The Morning Report
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Wednesday, February 15, 2006 | City Attorney Mike Aguirre has championed his reports on the city’s notorious past practices for months, but this week Aguirre finds himself in the position of deciding whether he still supports them in spite of the fact that they will now be used as evidence against the city in a lawsuit.
A Superior Court judge last week ordered the city of San Diego to either accept as fact or deny the legal conclusions Aguirre has come to in three controversial reports about what allegedly led to the city’s financial crisis. If the city stands behind Aguirre’s assertions, it may buoy a former employee’s lawsuit against the city.
The ruling forces the city to answer a question that it has wrestled with since Aguirre first became the city attorney: Do his official reports speak for the city? In other words, are the facts he presents the facts as the city sees them?
It’s unclear whether Aguirre will be the one to answer that question, or whether the City Council will play a role.
The former employee suing the city, William McGuigan, wants the city to make up for its past practices of skirting its pension bill with a large back payment to the beleaguered retirement fund. His attorney, Mike Conger, argues that much of the proof he needs for his case is found right in the city attorney’s own reports.
If Aguirre decides to admit that the city violated state and local laws when it paid less than a financially sound amount into the retirement fund from 1996 to 2005, he may leave the city more vulnerable in the civil case, which seeks a $178 million payment into the pension plan.
But for the city it’s a Catch 22. If it officially denies the 32 statements McGuigan says are affirmed in Aguirre’s reports, it would essentially be pulling back on arguments it’s making in several other cases. The city is suing outside consultants who advised that past pension deals that have left the city with a nearly $2 billion pension deficit were kosher while also using the claims McGuigan is seeking to challenge benefit enhancements that were granted to employees in 1996 and 2002.
“The city cannot have its cake and eat it too,” Conger said.
Conger on Friday successfully requested that presiding Judge Richard Strauss order the city to either admit or deny the statements made in Aguirre’s Interim Reports Nos. 2, 3 and 6. In the reports, Aguirre finds that the city’s pension-funding practices violated the City Charter and the municipal code, were actuarially unsound and were concealed by city officials who handled financial reporting for the government.
The city must decide whether to admit or deny the statements by Friday. Aguirre did not return calls seeking comment.
In addition to alleging the wrongdoing in his reports, Aguirre has filed lawsuits against past city and retirement system officials, and outside experts who advised the retirement board on how big the city’s pension bills should be and how the city should disclose its financial standing when borrowing money from bond buyers.
“I think the city attorney is absolutely right and the city should admit these facts,” Conger said. “But if it doesn’t, it’s going to make the city attorney look like he’s talking out of both sides of his mouth.”
If the city admits the facts, McGuigan or other parties will likely be more successful in suing the city for its past pension dealings. The city’s police officers union, for instance, is also suing the city over its decisions to underfund the retirement system.
“It starts to make the city actually come out of the closet so it can’t just use the press to tell of its misconduct,” said attorney Gregory Petersen, who represents the San Diego Police Officers Association in a lawsuit seeking damages from the underfunding.
Council President Scott Peters said the City Attorney’s Office made admissions in the public reports that could potentially cost the city millions in lawsuits.
“This is what happens when you need to have a lawyer in the city attorney’s seat instead of a politician,” Peters said. “These costs are starting to become clear.”
The city attorney says his reports carry legitimacy that accused city and retirement officials lack because he does not have a personal stake in the pension benefits that were granted their when the retirement board allowed the city relief from its pension bills in 1996 and 2002.
The 2002 deal, known as Manager’s Proposal 2, is also the focus of corruption prosecutions the District Attorney’s Office and Justice Department are leading against former retirement system trustees and staff.
The defendants in the cases deny the allegations.
Aside from the conflict-of-interest allegations being suggested by Aguirre and prosecutors, the city attorney has also filed lawsuits against city and pension officials for their involvement in funding arrangements between City Hall and the San Diego City Employees’ Retirement System that he says are illegal and not actuarially sound.
The city also has lawsuits against the retirement system’s investment consultants and actuary alleging that they engaged in negligent and fraudulent behavior that contributed to the creation of a pension deficit that’s currently estimated to be $2 billion.
Another suit Aguirre filed alleges that the city’s former bond counsel failed to catch inaccuracies about the size of city’s pension deficit on financial statements the city released when issuing over $1 billion in bonds.
The City Council has wrestled with the issue of whether to embrace Aguirre’s efforts or try to ostracize him as someone who doesn’t speak for the city. The council even hosted a debate about the city attorney’s role at City Hall and whether he had to first seek approval from councilmembers before embarking on his legal efforts.
Legal ethics expert Richard Solomon, who Aguirre hired to speak for him at that debate, said that Aguirre was still free to dispute his own claims in court in order to defend the city against McGuigan’s case.
“It might be politically embarrassing but nothing in the rules that say you can’t,” Solomon said. “It undermines his position, but I’m sure he’s aware of that.”