Just 14 days after Mayor Dick Murphy's 2002 Blue Ribbon Committee on Finances presented its final report on the city's fiscal health to the City Council, a fax machine in the mayor's office spit out a memo expressing one committee member's “growing and daunting concern that we possibly did our city a disservice by not ringing a very loud bell.”
The memo, written by shipbuilding executive Richard Vortmann, was itself a call, one that Murphy's staff ignored.
More than two years later-with the city's pension debt surpassing $3 billion and growing every day, threatening to force the city into bankruptcy, and city finances and officials under the scrutiny of federal investigators—the April 29, 2002 memo is getting a lot of attention. And this time around the alarm bells cannot be ignored.
The memo was unearthed as a result of a CityBeat investigation. City Attorney Mike Aguirre didn't know the memo existed until CityBeat showed it to him this week.
“The Blue Ribbon Committee was set up to find all of the financial meteors headed toward the city, and the biggest financial meteor was this pension problem,” says Aguirre, who just two weeks ago announced that his investigation into city finances was probing a possible cover-up by the Blue Ribbon Committee, the mayor and other city officials. “It's clear that they knew about it and didn't disclose it with the kind of specificity that they should have as Mr. Vortmann now acknowledges in his letter. It's a bombshell.”
Aguirre's initial announcement focused on another Vortmann memo dated Feb. 18, 2002, which proved the committee failed to include newly available information about the city pension system under-funding in its 2002 report. Aguirre argues that if that information had been provided, the City Council may not have agreed to increase employee benefits, one of several agreements that resulted in the city's current pension under-funding.
Circulated by CityBeat to various City Hall insiders, the newly uncovered Vortmann memo instantly added fuel to Aguirre's claims, providing some with a motive for the alleged deception.
Vortmann sent the memo to then-city Auditor Ed Ryan, then-assistant Auditor Terri Webster, his eight fellow committee members and one of the mayor's senior policy advisors. His warnings were ignored by the mayor's office and all but one of the recipients—Blue Ribbon Committee vice chair April Boling—a fact that's raising the ire of observers and piquing the interest of investigators.
To some, Vortmann's memo provides evidence that the committee, comprising volunteer citizens and touted by the mayor from its inception as “independent,” was actually pressured to understate the severity of its findings.
“After much discussion of whether the ‘sky was really falling' and did we really want to say all that, we, as a group, with my concurrence, evolved to the final version of our conclusion i.e. ‘the city is in good fiscal shape, but...'” wrote Vortmann.
“It appears to me that Vortmann and others on the committee, I don't know who, they intentionally pulled their punches,” says Michael Conger, the attorney who successfully sued the city in 2003 for under-funding the pension system. “I don't know how you could read this memo otherwise.”
Moreover, many believe Vortmann's memo suggests a financial motive behind the alleged deception.
“The committee's unstated concern over the ballpark financing and any impact to the city's credit rating in general are now behind us,” wrote Vortmann. “However, certain recent developments since our report deliberation seems to accentuate the ‘buts' we made in our report.”
“In other words,” says Carl DeMaio, president of the Performance Institute, a government-finance think tank, and frequent critic of City Hall, “now that the financing has been done, now that we have duped our bond holders, now that we have been able to get a good credit rating on this latest bond, now let's be honest.”
Was the Blue Ribbon Committee less concerned with vetting city finances than protecting the rating of nearly $170 million in bonds issued by the city to finance final construction of the beleaguered Petco Park? Calling from the East Coast and a little hazy on the details of a memo he wrote more than two years ago, Vortmann told CityBeat he's pretty sure his memo is being read out of context.
“That certainly is reading a hell of a lot into it,” he said. “First of all, our report had no involvement with any bond financing whatsoever. We were an independent volunteer group giving an opinion to the mayor on the fiscal condition of the city and, not to my knowledge, used as a reference for any bond financing and certainly had no authority to be such.”
Boling backed him up, saying she believes the statement was referring to an anticipated spike in the city's debt level caused by the sale of the ballpark bonds.
