October 7, 2005

San Diego pension woes covered up -City attorney

By Marty Graham

SAN DIEGO (Reuters) - San Diego City Attorney Michael
Aguirre said on Friday the city council was engaged in a costly
cover-up of its role in a pension fund deal that left the city
cash-strapped and locked out of the bond market.

Based on 60,000 newly released pension board documents,
Aguirre said it was clear the city knew the deal was illegal.

Acting Mayor Toni Atkins said an investigation into the
deal was ongoing and that she is waiting for its conclusions.
Other city council members were not available for comment.

Council members have previously said they relied on the
prior city attorney's advice the pension fund deal was sound.

In that 2002 deal, the city council approved increases in
pension benefits, including some benefiting pension board
members, in exchange for board members voting to allow the city
to underfund the pension fund, which contributed to its $1.7
billion deficit.

Reports and e-mails among the documents show that within
months of the deal, attorneys employed by the pension board
advised that the deal breached the board's fiduciary duty and
told the board to nullify it.

"The city council and the former mayor initiated the
process," Aguirre said at a press conference. "The trail leads
back to the city council and the mayor."

San Diego is staggering under the weight of its pension
fund shortfall, which was not disclosed during the sale of
general obligation bonds in 2002. San Diego has also been
unable to complete fiscal audits for 2003 and 2004.

As a result, the city's credit rating has been downgraded
to a notch above junk status.

In April, former Mayor Dick Murphy resigned after Time
magazine named him one of the three worst big city mayors in
the nation.

The city manager said on Thursday the city would have to
find a way to pare $19 million from its already tight budget
because of cash shortfalls.