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Friday, November 18, 2005 | This is part one in a two-part series.
Nov. 18 is a landmark date for many people. In Latvia, it marks the day the Baltic state declared itself independent from the Soviet Union. Jazz fans may remember it as the day legendary singer and bandleader Cab Calloway died of a stroke in 1994. For comic strip buffs: “Calvin and Hobbes” was first syndicated on that day 20 years ago.
Some San Diegans know Nov. 18 for a different reason. Hallmark doesn’t peddle a card commemorating it and local beaches won’t be swamped with crowds on Friday the same way some holidays are celebrated in town.
But when they write San Diego’s modern history, Nov. 18, 2002 very well could have its own chapter.
Many of the important legal, financial and political flames that have traced San Diego’s municipal meltdown find their roots in that day. It is a day when the city’s normalcy began to slowly fissure into a full-fledged municipal crisis that continues to shake out today.
Dozens of individuals showed up to support or oppose replacing the system’s existing library hub with an expansive-and-expensive, state-of-the-art flagship.
Diann Shipione, who later would be known as the pension whistleblower also spoke to the council that day for the first time, but not about the library. The council was set to vote on a handful of items that would codify an agreement, now known as Manager’s Proposal 2, which provided city employees with more pension benefits while not requiring the city to fund the pension system to a previously agreed-to level.
The deal was scheduled to be voted on without a discussion of its effect on the San Diego City Employees’ Retirement System, which is currently short $1 for every $3 it owes to current and future retirees. The fund is now the subject of ongoing investigations being carried out by local and federal authorities.
Also scheduled to be voted on without discussion that day was whether to renew the contracts for the outside audit firm to review and certify the city government’s financial statements for the 2003 fiscal year. The 2003 audits, as of press time, have not been certified and released, leaving the city with a suspended credit rating and without access to the public bond markets.
A councilwoman that day also penned a letter to then-City Attorney Casey Gwinn, inquiring about why an item regarding wastewater rate changes was being discussed with the council in closed session. In the memo to Gwinn, Councilwoman Donna Frye requested that the item be discussed publicly and asked for a copy of a report explaining the rate change. Frye received information about the wastewater rates months later. The city is currently under investigation by federal prosecutors and is being sued by a consumers group about facts that were not available to Frye that day.
San Diego is still grappling with the issues raised that day that were never discussed publicly at length the way they are today, and the star of the show that Monday afternoon – the downtown library – is still entrenched in uncertainty as questions about funding for its construction and day-to-day operations abound.
The four issues raised Nov. 18, 2002, provide an outline to a sordid plot in what many agree has become America’s Most Dysfunctional City.
Pension issue far from retired
“It speaks volumes about what they knew and the fact that they didn’t want to do anything to fix it,” Shipione said. “Typically, San Diego responds in a ‘crisis management’ approach. Now we have lots of them.”
The deal is the focus of investigations by the FBI and U.S. Attorney’s Office, and District Attorney Bonnie Dumanis in May filed conflict-of-interest charges against six former pension trustees who were also city employees when the agreement was approved by the SDCERS board.
It has also been the subject of plenty of civil suits – including City Attorney Mike Aguirre’s ongoing legal efforts to have the 2002 pension deal, and a 1996 one like it, totally voided. Such a move would wipe out all pension benefit improvements given to employees since 1996.
In the meantime, the deficit created by those two deals continues to cut away at the basic services the city provides to its residents. Last year, the city scrapped the payment plan called for under Manager’s Proposal 2 and agreed to more fully fund its pension system. The increased annual payment dominates this year’s city budget, placing a stain on funding for libraries, after-school programs and maintenance at public parks and beaches.
The pension problem in no small part forced former Mayor Dick Murphy from office and was the key issue in this year’s search for his replacement. Candidates debated the merits of everything from bankruptcy, slashing the workforce, selling city land and selling hundreds of millions of dollars in land as possible solutions.
Numbers don’t lie … as long as they’re certified
Calderon, Jaham & Osborn, the firm given the renewed contract on that fateful November day, has been blamed by some for the city’s tattered and largely unknown financial shape. The small local firm was originally named the city’s auditors in 1993, replacing a national firm.
“The magnitude of the problem is greater than anybody understands,” said Lisa Briggs, former executive director of the San Diego County Taxpayers Association, who attended that day’s meeting to express her concerns with how the main library would be financed.
Ultimately, the city’s ability to borrow money for much-needed maintenance projects relating to sewers, storm drains, roads and street lights rests on the shoulders of the audits. The city is barred from the municipal bond markets until it receives its credit rating, which is in turn dependent on the certification of the city’s annual financial statements.
Currently, KPMG is waiting for Kroll, Inc. to conduct an independent investigation into the city’s books, which will not be completed until at least next year. Another firm, Vinson & Elkins, was charged with the same task but was told twice by the auditors that their probes were not independent enough and unsatisfactory. Among the obstacles currently delaying Kroll, also known as the “audit committee,” is a similar investigation into the retirement system’s books as well as several technical glitches.
“It was a very complicated issue and hard to get people to actually understand it, especially when you have whole bureaucracy denying the existence of a study that talks about its real effects,” Frye said.
The city’s former rate structure was found to be subsidizing industrial ratepayers by charging residential users more rates.
The lawsuit also attracted the attention of the Securities and Exchange Commission and the U.S. Attorney’s Office, who have launched probes targeting possible corruption and disclosure practices.
Booking library’s construction delayed
“I have a strong recollection of that day,” Boling said. “In the elevator afterward I met a pro-library supporter on the elevator … she said, ‘I’m here supporting the library although I agree with you that the financial portion of this has to be laid out better.’”
Although the state and the city’s downtown redevelopment arm have pledged more than $100 million to the project, its future remains unknown. Months have passed since the city’s deadline for raising $30 million in donations for the project.
So far it has reported raising only $3 million.
The $150 million cost estimate has remained the same since Nov. 18, 2002. As construction and materials costs have increased over the last three years, the library’s grand plans have been gradually trimmed.
Library backers said recently that they remain optimistic despite not meeting the fund-raising goal by September. A construction estimate is due out later this month.
Tomorrow, Part Two: Lessons Learned?
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