Posted on 01/20/2006 5:37:43 PM PST by NormsRevenge
SAN DIEGO – A report released by the San Diego pension system board Friday details how the city racked up a pension deficit estimated at $2 billion, saying the system's underfunding plan did not make sense.
The 240-page report, prepared by the forensic accounting firm Navigant Consulting of Chicago, outlined the now-familiar decisions made by the city and the pension board that led to underfunding of the San Diego City Employees' Retirement System and the current fiscal crisis that grips the city.
The consultants found that city underfunding schemes approved in 1996 and 2002 "did not make economic or actuarial sense" because benefits were increased while contributions to the system were decreased. And they said that the retirement system's annual financial reports contained misleading disclosures, or omitted disclosures regarding the funding of the system.
The report was critical of the lack of independence that existed under the board's old makeup, when a majority of the trustees were allowed to play "dual roles" – not only receiving retirement benefits but also representing union members or holding city management posts.
A legal analysis included in the report found that underfunding schemes and a special benefit given to a former trustee violated Internal Revenue Service codes, and that the 1996 and 2002 funding arrangements were subject to political interference in violation of the state Constitution.
It also found that former retirement administrator Lawrence Grissom failed to disclose information to his board about special benefits being given to board members.
Former trustee Ronald Saathoff was granted a one-time benefit in 2002 that allowed him to combine his salary as a union president with his city salary to determine his ultimate retirement benefit, adding about $2,500 per month to his pension. That benefit is at the heart of the state conflict-of-interest charge against Saathoff in a pending criminal case against him and five other current or former pension system officials.
To ensure the report's independence, trustees did not get a chance to read it before Friday, when consultants gave a formal presentation on their findings to the board.
Pension board President Peter Preovolos said the report was designed to "bring to light any possible past misconduct" and identify areas for reform.
"While it is difficult to receive this kind of information – and believe me it is – I have spent an ungodly number of hours sitting here taking an enormous amount of abuse, trying to come to a conclusion," Preovolos said. "It is important to note this is not the end of the journey for any of us, but that it is just the beginning. We have a lot of work ahead and I, for one, am encouraged that progress seems to be beginning and is being made."
He and other board members praised the consultants for completing the review so quickly. The final bill for the investigation is $2.7 million – a fraction of what the city is paying its consultants for its inquiries, which are taking months longer to complete.
"For me, you've given us a path to go down, a direction," said George Murray, a board member attending his third meeting.
Navigant officials interviewed about 50 people and reviewed 134,000 electronic documents. Among those who declined to be interviewed by Navigant were former City Managers Jack McGrory and Michael Uberuaga and Mayor Jerry Sanders.
Former Mayor Dick Murphy and former City Auditor Ed Ryan were contacted by the firm, but did not respond to its requests.
The $3.6 billion San Diego City Employees' Retirement System began showing cracks in 2002, following the board's approval of a plan to underfund the pension system while increasing employee retirement benefits. That decision was the continuation of a policy that began six years earlier.
Federal and local investigators have been probing the city's financial practices for two years, looking into allegations of securities fraud and corruption related to the pension.
The District Attorney's Office and U.S. Attorney's Office have charged eight people associated with the pension system with criminal charges in separate cases.
On a positive note, the firm said the retirement system has sufficient assets to pay benefits due to all current retirees, about $210 million a year.
"In the short term it looks as though things are OK," said Amanda Massucci, a managing director with Navigant.
It was the first meeting of the pension board since Sanders, who has made restoring the city's finances a priority in his new administration, called for the resignation of Preovolos and five other board members.
Only one has resigned, and Preovolos said he would resign, but only after some early steps toward reform are made.
"I believe it would be a disservice to the city and possibly a breach of my own fiduciary duty to abandon these projects midstream," Preovolos said. "Once these projects are done, I would gladly step aside."
I wonder if it has been the same trustees, or if others will be named in this 10-year scheme.
Summary of findings
(snip)
4. The city contributed less than the actuarial required contribution resulting in the underfunding of SDCERS since at least as early as 1996. The city has not made up for contribution shortfalls from previous years.
WHAT???? I know I'm just a naive layman...but why don't they CUT THE PENSIONS?...sorry, they do it in private business when the money isn't there..why should public employees be different. By the way, why isn't anyone being charged with anything?
