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SAN DIEGO – The city continues to maneuver in attempts to extricate itself from a $1.4 billion pension deficit. The looming pension deficit crisis has overshadowed all city business matters for the past several months.
City Manager Lamont Ewell announced last week that the City of San Diego had entered into a contract with the law firm of Morgan Lewis & Bockius, effective September 1, 2005. Morgan et al. will represent the city before the U.S. Securities and Exchange Commission (SEC).
For more than eighteen months, the SEC has been investigating city operations and officials for failure to disclose details of the pension fund deficit to investors.
In response to criticism over a conflict of interest, legal expenses and extraneous expenditures, the city manager and city attorney were authorized by the San Diego City Council to replace the law firm of Vinson & Elkins as San Diego’s legal counsel before the SEC.
Vinson & Elkins, which also represented Enron, was originally retained for $3.8 million in 2004. Since then, the firm has billed the city $6.3 million, producing two reports concerning the pension fund. Both reports reveal the city’s failure to disclose negative information, but indicate no intentional wrongdoing or cover-ups by city employees.
City Attorney Michael Aguirre dubbed the reports “whitewash,” and criticized the city manager for not keeping close enough tabs on the firm’s $6.3 million in billings.
Pension Board Developments
Last Tuesday the San Diego City Council, short two members due to felony convictions of conspiracy, fraud and extortion in July, voted on a proposal to remove San Diego City Employees’ Retirement System board president, Peter Preovolos. The council deadlocked in a split vote. Deputy Mayor Toni Atkins and Councilmembers Brian Maienschein and Donna Frye voted for removing Preovolos; Councilmen Scott Peters, Jim Madaffer and Tony Young voted against.
If the measure had passed, the city council would have been able to load the pension board with members willing to waive attorney-client privilege, and reverse the board’s pattern of resistance to investigators’ requests for documents.
The city council was attempting to fill four empty seats on the pension board. The appointees were to be former pension board member and deficit whistle-blower Diann Shipione, former mayoral candidate Richard Rider, attorney Ezekiel Cortez, and corporate accountant Thomas Hebrank.
Shipione and Rider refused to serve on the board unless Preovolos was removed. Cortez bowed out, citing work commitments.
Hebrank, a certified public accountant from Kensington, California accepted the appointment. He expressed that he wants to help the city and will support waiving the attorney-client privilege if necessary.
“Obviously, there are a lot of issues that need to be dealt with and a lot needs to be done,” Hebrank said. “My primary responsibility is to the [pension] plan’s participants.”
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