The Aguirre Report - Web Log (Blog) 2006 | Office of the City Attorney

by Michael Aguirre, San Diego City Attorney
Open Letter to David Copley, Publisher of the San Diego Union-Tribune

On Christmas you published a generous holiday message of reconciliation. You wrote, "one thing binds us together: the beautiful setting in which we live." Please permit me to add that we are also united by our shared moment in time. We are the children of the World War II generation, struggling to find our place and meaning in the history of our City. We share a common need to reform our political and economic systems, which have imperfectly served our long-term best interests. Most important, we are united by our unfulfilled potential as a community.

The financial and leadership crisis we face today creates an imperative for your message that we forget past quarrels and meet as friends to face our common problems. The first step, as you wrote, is to "accept one another and to appreciate our differences."

Many public officials, business executives and community leaders are "holding fast to the highest principles and working to make the world a better place." We need our newspaper, more than ever, to provide its readers with objective and accurate information so they can make informed decisions about the crisis we face.

I was moved by the wisdom and generosity of your holiday message. I pledge to do all I can to "promote peace and justice" to "inspire by example" and to "maintain the warmth of the season throughout the entire year."

Note: According to the San Diego Union Tribune Editorial Department, the City Attorney's letter could not be published in their newspaper because individuals can only submit one letter to the editor every four months.

BLOG 11.30.06

Anybody here seen Bobby?
I saw the movie Bobby over the long weekend – in fact I saw it twice. The richness of the performances was outstanding – Demi Moore, Helen Hunt, and Julie Sharon Stone reflected the nuances of 1968 womanhood in transition. The males roles -- William Macy, Martin Sheen, Laurence Fishburne, Christian Slater, -- also demonstrate the tensions of the men who embraced Bobby Kennedy's bid for the nomination to run for President.

But as profound as these actor's portrayals are under Emilio Estevez's direction, they are utterly overshadowed by the power of Bobby Kennedy – real-time footage showing him shaking hands with children in Watts, meeting with Caesar Chavez, embracing and anti-Vietnam War platform. His words are a powerful character in the movie – alive with honesty, good sense and optimism.

The campaign of Bobby Kennedy lasted from March 16 until June 6, 1968, just 83 days. Twenty-five years later I completed a manuscript analyzing those days and his campaign speeches. At the time, I wrote:

Senator Kennedy was a beacon for those who wanted change – a lightening rod for those who did not. He faced down charges of opportunism and dynasty; accusations that he was buying the Presidency with the Kennedy millions. He overcame the white backlash for his support of blacks, farm workers, and the poor. He calmed the angry voices of black and student radicals. He withstood efforts by FBI head J. Edgar Hoover to discredit him with false news leaks that he had authorized bugs of Martin Luther King. Whether he would have been nominated we will never know. This book of his speeches is about the gallant effort he made to win with honor.

Today Bobby Kennedy's words of hope for America are just as relevant, as important and as necessary as they were in the years of great turmoil in American history. It is now almost 40 years later. Has the generation that sought leadership from Bobby stopped seeking?. From time to time in this Blog, I want to share Bobby's words and keep them ringing in the ears of those who will listen. They live on.

I run to seek new policies – policies to end the bloodshed in Vietnam and in our cities, policies to close the gap that now exists between black and white, between rich and poor, between young and old, in this country and around the rest of the world...

Now that the fight is on and over policies which I have long been challenging, I must enter that race. The fight is just beginning and I believe that I can win. I do not lightly dismiss the dangers and the difficulties of challenging an incumbent President. But these are not ordinary times and this is not an ordinary election.

BLOG 11.14.06

Below is a statement compiled from remarks of City Attorney Michael Aguirre at a Press Conference on Tuesday, November 14, 2006. For more about the SEC Settlement, please visit the City Attorney's Website at www.sandiegocityattorney.org and click into 2006 News Releases in the Media Center. To read the SEC Settlement document, click into Significant Reports and Legal Documents.

