Posted on 02/10/2005 9:14:54 AM PST by NormsRevenge
In a scathing report delivered to City Hall after sundown yesterday, San Diego City Attorney Michael Aguirre concluded that there is "substantial evidence" Mayor Dick Murphy and the City Council committed civil violations of federal securities laws.
Aguirre's report, widely anticipated at an anxious City Hall, said Murphy and the council, beginning in early 2002, concealed important facts about the city's ailing pension system from the public and from investors in more than $1 billion of city bonds.
At a hastily called news conference early last night, Murphy, reading a written statement, called Aguirre's allegations "untrue, irresponsible and defamatory."
Murphy declined to take questions.
Aguirre's report said the mayor and council failed in their duty to make sure that bond documents – which by law must include a full accounting of risks – reported the deteriorating state of the pension system, special deals given to union presidents in exchange for continued pension system underfunding and other financial irregularities.
Aguirre's 91-page report, accompanied by a thick batch of 77 exhibits, ended with his conclusion "that there is substantial evidence consistent with a finding that the Mayor and City Council engaged in the alleged wrongful conduct either knowingly or recklessly."
It drew immediate criticism – both for its content and for the after-hours timing of its release.
Murphy said the council followed the advice of the previous city attorney and outside securities experts. He also criticized Aguirre for investigating him and the council.
"The City Attorney's Office has serious conflicts of interest in conducting this self-styled investigation. . . . Mr. Aguirre's political grandstanding is causing irreparable harm to the city," he said.
City Hall dispute
City Attorney Michael Aguirre's report says the alleged wrongdoing was done "knowingly or recklessly" by the mayor and City Council.
The report says they concealed important facts about the city's ailing pension system from investors in more than $1 billion of city bonds.
Mayor Dick Murphy's response: "Mr. Aguirre's allegations are untrue, irresponsible and defamatory."
Councilman Michael Zucchet questioned why Aguirre waited until after hours to deliver his report to City Hall.
Murphy and Councilman Scott Peters, who was out of town but issued a news release, both said: "Mr. Aguirre is not the SEC," a reference to the Securities and Exchange Commission, which is investigating whether city officials committed securities fraud. The FBI and U.S. Attorney's Office are conducting a parallel criminal investigation. The FBI is also conducting a separate probe of possible public corruption.
Peters also said Aguirre is violating rules governing the professional conduct of lawyers.
Councilman Michael Zucchet was not implicated because he was elected in November 2002 after much of the alleged wrongdoing had occurred. But he called the timing of the release "interesting."
"The city attorney would have to explain why he chose to do it after everybody left, and why he did it at a time when people who were named in the report would find it difficult to respond," said Zucchet, who was at home when the report was released.
"A cynical person might think that he did it explicitly for that purpose – to have one media cycle where the people impugned in the report didn't have an opportunity to respond."
Councilman Jim Madaffer was out of town but issued a written statement calling Aguirre "obstructionist."
Aguirre declined to be interviewed.
His report comes at a time of extreme unrest at City Hall, where officials are grappling with a fiscal crisis driven by a deficit of nearly $1.4 billion in the $3.6 billion San Diego City Employees Retirement System.
The pension deficit is largely because of the city's practice, beginning in 1996 and continued under votes by Murphy and a council majority in 2002, of underfunding the system while straining it with benefit hikes.
Aguirre's report was billed as his second "interim" report into "possible abuse, illegal acts or fraud by city of San Diego officials." In his first report, issued Jan. 14, he hinted that Murphy knew about the pension system's slide three years ago but kept it quiet, an allegation Murphy categorically denied.
Aguirre said he launched his investigation to satisfy the concerns of the city's outside auditor, financial-services giant KPMG. In October, KPMG warned it cannot complete its audit of the city's 2003 books until an investigation is launched into whether city officials committed illegal acts.
The failure to produce audits for 2003 and 2004, coupled with the ongoing investigations, has hobbled the city's ability to issue bonds, putting vital water and sewer projects on hold and threatening library and fire station construction. Standard & Poor's Ratings Services suspended the city's credit rating in September.
Aguirre's report included e-mails between officials and closed-session reports to the council. Documents in his report showed that the council was advised at closed session meetings in March and April 2002 that the pension system's assets were shrinking and that a massive balloon payment would be required.
