recommended while also increasing benefits for employees and elected officials.
The effects of the funding policies were largely obscured by strong stock market returns until 2002. Now, the deficit threatens to grow and to continue to eat away at the city’s day-to-day operating budget.
April Boling, former chairwoman of the Pension Reform Committee that was tasked in 2003 and 2004 with creating a solution for the growing pension deficit, urged the board to waive the privilege so that it can learn what went wrong at the pension system and ensure that such things don’t happen again.
“Were there illegal acts? Were people misled? Were people completely innocent? The only way you will know is by releasing those documents to someone who has the other part of them so that the pieces can be put together and the whole story can come out,” Boling said.
Aguirre has recently begun urging the pension board to conduct its own illegal acts investigation for its audit, as the city has been required to do by KPMG. The city’s auditors require it because of allegations of wrongdoing at the pension system, and the pension board should do the same to ensure its audits are credible, he said.
The pension system’s auditor is Caporicci & Larson, the firm that was dismissed by the city after more than $500 million in errors were found in its 2002 audits, Aguirre said.
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