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The city of San Diego is making progress in its financial reporting, but it’s unclear whether City Hall will make the improvements needed before the problems that drew the scrutiny of securities regulators and auditors are fixed, according to the oversight monitor the city hired as part of its settlement with the Securities and Exchange Commission.

“The actions that have been taken are a good beginning, but only a beginning, and there is much left to be done,” wrote Stanley Keller, the Boston-area lawyer who was hired to observe and advise the city regarding its financial disclosure practice for the next three years.

Keller’s 17-page report, dated yesterday, lays out his initial thoughts about the city’s finances, but he refrains from making sharp conclusions. The report is being sent to the SEC, which sanctioned the city for downplaying the size of its pension and retiree healthcare obligations to its bond investors.

The monitor applauded the city for holding financial training workshops for council members and employees, and for establishing an Audit Committee to suggest guidelines that the city should follow for reviewing the financial information it provides to Wall Street. The city’s decision to invest in an upgraded financial reporting system also shows progress, Keller said.

However, the city has challenges, Keller said. Without being specific, Keller said the different areas of the government must be willing to work together and be honest about the city’s financial situations.

In addition, there must be the political courage, leadership, and will to face up to the reality that the City cannot continue to live beyond its means and pay for past sins while maintaining service levels without additional revenues. City officials express their recognition of this reality, but it remains to be seen whether that will be translated into action.

Keller said he is reserving judgment on other areas of the city’s financial practices, such as the annual budget, which will likely be finalized by the council next week, and Mayor Jerry Sanders’ five-year financial forecast. The monitor also said he wants to investigate several other areas of the city’s operations, such as the employee complaint hotline and ongoing attempts to reconcile the controversial “waterfall” pension benefits.

The monitor’s initial report was originally supposed to be issued in May, but Keller received an extension from the SEC.

EVAN McLAUGHLIN

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