Editor's note: Timing is everything-isn't that what they say? The following story was prompted by San Diego City Councilmember Donna Frye's desire to remove Peter Preovolos, president of the San Diego City Employee Retirement System's Board of Administration (SDCERS), from the board. A vote on that is scheduled for Sept. 6. The main gripe against Preovolos, and the basis for much of this story, was his reluctance to consider providing access to internal SDCERS documents and allowing for an investigation into potential illegal activities at the retirement system.
Well, right at our press deadline, the SDCERS board announced that at a special, closed-door meeting held Tuesday afternoon, it had voted to hand over the documents and hire a private firm to investigate the pension system. City Attorney Mike Aguirre reacted by saying the move doesn't change anything—Preovolos still must go, he said. A spokesman for Acting Mayor Toni Atkins told CityBeat that Atkins' opinions have not changed, either, but added that she is optimistic that the action is a step in the right direction.
In any case, we simply didn't have time to change this story to reflect the latest news. A profile of Preovolos, we believe the story is the most comprehensive reportage yet of who this man is and what's been on his mind. It's an in-depth look, really, at what led up to the board's big decision Tuesday.
“If we would have gone out and tried to find someone to do the worst possible job, to make the most mistakes, to provide the worst leadership, we could not have found a better person than Mr. Preovolos. He has been a disaster. It's obvious that he cut some kind of deal to get his job with the people he's fronting for. He's been irresponsible. He's failed to take any kind of action that would help us.”
Goodness gracious, such hostility. But before we get too worked up, it's important to note that these are the fightin' words of City Attorney Mike Aguirre, whose hyperbole meter is calibrated just a touch higher than everyone else's.
However, that's not to say that his target, Peter Preovolos, president of the San Diego City Employees Retirement System's Board of Administration (SDCERS), isn't on the hot seat. He is. On Sept. 6, the City Council is scheduled to consider removing him from the pension-plan board; his critics say he's too entrenched in his refusal to hand over documents sought by investigators-that he's become the single biggest impediment to municipal salvation. City leaders say the documents are crucial to getting a long-delayed audit of city finances certified. Without the audits, the city can't go to the bond market to raise money to pay for sewer, water or road projects or pay down that huge abstraction known as the pension debt, which could be as low as $1.5 billion or much, much higher.
Preovolos, who had under his belt 40 years in the employee-benefits field and who currently heads a consulting firm that designs pension plans and manages retirement portfolios, downplays the pension debt, saying he's never been associated with a plan that wasn't in debt. He also is not convinced that the documents sought by investigators are necessary to get an audit completed-he believes the issue is a red herring of sorts and that the outside auditor, KPMG, is simply gun shy about releasing an audit for a legally embattled city amid increased legal liability for auditors in the post-Enron era.
The depths to which his heels appear to be dug in have prompted his critics to suggest Preovolos is unmoored-that he fails to grasp the gravity of the situation.
Preovolos “is a classic example of ‘In the land of the blind, the one-eyed man is king,'” said Peter Q. Davis, retired banker, former port commissioner and former chairman of the Centre City Development Corp. Board of Directors.
Acting Mayor Toni Atkins is more understated in her comments about Preovolos, but she told CityBeat last Friday that she is “seriously considering” voting in favor of City Councilmember Donna Frye's motion to yank Preovolos from the SDCERS board. City Councilmember Jim Madaffer, too, has publicly suggested he be removed.
If Atkins, Frye and Madaffer plan to vote yes, they'll need two more votes from among Scott Peters, Tony Young and Brian Maienschein. Preovolos says he's met with Atkins, Peters and Young. He called Peters, who delayed a vote on Preovolos when last the City Council met on Aug. 9, “gracious”; he called his chat with Young “delightful.”
Preovolos has called and written to Frye, but she hasn't responded. Frye told CityBeat that she intends to call him back.
For her part, Atkins said Preovolos “seems very intelligent, very smart in terms of the points that he makes. However, we say what we need, he hears us, he communicates that [he] would like to be helpful and then goes away and we still don't have the waiver... so there's been no movement.”
Atkins says it's time for action. “If they have another alternative for how to... provide the information to KPMG, I'm willing to listen. But I actually have not heard an alternative that seems to be viable.”
Preovolos says he has something up his sleeve, but he wouldn't say what. “I'm very optimistic that I see light at the end of the tunnel,” he said, “and my goal, frankly, is to resolve the biggest issues before us before this year is out.”
There's a gentle demeanor behind Preovolos' round face. He's attentive and a little bit self-deprecating-he referred to “little old me” when talking about the heavy hitters with whom he serves on the SDCERS board. He's one of those people who make sure they address you by name every now and again during conversation.
When interviewed by CityBeat a few weeks ago, Preovolos wore a “Try God” lapel pin, a gift from a friend, created by Tiffany & Co. back in the '20s or '30s, he said, to raise money for unwed mothers and wayward girls. “I have a very deep commitment to faith,” said Preovolos, a Greek Orthodox Christian. “Without God in my life, nothing gets done.
In fact, it's his faith in God, he said, that keeps him going on a retirement board that's seen several members resign in recent weeks. He seemed to be saying that his faith compels him to fight “injustices” committed by Aguirre, to whom Preovolos' conversation invariably comes back. Someone's got to defend SDCERS from the city attorney's damaging “commentary, half-truths, distortions and confusion,” and Preovolos has volunteered to lead that fight.
Indeed, the pension-plan president says he's engaged in a war to protect a besieged agency, a venerable institution that never did anyone any harm and is now under fierce, unrelenting attack by dark forces led by a clever yet conniving city attorney and a misguided city council member and mayoral candidate. That's the way he sees it.