*bump*
Some folks have already been indicted and charged in this scandal.
This is gov't. Unfortunately, the pension benefits can't be cut until they're declared illegal in a court or without labor's consent. It's being worked on.
It's all going very slowly. Too slowly in my estimation.
http://www.signonsandiego.com/news/metro/pension/pensiontimeline.html
Pension troubles: A timeline
A pension crisis marked by a growing deficit in the retirement fund has staggered San Diego city government for months. Now, six current and former members of the retirement board face felony conflict-of-interest charges brought by the district attorney. Decisions leading to the pension crisis began in the 1990s.
1993
City health-care plan posts $200 million deficit.
1994
Mayor Susan Golding investigates taking a one-year holiday on the city's contribution to its pension system.
1995
City Auditor Ed Ryan secures $9.3 million reduction in city pension payment, later nullified on legal grounds.
1996
City Council approves City Manager Jack McGrory's plan to increase benefits and underfund the pension system, with gradually increased payments and a safety net to guarantee financial integrity of the system.
City shifts retiree health-care costs to pension system.
2000
Financial markets tumble; pension system assets drop. Dick Murphy elected mayor.
2001-02
Pension fund plunges below the ratio of assets to liabilities set as safety net in 1996 deal. City faces massive balloon payment.
2002
Blue Ribbon Committee on City Finances warns pension system at risk.
Pension trustee Diann Shipione contends deficit will grow and warns mayor and council against continued underfunding and benefit increases.
November: Murphy and council majority approve benefit increase and new underfunding plan but do away with safety net.
2003
Retirees sue city and retirement board on underfunding. (The city has since settled.)
2004
Jan. 15: Auditor Ryan announces resignation.
Jan. 27: Two weeks later, city officials disclose reporting errors and omissions about the pension system in past bond documents. Huge bond issues for sewer upgrades and Petco Park refinancing are tabled.
Feb.: City's credit ratings fall.
Feb.: City is unable to sell bonds to borrow money for capital projects.
Feb.: The FBI in February confirms joint investigation of city finances with Securities and Exchange Commission and U.S. Attorney's Office.
March: Murphy announces tentative settlement of retiree lawsuit.
April: City Manager Michael Uberuaga resigns; his assistant, Lamont Ewell, replaces him.
June: Pension reform committee calls for new pension board and closing deficit -- now $1.15 billion – with bonds and other debt.
Sept.: Vinson & Elkins, the Washington, D.C., law firm hired to represent city in talks with the SEC, finds widespread accounting irregularities (details) but no wrongdoing.
Sept.: Standard & Poor's suspends San Diego credit rating.
Sept. 7: The New York Times refers to San Diego as "Enron by the Sea," a term consistently repeated in national news media.
Oct.: The auditing firm KPMG expresses doubts over Vinson & Elkins' report and warns city officials it cannot complete long-overdue audits until the city investigates whether illegal acts have been committed.
Oct.: San Diego city voters approve ballot propositions in November to restructure pension board and close pension deficit within 15 years.
Dec.: Murphy takes the oath of office for a second term in December. Following the disputed election, courts rule thousands of write-in ballots cast for Councilwoman Donna Frye are invalid.
Dec.: City Manager Ewell says financial concerns will force an indefinite delay in capital projects, including water and sewer improvements.
2005
Jan.: New City Attorney Michael Aguirre, conducting his own investigation into city finances, issues reports suggesting Murphy and other city officials covered up the city's problems and might have committed civil violations of securities laws.
Feb.: Murphy and the City Council make contract offers to the city's four unions that call for two-year pay and benefit freezes and reduced pension benefits for new hires. Murphy says the proposal would cut the pension deficit by $600 million in two years.
March: District Attorney Bonnie Dumanis' office launches a criminal investigation into the city's pension system and its 13-member board of trustees.
April: City pension system deficit grows to at least $1.4 billion, although Aguirre says it could be $1.7 billion.
April 17: Time magazine declares Murphy one of the three worst big-city mayors in the United States. (Time article – scroll down or do a CTRL-F text search for "Murphy")
April: Long-festering speculation about a recall effort against Murphy or his possible resignation picks up momentum.
April 25:Murphy announces that he will resign July 15, seven months into his second term as mayor.