FRAUDULENT MUNICIPAL BOND OFFERINGS SETTLEMENT
BETWEEN THE SEC AND CITY OF SAN DIEGO
Statement by City Attorney Michael Aguirre
News Conference, November 14, 2006

Today we announce a final and binding agreement with the City of San Diego and the Securities and Exchange Commission (SEC), which brings their investigation into the financial practices of our City to a conclusion. It is a bitter pill to swallow that the SEC concludes that there was knowing and reckless wrongdoing on the part of our financial disclosures to the public and the municipal bond market. They were very precise in their analysis of the unfunded liabilities that will be staggering if projected into the future. The City has not sustained a fine because the SEC did not consider the taxpayers to be anything but victims in this fraud.

The City of San Diego has suffered a serious financial blow that will threaten San Diego for the next generation unless we deal with it immediately. Can we match the negative impact with positive actions? If we have learned any lesson, I hope it would be to work together for a solution. The City Council, in light of what has been found to be fraud, could agree to roll back the illegal benefits and then address a proper and appropriate benefit allocation.

In the near future the City Attorney's Office will be issuing reports that lay out strategic plans to get relief for the pension liability. We will work with the Mayor and City Council to find an Independent Consultant, as required by the SEC Settlement, who can be a reformer, who is deeply committed to solving the problem, and who can lay down a foundation for the new century, just as our City forefathers and mothers did when they reformed the City Charter in 1931. It will take public discussion and sacrifice.

The City has been run on a myth – the myth that you can increase services and not pay for them. Now is the time for a new spirit of cooperation to set aside the myth and create San Diego's new financial reality that will solve this problem in our generation.

BLOG 11.7.06

In yesterday’s Blog I chastised the Union-Tribune for not reporting just how deeply involved the attorneys representing the City Employee Unions were in negotiating the 1996 and 2002 pension agreements. Of particular note is Ann M. Smith who has represented the San Diego Municipal Employees Association (MEA) for over a decade and is currently their lead attorney in the pension trial.

In today’s U-T article about the trial, “McGrory on stand all day”, the reporter quoted briefly from a letter Ms. Smith wrote in 1996 regarding the City’s labor negotiations: “Aguirre tried to show that the city’s pension offer changed after Smith suggested City Hall would have to make ‘a yeoman’s effort’ to persuade union members to accept underfunding the retirement system.”

That brief reference to Smith’s May 17, 1996 letter to Cathy Lexin, the City’s Labor Relations Manager, really doesn’t convey the full import of Smith’s message to City labor negotiators. Smith emphasized that underfunding the pension system would be a tough sell to the MEA rank and file without a quantum leap in benefits.

As we now know, in 1996 and 2002 the City Council dangled increased benefits in front of Union leaders in exchange for their members acquiescing to the City’s demand that it be allowed to decrease its contributions to the employee pension plan. The combination of increased benefits and reduced funding has created the current $1.7 billion deficit in the City’s retirement system.

Ms. Smith’s letter was one of the first signals that the deal the City and Unions were poised to cut could be disastrous for the financial stability of the pension system. It is also evidence of her deep knowledge and complicity in the arrangement.

Smith references the letter as “MEA’s PROPOSAL FOR RESOLUTION OF RETIREMENT SYSTEM ISSUES AND CONTRACT EXTENSION COVERING FY ’98.”

What follows is the proposal which MEA’s Negotiating Team has authorized me to submit for the CITY’s consideration in connection with the on-going discussions regarding retirement system issues and the invitation to discuss an extension of the current MOU [Memorandum of Understanding] for FY98.

Since this submittal is written, certain preliminary remarks are in order as would be made in connection with an oral presentation.

I cannot state strongly enough how committed MEA’s leadership and Negotiating Team are to the following outcomes: (1) a vast improvement in the retirement formula for general members in view of the resources available to the system (which resources constitute participants’ money), and in view of the richness of the present and projected benefits for safety members by comparison; and resources available to the system (which resources constitute participants’ money) and in view of the richness of the present and projected benefits for safety members by comparison; and (2) parity in general salary increases for all CITY employees regardless of job classification.

