Saturday, August 20, 2005 | Even in a slow vacation week in San Diego’s political world, detail and significance can easily get lost in the enormity of the city’s crisis.
But in a matter of days this week, a number of details subtly altered the stage of the city’s unfolding drama. Another in a steady stream of federal subpoenas landed at City Hall, this one from the U.S. Attorney’s Office. For the first time, investigators on the criminal end of parallel federal probes found interest in happenings outside of the pension realm and into the city of San Diego’s sewer department.
At the same time, lawsuits continued to pour in and out of City Hall.
The city attorney filed suit against two outside pension consultants he says are culpable, in part, for the creation of a pension deficit estimated to be at least $1.37 billion. It is the first in what is expected to be a number of third-party complaints seeking damages against those who provided advice in the years running up to the current financial crisis.
Orange County recouped approximately $800 million from third parties following its collapse, including $75 million from KPMG – the firm now in charge of San Diego’s long-delayed 2003 audit.
Earlier in the week, police officers filed suit seeking more than $100 million in damages from a city struggling to provide basic services to its employees. Talks broke down in a separate $100 million lawsuit settlement with a local developer; a conservative business group filed suit against the city to change its election laws.
Six former pension officials have sued the city because it won’t provide them legal representation in a lawsuit brought by City Attorney Mike Aguirre accusing them of misusing their official positions. Fuel for the officials’ case: A legal opinion from a city-paid law firm that was made public saying the City Council should, in fact, pay their legal bills.
“Every time we turn around, someone else, either internal or external is suing this city,” said Ron Villa, director of the city’s financial management division, in an e-mail. “This is potentially money that could be used for other priorities such as increases to reserves, deferred maintenance, public safety or infrastructure needs.”
Indeed, the city’s $6.2 million public liability fund, which goes to cover the costs of its auditors, consultants and outside attorneys, will be stressed this year. If that fund runs dry, costs will need to be further trimmed from services already curtailed during this year’s budget cycle.
When outside eyes peered upon San Diego’s chaos at the start of the year, they saw a city in need of compromise and sacrifice.
A vision appeared of a leader who would pull all interested parties into a room, honestly articulate the depths of the city’s problems and convince the labor, business and other communities of their roles in the solution.
John Moorlach, the Orange County treasurer who had warned of his county’s impending crisis, put it bluntly: The county imploded under immense financial burdens because of a lack of leadership.
A half-a-year later, the city of San Diego appears to be inching ever closer to bankruptcy. An already-splintered city has shattered into strict factions. The city’s credit rating continues to slide as questions have arisen regarding the city’s cash flow, financial statements and political stability.
Lawsuits filed by or against the city pile up daily, stretching the city’s already thin resources. Relief for a budget crisis highlighted by a billion-dollar pension deficit appears to be a distant prospect. City Attorney Mike Aguirre last month filed his long-promised legal challenge to a decade’s worth of pension benefits, but even he admits resolution could be between three and five years away.
“Man, oh man, you guys are just dead in the water there,” Moorlach said this week.
Recent developments underscore a startling trend: Groups are beginning to stake out their own claims as San Diego’s crisis drags on.
Police officers have filed multiple suits against the city. The pension system, already more than $1.37 billion in the red, will bring on its own audit committee in an attempt to clear allegations of wrongdoing by pension officials.
It is a task that two city-paid law firms have already undertaken. A third group, the city’s audit committee, was commissioned in part to tackle the same duty. The group of five consultants bills the city about $800,000 a month as budget woes curtail city services.
The pension’s audit committee will perform similar tasks. And its bills, likely to be extensive, will be paid from the deficit-laden pension fund.
The Port of San Diego is crafting a bill in the state Legislature to make it easier to remove – and thereby protect – their stake in the city’s beleaguered pension in the event of a financial breaking point.
Perhaps frightened by the high drama playing out around City Hall and eager to collect on their retirements while available, city employees are choosing retirement and other retirement-related options at a much more rapid pace than in years past. This July, for example, retirements were up 81 percent over July of last year.
In short, a half-a-year later, things have gotten worse rather than better by many measurements.
“We’re skating on thin ice,” said Steve Erie, political science professor at the University of California, San Diego. “We always see the glass half-full rather than half-empty. We’ve never done worse case scenario planning and it’s going to catch up with us. The question is: Will it catch up with us before we have a mayor in place?”
The prospect of a new mayor seems to be the one shining hope. San Diegans go to the polls Nov. 8 to choose between maverick City Councilwoman Donna Frye and former police Chief Jerry Sanders.
The winner inherits a city steeped in investigations by the U.S. Attorney’s Office, FBI and Securities and Exchange Commission. The city’s 2003 and 2004 financial statements remain on hold pending the release of documents long-guarded by the pension board. Without certified financial statements, the city remains without access to public financial markets and the capital to do the things cities do for their residents: repair roads, replace sewer pipes and build fire houses.
The city’s audit committee pushes ahead on a comprehensive investigation of past city practices and, in one of the tidbits of good news, believes an audit can be completed by the end of the year. But, as many admit, the city’s problem is now getting as political as it is financial.
The sudden resignation of Mayor Dick Murphy and the convictions of former Councilmen Ralph Inzunza and Michael Zucchet leave the council with only six members. Four of the 13 pension trustees have resigned, citing the city’s toxic political climate.
Both bodies need near-unanimity to take official action.
However, in the face of an adversity that has captivated a national audience, little common ground has been found between the city’s varied interests. Instead, individual factions appear to be grabbing for their piece of the ever-threatened pie.
“This is all self interest,” said attorney Pat Shea. “You only get out of these things if you can turn self interest into community interest.”
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