The Morning Report
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Tuesday, January 10, 2006 | Attorneys defending the six former retirement trustees who are facing state corruption charges took aim at the prosecutors’ bread-and-butter argument Monday, contending that the slack their clients cut the city on its pension bill in 2002 was not tied to the pension boosts they received that same year.
The defense used its first day of calling witnesses in this pre-trial hearing to try dispelling the connection between pension enhancements and the retirement board’s approval to relieve the city of a lump-sum payment it faced. The defendants, all city employees at the time, are being charged with criminal conflict-of-interest violations for helping approve the underfunding pact as retirement board members that effectively increased their personal pensions.
Defense lawyers on Monday called on the retirement board’s former president and the attorney for the city’s white-collar union. Both said the benefit increases were initially tied to the city’s request for relief, but that the enhancements were later separated out in the early stages of the city’s proposal.
“My understanding was that the benefits were already granted,” said former board president Frederick W. Pierce IV said about the pension board’s tentative approval of the agreement in July 2002. “We made our decision irrespective of the benefits and whether or not they were put in jeopardy.”
Prosecutors have rallied around the relationship, calling former trustees and city administrators to testify that they recognized a link between the funding arrangement and the benefit increases when taking the witness stand last month.
Firefighters union President Ron Saathoff, white-collar union Vice President John Torres, former city Treasurer Mary Vattimo, former Human Resources Director Cathy Lexin, former Assistant Auditor Terri Webster and city management analyst Sharon Wilkinson are being charged in the district attorney’s case.
Additionally, Saathoff, Lexin, Webster and two senior members of the retirement system staff face federal corruption charges for their roles in the deal, known as Manager’s Proposal 2. Indictments in that case were handed down Friday.
Manager’s Proposal 2 essentially revised Manager’s Proposal 1, a 1996 contract between the city government and the San Diego City Employees’ Retirement System that ordered the city to make a lump-sum payment if the retirement system ever fell below a determined funding level. In 2002, the city faced such a scenario and forged the second agreement to avoid a budget-breaking pension payment.
SDCERS now has a shortfall of $1.37 billion due to benefit increases and underfunding that accompanied Manager’s Proposal 2. The city’s pension deficit has forced larger payments from the city, stretching the municipal government’s already-thin operating budget.
Pierce said the original 2002 proposal former city Manager Michael Uberuaga brought to the pension board was “unacceptable” because it explicitly stated that employee benefits were tied in.
“I essentially said, ‘Get that linkage the heck out of here, we don’t want to have anything to do with it,’” Pierce said Monday. As president, Pierce chaired the board and set the policy agenda for SDCERS.
Pierce said that, once he and retirement Administrator Larry Grissom made it clear to city administrators that the benefits needed to be sorted from the board’s decision, that he would consider it. The board tentatively approved a version of Manager’s Proposal 2 in July 2002.
However, minutes from the SDCERS board meeting on July 11, 2002 show that Grissom explained that the pension benefits the city granted in labor negotiations that year were conditioned on the board’s passage of Manager’s Proposal 2. Grissom was one of the retirement system staffers indicted Friday.
Also, the council finalized the benefit increases on the same November day that they approved the restructured payment plan authorized by the pension board.
Pierce said he supported Manger’s Proposal 2 because the 1996 pact had no deadline for the pension plan’s funding. He said he was willing to concede the short-term bill the city owed if it meant nailing down a schedule to make the fund whole.
“There was daylight shed that this 1996 agreement was no good,” said Pierce, who noted that he discussed his concerns with Saathoff.
The lump-sum payment the city was estimated to owe under Manager’s Proposal 1 was $25 million, he said. Pierce said the assets of the SDCERS portfolio often fluctuates that much in one week.
Ann Smith, the attorney for the city’s white-collar union, said the contract offer the Municipal Employees Association accepted that year stated that the pension increases were conditioned on the board’s approval of Manager’s Proposal 2, but that the version passed by the City Council did not.
The city’s rank-and-file workers were pushing for a pension increase during the 2002 negotiations because the county workers won higher retirement benefits that year, Smith said. She said the enhancements were made contingent at the bargaining table, but were not proposed as a way to get pensioners to go along with the underfunding proposal.
Smith said that Torres and John Casey, who was also a MEA official who sat on the SDCERS board, recused themselves when the union discussed the retirement aspect of the city’s proposal during negotiations. Casey is not being prosecuted, because he didn’t get a pension boost as a city worker in the deferred retirement option program, or DROP.
A boost to workers’ pensions was favorable, she said, but she didn’t think the board members ever tried to endanger SDCERS for their own gain.
“Everyone wants to count on that retirement benefit for the rest of their lives,” Smith said.
Former City Manager Lamont Ewell, who was a deputy administrator in 2002, is expected to testify Tuesday at 9:15 a.m.
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