Thursday, Nov. 30, 2006 | The opening phase of the city of San Diego’s showcase pension trial ended Wednesday, as municipal employees made their last push to head off a drawn-out courtroom battle over retirement benefits that will likely spill over well into the next year if it proceeds.

Lawyers for the city and its opposing employee groups each argued for about two-and-a-half hours about the workers’ claims that legal obstacles prevent City Attorney Mike Aguirre from continuing his quest to roll back $900 million worth of pension enhancements.

Employees have tried to cut the case short by arguing that past legal settlements and the absence of direct legal representation for several thousands pensioners from the case prevent the presiding judge from granting the city attorney’s request, even if the judge agrees with Aguirre that laws were broken in the creation of the benefits in question.

“This court is not going to have the power to give the city the relief it wants,” said Ann Smith, attorney for the white-collar Municipal Employees Association.

When the trial proceedings began in late October, attorneys for three labor unions and other city workers convinced Superior Court Jeffrey Barton to divide the trial into phases to expedite the judge’s consideration of their arguments.

Attorneys for the employees hoped that they could use the first chapter of the trial to put a halt to the litigation, which has highlighted Aguirre’s very visible two years in office. At the very least, attorneys for the workers claim that the legal arguments they presented in the opening phase drastically reduce the value of the benefits in play.

Aguirre argues that pension deals in 1996 and 2002 were reached illegally and, therefore, the benefits granted to city employees are null and void.

Barton limited the first phase to five questions:

  • Can the city of San Diego claim that the San Diego City Employees’ Retirement System – which is not a government – violated a state and city laws that prohibits public agencies from absorbing long-term debt without a public vote?

The city’s lawsuit claims the SDCERS board’s votes on pension-funding deals that triggered new benefits in 1996 and 2002 broke the debt-limit laws.

Smith disagreed, arguing that if anybody was responsible for violating the debt-limit laws with the creation of those pension enhancements, it would be the city, and the city cannot sue itself, she said.

The city attorney has countered by saying that groups that serve as creditors to the city should be mindful of the debt-limit law. “Persons who contract with the government do so at their own peril when they fail to take notice of the limits of the agency’s authority,” Executive Assistant City Attorney Don McGrath said.

  • Can a 2000 court settlement that resulted in the improvement of pension benefits, known as Corbett, bar Aguirre from challenging the set of benefits that were part of the 1996 agreement?

The employees claim Corbett solidified all of the benefit levels that were created before the 2000 settlement. Further, the workers said that every labor deal between the city and its unions that came after the improvements were granted cemented those levels of retirement benefits.

If the court decides that the benefit levels resulting from Corbett are permanent, the value of Aguirre’s lawsuit could fall severely – to about $40 million by some estimates.

The city has tried to convince the judge that Corbett only increased the benefits by a certain percentage, and that – at most – only that incremental increase should be protected. If only the Corbett increment is protected, the case would be trimmed by a relatively marginal amount, Aguirre said.

  • Are all of the parties who have a stake in the case represented in the litigation?

The employee groups who are present note that thousands of police officers, city lawyers, elected officials, workers who aren’t affiliated with a union and retirees could have their pensions trimmed down if the case succeeds, despite not having direct legal representation in Aguirre’s case.

In addition, Smith told the judge that unions only represent employees when it comes time to collective bargaining, but that workers have the right to fend for their pension individually.

“They are the ones whose property is at stake here,” Smith said.

Aguirre said the union attorneys’ eagerness to get into the case to begin with shows they do indeed represent the employees, as they intervened when the case was originally between the city and the pension system.

The other pensioners who might be affected by the litigation have had an opportunity to round up legal counsel for the case, Aguirre argued.

  • Does a 2004 legal settlement, known as Gleason, impede the city from arguing that retirement board members had a conflict-of-interest in the making of the 1996 and 2002 pension deals?

Aguirre argued the benefits are illegal because the deals padded the future pension checks of board members who voted for the agreements. He said their participation in approving the pacts amounts to a conflict of interest.

Employees said the city missed its opportunity to argue that point when the Gleason settlement – which involved similar charges – was finalized.

Aguirre said Gleason only dealt with aspects of the 1996 and 2002 deals that allowed the city to shortchange the pension system, not the generation of new benefits, which is the thrust of his lawsuit. He also argued that a conflict-of-interest violation could undo any contract, even if it was part of a legal settlement like Gleason or Corbett.

Smith countered, saying the city’s time to raise any claims about the pension pacts- not just about underfunding – expired.

  • Can a court actually roll back constitutionally protected employee pension benefits, even if a conflict-of-interest is found?

Aguirre has argued that all contracts that are made in violation of the state’s conflict-of-interest law should be nullified. But in these proceedings he has asked the judge to simply determine whether the 1996 and 2002 pension accords were crafted illegally, and then to allow the City Council to settle out of court with the beneficiaries whose pensions would be affected.

Such a move would allow the council and unions to negotiate a new level of benefits more in line with what the city could afford to pay, Aguirre said.

Smith said that there is no precedence for Aguirre’s suggested remedy, or for his claims that pension benefits for public employees can be set aside.

The judge said he would set a timeline for releasing his decision on the first phase at a Dec. 7 hearing.

If the case proceeds, the second phase would deal with whether statute of limitations prevent the city from bringing the lawsuit. If Aguirre clears that hurdle, the actual accusations that the1996 and 2002 agreements violated the conflict-of-interest and debt-limit laws will be argued.

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