By Scott H. PetersSIGN ON SAN DIEGOFebruary 20, 2005
Like all San Diegans, I would like to see full disclosure of information related to the city’s current financial problems, accountability for anyone who has abused the public trust, and a return to financial stability at City Hall. Whatever errors occurred in the past, it has been this City Council’s objective for the past year to complete our delayed audits, regain access to the bond markets, finish labor negotiations and address our pension underfunding.
You should know that while his stated objectives are admirable, the city attorney’s headline-grabbing “investigation” has done nothing to advance these efforts. If anything, his tactics have handicapped resolution of our difficult problems.
In January 2004, after we learned there were problems with bond documents issued in 2003, the City Council took action to correct those mistakes with voluntary disclosures to the markets. We did this on the advice of then City Attorney Casey Gwinn before any contact from the federal government. Not one bondholder was damaged, and all payments have been made.
The City Council was concerned with the mistakes on city disclosures and the advice we received. We hired the first director of the SEC’s Office of Municipal Securities, Paul Maco, and his law firm, Vinson & Elkins, to find out what went wrong and to prevent it from happening again. Maco was instructed to talk to anyone and everyone who was involved, and the city staff was directed to cooperate.
Maco’s 300-page report, issued last September, described how financial practices dating to the 1980s have put the city in its current fiscal position. This report contains the same chronology of events on which Mike Aguirre’s so-called “interim report” was based. I challenge anyone to show otherwise.
In October and November, the city and its outside auditor KPMG, agreed that several issues should be explored further. The City Council authorized Vinson & Elkins, in cooperation with the City Attorney’s Office, to do additional interviews and secure additional documents to satisfy our auditors and the federal government that the investigation was complete. That inquiry, ordered by the City Council, produced the very documents that the city attorney sensationalized Feb. 9. Vinson & Elkins will complete its full review in the next month, and will release its supplemental report.
The City Council voted to waive the city’s attorney-client privilege so that outside auditors and federal investigators have access to all the facts in this case. We have sought a similar waiver from the city employees’ retirement board. We enacted new disclosure protocols last September to prevent disclosure mistakes from happening again. The tough new federal regulations adopted by Congress in 2002 for corporations in the Sarbanes-Oxley securities laws do not apply to local governments, but we, in effect, adopted them for the city.
Nobody disputes that San Diego now has the most rigorous standards of any local government in the country to ensure the accuracy of bond disclosures.
In the past few weeks, the City Council hired a highly respected new auditor. The city’s outside auditing firm also has been replaced, as have the outside bond counsel who advised us to approve the disclosures in question. Finally, we hired the former chief accountant of the SEC to review both the Vinson & Elkins report and the city attorney’s ongoing charges. We understand our outside auditors support this move, and that it will help get this long-delayed audit completed.
While my colleagues and I are working to complete the audit and fully cooperate with the federal investigations, we are not waiting to address the pension and budget issues. We’ve increased our pension contribution and, for the first time since 1996, the city will make the full actuarial payment to the pension system.
We’ve strengthened the controls on the retirement board with changes in the City Charter approved by voters in November. We have begun negotiations with city workers for contracts that will go into effect on July 1, which we expect will hold the line on salaries and benefits and result in lowering the unfunded pension deficit.
Through these and other steps we anticipate our pension fund will be at a healthy funding level in the near future.
Cities and counties nationwide are dealing with similar pension problems. One bond rating agency called San Diego’s challenge “long-term and manageable.”
The problem has certainly been long in the making. While 41 percent of pension underfunding is attributable to employee benefit increases, most of those increases were given in 1998 and 2000, before this City Council was in office. In fact, only 4 percent of the pension deficit resulted from the City Council’s 2002 vote on benefits, on which Mike Aguirre has chosen to focus his attacks.
I was re-elected in November, after a campaign that focused on the city’s financial problems, with a mandate to get to work and solve them. I will continue to do that in spite of the city attorney’s grandstanding. I will leave it to the appropriate federal authorities to draw conclusions about past culpability. Still, since this page has asked what I think of the city attorney’s tactics, I will say this: I am outraged.
His attacks may have secured him the spotlight, but they have detracted from responsible efforts to solve these problems. While it’s easy in retrospect to second-guess decisions, I believe it will be shown that the City Council acted reasonably in approving bond disclosures pursuant to the advice of city management and professional auditors and attorneys both inside and outside the city. An elected body of citizens is allowed and expected to rely on the advice of professionals, and we did so. Many of those professionals were in the City Attorney’s Office.
Mike Aguirre’s tactics would be a joke if they weren’t so unethical. What real prosecutor issues “interim reports” at press conferences in the middle of an investigation? Who ever heard of assigning negligence – against drivers, doctors or council members – based on the reputation of the college they attended?
Because his office has switched sides in this matter – first advising the council to approve the bond documents and defending the city and its departments in an investigation, then investigating and casting blame with regard to the very same actions – his activities have interfered with the completion of the federal government’s inquiry, and he may have tainted evidence gathered in that inquiry.
But worse, as a citizen, I see the city attorney getting in the way of solving our problems in a most selfish way. He could have chosen to leave the investigating to the professionals at the federal government, which under established law has exclusive jurisdiction over securities issues. However, instead of doing his job as city attorney, he has told city employees to hire their own attorneys at public expense, which will cost the taxpayers millions of dollars that should have gone into parks, libraries and streets. It may be years before we comprehend what the cost is to our city of losses in experienced personnel and lowered morale from his strategy of intimidation.
Over the next months, my colleagues and I will continue to work to complete our audits and regain our financial footing. We will succeed. However, our job is made harder, not easier, by our new city attorney.