The Morning Report
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Thursday, Sept. 7, 2006 | A number of City Council members Wednesday confronted their roles in the city’s legal and financial meltdown during their first public meeting following the release last month of an investigative report into City Hall finances.
“I don’t intend to quit this job,” said Councilwoman Toni Atkins.
The release of the Kroll report Aug. 8 during the City Council’s final meeting before the summer recess sparked a nearly month-long public dialogue surrounding the roles of five sitting council members – both in the city’s preceding demise and upcoming rebuilding efforts. That debate spilled over into council chambers during the special hearing Wednesday held to address the Kroll report’s lengthy remediation plan, as some members of the public wondered whether council members implicated in the report could be trusted to exact reform and talk of recalls continued to swirl.
“I think that’s completely wrong,” said Councilman Ben Hueso, elected in January after the time period in scrutiny.
City Attorney Mike Aguirre, long the council’s harshest public critic, praised the council and Mayor Jerry Sanders for adding to a lively democratic atmosphere with their discourse on the remediation plan. He then advised council members admit to their mistakes, learn from them and ensure that they never occur again. The city attorney said doing so would be “a very liberating gesture,” allowing politicians – who he’s suggested step down – to move ahead with the rest of their terms.
“The remediation we have to take is admit this happened,” Aguirre said.
For their parts, Councilmembers Donna Frye, Brian Maienschein and Scott Peters accepted responsibility, albeit to differing levels, for allowing the city to slide into its financial despair. Atkins said mistakes had been made both before and during her tenure, though never directly spoke to her responsibility in the financial troubles.
“Be careful who you are and what position you are in, because we are all human,” she said.
The council members have faced growing criticism for their lack of remorse in the wake of the Kroll report, which found five sitting council members – Frye, Peters, Maienschein, Atkins and Jim Madaffer – to have been negligent in releasing false financial information to investors. All but Frye were found to have knowingly caused the city to violate clean water laws.
“As elected officials, we have to say we’re responsible for the position the city is in today,” Peters said, adding that they are also responsible for getting the city out of its troubles.
Maienschein said it’s tough to look back at votes he’d made, wishing they could be taken back. “I take full responsibility for the votes that I’ve taken,” he said.
Frye said she regretted her role in the city’s problems – and said efforts to ram through the mayor’s remediation plan Wednesday were only a further example of the type of problems that got the city into its troubles to begin with. She noted that the council was being asked to embrace a proposal without full debate, cost analyses or identifying how it will be financed. And, Frye said, “You either support it or you will be labeled as an obstructionist.”
“I’m not going down that same slippery slope again. I’ve learned my lessons,” Frye said during a fiery speech. “Political expediency be damned.”
Councilman Jim Madaffer offered a more nuanced contrition, as he did the day of the Kroll report’s release. He said he takes responsibility – for moving the city forward.
The Justice Department and Securities and Exchange Commission have been investigating City Hall for more than two years. A series of commissioned reports, including Kroll’s, has detailed city officials’ roles in allowing the degradation of the city’s Wastewater Department and pension system – now strapped with a $1.4 billion deficit. The reports have focused both on how the degradation occurred and how the resulting liabilities were withheld from Wall Street.
As a result, the city’s day-to-day budget has been crippled by a growing pension burden that threatens to consume budgets for years to come, as well as associated legal and consultants fees that have reached into the tens of millions of dollars. The city has also been unable to borrow money on the public markets for two years, leaving it without the access to cash to complete basic and necessary public works projects.
The Kroll report also contained a massive remediation plan aimed at rebuilding the city’s financial reporting structure to give it more transparency and accountability, and to satisfy auditors who have been holding up the city’s return to fiscal credibility. What otherwise would have been a set of ho-hum accounting reforms has instead set off weeks of debate and dispute among city officials.
On Wednesday, the City Council approved “in principle” the list of 121 recommendations suggested by Kroll and later championed by Sanders. The council didn’t specifically address any of the long list of proposals, instead choosing, as Sanders said, to send “a united signal as we move forward.”
The council adopted the plan by a 6-1 vote, saying that all specifics – such as the creation of an audit committee, an auditor general and an outside monitor to oversee the reform efforts – would be ironed out during special hearings to be held at 9 a.m. on Oct. 16, Nov. 13 and Dec. 4. Frye cast the lone dissenting vote.
It appears that most of the proposals will slide through easily, but the City Council might challenge the mayor’s proposal that he appoint two of the three members of the audit committee, and the City Attorney’s Office has opined that a number of issues will require a vote of the public – an opinion that could get challenged.
Andrea Tevlin, the City Council’s independent budget analyst, supported the plan as a whole, but said having the management – in this case the mayor – appoint members of the audit committee runs against the recommendations of such organizations as the SEC and the Government Finance Officers Association.
“In fact, we think it makes no sense,” she said of the recommendation made by Kroll and the mayor.
The audit committee would oversee the city’s financial reporting processes – a role that makes independence paramount. With most of the city’s other financial controls under the purview or appointment of the mayor, Tevlin said the City Council should appoint two members of the audit committee in order to give the structure the proper checks and balances.
Fred Sainz, the mayor’s spokesman, said he believed the council voted in principle to accept the creation of the structure and that details will be filled in later.
The plan is priced right now at $45 million over seven years, but will cost considerably more. The city admits now it is on the hook to repay the Internal Revenue Service more than $41 million over the next five years for violations with its pension system, and five remaining items in the remediation plan contain a “to be determined” statement where cost estimates are to be placed.