But did the Blue Ribbon Committee alter its findings? No, said all five committee members who returned CityBeat's calls. April Boling, April Riel, Victor Vilaplana and Vortmann all echoed Andrew Poat, who said committee members had different ways of interpreting the information provided by Ryan and Webster and other city staffers. Some, like Boling and Vortmann, reportedly saw impending doom while others simply saw room for improvement. They worked toward a consensus as any committee would.
Similarly, none of the committee members CityBeat spoke to recalled anyone implying or pressuring them to temper their findings to facilitate the sale of ballpark bonds.
But Boling, who went on to chair the mayor's Pension Reform Committee in 2003, says recent revelations have caused her to question whether the committee may have been manipulated in more subtle ways. Much of her concerns stem from the longer-than-anticipated time it took for the Blue Ribbon Committee to issue its report. Interrupted by the events of 9/11, Boling says an initial two-month delay was understandable, but in retrospect it's the fact that the Blue Ribbon Committee's report was delayed another two months, until after the city issued the ballpark bonds in 2002, that's troubling her now.
Boling said she was also troubled when she learned this week that Joe Craver, who chaired the Blue Ribbon Committee, also simultaneously chaired the Public Facility Finance Authority, the city agency charged with issuing bonds, including the ballpark bonds in 2001.
“I knew I didn't have any agenda... and I don't think Vortmann did” she said, “but if there was somebody else in that room that had a different objective, like Craver trying to get his bonds out the door, nobody ever said that.”
Craver was out of town and didn't return several messages left at his business, Galaxie Management Inc.
With Craver's dual role revealed, the delays in drafting the report and other details have raised a lot of questions. For Boling and others, the fact that the ballpark offering was completed on the same day, Valentine's Day of 2002, that the long-delayed Blue Ribbon Committee presented its report to Mayor Murphy behind closed doors suddenly seems like more than an eerie coincidence. Moreover, the delays that occurred after the report was issued now seem troubling.
None of the members contacted could explain why, contrary to the original plan, the Blue Ribbon Committee was never reconvened a year after it issued its report. Was their work simply forgotten, or had they already served both their intended and a possibly unstated purpose? How would a new look at worsening city finances have impacted the ballpark bonds now that they had been sold?
Tony Cherin, a finance professor at San Diego State University, said the concerns like those cited in Vortmann's memo could have increased the already miserable yields on the bonds, and that's not all.
The official disclosure of finances filed by the city on Feb. 14, 2002 claimed that the state Legislature requires the city to contribute funds to SDCERS at a rate approved by an actuary. The only problem was that while the statement was technically true, the city wasn't doing it. Moreover, if anyone found out the city lied in its disclosure documents, it could jeopardize the ballpark bonds and leave a partially constructed eyesore, and a huge political embarrassment, smack-dab in the center of East Village.
“If you knowingly and intentionally provide or withhold information about city finances, it's securities fraud,” says Cherin.
And Craver wasn't the only person close to the Blue Ribbon Committee who also had ties to the ballpark. According to minutes of committee meetings obtained by CityBeat, Dennis Gibson, one of Murphy's senior policy advisors and his liaison to the Blue Ribbon Committee, attended several committee meetings while simultaneously spearheading the mayor's efforts to jumpstart ballpark development.
“In his role for the Mayor, one of Mr. Gibson's primary policy responsibilities was to advise the Mayor and support all City and other agency efforts to complete the construction of Petco Park.” That statement was issued last week in a city manager's report announcing Gibson's appointment as the city ballpark administrator for Petco Park.
Contacted at the mayor's office Monday, Gibson promised to call back but never followed through. He didn't respond to subsequent messages. Confronted with the memo, Murphy said, “Mr. Gibson received a copy of Mr. Vortmann's letter to the Blue Ribbon Committee of April 29, 2002. Mr. Gibson took no action because the letter came two months after the Blue Ribbon Committee report was finalized.”
Gibson's inaction is bringing additional heat to the Blue Ribbon Committee, the city's ballpark bonds and the mayor's office.
“This is the most damning memo I have seen to date in the entire city financial crisis in terms of intentional cover-up of the city's financial problems,” said DeMaio, “and it has the fingerprints right there of the mayor in terms of Dennis Gibson and his involvement....”
Aguirre, Councilmember Donna Frye and others are lining up to demand answers from Vortmann, who Aguirre says isn't cooperating.