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Saturday, January 07, 2006 | For nearly two years uncertainty has plagued City Hall as federal investigators have poured through the city’s files, searching crimes connected to the financial crisis that threatens San Diego city government for years to come.

On Friday, the first fruits of the high-profile probe finally surfaced when federal prosecutors filed corruption charges against five former pension officials. In the wake of the charges, city officials had varying opinions about what the charges mean for the city, as its tries to navigate its way out of a dark era and into fiscal and political stability.

Some said the indictments of two top pension staff members and three trustees who oversaw the retirement fund could finally answer some questions about how the city’s downfall began.

“We can at last close this chapter in our city’s history and move on with the people’s business,” Council President Scott Peters said in a press release.

Other elected officials say Friday’s charges by the U.S. Attorney’s Office don’t resolve anything.

“This is Chapter One. This is just the first phase,” said City Attorney Mike Aguirre.

City leaders were quick to say that, although the situation was still rocky, the city is paddling toward calmer waters.

In a joint press conference after the indictments were announced, Aguirre and Mayor Jerry Sanders said the culture that bred mismanagement embodied by the 2002 pension deal at the center of the U.S. attorney’s case was in its last throes.

“We must learn from these events, make sure they never happen again, and make this part of our history,” said Sanders.

The mayor repeatedly stated that he did not assign guilt or innocence to the five defendants named in the indictment. He said, however, that the conduct of a few employees who the U.S. attorney alleges engineered the 2002 agreement, known as Manager’s Proposal 2, have unfairly led to San Diegans’ scorn of all city workers.

“It’s following a pattern that’s played for a few years now where citizens are being told that ‘You have no reason to trust the government,’” he said. “City employees are out there everyday, performing vital work for the community, and are being ridiculed by the public because the citizens think they’re the one committing the crimes.”

Aguirre had no problem assigning guilt to the individuals charged Friday. The city attorney’s multiple investigations have previously targeted former pension Administrator Larry Grissom, the pension system’s in-house attorney Lori Chapin, firefighters union president Ron Saathoff, former human resources director Cathy Lexin and former assistant auditor Terri Webster. Saathoff, Lexin and Webster are former pension trustees.

He and Sanders said that San Diego has a new mayor, city attorney, auditor and several financial officers who have been hired since investigations into the city’s fiscal mismanagement started.

Aguirre’s relationship with Sanders has been very cordial since the mayor took office last month. Both referred to each other as being “part of the solution” to the city’s various ills.

However, the possibility of additional indictments still lingers. Sanders and Aguirre both said they thought it was possible that a new grand jury, which must approve of a federal prosecution before indictments are doled out, could continue the case. Friday’s indictments were reviewed by grand jury that started in January 2004, and likely expires this month.

Friday’s indictments allege that Saathoff was provided a special benefit that allowed him to combine his pay as a fire captain and his union salary when calculating his pension. Saathoff and the four other defendants are being accused of engineering the benefit from Saathoff, and withholding information about his perk as well as the pension fund’s wheezing fiscal health when the board approved the 2002 deal. The other four also profited off Manager’s Proposal 2 by fattening their own future retirement checks to the detriment of the fund’s standing, prosecutors said.

Aguirre said he was most interested by U.S. attorney’s claim that the defendants had more information about the deal than other trustees and staff and were withholding it.

As he has done for nearly a year, Aguirre suggested that he assume Chapin’s role as the pension plan’s attorney. Chapin has taken administrative leave at the retirement system, and the city attorney, mayor, the pension board president and city council president all have different ideas about how to replace her.

Aguirre argues that city law says that he should assume the role, while Sanders said that he wants to contemplate the available options and make a recommendation by the time the City Council meets again Jan. 16.

Pension board President Peter Preovolos said the in-house pension attorney is an independent office because former City Attorney Casey Gwinn wrote a memo to that effect nearly a decade ago. Preovolos said Roxanne Parks, the retirement system’s assistant legal counsel, will be Chapin’s temporary replacement and that the board will undertake a national search for her permanent successor.

Next week, a judge is expected to rule on the dispute, which is part of a grander cross-complaint between the city and its retirement system. Council President Scott Peters wants to wait for that ruling before deciding how to proceed.

Councilwoman Donna Frye, a staunch ally of Aguirre’s on pension-related issues, sent a memo to Peters on Friday mirroring the city attorney’s request. She called the action “long overdue.” Peters has the ability to schedule votes on legislation as the council’s first presiding officer.

Calls placed to other City Council offices were not returned.

Please contact Evan McLaughlin directly at

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