Tuesday, June 27, 2006 | The city of San Diego’s landmark battle over more than decade’s worth of employee pension benefits took to the courtroom Monday after more than a year of hot exchanges in the public and press, as City Attorney Mike Aguirre asked a Superior Court judge to take a scalpel to the “cancers” plaguing the city’s troubled pension system.
With two related criminal corruption cases hanging overhead, attorneys on both sides continued their lively assaults and defenses of the 1996 and 2002 pension deals that have come to embody the city’s deep financial struggles. Adding a new twist to the well-worn public debate, attorneys honed in deeper on the legal theories behind City Attorney Mike Aguirre’s bold assertion that Judge Jeffrey Barton must wipe away the benefit boosts because their creation disregarded laws guarding against self-dealing and the creation of municipal debt.
“With the stroke of your pen, your honor can restore fiscal stability to the city of San Diego,” Aguirre told Barton.
Aguirre has sought a summary judgment in the case, essentially asking Barton to forgo a lengthy jury trial in order to reach a snappy judgment. Doing so will require convincing the judge that no important factual questions remain unsettled.
Barton told the courtroom Monday not to expect a final ruling this week. At one point early in the day-long hearing, Barton said it would be “extraordinary” for him issue a summary judgment based on the substantial amount of documents that comprise the body of documents that surround the deals.
If the motion for a summary judgment fails, the case would likely head to trial.
Michael Leone, attorney for the San Diego City Employees’ Retirement System, argued that the motion for a quick judgment couldn’t be issued because of disputes over the facts of the case. He said Aguirre’s stance in the case was in direct contrast to one taken earlier this year by the city when it was sued for $173 million by a former city worker over its pension-funding practices; Barton had noted the same contrast in his tentative ruling.
Aguirre started off the day with a two-hour opening statement in which he sought to prove through a document slide show and audio recordings that pension deals in 1996 and 2002 violated Government Code 1090, a statute that forbids public officials from voting on a contract in which they have a financial interest.
In the deals – known respectively as Manager’s Proposal 1 and Manager’s Proposal 2 – a number of unions negotiated benefit boosts for their employees. At the same time, the pension board, populated largely by union representatives and city employees, allowed the city to artificially deflate its annual payment into the pension system.
As city employees, six former pension board members received a benefit boost as a result of the 2002 deal and have been charged with criminal violations of the 1090 statute by District Attorney Bonnie Dumanis. The U.S. Attorney’s Office has also brought related corruption charges against five officials on the federal level.
Aguirre argued Monday that the existence of a 1090 violation immediately nullifies any contract.
Barton took interest in this point, asking Aguirre if the interpretation didn’t simply mean that the benefits of those officials with the specific conflict should be voided, and the whole of the benefits be kept in tact for other employees.
Leone contended that the deals didn’t amount to contracts at all, saying they were legislation enacted by the City Council. Under case law, he argued, the court cannot attempt to measure influence or motive. To do so would amount to the court legislating, Leone said.
“That dispenses of the 1090 claim,” he said.
The second leg of Aguirre’s two-pronged legal attack focuses on local and state provisions that forbid municipalities from allowing their liabilities to exceed their revenues. The debt-limitation provisions require that voters approve any municipal debt.
The deals in question are key factors in a pension deficit that’s estimated to be at least $1.4 billion and threatens to smother city budgets for years to come.
Aguirre argued that the benefits bestowed upon employees were not guaranteed by law; what is protected is the right to a sound pension plan, he said. He said the benefits owned now by employees are worthless if there isn’t any money in the pension system to fund them.
“That means you must go and remove the cancer that was put in the system in 1996, you must go back and remove that cancer that was put in the system in 2002,” Aguirre said.
As he was in the tentative ruling released Friday, Barton grappled with this argument, questioning whether it was appropriate because the city – not SDCERS – is beholden to the anti-debt laws. He also questioned whether the city was instead trying to undo its own wrongdoing through a lawsuit against the pension system.
“It’s nonsense your honor,” Leone said of the city’s debt-limitation argument.
In attempting to sway Barton, Aguirre at times veered off onto what appeared to be more of an emotional argument: that the city faced great financial peril if the benefits aren’t voided. He said “no one” has a solution for dealing with the growing pension deficit and that without a ruling against the benefits, the city was headed for bankruptcy.
“We are on a glide-path to the edge of the cliff and the question today is if we can deflect that glide-path,” Aguirre said.
Ann Smith is the attorney for the Municipal Employees Association, the largest of City Hall’s five unions. First, she argued that Manager’s Proposal 2 was not one isolated deal, but that it was in fact two separate occurrences because the City Council approved benefits for employees in October before the pension board had even finalized the payment plan in November.
Smith also argued that Barton can’t rule on the entirety of the benefits because a number of impacted parties aren’t being represented in the lawsuit, such as police officers, deputy city attorneys and retirees. The judge raised this question in his tentative ruling.
Aguirre argued that the pension system represented the interests of all involved.
MEA, the firefighters union and the blue-collar union have all joined the pension system in defending the lawsuit. Aguirre brought the suit a year ago, filing a cross complaint to a lawsuit filed by the pension system that sought to bar Aguirre from become the system’s chief legal counsel. The pension system eventually won that case.
Smith said that Aguirre was asking the judge to “go back and unilaterally rewrite collective bargaining history to the advantage of the city.”
Only the council, with the blessing of the unions, would be able to adjust the benefits, and that “changes in a pension plan would result in disadvantage to employees should be accompanied by comparable new advantages,” firefighters union attorney Joel Klevens said.
In March, the city began mediating the pension benefits with the employees, but union leaders made clear that the benefit reductions that Aguirre seeks were nonnegotiable.
In addition, Aguirre has asked the City Council and the Auditor’s Office to undo the benefit increases he says are illegal, a move that could cut the city’s $1.4 billion pension deficit in half. The majority of council members have resisted Aguirre’s request, claiming that they won’t move until a judges orders them to do so.
Conversely, lawyers representing the retirement system and employees told the judge Monday that it was not his place to roll back the benefits.
Aguirre has also filed a parallel case against eight pension officials on similar conflict-of-interest grounds. He said it is his back-up suit to buttress this primary case, which he hopes to use to halve the pension deficit.
In closing, the city attorney asked the judge to appoint a specialist, who would report to the judge, to oversee the removal of the benefits in question.
And he made one last plea to the judge, saying that it was Barton’s fate to be assigned to the case: “You, for some reason, have been put in this situation to undo the wrongs that have been done.”
The judge noted that he was selected at random by a computer.
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