City Hall Lawsuits, Audits & Investigations Continue in "America's Finest City"

SAN DIEGO - It was another busy week for the San Diego city government, as officials continued their efforts to resolve the city’s pension deficit crisis.

City Attorney Files Another Lawsuit

Last Friday, San Diego City Attorney Michael Aguirre filed a lawsuit seeking to eliminate increases to pension benefits he says were approved in violation of the city charter. Specifically, the suit challenges the pension benefits of former Mayor Dick Murphy and former City Councilmen Ralph Inzunza and Michael Zucchet. Murphy resigned from office in July, 2005 and Inzunza and Zucchet were pronounced guilty in federal court that same month of conspiracy, extortion and wire fraud.

Aguirre's Superior Court lawsuit seeks to eliminate pension benefits for Zucchet, cut those for Murphy and Inzunza, and roll back retroactive increases they approved when they were members of the City Council. The lawsuit also stipulates that benefits for numerous elected officials, both past and present, either be reduced or abolished.

According to Aguirre, the disputed retirement benefits violate the city charter, which requires that an employee be 62 years old and employed by the city for at least ten years in order to qualify for a pension. The city charter also requires San Diego voters to approve changes to the charter.

Aguirre claims that the City Council violated the city charter and state constitution in 2000 by reducing the retirement age to 55, and again in 2002 by approving the purchase of service credits to gain eligibility, thereby retroactively boosting the pensions of former officials. Aguirre said that eliminating those benefits would reduce the estimated $1.4 billion pension deficit by several million dollars.

Work on the City’s Fiscal Audits Continue

Sorting through tens of thousands of documents and vast quantities of emails and electronic documents, the city’s hired consultants acknowledged in a report to the City Council that completion of the long-awaited 2003 fiscal audit might take until next year. The city must complete audits for 2003, 2004 and 2005 to restore its credit rating, in order to borrow money at competitive rates.

The auditing firm KPMG recently received countless documents due to the city’s compliance with twelve federal subpoenas. These subpoenas stem from investigations by the Securities and Exchange Commission (SEC), the U.S. attorney, and the FBI into the city’s failure to disclose the escalating pension deficit to bond investors.

Still outstanding are about 400 documents that the pension board has refused to release, related documents from the City Attorney’s Office, and several documents believed to be in the possession of Ron Saathoff, president of the firefighters union.

The audit committee made a report last Friday, a day after a member of the KPMG team revealed, “Several issues remain to be resolved.” At issue are the pension board’s cooperation, the audit committee’s investigation, and completion of the city’s 2003 financial statement.

On Monday, Bill Morris, a managing partner for KPMG, told the City Council that the annual audit will be submitted thirty days after the consultants from Kroll, Inc. finish their investigation. Three Kroll employees comprise the city’s audit committee.

The Consent Decree

The City Council held its first public discussion about the City Attorney’s proposed consent decree on Tuesday. The proposal seeks to settle the SEC investigation into the city’s financial disclosures, which began in February 2004. Aguirre submitted the consent decree to the SEC earlier this month without City Council approval.

At the meeting, John Hartigan, an attorney who represents San Diego before the SEC, told the City Council that it is premature to pursue a settlement. According to Hartigan, a former assistant director of enforcement for the SEC, the agency won’t settle with the city until it completes its investigation into possible securities fraud by city officials. The investigation is expected to last for at least three more months.

The City Council voted to authorize discussions by Aguirre and Hartigan with the SEC, and directed the two attorneys to work towards an acceptable settlement.