Jan. 19 2005 12:00 AM

Aguirre zeroes in on Murphy and city finance staff

If City Attorney Mike Aguirre stole a bit of the spotlight last Monday by announcing his plan to save San Diego from bankruptcy just hours before Mayor Dick Murphy delivered his State of the City address, then he returned that candlepower tenfold four days later by revealing that the mayor was a target of his ongoing investigation of the city's pension crisis.

At a press conference Friday, Aguirre released the first of a trilogy of interim reports from his ongoing investigation into concerns of "possible abuse, fraud and illegal acts."

Aguirre's first installment blasted the findings of Murphy's 2002 Blue Ribbon Committee on Finances. Aguirre says the committee's report failed to show that "a massive financial tidal wave was heading toward the city," and that the omission of "accurate information about the dire financial condition of the city's employee pension plan... raises serious questions of misconduct by city officials."

At issue are discrepancies between the Blue Ribbon report and the 2001 valuation, or annual status report, of the San Diego City Employee's Retirement System (SDCERS), which was published 15 days prior to the committee's findings. The valuation indicated that the city's funding of the system had dropped from 97 percent to 89.9 percent-a loss representing roughly $215 million. That drop in funding also approached a level that would eventually force the city to make a multimillion-dollar balloon payment to the system that it couldn't afford.

While documents provided by Aguirre show that city officials who staffed that committee-then-city Auditor Ed Ryan, who resigned last January, and then-Assistant City Auditor and Comptroller Terri Webster, who has since replaced Ryan as acting auditor-were aware of that information, it ultimately did not appear in the mayor's Blue Ribbon report.

Aguirre says that had the information been disclosed, the city might not have increased pension benefits by hundreds of millions of dollars, continued to make false disclosures about municipal bonds or face current investigations by the Securities and Exchange Commission (SEC), FBI and U.S. Attorney. Aguirre says his next report will focus on "exactly who knew and when they knew."

Suggesting a potential cover-up, Aguirre said he's investigating the possibility that Murphy may have been aware of the true extent of the pension system's financial problems. He said he hopes to take statements from the mayor and the auditing staff. "There is currently a review of facts to determine if Mayor Murphy was aware of the fact that the pension plan was substantially underfunded," Aguirre said, "and that he did not, after knowing of those facts, bring that to the attention of the people of San Diego and act upon it accordingly."

In response, Murphy issued a terse, two-sentence statement categorically rejecting insinuations that he was involved in any wrongdoing and calling Aguirre's statements "untrue, reckless and irresponsible." And City Manager Lamont Ewell told the Union-Tribune the he's "a little tired of this sideshow."

But City Hall watchdog Ian Trowbidge said he doesn't believe Aguirre would be dumb enough to implicate the mayor without an ace up his sleeve. "He's either stupid," Trowbridge said, "or he's already got this pinned down."

Aguirre also announced Friday that the SEC, which is currently investigating the city's financial reporting practices, now wants to interview the mayor and City Council-excluding newly elected Tony Young-and that those city officials should start talking to lawyers.

In December, the City Council voted to cover the first $150,000 in legal fees for each city employee participating in interviews or proceedings related to ongoing investigations by the SEC or U.S. Attorney. On Tuesday, Aguirre finally released the names of four mid-level city employees subpoenaed by the SEC in December. Deputy City Attorney Kelly Salt, City Auditor Accounting Division Manager Rudy Graciano, City Auditor accountant Cecilia San Pedro and former City Auditor Accounting Division Manager Phil Phillips will be called to testify before the SEC in February, along with City Manager Lamont Ewell, Financial Management Director Lisa Irvine and Assistant City Attorney Les Girard.

Aguirre says he's interested in talking to Richard Vortmann, the author of the pension section of the Blue Ribbon report and president of National Steel and Shipbuilding Co. Vortmann, who the City Council also appointed as a SDCERS trustee in September 2001, told CityBeat that although the pension valuation was released before the Blue Ribbon report, all of the data collection occurred months beforehand or was based on the previous year's valuation. Regardless, he said the information he provided served as sufficient warning of the impending financial problems.

"The [Blue Ribbon] report clearly tells the city that they have a problem, a fairly significant problem, and to expect it to get worse," he said.

Vortmann told CityBeat that he couldn't remember if he had seen the 2001 valuation. However, a Feb. 18, 2002 letter he wrote to SDCERS chairman Fredrick Pierce shows that not only had he read the 2001 valuation before the Blue Ribbon Committee published its report, but that he was also aware that the funded ratio had dropped beyond 89.9 percent and was approaching the level that could trigger the balloon payment.

In his letter, given to the press this week by Aguirre, Vortmann told Pierce that there were some "significant issues buried" in the 2001 valuation. His letter also contained 35 questions for SDCERS staff.

Vortmann's questions are proof to Blue Ribbon Committee co-member April Boling, who later chaired the Mayor's Pension Reform Committee, of Vortmann's "concerns about the pension plan and his attempts to find the truth." She agreed that the Blue Ribbon Committee report warned the city of severe financial problems needing immediate attention.

But Boling says Webster and Ryan failed to provide the Blue Ribbon Committee with vital information and often altered portions of the report.

"Little did we know-now that this is all surfacing-that they weren't just changing nuances in the report. Now it appears that they weren't even giving us all of the information," she says. "They played us for patsies.... We were volunteers, for crying out loud, people with reputations in the community, and they just flat withheld information."

Vortmann's letter was found in one of 15 boxes of previously subpoenaed, yet undisclosed, information that Aguirre yanked from acting Auditor Webster's office on Jan. 11. Ten additional boxes of similar information were turned over three days later by Cathy Lexin, the city's human resources manager, and City Treasurer Mary Vattimo. Webster, Lexin and Vattimo all serve as SDCERS trustees and, according to Aguirre, claimed at the time of their discovery that contents of the boxes belonged to SDCERS.

On Friday, Aguirre said he plans to file an obstruction-of-justice report with the FBI and U.S. attorney, but it was unclear at press time whether that complaint will target all three women. He did say, however, that Webster and Vattimo should be given the boot. "I will tell you right now that until... our auditor, our treasurer... are replaced by individuals [who] have the respect and the credibility of the [credit] rating agencies that it will be extremely difficult for us to borrow any money."

While the city's ability to borrow has been hindered by a temporary downgrade in its credit rating, pending the release of a clean audit, Aguirre has repeatedly warned that the city faces Chapter 9 bankruptcy if decisive action isn't taken to solve the growing pension debt.

Echoing Aguirre's sentiment, Boling and Mike Conger, the attorney whose 2003 lawsuit succeeded in ending the city's underfunding of the pension system, have threatened to sue SDCERS, claiming that its trustees engaged in a deal with city officials that violated state conflict-of-interest laws. Their suit would ask a judge to declare the deal invalid, essentially erasing the agreements that have created the pension crisis.

Boling and Conger had previously given Aguirre a deadline of Jan. 12 to file his own action, but Conger told CityBeat that Aguirre asked for a one-week extension. As the outgoing president of the San Diego Taxpayers Association, which will be the lead plaintiff, Boling says she expects the suit to be filed on Friday, Jan. 21, "absent the Earth moving."

Aguirre will discuss his investigation of the city's financial disclosure practices and SDCERS at a public meeting Thursday, Jan. 20, at 5:30 p.m. in City Council Chambers at 202 C Street, Downtown.


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