“I'm not a special kind of guy. I don't purport to have any great knowledge or great skills,” he said. “I question sometimes why am I here, why was I even selected-I mean, nobody knew me in this city. I've lived here 30-some-odd years; I've lived in my own little world, doing my thing the best I can, involved in a lot of different religious and social functions-pretty much my own world, working with people who share the same desires and ideals that I do.
“And all of a sudden, I find myself in the middle of a political arena that I have absolutely no comfort zone to; it's not mine, it's not my life.”
It is that unease, perhaps, that prompted a letter of resignation that he claims to have drafted soon after being appointed this past spring to the SDCERS board by then-Mayor Dick Murphy. “I dusted it off the other day and looked at it,” he said last Friday, “then I put back in my briefcase, and that's where it is. I'm still hanging in.”
But Preovolos is doing much more than just hanging in. He's fighting with everything he has. He's fully behind a legal war with Aguirre. Preovolos and SDCERS lost the first battle, an attempted temporary restraining order against the city attorney. Then last week he declared victory after a judge declined to pave the way for Aguirre to take over legal representation of SDCERS, although the judge left the door open for Aguirre to rework his case and refused to put a muzzle on the rambunctious city attorney.
Certainly, Aguirre has been vociferous and pointed in his commentary about how the SDCERS board and staff appear to be covering up for past board members by refusing to turn over documents and initiate what's known in the auditing world as an “illegal-acts analysis.” But he's not the only one. The city's high-priced audit committee, a three-person team of bigwigs in the auditing and securities industries, have also encouraged the SDCERS board, in very strong terms, to cough up the documents, to determine if anyone at SDCERS broke laws.
But although some board members have said publicly in recent weeks that the board is inching closer to waiving the attorney-client privilege, Preovolos doesn't seem to be budging.
For him, the reason is threefold: He's nervous about setting bad precedent; he doesn't trust Aguirre with any additional information about SDCERS; and he's worried about legal liability. “Are employees going to sue us? Are retirees going to sue us?” he asked. And what about the six people-five former members of the SDCERS board and one current member-who are facing illegal-conflict-of-interest charges stemming from SDCERS' vote to allow the city to under-fund the pension system in what appears to have been a deal that also resulted in enhancements to employee retirement benefits? Would those people sue the board if the documents incriminated them further?
“One of the most sacred rights that you and I have as citizens of this great country,” Preovolos said, “is the issue of [attorney-client] privilege, which is a right that goes back to the Roman period in history-and it's precious.”
Given the height of the hurdle Preovolos has placed in the path of a waiver, he's simply not been convinced that the benefit outweighs the potential cost. He flips the burden back to KPMG.
The notion that KPMG needs e-mails between SDCERS and its lawyers in order to complete an audit of the city's 2003 finances is “absurd,” Preovolos said. “It's not in their contract. They have all the authority in the world to issue an opinion, whether it be qualified or otherwise. If they feel so strongly about us waiving, then issue a qualified opinion that states the reason it's a qualified opinion.
“I think the city's being held hostage by perhaps a very incompetent accounting firm.”
If one were to look at the rules, policies, procedures and philosophies governing such audits, he added, “there's nothing that would preclude KPMG from issuing an audit other than KPMG. Period. They are the ones that are doing this. They've collected a lot of money from the city-if it were up to me, they should be sued for breach of contract and asked for our money back, and get somebody else. It's a disgrace.”
Aguirre and Michael Young, the audit committee's New York-based attorney, have told the SDCERS board that generally accepted auditing standards say an investigation of potentially illegal acts is called for in this situation, but Preovolos says SDCERS' auditors have said there's no evidence that would trigger such an analysis-and there's the impasse. However, the board agreed to seek a second opinion. (Please see “The story behind pension officials' secret plan to seek a state audit.”)
Preovolos says he has been proactive, and that he had what he thought was an excellent solution, one that he thinks the City Council should have tried two years ago. Through its lawyers, SDCERS asked state Sen. Bill Morrow to seek a state audit of the pension system. Preovolos thought that would be the best way to take the rancorous City Hall politics out of the situation, and he called the failure of that effort “a great tragedy.” (Details are contained in the side story.)
It sounds like Preovolos has been stationed back at the drawing board, but the Morrow experience has sealed his lips.
All along, Preovolos and some of his colleagues on the board have complained that they weren't allowed time to settle in before they were, in their view, beaten over the head with demands to hand over all their internal documents-records that under normal circumstances no one on the outside of the system would ever see.
“That may be very true,” Atkins said, “and I'll give him that.”
The city and its pension system are in a deep hole, “and climbing out of it,” Preovolos said, “is going to take a little more time, some patience and maturity. But as sure as you and I are talking right now, we are making headway in getting ourselves out of this hole.”
Problem is, patience-if not maturity-is in short supply at City Hall these days.
City officials want their audit, so bad that they're likely to fill vacancies on the SDCERS board only with people who they're confident will vote to waive attorney-client privilege-even though the board is set up to act with total independence.
“I've said it's not a litmus test,” Atkins said, “but c'mon, anyone that says they'll go onto this board... that doesn't understand what the expectation is from the city's side, in terms of getting our audit done would have to be living on the moon. We really need this to be done.”
On Sept.6, the day the City Council will determine Preovolos' fate, Atkins will recommend four candidates as replacements for four resigned SDCERS board members. Preovolos has vowed to sue anyone placed on the board who made up their mind on the waiver issue beforehand, which he said would be a breach of their fiduciary duty to members of the pension system.
And if the City Council tries to remove him from the board, will he sue them, too?