Thursday, July 07, 2005 | With no love lost, law Congers all. Local attorney Michael Conger has filed another lawsuit regarding the city’s controversial pension plan on behalf of retirees, this time directing his complaint at the city of San Diego.
Conger, on behalf of former city employee William McGuigan, is asking the courts to force the city to pay into the pension system an actuarially determined amount that would reconcile the fund’s deficits from 1997 to 2004, plus interest. The suit, filed June 28, alleges that city officials violated the state constitution, city charter and municipal code by not fully funding the pension plan while covering up the underfunding in annual financial reports and bond disclosures from 1996 to 2003.
City Attorney Mike Aguirre said his office is reviewing the lawsuit, which was filed in San Diego County Superior Court. He said he agrees that the city should pay what it owes to the pension fund, but not an amount that includes the cost of benefits he believes are illegal.
Aguirre and several mayoral candidates want a court to decide whether the benefits granted between 1996 and 2002 are illegal, but the idea has been shunned by the majority of the City Council. Rolling back these benefits, Aguirre estimates, could knock off between $700 million to $800 million of the pension plan’s $1.37 billion-plus deficit.
The pension system’s actuary, Rick Roeder of Gabriel, Roeder, Smith and Co., was sued last week by Conger on behalf of three retired city workers who allege that Roeder failed to properly warn pension trustees of the effects of a 2002 funding plan entered into between the city and the pension system.
Bill Lopez, the city’s risk manager, said claims are usually filed with the city before going to court so the city can determine whether or not to settle the dispute prior to going to trial.
Conger said that he didn’t see the value in seeking an out-of-court settlement.
“In my experience, the city has never once taken one of these claims seriously,” he said. “It seems that litigation is the only thing that gets the city to act responsibly.”
He said the suit was very similar to the 2003 Gleason lawsuit. In Gleason, the city is forced to make actuarially determined payments into the retirement system this fiscal year. For the 2006 fiscal year, the city will pay $163 million into the pension fund, compared with $130 million for 2005. Next year’s contribution is expected to top $200 million.
“Gleason was more designed to stop the practice of underfunding going forward,” Conger said. “This suit seeks to hold the city responsible for its own mistake, because they won’t do it on their own.”
Of all the people to moonlight. Arthur Levitt, head of the city’s high-priced audit committee, was named a special advisor at American International Group, Inc., an insurance firm currently at odds with the city of San Diego.
AIG, under investigation for accounting irregularities, hired Levitt to advise the insurance and financial services company on potential nominees for election to its board along with issues pertaining to board procedures, structure and governance.
The firm is currently disputing its obligation to provide insurance to the city, which was ordered to pay in its case against developer Roque De La Fuente. In 2001, a jury ordered the city to pay De La Fuente $94.5 million for violating a 1986 development agreement that allegedly ruined his Otay Mesa business park. The City Council decided to appeal the verdict in November.
Levitt, formerly the chairman of the Securities and Exchange Commission, is among the five accountants and lawyers being retained by the city of San Diego to guide the city through the investigatory process required by KPMG before it releases San Diego’s 2003 audited financial statements. Without audits, the city is essentially shut out of the municipal bond market, an avenue sorely needed to raise money to fund street and sewer projects that have been long-deferred.
The audit committee – comprised of accountants from Kroll Inc. and their attorneys from Willkie, Farr &Gallagher LLP – is costing the city about $800,000 a month for its services. Levitt is earning about $900 an hour for his work.
Calls placed to New York-based AIG seeking more information on Levitt’s workload and compensation with the firm were not returned.
Aguirre, the city attorney, said he was disappointed that Levitt was taking a position with AIG while also under contract with the city, and that the City Council should weigh whether the high-priced accountant is going to be conflicted between his two employers.
“We’ll have to wait and see,” Aguirre said. “They’re our insurers and they’ve turned their back on us. We’re at each other’s throats right now.”
Lynn Turner, also with the audit committee, said he is confident that Levitt’s new gig with AIG will not interfere with the group’s work with the city of San Diego.
“Arthur and I have talked about it. It won’t have any impact,” said Turner, a former chief accountant at the SEC who now works at Kroll with Levitt.
Book it as a loss, Danno. The state budget agreed to by Gov. Arnold Schwarzenegger and the legislative leaders Tuesday left out a very important chunk of money for the city of San Diego – a reimbursement for the $5.2 million in booking fees the city will pay San Diego County to provide beds for prisoners.
The reimbursement for the city’s booking fees was a “contingent revenue” that City Manager Lamont Ewell counted on during this spring’s budget proceedings. Because city officials figured the reimbursement would come through, a budget was passed before the June 30 deadline that appeared to be balanced, as mandated by the City Charter.
The state has picked up the booking fees tab in the past, and a mid-June revision of the state budget included the reimbursement, but San Diego’s lobbyists knew there was a chance it would be left out of the final agreement.
“It’s been on the chopping block for a number of years,” said Brent Eidson, assistant director of governmental affairs for the city. “Going in, we knew there was a possibility it would get cut this time around.”
The city’s finance officials were out of the office Wednesday and did not return calls.
Wanted: A knack for numbers and thick skin. The city’s embattled retirement system is accepting bids from actuaries looking to oversee the system’s very fiscal matters.
The contract for the current actuary, Rick Roeder of Gabriel, Roeder, Smith and Co., expired last Thursday – the end of the city’s fiscal year. Although Roeder has taken heat for his role in the $1.37 billion-plus pension debacle, a San Diego City Employees’ Retirement System statement released Wednesday said he is invited to compete for the job again.
“We have complete confidence in the firm’s ability and the work they have done for us in the past,” retirement board president Peter Preovolos said in a prepared news release. “At the same time, SDCERS has a responsibility to regularly evaluate contracts with outside providers to ensure that we are receiving the best possible products and services at competitive pricing.”
The SDCERS board of trustees relies on the actuary to make estimates of how much money should be paid into the city’s pension fund, based on demographic and financial projections. The board is slated to take the issue up at its meeting next Friday and to make a final decision by Sept. 15.
Roeder’s critics include a trio of retirees who filed a suit against him Thursday, the city’s five-man audit committee, City Attorney Mike Aguirre and several mayoral candidates. They allege that Roeder has failed to properly raise concerns over funding arrangements that have contributed to the pension system’s behemoth deficit and actively worked to hide the severity of the problem.
Roeder has maintained that he worked in the best interests of the system.
– EVAN McLAUGHLIN, Voice Staff Writer
Please contact Evan McLaughlin directly at