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The Wall Street Journal‘s editorial page chimed in on San Diego’s municipal woes today, noting that the Securities and Exchange Commission is expected to release a report into the City Council’s “decade-long bender” of pension promises, and wondering “will the city council be held accountable for creating this mess?”

The editorial leads in with the impending close of the SEC’s two-and-a-half year probe of city finances, but spends most of its time focusing on the pension benefits and the attempts to roll them back.

If City Attorney Mike Aguirre is successful in his challenges to the benefits, it “would send a signal that unfunded promises for public-sector employees are not etched in stone, which would be a valuable signal for other state and local governments grappling with extravagant retirement packages for public employees.”

The editorial is, frankly, weird. And it’s also factually incorrect in two places. One is more of a technicality: it says Aguirre’s case is in federal court, when it fact it is in state court. Secondly, it says the Kroll report released last month by private consultants found four sitting council members negligent in their disclosure duties: Toni Atkins, Jim Madaffer, Brian Maienshein and Council President Scott Peters. In fact, it found five sitting council members negligent. The Journal omitted City Councilwoman Donna Frye from the list.

The editorial also picks up on a theme that’s been common on the editorial page of The San Diego Union-Tribune, a local newspaper. It posits that the report issued by the SEC must name names, not simply paint with a broad brush when detailing the city’s financial woes.

It says:

The SEC seems to be taking the position that it has little authority to discipline local politicians, and it may have a point. But San Diego needs access to the capital markets to issue bonds, and this gives the SEC a lever. At the moment, according to those who have reviewed the SEC’s draft order, the pension underfunding is described as something that happened, not something that specific people caused to happen through deliberate acts. “They don’t name names and that’s wrong,” Mr. Levitt told us. “These actions didn’t occur by themselves.”

(Mr. Levitt is Arthur Levitt, the man who headed the group of private consultants who put together the report. He is former chairman of the SEC.)

As the city’s outside attorney, former deputy of enforcement at the SEC John Hartigan, testified before City Council two weeks ago to council, this report is supposed to be broad. It is a report about the city as an entity – not individuals.

Individuals, the city decided last year, will be dealt with separately. Read the story about Hartigan’s comments here for the background.

The editorial continues:

Fingering the council members would at least offer a small measure of personal accountability. The SEC is justifiably wary of taking unprecedented steps against a local government, but the present system offers no enforcement mechanism at all against local politicians who have put their taxpayers on the hook for over $1 billion in unfunded liabilities. Identifying the culprits would at least signal that this sort of dereliction is as serious when it occurs at a public institution as it would be if it had happened at a private company.

But the SEC is investigating violations of securities laws – which means it’s looking at whether or not San Diego and its officials lied or misled when informing investors of its financial health. If the SEC were to follow the findings of Levitt’s own report, the City Council would likely escape punishment.

The Wall Street Journal seems to be arguing that the City Council should be punished for creating the pension deficit in general, something that doesn’t appear to be the purview of the regulators of the nation’s financial markets.

In other words, it’s not the creation of a mess that the SEC regulates. It’s the honesty in the reporting of that mess. The SEC will allow you to lose all the money you want, as long as you tell investors about it.

You can read the editorial here if you have a subscription.

ANDREW DONOHUE

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