I also cannot over-emphasize that the level of employee skepticism and distrust regarding any tampering with funding methods related to the retirement system is enormous and will require a yeoman’s effort by every person associated with MEA to overcome. MEA will not undertake this formidable task unless the gains in benefit levels for the employees MEA represents are clearly respectable and credible rather than de minimus…

Unfortunately, there’s another Latin word that applies to what went on here: Quid Pro Quo.

BLOG 11.6.06

by Michael Aguirre, San Diego City Attorney
U-T Politicians, There They Go Again!

The politicians at the Union-Tribune (U-T) are at it again. Sunday's (November 5) newspaper published a news story on the City's ongoing pension trial that seeks to convince a court that unfunded pension benefits granted in 1996 and 2002 by the City Council to City employees was a corrupt deal that should be rescinded.

The article, Pension trial pace expected to pick up, offers a prime example of what biased reporting looks like, even though I was interviewed at length for the story by the reporter.

In the story, the reporter conveys that attorneys for the unions have characterized "Aguirre's legal interpretations suspect and his grasp of procedural matters weak."

On the contrary, after I completed my opening statement union attorney Joel Klevens asked the Judge for an immediate verdict contending that the City Attorney did not make his case. The Judge swiftly ruled against Attorney Klevens and told him that his motion was procedurally defective. Somehow, this exchange did not make it into the U-T's article.

As many San Diegans already know, the Council dangled increased benefits in front of union leaders in exchange for union members acquiescing to the City's demand that it be allowed to decrease its contributions to the employee pension plan. The combination of increased benefits and reduced funding has created a $1.7 billion deficit in the pension system.

During pre-trial arguments on Monday over the motions in limine (pronounced lemony), the lead attorneys for the unions, including Municipal Employees Association Attorney Ann Smith, sought to quash the City's subpoena for Smith to testify at the trial and produce documents. I strenuously argued that because Smith and other union attorneys were instrumental in negotiating the 1996 and 2002 pension agreements they should not be shielded from having to testify.

In my interview with the U-T reporter, I told her that the public has a right to know the deep involvement that these union attorneys had in the creation of both the '96 and '02 pension agreements. But not a word of these facts made their way into the story.

Finally, the union attorneys have argued that the court cannot address the legality of the benefits because not all of the necessary parties are represented in the case. However, several months ago when they argued before the same judge that they should be allowed to intervene in the case, they all mentioned how many people they represented. Ann Smith looked the judge right in the eye and said, "Who better to represent than the officials and the attorneys who negotiated these benefits?" And on that basis the court allowed them to intervene.

So, if you follow the U-T's on-going account of what is transpiring on a daily basis in the courtroom, you'd think you were in another world. Kinda makes you wish we had a second major newspaper in town.

Note:
The Pension Trial is open to the public. It is being heard in Department 69, located on the 5th floor in the Hall of Justice at 330 W. Broadway in downtown San Diego.

San Diego City Employees' Retirement System (SDCERS) v San Diego City Attorney Michael Aguirre, City of San Diego, Case GIC 841845.

BLOG 11.3.06

View the Opening Statements of City Attorney Michael Aguirre and SDCERS counsel Ann Smith by visiting our Media Center Video page.

Below are excerpts from City Attorney Michael Aguirre's Opening Statement in San Diego Superior Court Case GIC 841845, San Diego City Employee's Retirement System (SDCERS) v. San Diego City Attorney Michael Aguirre, City of San Diego.

It is my privilege as the San Diego City Attorney to represent the City of San Diego in this action that has so much significance for the City of San Diego. I will tell your Honor this morning that the City of San Diego will competently prove the facts to a point of moral certainty to your Honor. Irrespective of any burden of proof, irrespective of any doubt, the action we seek is a declaratory judgment -- a judgment that is important to the City of San Diego for its financial well being.