May 13: Terri Webster, the city's former acting auditor, is placed on administrative leave for failing to turn over documents subpoenaed by federal investigators.
May 16: Former Deputy City Manager Patricia Frazier, former Treasurer Mary Vattimo and Human Resources Director Cathy Lexin resign. All were involved with the pension system and city finances.
May 17: Bonnie Dumanis announces that felony conflict-of-interest charges (2, 3) have been filed against Webster; Vattimo; Lexin; Ron Saathoff, a fire captain and president of the firefighters union; John Torres, vice president of a city employees union; and Sharon Wilkinson, a city management analyst. Torres is a retirement board trustee. The others are past trustees.
May 25: The law firm Luce, Forward, Hamilton & Scripps makes public a report concluding that San Diego's pension board probably violated California's conflict of interest law in 1996 and 2002 by green lighting the pension underfunding plan in exchange for employee benefit increases.
May 27: Fitch Ratings downgrades San Diego's credit rating – the third such downgrade in 15 months.
June 9: Councilman Scott Peters warns the pension board that if members continue to refuse to hand over documents demanded by investigators, the board may be taken over. The pension board refused to turn over documents since a May 20 meeting when Mayor Dick Murphy and other officials urged them to waive attorney-client privelege. An additional deadline was given, and by July 5 the pension board still had not complied.
June 10: A federal grand jury subpoenas documents pertaining to the payment histories of five workers who played varying roles in pension-fund decisions that have contributed to a liability of at least $1.4 billion and prompted probes into possible corruption, securities violations and conflicts of interest.
June 20:Not-guilty pleas are entered by the six current and former pension board members who were indicted on criminal conflict-of-interest charges.
July 7: City Attorney Michael Aguirre files suit against eight officials he alleges had economic conflicts in developing pension system plans in 1996 and 2002. Aguirre's suit also seeks a rollback in pension benefits, and asks that Aguirre be named legal trustee of the pension system.
July 11: The pension system's assistant administrator, Paul Barnett, 52, dies of heart failure at his San Diego home. Pension consultant Rick Roeder says he believes the stress of dealing with multiple pension problems, along with the intense media coverage, was a contributing factor. "I have very little doubt," Roeder said. "He took this stuff very hard."
July 12: Pension board member Thomas E. King resigns, stating that the board has been "fatally compromised" by the "highly charged conditions" of the pension fallout.
July 14: Pension board members Susan Snow and Robert Wallace resign, citing the threat of lawsuits.
July 20: Pension board member Thomas Page, former chairman of Enova and San Diego Gas & Electric, resigns, citing both personal reasons and "the unsupportive political/legal environment that surrounds this activity."
July 25: Aguirre starts investigation into whether Mayor Dick Murphy had "an unlawful quid pro quo relationship" with the S.D. firefighters' union in which he agreed to torpedo recommendations by the city's pension reform committee in return for political backing from the union.
July 30: San Diego's pension system sues the city in hopes a judge will decide once and for all whether disputed employee benefits are legal.
Aug. 2: The law firm Vinson & Elkins releases a report concluding there is insufficient evidence of intentional wrongdoing on the part of city employees. The report is quickly disputed by City Attorney Michael Aguirre, leading to conflict between Aguirre and City Manager Lamont Ewell.
Aug. 8: Deputy Mayor Toni Atkins announces four appointments to the 13-member board that governs the San Diego City Employees' Retirement System: taxpayer advocate Richard Rider, former trustee and pension whistleblower Diann Shipione, private practice attorney Ezekiel Cortez and corporate accountant Thomas Hebrank.
Aug. 9: Lawyers for six past and present members of the San Diego pension board charged with violating conflict-of-interest laws counterattack, arguing in court papers that the charges were legally insufficient and should be dismissed.
Aug. 10: Concerned over the loss of pension benefits, the police union files a federal lawsuit demanding millions of dollars from the city in damages and the removal from office of City Attorney Michael Aguirre.
Aug. 16/17: Aguirre releases his plan for a settlement with the Securities and Exchange Commission, which he says will lead to the city's financial recovery.
Aug. 29: A San Diego judge denies a request to dismiss conflict-of-interest charges against the six current and former pension board members.
