Friday, January 13, 2006 | Mayor Jerry Sanders sought a clean break with San Diego’s troubled past Thursday, using his first State of the City address to catalogue the depths of the city’s governmental dysfunction and lay the blueprint for his three-year rebuilding experiment.

In his 30-minute speech, the new mayor attempted to drive a distinction between the “strong and healthy” people and economy of California’s second-largest city and the legal, political and financial crisis gripping the city government he inherited last month.

“Because we have faltered does not mean we should shroud this great city in shame. It means, only, that we now have work ahead of us, work which I pledge to lead – to create here in San Diego a model for efficient, accountable and ethical local government,” Sanders said before a full house at Golden Hall.

And, in a move that further strengthened the budding partnership between the new mayor and firebrand City Attorney Mike Aguirre, Sanders asked the pension board and City Council to reinstate the city attorney as the chief legal advisor to the beleaguered pension system, a body central to the city’s current woes.

“As current events have made abundantly clear, the experiment for the system to have its own legal counsel did not work. There are many in this community who will be opposed to my recommendation based solely on personalities,” Sanders said. “I take exception to that way of thinking.”

The move came a day after Sanders asked the six council-appointed members of the pension board to step down, paving the way for Sanders and Aguirre to install the trustees of their choice. It also came less than a week after the system’s chief legal counsel, former administrator and three former trustees were charged with fraud and conspiracy by the U.S. Attorney’s Office.

The announcement drew an equal smattering of boos and cheers and inspired members of the Municipal Employees Association to hold a candlelight vigil outside of Golden Hall to “mourn the end of their relationship” with Sanders.

In detailing the city’s ills, Sanders hit on a number of topics sore to employees and some City Council members alike.

He said the city’s pension fund has been intentionally underfunded for the last 10 years, government leaders misinformed investors when selling millions of dollars in bonds based on inaccurate financial disclosures, and misconduct and cover-up have delayed the city’s return to fiscal credibility.

Sanders also listed off problems in city management: a dishonest budget, a culture of secrecy, bookkeeping failures in contracts and real estate, and a lack of improvement in neighborhood services.

“As best I can tell, the operating philosophy around City Hall involved one of these three words: delay, deny or deceive,” Sanders said.

The problems have led to a crisis of historic proportions. The city’s pension system carries a deficit that’s expected to reach $2 billion when new figures are released in the coming months. The city’s annual payments to the fund have increased dramatically in recent years and threaten to engulf the city’s annual operating budget absent significant reform.

Its credit rating has been slashed and suspended, cutting off its access to borrow cash for vital infrastructure projects. Its fiscal year 2003 audit remains delayed pending the completion of a private investigation into allegations of wrongdoing.

The problems, and the city’s failure to honestly account for them in financial statements, have attracted investigators and prosecutors from the Justice Department, Securities and Exchange Commission and District Attorney’s Office. They also drove from office former Mayor Dick Murphy, who resigned in July. Sanders was elected in November.

In sum, Sanders took advantage of a chance to heap the city’s failures on his predecessors and distance himself from all of the negative perceptions dogging City Hall.

“San Diegans are craving for someone to tell it to them straight – for their mayor to tell them the whole truth: what happened, why it happened and how it will be fixed,” he said.

Although Sanders listed, in sometimes painful detail, the shortcomings and failures of the city, he also delicately sought not to lay blame on the workers or council that he must work with to enact his reform agenda.

Sanders praised the five City Council members sharing the stage on Thursday for being “dedicated public servants.” He called on the council and city attorney to work together.

“I have been impressed by this council’s hard work and dedication to our community,” he said.

The mayor, a former patrolman and police chief, said a false perception exists that the city’s problems were created by its workers.

“Nothing could be further from the truth,” Sanders said, addressing employees specifically. “The system failed you – not the other way around.”

It was a fine line to walk. Outside the event, union employees protested Sanders with a vigor that had previously been reserved for Aguirre. Inside the building, a number of City Council members expressed support for Sanders recovery plan and his speech, but appeared less certain of the emerging alliance between Aguirre and Sanders.

Aguirre has sued the pension system in an attempt to roll employee pensions back to pre-1996 levels, arguing that a series of pension benefit enhancements granted to employees were created in illegal and corrupt deals between unions, the pension board and city officials. At the same time, he has spared only City Councilwoman Donna Frye and City Councilman Tony Young in his constant attacks on the council, accusing others of cover-ups and self-dealing.

In total, the speech mixed equal parts of Sanders’ campaign promises with the more extreme actions that had only been previously advocated by Aguirre and Frye, who the mayor defeated in the November election.

On the campaign trail Sanders often tried to group Frye, who as a lone voice on the council pioneered the push for open government and pension reform, with the decisions that led to today’s crisis. She said she did not feel vindicated.

“I don’t think vindication is the right word,” Frye said. “I’m not sure what his plan of attack is, but there are a lot of issues he hit on tonight that I’m excited to say may finally be addressed.”

Frye said that the heated debate from the campaign trail has cooled into a good working relationship.

“He talks to me and I talk to him. We have respect for each other,” she said. “That’s a good start.”

Not everyone was impressed.

“The mayor’s actions during the past two days are in sharp contrast to his conciliatory comments to employees and to the public. We are disappointed to see him fall into the age-old politician’s trap of saying one thing while doing another,” said Judie Italiano, MEA president.

In short time, Sanders will be returning to the bargaining table with employee unions and will be seeking major concessions key to his recovery plan. He will also be asking the council to place some of his proposals before voters in upcoming elections.

In the speech, Sanders also:

– Recommended that the City Council immediately explore private financing to begin $800 million in mandatory upgrades that need to be made to the city’s water and wastewater systems in order to comply with state and federal water quality regulations. The upgrades would mean increases in water and wastewater user rates.

– Announced the reorganization of all city functions and made economic development, affordable housing and development streamlining priorities.

Members of the council said they felt Sanders was fingering the system, not those overseeing the city’s actions.

“I think he was taking a shot at the old system and he made it clear that we are going to be correcting that system,” Councilman Jim Madaffer said. “It’s loud and clear that he wants to govern with openness, honesty and tough love.”

Madaffer said he had “nothing but hope that we’ll be able to work together,” but was not sold on allowing Aguirre, a nemesis of his in the past year, to be the chief legal advisor for the retirement system.

“That was the one thing he said that surprised me,” Madaffer said. “I’d rather get a judicial decision, which would carry more weight than what that City Council, city attorney, mayor or any board thinks for that matter.”

A judge was scheduled to rule on the matter Friday, but Aguirre won a continuance, just one day after Sanders asked the pension trustees to step down.

One of the first true tests of the new government will be reflected in the upcoming budget season, where the council will review Sanders’ proposed spending plan for the next fiscal year, which starts July 1.

And while that might be the first test, it certainly won’t be the last.

“Please keep in mind that these problems took years to create, so they’re not going to be solved overnight,” Sanders said. “To use a term that sports fans will recognize, the three years of my term will be ‘rebuilding years.’”

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