The remedy that we are asking your honor to apply addresses a systemic problem as a result of a scheme to place on the books of San Diego over $700 million in pension benefits. No matter how much ordinance paint, no matter how much resolution whitewash, at the core is a rotten foundation for benefits that was created in 1997 and exacerbated in 2002 in violation of the municipal liability limit laws of our State Constitution, as well as the violations of the prohibited financial interest laws...Our evidence will present proof of the systematic impact of these benefits.

A comprehensive picture of the disintegration of the soundness of the pension fund as a result of tampering with the funding method is shown on this graph. The most significant indicator of disaster is the ratio to payroll that the liability bears. For instance in 1993 there was a liability of $41 million with a payroll of $320 million, or a 13 percent ratio. Ultimately, in 2004, payroll has grown dramatically to $540 million. But the ratio of unfunded liability is almost exponentially increased to 253 percent of payroll. The problem is not about robbing pensioners, it's about informing them that the money is not there to pay for this, and with an accumulation of 8 percent, the liability continues to grow to this day and will eventually be the undoing of the system. They do not have the pensions they think they have.

Everyone's goal should be actuarial soundness. This is what is required under the California law. The law states that prior to retirement, there is "no absolute right of fixed or specific benefits." What is required is a "substantial or reasonable benefit." This is good news. What it means is that in shaping the remedy, your Honor has the advantage of working with a system where only about a third of the liability is "fixed" by current retirees. Active members of the pension system – those not yet retired – account for $3.6 billion in liability. Those who have yet to retire are in a different position than those who have already retired.

We believe that the law is so powerful and so flexible and so capable, that it can ameliorate, it can circumvent, it can reform, it can cleanse, clean up and correct the biggest problem. But we have to understand the nature of the problem. We need your Honor to tell us, was it a ball or was it a strike? Someone has to make that decision and, for good or ill, it has fallen on your desk to make it, your Honor.

On June 21, 1996, then-City Manager Jack McGrory told the City Council with the union representatives in attendance, "This is a package deal. If the lowered contribution is not adopted, the benefit improvement will unwind." They all knew what was taking place, and were put on notice in every instance in 1997 and in 2002. What they landed on was a way to create debt for future generations. And if they can create it this way, the sky is the limit – they can create it the next day and the next day and the next. All they needed was to get the unions to go along by promising more benefits – hocking the future of our children in exchange for decreasing pension contributions. And that's exactly what they did.

In asking for your Honor's declaratory judgment, we are asking for three things:

This has been a long journey. And this is the last way station on the road to bankruptcy. There is no adequate remedy for the pension system except to eliminate this rotten core from the foundation of soundness and start clean.

BLOG 10.13.06

A Little History uncovered...
John M. Kaheny spent virtually his entire legal career in public service. He was with San Diego City Attorney John Witt for over 25 years and then became Chula Vista's City Attorney when Witt retired. Kaheny is now retired himself, but keeps a network of vitriolic condemnation of my actions to right the pension fund going out daily to what he calls the "Wolverine Pack."

Once in a while Kaheny will emerge from his wolverine cave to speak out publicly, such as in a Feb. 18, 2004 editorial during the campaign for city attorney, where he teamed up with Witt to oppose my election.

This year Kaheny submitted comments following a January 16 Union-Tribune editorial by political commentator Carl Luna, who coined the phrase "Mike 'Roll Back the Illegal Benefits' Aguirre." As posted in the U-T, Kaheny wrote, "Neither John W. Witt nor I advised the Council on MP1 [the 1996 deal that marked the beginning of the City's pension debacle], as we had decided for ethical reasons to recuse the Office of the City Attorney as Witt was about to retire...to interject would have been unethical. But that was in the good old days when we had an ethical City Attorney." Evidence shows, however, that Mr. Kaheny was present at many closed session City Council meetings where the pension underfunding deal was discussed.

Interestingly, we have also discovered a December 28, 2003 e-mail from Kaheny to several persons including then-Executive Assistant City Attorney Leslie Devaney that revealed his real opinion about the pension that he now draws each month, the pension that enables him to relax, go fishing, and send out daily e-mails against my fight to tell the truth about the illegal benefits scheme.