Sept. 7: A motion to remove pension president Peter Preovolos stalls on a 3-3 City Council vote.
Sept. 8: City Manager Lamont Ewell withholds $1 million from a Houston-based law firm hired to investigate the pension board's securities violations because it failed to review 57,000 potentially relevant documents.
Sept. 10: The city releases a report listing possible pension solutions including bonds and the sale of city-owned land. The report is subsequently approved by the City Council.
Sept. 13: Attorney James T. Waring appointed to the city's pension board.
Sept. 17: Private audits find that San Diego overstated its assets by over $640 million in fiscal 2002.
Sept. 18: A Union-Tribune report uncovers serious flaws in San Diego's inventory of real-estate assets, the sale of which is being considered as a remedy to pension underfunding.
Sept. 20: Aguirre releases a proposed consent decree urging the City Council to approve to settle the Securities and Exchange Commission's investigation into city finances.
Sept. 22: Independent auditors uncover 29 specific accounting problems with the San Diego pension system.
Sept. 23: Aguirre files a lawsuit to partially revoke pension benefits for former mayor Dick Murphy and two convicted ex-councilmen.
Oct. 1: San Diego judge S. Charles Wickersham dismisses Aguirre's lawsuit contending that pension board members' conflicts of interest should invalidate their votes for pension benefit increases in 1996 and 2002.
Oct. 4: Among thousands of documents released in response to Public Records Act requests is a March 5, 2003 letter from private attorneys concluding the pension board "breached their fiduciary duty." Another document – a 2003 email from pension administrator Lawrence Grissom – sums up the situation with "greed happened." Deputy Mayor Toni Atkins calls on three pension officials to resign, while City Attorney Michael Aguirre announces his intention to file new lawsuits against the leaders of the city's employment unions, retirement board members and other city officials.
Oct. 10: The state legislature passes a law allowing the San Diego Unified Port District to separate its pension plan from the city of San Diego.
Oct. 14: Governor Arnold Schwarzenegger suggests that if San Diego declares municipal bankruptcy, it would force his ill-fated move to overhaul public pension systems back on the public agenda.
Oct. 18: The City Council rejects a settlement proposal that would have transfered an estimated $150 million worth of land holdings to the pension fund.
Oct. 18: City fingerprint examiner John A. Torres, a member of the pension board since 1995, resigns citing "crushing personal and financial burdens." Torres is one of six former board members facing conflict-of-interest charges.
Oct. 25: Consultants hired to analyze San Diego's finances tell city officials their work will take until at least mid-March to complete, three months later than estimated.
Oct. 31: The City Council names Jim Hearty, a Del Mar resident who served 12 years on a state employee pension board in Massachusetts, to the pension board.
Nov. 3: U.S. District Court Judge Marilyn Huff dismisses several claims in a lawsuit filed by the San Diego Police Officers' Association alleging city officials failed to properly fund the retirement fund.
Nov. 11: Federal investigators subpoena the payment records of James Chapin, a former deputy city attorney.
Nov. 23: The U.S. Attorney's Office subpoenas documents of a presidential benefit for fire Capt. Ron Saathoff, president of San Diego Firefighters Local 145 and a former pension board member.
Nov. 28-30: Prosecutors with the District Attorney's Office begin to publicly lay out their case against six former board members of the San Diego City Employees' Retirement System. The preliminary hearing includes grueling, often tedious cross-examination of whistle-blower Diann Shipione. Also questioned is San Diego police Officer Thomas Rhodes, who joined Shipione in voting against the 2002 agreement that led to the pension crisis.
Dec. 1: San Diego files a suit seeking $100 million from four firms that were hired to provide advice and work on bond offerings now under federal investigation.
2006
Jan. 6: The federal grand jury investigating the city's pension crisis returns a 20-count indictment charging Saathoff, Lexin, Webster, Grissom and the pension system's current general counsel, Loraine Chapin, with wire fraud, mail fraud and conspiracy to commit wire and mail fraud.
I fully expect more indictments forthcoming. I'm not sure what takes longer: this investigation or carrying out a death sentence in CA.
The option explored by Golding's staff differs from Gov. Pete Wilson's use of state retirement funds to balance the state's budget.In past years, Wilson's budget has called for siphoning off billions from public employee's pension funds as a means of dealing with record deficits.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.