Pension Scandal? San Diego Had a Pension Scandal? Who Knew…

Thursday, April 30, 2009 | The other day, three men appeared in front of the San Diego City Council to answer any questions that august body might have for them as they went through the final stages of being appointed to the city’s pension board.

San Diego Mayor Jerry Sanders had selected Herb Morgan, Richard Tartre and Edward Kitrosser to replace three people on the pension board. Voters decided in 2004 that since so many billions in taxpayer dollars were at stake with every decision made there, the board that oversees the San Diego City Employees’ Retirement System should no longer be dominated by city employees.

Serving on the board is thankless. And it has historically been difficult to find people who are both qualified according to the city law and are willing to do it. This is why it’s a bit surprising that the mayor was so excited to dump two of the qualified people on that board.

Fortunately for us, however, the City Council actually did decide to ask these new guys a few questions to gauge whether they understood what it was like in the lions’ den they were entering.

Did they know anything about public pension systems? Did they know anything about the scandals the city had faced over the last several years?

Councilman Carl DeMaio asked the three if they had ever heard of the 1996 and 2002 deals known as Manager’s Proposal I and Manager’s Proposal II, or MP1 and MP2. These, of course, were the notorious deals in which the city, faced with mounting liabilities in its pension fund, decided to underfund said pension fund and, at the same time, to persuade the employees who dominated the pension board to agree — the city awarded employees even higher retirement benefits.

This was stupid. The deals left so few assets in the employee’s retirement account that the city was forced to dramatically raise its annual contributions to the fund and short other parts of the budget. And the city’s taxpayers have spent millions on auditors and investigators both trying to understand the deals and then enabling the former city attorney to try to undo them.

This is why the city’s taxpayers decided they wanted to be in charge of the pension board. Its job is to make sure the fund is run well. Its job is not to make sure the city’s political leaders don’t have to face the consequences of their awful management.

Nothing has more defined the city’s financial condition or its politics in the past decade and a half more than these two deals. A mayor resigned in disgrace because of MP-2 after a headline writer at The New York Times notoriously dubbed San Diego “Enron by the Sea” and a national news magazine dubbed him one of the three worst mayors in the nation. The city spent more than $20 million on outside investigators so that we could understand what happened. The city’s retirement board spent nearly $3 million on its own report so it could also understand what happened and make changes.

Perhaps more important to the new members of the pension board might be the fact that several former members of the pension board are still under criminal indictment for what happened in the latter of the two manager’s proposals.

You’d think this might be of interest to people now willing to volunteer for this board.

So DeMaio asked these three men if they knew about these deals — MP1 and MP2.

He received blank stares in return.

He asked if the new members of the pension board had heard of the Navigant report. This was the document that outlined the city’s retirement system’s own responsibility for the situation and admitted to material misstatements in financial disclosures.

Again, these guys are essentially being asked to ensure this never happened again. They knew nothing about it.

“I’m a little embarrassed that the amount of research I tried to do after being requested to apply did not include the Navigant report so I’m unfamiliar with it,” Morgan replied to DeMaio.

Yes, notice that phrase “after being requested to apply.” These guys were sought out. The Mayor’s Office and the CEO of the pension system recruited Morgan, Petroza and Tart to serve on the board.

They would like these people to replace three people currently on the pension board. This includes Bill Sheffler and Tom Hebrank — two people infinitely steeped in the reform efforts the board has undertaken in recent years. Sheffler’s an actuary himself. He was on the city’s Pension Reform Committee. If you were to draw a picture of exact type of person with the exact type of experience taxpayers would want representing them on this board, you would draw up an actuary with glasses and a mustache just like Bill Sheffler.

Expertise and knowledge about what happened, apparently, is actually undesirable, though, to the mayor.

I’m not the only one baffled by this. Sheffler and Hebrank have spent years trying to reform the way the pension board worked and they succeeded in part. They have just the right amount of experience on the board to really get us somewhere now.

“We have years of experience in Mr. Sheffler and Mr. Hebrank. I just cannot see why it would be a good decision not to reappoint at least one of them if not both of them to the board and I think it’s a big mistake we are making as a city, as a plan sponsor, to jettison that experience — that institutional memory,” DeMaio said.

Lani Lutar, CEO of the San Diego County Taxpayers Association agreed.

“It’s baffling to me that Mr. Sheffler is not being considered for reappointment to the retirement board when you consider his background and expertise as an actuary as well as his historical knowledge of the city’s pension troubles,” Lutar said.

Jay Goldstone, the city’s chief operating officer, represented the Mayor’s Office in response to this flurry of criticism. One of the points he made was an outright lie.

But first, he said that the reason Sheffler and Hebrank weren’t being reappointed had to do primarily with the fact that the mayor had asked them and many of their colleagues to resign only a couple of months after the mayor took office.

Remember, the mayor did this because Sheffler and Hebrank and their colleagues had refused to appoint City Attorney Mike Aguirre as the legal counsel to the pension system. The mayor later would conclude that Aguirre was unfit for his position — but this push to replace the entire pension board occurred when they were flirting with each other.

If Goldstone is correct, and this is the reason he didn’t want to reappoint Hebrank and Sheffler, that means the mayor holds quite a grudge for someone who doesn’t obey his requests when they sit on an independent board. If not, it gives credence to the idea the mayor is angling to concoct MP3.

But then came the lie.

City Councilwoman Donna Frye asked Goldstone whether no one besides the three appointees applied for the position.

“To my knowledge, that is correct,” Goldstone said.

Goldstone did know that there was one other person at least who had applied. April Boling, who had served on the Pension Reform Committee with Sheffler, applied for a post on the pension board. It was Goldstone himself, in fact, who Boling says called her to inform her that the mayor would not be putting her on the board.

I asked the Mayor’s Office about this. In an e-mail Darren Pudgil explained that Goldstone had misspoken.

“He had simply forgotten that Ms. Boling had submitted an application,” Pudgil wrote.

The council approved of the mayor’s appointees. The three men, who are now going to take their seats overseeing a multi-billion trust, all seem like decent and very accomplished guys. They certainly are capable of learning what others already have long known. And it is indicative of their high integrity that they would volunteer for a board that has caused many volunteers before them a ridiculous amount of stress.

Hopefully they have some time to catch up on the past, so they won’t immediately be led to repeat it.

Please contact Scott Lewis (scott.lewis@voiceofsandiego.org) directly with your thoughts, ideas, personal stories or tips. Or send a letter to the editor.