Friday, December 02, 2005 | A shipbuilding executive who served as a volunteer pension trustee told a Superior Court judge Thursday that he felt the agreement at the heart of the criminal charges against six former city of San Diego pension trustees was a “slam dunk” to be approved from the first time it was presented to the board.
Richard Vortmann, president of NASSCO, said it was inevitable his colleagues would sign off on the now notorious arrangement because they had worked to create it while wearing their other hats as city management and union officials.
In 2002, the city faced having to infuse a lump-sum payment into its dwindling pension system. To avoid the payment, officials crafted what’s known as Manager’s Proposal 2, which forgave the city of the payment in exchange for enhanced pension benefits for employees.
“I felt it was highly inappropriate,” Vortmann said of the arrangement that he said promised benefits based on the board’s actions.
Vortmann said he was “extremely upset” when former City Manager Mike Uberuaga first presented the pension board with the request. Vortmann said the board, which is supposed to safeguard the pension system’s funds, should not have been placed in the middle of labor negotiations.
Prosecutors from the District Attorney’s Office agreed and have filed felony conflict-of-interest charges against six pension officials, claiming that their personal pensions were boosted as a result of their votes in favor of the deal.
Charged are John Torres, a fingerprint examiner and union representative; Cathy Lexin, former human resources director; Ron Saathoff, president of the firefighters union; Sharon Wilkinson, a management analyst; Terri Webster, former acting auditor; and Mary Vattimo, former treasurer.
The pre-trial hearing began Monday and is expected to last for three-to-eight weeks. Upon its conclusion, Judge Frederic Link will decide if the charges have merit and require a jury trial.
But on Thursday, at the close of a hearing that featured lengthy testimony from two former pension trustees, Link told attorneys he may throw out the case because complaints by defense counsel over their access to information.
Bob Rose, Torres’ attorney, has filed a motion compelling the prosecution to furnish all transcripts and exhibits it has from the U.S. attorney’s related secret grand jury proceedings. Rose claims that the defense has not been granted access to information that could pertinent to its clients’ case.
Prosecutors say they were given the transcripts to grand jury interviews with seven city officials, which they have made available to the defense, by the U.S. Attorney’s Office after the move was approved by a federal judge. Prosecutors say they didn’t make the request for the documents and have no further access.
There will be no hearing Friday. The judge will hear the defense’s motion Monday.
In his testimony, Vortmann said he didn’t feel Manager’s Proposal 2 could be stopped from the inception, only that it could be modified. The City Council and the board eventually did modify the proposal, as specifics of the city’s payment structure were altered.
He said that the granting of employee benefits, in his mind, was always tied to the pension board’s actions. Although officials later tried to cover their tracks, the first proposal made to the board was made the connection clear, he said.
Under cross examination, the shipbuilder gave a more nuanced explanation of the financial repercussions that motivated the proposal in the first place than is often offered.
Vortmann said there were a number of interpretations regarding exactly how the lump-sum payment would be made and how much it would cost the city. Vortmann said he felt the pension board and the city likely would have ended up in litigation had the pension deal not been struck.
He also said the Manager’s Proposal 2, under some sets of circumstances, could have been better financially than Manager’s Proposal 1, a similar agreement struck in 1996 that was modified by the 2002 pact.
The deal, brought about by the city’s troubled finances, has now come to highlight its financial woes. The pension system has a deficit estimated to be at least $1.37 billion, which is due in no small part to the funding plans of 1996 and 2002. The city’s annual payment toward the deficit now dominates the city’s budget and has, along with other factors, forced a curtailing of basic city services.
The deal has also drawn the attention of the Securities and Exchange Commission and the Justice Department, who have been investigating City Hall since early 2004.
But Vortmann said that he thought the board did its due diligence in an open manner in connection with the deal. And, he said that one of the defendants, Webster, had recruited him to serve on the pension board in hopes of reforming prior pension funding practices.
In the hearing’s morning session, defense attorneys cross examined Tom Rhodes, a police union’s representative on the pension board who voted against the 2002 deal.
They attacked speculations he made Wednesday regarding the trustees’ motivations for approving the deal now at the heart of the city’s political and fiscal woes.
Rhodes, a San Diego police officer, said he never directly heard the six officials on trial discuss why they voted for Manager’s Proposal 2 although he speculated during testimony Wednesday that they did so for personal financial gain.
The deal allowed the city to continue its practice of underfunding the pension fund. Prosecutors say that the fact that the city tied pension benefit enhancements
Under questioning from prosecutors yesterday, Rhodes speculated that the six trustees voting on the pension funding arrangement because they knew doing so would lead to an increase in their personal pension accounts.
Rhodes, during cross examination, also said that pension attorneys never warned trustees that voting on the proposal could be illegal or run counter to state Government Code 1090 – the conflict-of-interest statute that trustees are accused of breaking.