Tuesday, Aug. 22, 2006 | City Councilman Scott Peters was impressed by Diann Shipione at first, calling her “attractive and intelligent.”

But as smart as Shipione was in Peters’ eyes, the councilman and the majority of other city officials shrugged off the pension whistleblower’s warnings, chalking up her misgivings as a crusade to settle a political score. Some even went as far to dismiss her as “crazy.”

“Overall, the ‘mantra’ within City government was that Diann Shipione was crazy and mad at the Mayor and that people should not be worried about the pension fund,” according to a summary of Peters’ interview with private investigators.

And, even if she had the best intentions, everyone else involved in the pension deal said she was flat wrong.

Nearly four years later, officials’ failure to worry about the pension fund’s financial health has left the city in a desperate state. Shipione’s concerns about the legality and prudence of the 2002 pension deal have been validated by a stack of opinions and studies, while her allegations of corruption have been picked up by prosecutors and are currently playing out in state and federal courts.

She has been elevated to hero status locally and nationally for playing a whistleblower role in San Diego’s ongoing pension saga, despite the pushback she received from city officials. Interviews conducted for the Kroll report and released last week reveal for the first time council members’ first impressions and later reactions to the woman who would forecast a time of unprecedented political and legal tumult at City Hall.

In the interviews, top officials – including former Mayor Dick Murphy and a number of current council members – said they dismissed Shipione’s solitary concerns as a game of political revenge. A year earlier, Murphy had voted against an airport proposal spearheaded by Shipione’s husband, Pat Shea.

Before the falling out, Murphy had presided over Shipione and Shea’s wedding.

Some officials, such as Councilman Jim Madaffer, said they essentially believed Shipione wasn’t living in reality.

Madaffer “believed that Ms. Shipione reinvented the world in her own mind, and did not see what actually happened.”

Many of the city officials such as Madaffer who doubted her then said in interviews with Kroll that they’ve since changed their minds about the pension deal, which has been a central player in the city’s $1.4 billion pension deficit, Murphy’s resignation and multiple investigations.

And some say they have changed their mind about Shipione.

Shipione absorbed criticisms and allegations before officials and the public began to take her seriously, and some of the accusations against her motives still stand today.

As a former trustee of the San Diego City Employees’ Retirement System, Shipione blew the whistle on a 2002 agreement between the city and the pension deal that she claimed was corrupt and illegal. Her advice unheeded, the retirement board and the City Council approved the pact, which allowed the city to underfund its pension system while granting new retirement benefits to employees. She first warned the council during an open hearing in November 2002.

Every member of the City Council, except Councilwoman Donna Frye, signed off on the deal that day despite Shipione’s warnings.

“Councilmember Frye then explained that she empathized with Ms. Shipione because she herself asked questions frequently at Council meetings and was often told to take her questions outside of the meetings,” Frye’s interview summary states.

The other remaining council members still in office – Peters, Madaffer, Toni Atkins and Brian Maienschein – said they found her accusations to be troubling at first blush, but wound up ignoring her anyway. They claimed that the word being spread around City Hall was that Shipione was out for political revenge, was incompetent or mentally ill, and had a confrontational style.

Madaffer “stated that he wanted to take her allegations seriously, but the great preponderance of opinions dismissed her concerns,” according to a summary of his interview. Shipione had her opinion, “and it was not shared by anyone else,” Madaffer said.

“Mayor Murphy explained that, were it not for her tone, he may have believed that there was more substance,” the former mayor’s interview summary reads.

He added that, “he initially believed that she was generally sincere, but that he began to view her motives differently when she publicly challenged him for not appointing any African-Americans to the SDCERS Board,” the summary says.

Others remarked on Shipione’s style. Dennis Gibson, then a Murphy aide, said that “she did not inspire cooperation.”

Murphy claimed Shipione “created internal strife.”

Frye noted that some officials discounted Shipione as a “wing nut.”

Shipione said she had not reviewed the interview summaries and did not want to respond to the officials’ impressions about her until she had. She did not comment as of press time Monday.

The Kroll report highlighted Shipione specifically as the one person who stood up against a culture of obfuscation and corrupt financial management.

“A rare and abrupt departure from that culture was found in a whistleblower who, contrary to prevailing attitudes at the time, explicitly pointed to governmental inadequacies and falsehoods regarding the City’s pension system,” the report states.

In addition to the fact that a chorus of experts and administrators vouched for the 2002 pension deal, Madaffer and others said they suspected Shipione was disgruntled because her concerns did not faze her colleagues on the San Diego City Employees’ Retirement System.

Further, the Kroll interviews also show officials guessing that Shipione sounded the alarm at her husband’s urging in order to settle a political score. Her husband, attorney and businessman Pat Shea, led the effort to develop the Brown Field airport into a commercial cargo terminal – only to see Murphy help squash the plans.

“Asked about his impression of Shipione, Mayor Murphy noted that he assumed her allegations had something to do with his ‘unfortunate relationship with her husband,’” reads the interview summary for Murphy.

Murphy resigned last year under the weight of the pension scandal that Shipione exposed.

John Kern, Murphy’s chief of staff, noted in his interview that he was suspicious because “Ms. Shipione had been a member of the SDCERS Board for five years and she had not said anything about the pension problems until then.”

Shea, who ran for mayor last year, said that his wife pursued her probe of the pension system on her own, saying that he “was always there to help Diann” but rejecting the idea that her efforts stemmed from hard feelings toward the city for Brown Field.

“You have to put yourself in their heads: We don’t have many people in San Diego who stand up against the government machine unless there’s something in it for them,” Shea said. “Brown Field was a mistake the city made and another lost opportunity, but from my standpoint and Diann’s standpoint, we’ve moved on.”

The theory that Shipione was acting on a vendetta against the city leadership is just one of several examples where city officials tried to discredit her message.

Kern said “he remembered that people tried to destroy her credibility by saying that she was caught shoplifting at age 20, which he thought to be irrelevant.”

A defense attorney tried to use the same shoplifting anecdote in Superior Court last winter to discredit the whistleblower during pretrial hearings in the district attorney’s corruption case against six former retirement trustees. The presiding judge ended up sending the criminal case to a jury trial.

Today, Shipione and Shea are still criticized for their role in the city’s pension mess. Many aligned with labor unions and opponents of City Attorney Mike Aguirre often allege that Shipione, Shea and Aguirre are in concert to drive the city into bankruptcy.

Shea worked on Orange County’s bankruptcy filing in 1994 and championed that legal process as the remedy to San Diego’s fiscal ills when he ran for mayor in 2005.

Critics say Shea is jockeying for the chance to lead the city through bankruptcy proceedings, a position that would likely yield him millions in legal fees.

“I think he would have a lot more credibility if he would agree to never make money off representing the city in bankruptcy,” said attorney Mike Conger, who has represented pension beneficiaries in civil lawsuits that have required the city to more quickly pay off its pension debt. “I think that’s what Diann wants too. For all the positive things she’s done in four years, she hasn’t offered a solution except that every idea people have is wrong except her husband.”

Shea remains unapologetic about his bankruptcy platform, saying he believes it’s the only way for the city to regain its financial footing. He said he has offered Mayor Jerry Sanders his services if the mayor wanted to proceed with bankruptcy.

“I will be at the lead table for the appreciation dinner when you can find away to talk you’re way out of a couple of billion dollars of debt,” he said.

Please contact Evan McLaughlin directly with your thoughts, ideas, personal stories or tips. Or send a letter to the editor.

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