SD City Attorney Posits 15-Point Plan

August 16, 2005 ( - On Tuesday San Diego City Attorney Michael Aguirre released a fifteen point recovery plan that he says will resolve the city's legal, accounting and financial crisis.

Aguirre’s new plan for the troubled pension system follows a 7-1 vote by the board of the San Diego City Employees Retirement System to have an independent consultant conduct an examination that would go “above and beyond the financial audit” or standard annual analysis of the fund’s records, said board president Peter Preovolos, according to the Union Tribune.    The board has refused to release documents to federal prosecutors or consultants hired by the city to help speed completion of the audit by KPMG LLP (see  Internal San Diego Report Clears Officials of Wrongdoing ).  

Once the board selects a consultant, the process of examining the documents will take three months, according to    Preovolos said the first priority is to have consultants review allegations of wrongdoing that have been leveled against board members and pension administrators, and they will also be asked to examine some 10,000 documents subject to release if the board decides to set aside attorney-client privilege.   Portions of those papers might point to other records, he said, according to the Union Tribune, and the system must be aware of where each trail leads if the board is to be persuaded to give access to investigators.  


Aguirre’s Plan

Meanwhile, Aguirre, who has been increasingly critical of the actions of the Board (see  San Diego Bumps Up Consultant Payments ), has outlined a  plan  that he claims will help set things right.  The plan, as outlined on the City Attorney’s web site is:

1. The City of San Diego (City) will accept findings that, in connection with the offer and sale of certain city bonds and with its continuing disclosures, it made material misstatements of fact and omitted certain facts necessary to render those stated facts not misleading. The omitted and misstated information relates to the citys pension system and other financial information and to its wastewater rate structure.

2. In order to resolve all unsettled issues concerning federal securities laws, the City Attorney will work with the SEC to prepare a consent decree on behalf of the city and the SEC and the City Council in its governmental capacity and the SEC. Individuals, including members of the City Council, subject to SEC investigation must resolve any personal issues with the SEC separately.

3. The city will continue to retain Kroll Associates (Audit Committee) and Willkie Farr & Gallagher so that they may complete their investigations of City officials and, under the direction of the SEC, implement remedial changes.

4. The city will retain Macias Gini & Co . to work with KPMG to complete the audit of the Citys 2003 and any restatement of the Citys 2002 financial statements. (Macias Gini & Co. has already been hired to audit the Citys 2004 and 2005 financial statements.)

5. The city will direct the City Auditor to cease recognizing illegal pension benefits accumulated by city employees who have not retired as of 1 August 2005. On behalf of the city, the City Attorney will prosecute civil actions necessary to resolve issues regarding illegal pension benefits.

6. The city will seek, according to equitable principles, a settlement with city employees who hold illegal benefit claims and who retired after 1 July 1997, and before 1 August 2005. Neither the city nor the City Attorney will take any actions regarding employees who retired before 1 July 1997.

7. The City Council will place on the June 2006 primary election ballot a charter amendment that was recommended by the Pension Reform Committee to change the pension boards composition so that it will consist of seven independent members.

8. Pending any such charter change, the City Council will remove the current pension board members and appoint seven new independent members who will:

a. Replace the pension board Administrator; b. End the payment of illegal pension benefits; c. Require the City to pay all legal benefits and to make actuarially required annual payments into the system; and d. Restore the City Attorney as counsel for the pension board.

9. In order to both secure a release from the subject parties and lessen the hardship caused by the elimination of illegal pension benefits, the City Council will consider conferring replacement benefits on City retirees and current city employees. This provision will be subject to adoption of the revenue enhancement plan described below.

10. The City Council will prepare a revenue enhancement plan for submission to the electorate on the June 2006 primary election ballot that will raise sufficient funds to pay for all legal and replacement pension benefits.

11. The city will pursue all third party claims to recover damages for breaches of duty owed to the city or the pension system.

12. The City Council will place on the June 2006 primary election ballot a charter amendment that will require a majority vote of the city electorate to approve any increases in pension benefits.

13. The City Council will amend the Municipal Code to include a revised version of the Employee Retirement Income Security Act (ERISA), and the City Attorney will establish a separate group within the office to oversee the citys new pension plan.

14. The city will meet and confer about this plan with credit rating agencies and the SEC and based on these discussions make any agreed-to changes in the plan before it is implemented.

15. The city will seek to mediate any and all disputes arising under this plan with interested parties in the context of resolving all outstanding litigation.