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Wednesday, October 05, 2005 | Deputy Mayor Toni Atkins called on three top pension officials to immediately step down Tuesday because she says they wasted the city’s time and money by not cooperating with investigators who are probing the city’s financial dealings.
Atkins called on administrator Larry Grissom, chief counsel Lori Chapin and board president Peter Preovolos to step down a day after the city’s outside audit committee made public several thousand of the San Diego City Employees’ Retirement System’s confidential documents that she said should have been released earlier to better cooperate with various investigators.
Specifically, a legal opinion from March 2003 by the pension system’s outside law firm that found that pension trustees breached their fiduciary responsibility should have been turned over earlier because of its importance, Atkins said.
“Their refusal to do so, until now, has cost the city’s taxpayers million of dollars,” she said.
Until being forced to by a federal court order in August, pension officials had refused to turn over batches of documents to the numerous state and federal investigators probing City Hall. The refusal also has delayed audits and investigations by consultants earning nearly $1 million a month from the city.
All parties are focused at least in part on the pension system. The system has a deficit of more than $1.4 billion, largely the result of agreements between the city and pension board in 1996 and 2002 that allowed the city to shortchange the system while at the same time giving employees richer benefits.
Chapin, the pension system’s top attorney, said the troubles were more the city of San Diego’s fault.
“We’re in all of this because the city asked us to do this,” Chapin said.
The deputy mayor said her urgings were directed at the individuals she believes were giving board members at the San Diego City Employees’ Retirement System faulty advice.
“I strongly believe that for SDCERS to operate appropriately, major changes need to be made immediately,” Atkins said. “The problem is not with the SDCERS board members, but with its leadership.”
The city of San Diego’s books have been under review by federal and local investigators since February 2004.
The 2003 legal opinion, which is among the 60,000 pension documents made available Monday to Voice of San Diego and other media outlets, concludes that the pension trustees “subordinated SDCERS” interests to the interests of themselves, their unions, and the City” when they approved a plan in 2002 that relieved the city of paying a financially sound amount into the pension fund while improving employees’ benefits.
Also in the throng of documents found this week, another legal opinion rendered by the same hired law firm, Seltzer Caplan McMahon Vitek, uses more specific language, saying that the pension board probably violated state conflict-of-interest laws.
Grissom, who manages the day-to-day operations of SDCERS but does not hold a vote on the pension board, said that it wasn’t his decision to withhold the documents. The system’s critics called for the board to waive its attorney-client privilege in order to cooperate with investigators and the city’s outside auditors.
“The waiver issue was a board decision,” Grissom said.
Preovolos said he and other SDCERS officials have acted in the retirement plan’s best interest since he joined the board in March by carefully reviewing the documents before turning them over in September.
“How can you be a responsible person to come into a new environment and not know the facts?” he said. “This is an abominable example of political posturing at its worst. It’s an insult.”
The board also granted the city’s outside audit committee, which is made up of consultants from Kroll Inc., access to the documents.
Kroll, which is charging the city of San Diego $800,000 per month for its work, is conducting an independent illegal acts investigation as part of the city’s long-stalled fiscal year 2003 audits. The Securities and Exchange Commission, which launched its probe into the city 20 months ago, is also awaiting the audit committee’s investigation.
Kroll released the documents, which fill up six compact discs, to media outlets Monday.
Other than calling for resignations, Atkins is limited in removing the three officials. She said she believes the council can approve a resolution that ousts Preovolos, a city appointee. The City Council considered such an action before, but it failed. Further, several retirement trustees said the groundwork has been laid to challenge the legality of such an action.
Atkins said that only the SDCERS board could fire Grissom and Chapin. Trustees available for comment Tuesday evening were mixed in their feelings.
Bill Sheffler, a city appointee to the pension board, said he thought firing Chapin and Grissom was appropriate, but that Grissom’s removal might stall the projects the board wanted accomplished by the end of the calendar year.
“Appropriate remediation would include the removal of Chapin and Grissom,” Sheffler said.
“They’re too important to the decisions of the board,” said San Diego Police Department vice detective Mark Sullivan, a labor appointee.
Both Sheffler and Sullivan said they have supported waiving attorney-client privilege to release documents that would otherwise be confidential. Both said that the fallout could have been avoided if the materials were handed over to investigators a long time ago.
City Attorney Mike Aguirre said that Atkins’ calls for resignations were meant to deflect the suspicion that should be raised toward her, other council members and labor leaders who approved the 2002 pension agreement, known as Manager’s Proposal 2.
At his second press conference of the day, he reiterated an argument he made at his first: that City Manager Lamont Ewell, the council and the labor leaders were at fault for their part in Manager’s Proposal 2.
Ewell, he said, is orchestrating a cover-up of the issues that started with a letter to the council disputing whistleblower Diann Shipione’s claims that the 2002 deal was corrupt, and continues today with the hiring of Kroll. The firm is being paid to defend the city, not investigate it, Aguirre said.
“I’ll see Toni Atkins’ three resignations and raise her a Lamont Ewell,” Aguirre said.
Ewell was out of town and unavailable for comment, city spokeswoman Gina Lew said.
Aguirre said that the release of pension documents has spurred some new ideas for him to challenge pension benefits he believes were created illegally. Aguirre said that stripping those benefits could reduce the pension system’s $1.37 billion-plus shortfall by $700 million to $800 million.
He said that he will ask a Superior Court judge to reconsider his dismissal of civil corruption charges filed against former and current pension and city officials because documents that were recently made public suggest wrongdoing had occurred.
The judge said Friday that the officials cannot be charged with conflict of interest as defined by the Political Reform Act by partaking in negotiating pension benefits from which they profit. Aguirre said that the pension exemption in the law only doesn’t apply to benefits that were created without a mandated funding source. The 2003 Seltzer Caplan opinion rebuts their arguments today that the case be thrown out on behalf of those accused, Aguirre said.
Aguirre also said he may file a civil complaint against individual City Council members and the leaders of public employees’ unions that agreed to the 2002 deal. Seltzer Caplan told the SDCERS board in their earlier legal opinion that Manager’s Proposal 2 was “a conspiracy between the City and Unions to cause the Board members to breach their fiduciary duties,” which is where Aguirre said he got his idea from.
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