During that time, the mayor's Blue Ribbon Committee on City Finances, while raising concerns over the pension system, publicly reported it as nearly fully funded. In private communications, Richard Vortmann, a committee member and pension board trustee, raised concerns about the pension system and the committee's work.
The Aguirre report said the mayor and council were briefed in closed session in November 2001, by outside securities experts, of their disclosure responsibilities under federal securities laws. Nevertheless, the report said the council voted for several bond issues, as late as June 2003, that had inaccurate disclosure documents, stating the pension system was healthier than it was.
Aguirre's report also contained reports showing the council had closed-session briefings in early 2002 on plans for the city to get out of a massive balloon payment to the retirement system by proposing to boost benefits – a move Aguirre said involved a "quid pro quo" at the retirement system board.
Several documents in Aguirre's report show that the granting of benefit increases – including special benefits for the presidents of powerful City Hall labor unions – were made contingent on the retirement board's approval of continued underfunding of the pension system by the city.
Some of this information is not new and was first made public in a September report by Vinson & Elkins, a law firm representing the city in talks with the SEC. Other documents, such as closed-session materials released with permission of the mayor and council, have never before been made public.
Ron Saathoff, a pension board member and president of the city firefighters union, is a major subject of Aguirre's report. A May 2002 memo from assistant auditor Terri Webster to other city officials indicated that they needed reassurances from Saathoff – "since he runs the show" at the retirement board – that the board would let the city off the hook on the balloon payment.
"Mr. Saathoff was to receive a substantial presidential benefit in exchange for his help," Aguirre's report said.
Saathoff could not be reached for comment last night.
The city first began intentionally underfunding the pension system in a 1996 deal that enabled a cash-hungry City Hall to balance the annual operating budget. That deal included a provision that if the pension system's funded ratio – a measure of assets vs. liabilities – fell below 82.3 percent, a balloon payment was required. The system fell through that floor in 2002 and today the system is believed to be about 67 percent funded or less.
In numerous e-mails listed in Aguirre's report, top city officials discussed the approaching "trigger" requiring the balloon payment and used words like "ugly" and "not a happy situation." One December 2001 e-mail from Webster to retirement system administrator Larry Grissom was signed, "Sleepless in San Diego."
Aguirre's report said balloon payments, totaling well over $500 million, would have been required through 2004.
His report cut a swath through City Hall, targeting politicians of both parties and even, to a degree, Councilwoman Donna Frye and Councilwoman Toni Atkins, who backed him for city attorney last year.
Councilman Tony Young, elected to the 4th District seat last month, is not implicated.
The toughest criticism went to Murphy and Peters by virtue of their undergraduate training in economics and their advanced degrees. Murphy earned an MBA from Harvard and a law degree from Stanford. Peters earned a law degree from New York University. The report said both men, Phi Beta Kappas, had "the most relevant training for understanding the underlying complex facts and circumstances."
The report said council members fell on a continuum, with Murphy and Peters at one end, and Frye, a surf shop owner with "no advanced degrees in business or law" and no expert training at the other.
Aguirre earned a law degree from Boalt Hall at the University of California Berkeley and received a master's in public administration from Harvard.
The report noted that Frye voted in closed sessions to extend benefits and continue underfunding the pension system in 2002, but was the only council member to vote against extending benefits when the matter made its way to a public vote later that year.
In between, the report said, are Councilman Brian Maienschein, a lawyer whose practice was "community based"; Madaffer; and Councilman Ralph Inzunza. The latter two, graduates of San Diego State University, had no "relevant expert training," the report said.
The report also said Byron Wear and George Stevens, who were on the council at the time, also had no specialized training.
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FGS.
The whole thang makes my head hurt...even my hair.
San Diego used to be such a nice "town" (small city).
Pity how it's grown and changed.
Well .. although the county has over 100,000 more registered repubs than dems - the dems are concentrated in the city limits and therefore it's harder to get a repub as mayor.
I still believe Murphy is in over his head - and he's trying to please everybody instead of just doing the job and letting the chips fall where they may.
The unions have taken hold of city government,
and corruption is their name.
You are correct - and the gay community is very involved in the unions.
You are correct too.
The homosexuals ARE VERY INVOLVED in the unions.
And North Park is a very large gay community within the city limits.
Hillcrest, University Heights,
Morth Park, and some parts of
Normal Heights, Kensington, and Mission Hills.
Yep - gay, elderly and minority.
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