Thursday, January 12, 2006 | In one of the first displays of his mandated might, new Mayor Jerry Sanders on Wednesday asked all City Council-appointed trustees of the city’s troubled pension system to step down.

The move has long been a goal of Sanders’ new ally in reform, City Attorney Mike Aguirre, and would shake-up the administration of a system that sits at the heart of the city’s legal and financial problems. If successful, the mayor would purge the San Diego City Employees’ Retirement System of the appointees of former Mayor Dick Murphy and the current City Council and pave the way for Sanders and Aguirre to install a majority of the pension board’s 13 members.

The power play comes on the eve of an important day for both Aguirre and Sanders.

On Thursday, Sanders is scheduled to deliver his first-ever State of the City Address after being elected in November to fix the city’s many ills. That reform was to begin in the pension system, where an estimated $2 billion deficit threatens to engulf city budgets for years to come.

And Aguirre is expected to ask Thursday that a court hearing be postponed in a case that would decide whether or not he can become the pension system’s attorney. If the pension board were to be populated by a majority friendly to Sanders and Aguirre, it could simply allow Aguirre to take over the system’s legal affairs and not leave that fight’s fate up to the court.

Sanders spokesman Fred Sainz refused to comment.

Pension board President Peter Preovolos said he received a call from Sanders on Wednesday, but won’t step down, at least for now. He said the new mayor had lost an early opportunity.

“I think he could show that he is a peacemaker that he could bring the City Attorney’s Office, the Mayor’s Office, the CERS organization all to the table and say 2006 is not going to see any kind of battle fought anywhere,” Preovolos said.

Sanders’ request is testament to the unprecedented muscle created in his unexpected alliance with Aguirre and comes less than a week after the pension system’s former administrator, Larry Grissom, and chief legal counsel, Lori Chapin, were charged with conspiracy and fraud by the U.S. Attorney’s Office. For nearly a half year, Aguirre has lobbied for the removal of all seven of the council’s appointees and Grissom and Chapin.

Three other former pension trustees were charged with fraud and conspiracy charges alongside Grissom and Chapin.

Searches for replacements for Grissom and Chapin are underway, leaving it possible that the troubled pension system could have an entirely new administration and board majority in a matter of months.

Any pension board shake-up would be the second in a year. In the wake of the public recognition of San Diego’s pension problems, voters approved in November 2004 a proposition that restructured the makeup of the pension board. The move took majority control away from city management and union representatives and handed it to seven outside volunteers with financial or accounting expertise.

Voters intended to enact significant reform, as union and city representatives had in 1996 and 2002 allowed the city to contribute less than was owed to the pension system – decisions that are central to today’s oppressive deficit.

However, from its inception in May, the new pension board remained the focus of the city’s problems. A number of the original members, appointed by the now-resigned Murphy, stepped down in the face of public scrutiny and the threat of legal action by Aguirre. The new board repeatedly voted to assert its attorney-client privilege over documents central to a number of investigations of City Hall.

The decisions contributed to a delay in the city’s return to fiscal credibility and its cooperation with Justice Department and Securities and Exchange Commission investigations. Eventually, a federal judge ordered the release of the documents in a secret hearing, threatening trustees with being found in contempt of court.

However, as of late, the board had nudged toward reform. Outside consultants from Navigant Consulting Inc. are scheduled to deliver the results of a months-long investigation into the pension system’s dealings on Jan. 20.

Trustee Thomas Hebrank, who joined the board in September, said he would honor the mayor’s call, but only after the investigative report is released Jan. 20.

“It’s essential that the board be able to meet on the 20th to receive the Navigant report and waive attorney-client privilege on it to release it to the public,” Hebrank said. “Calling for a new start and fresh faces will assist the city going forward.”

If the board were to be missing all of its council-appointed members, it would lack a quorum and be unable to hold a public meeting. Such a scenario would postpone the release of the anticipated Navigant report, and likely the release of delayed audits of the city and pension system.

The 13-member board is comprised of seven volunteers nominated by the mayor and approved by the City Council; a retired city employee; a representative from city management; a firefighters union representative; and two white-collar union representatives.

Trustee Bill Sheffler, an early advocate of the attorney-client privilege waiver, said he has drafted a letter of resignation but will condition his resignation upon the release of the Navigant report.

“It’s enormously disappointing. I had a huge emotional investment in reform of the SDCERS administration,” Sheffler said. “The mayor’s right in making this request. It’s appropriate given the tumultuous history of SDCERS.”

He said the pension system’s problems can be dealt with in a deliberate manner if the mayor selects the proper trustees.

Preovolos left the door open to resigning after the release of the Navigant report.

Council President Scott Peters said he respects the mayor’s desire for a fresh start, but warned that it has been hard to find qualified individuals to sit on the embattled board and that the city should be careful about involving itself in the system’s affairs.

“The district attorney and the U.S. attorney are arguing that the retirement board was doing the business of the city,” he said, referring to the two batches of criminal charges levied against former retirement officials.

Attorney Ann Smith, who represents the city’s largest union, said it was important to her clients, who are enrolled in the pension system, to have a board who doesn’t take its marching orders from the mayor or City Council.

“From the perspective of city employees, it’s absolutely critical for them to feel that their pension fund is being overseen by an independent board,” she said.

Smith said Aguirre’s attempt to delay the court’s ruling was impeding the city’s ability to improve its legal problems.

“Here we are literally on the eve of getting a decision that everyone has waited nearly a year to get,” she said. “To stall at this point seems to be contributing to the chaos rather than helping eliminate it.”

Joe Flynn, who represents city retirees on the pension board, said he thought it was “unfortunate” that the seven trustees were being asked to leave after they put in a lot of effort.

“I know we’ve taken a lot of heat on this thing, but under Peter Preovolos’ direction, the board has made significant headway and is moving the system forward,” Flynn said. “It’s a complex system and it takes some time to understand it.”

Scott Lewis contributed to this report.

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