The San Diego Union has finally discovered the "time bomb". The City's under-funding of the retirement system has been and continues to be financially irresponsible. What makes it worse is that the under-funding continued when there were bargain prices in the stock market. Just like the Chargers who burn up the clock when behind, the City buys high, sells low and then overspends! It also looks like the UT will focus next on the recent escalation of benefits. This issue will be on the table in both the Mayor and City Attorney races. Stay tuned.

We have stayed tuned to the issue. It's Kaheny who has flipped channels on pension underfunding.

BLOG 10.11.06

Chargers Fever
This week the Port Commission affirmed that National City could build a bayside Super-Bowl-quality football stadium for the San Diego Chargers that would not conflict with maritime uses already in place. That's great. We now have lots of options to keep our team in the region – the Joint Powers Authority with the City and County of San Diego, the National City option, and the Chula Vista option. Now, let's refresh everyone's memory on how we got here.

In 1997, flush with team spirit, the City of San Diego thought it had an agreement with the San Diego Chargers that guaranteed they would stay here until 2020. All we had to do was upgrade Jack Murphy Stadium to the tune of $78 million, support the now infamous ticket guarantee, and agree to maintain the facility. NFL Commissioner Paul Tagliabue was even trotted out to declare that the city of San Diego would remain in the Super Bowl rotation if we agreed to this plan.

The Chargers declared that only the specter of "severe financial hardship" would force them to renege on the deal. So the City sold $60 million in bonds to improve the stadium, Qualcomm, Inc. kicked in $18 million to complete the renovation and get the stadium renamed, and the City went forward with the ticket guarantee. On the bonds alone, the City is required to pay $5.7 million annually through 2027.

According to Charger Special Counsel Mark Fabiani, the City shells out about $19 million per year to keep Charger football at Qualcomm. Nevertheless, the Chargers have cited the "severe financial hardship" clause and threatened to leave San Diego altogether if they don't get a new stadium.

Fabiani adds that due to obstacles presented by the San Diego City Attorney (that would be me) and the City's dicey financial straits, no development partner would touch a joint deal with them and the City of San Diego.

Let's talk priorities. The City has serious infrastructure problems. Our streets are in disrepair, sewers are breaking and spilling, water delivery is at risk of being contaminated, and inadequate storm drains continue to pollute our beaches and waterways. Not to mention the City's employee pension fund that has a $1.7 billion deficit and a retired employees' health benefit commitment of over $ 1.4 billion.

According to a June 9, 2006 report to the Public Safety & Neighborhood Services Committee, the City has 2,735 miles of streets with 60% in need of repairs. And yet over the last six years, while the City has spent $114 million on the Chargers, we have allocated only $30 million on our streets and roads. Last year, City taxpayers spent 9 times more to maintain Qualcomm Stadium for the Chargers that we committed to our roadway infrastructure. That's just to keep the streets from sliding further downhill.

So, instead of the $5.7 million we will be paying each year on the stadium bonds for the next two decades for having believed the failed promise that the Chargers would stay, we could have been taking care of the things that really matter. Exactly what is the City obligated to fix, streets or skyboxes?

The Chargers believe that addressing the poor condition of Qualcomm should be high on the City's priority list. That's not what one would conclude from their Website. They're still calling the boxes "ultimate luxury," according to this link:

As City Attorney, I say the taxpayers need to make the call. That is why it is important that any agreement entered into with the Chargers organization should be approved by the voters.

The Chargers do contribute to the cultural life of San Diego for thousands of fans. They shouldn't leave a perfectly good stadium. They should admit, however, that the pursuit of a new stadium, wherever it may be, will require a public subsidy and they should be up front about it. Maybe it's true that they can't get a development partner. But it won't be because of Mike Aguirre. More likely, it will be because they have shown themselves to be unreliable in sticking by their agreements.

As for National City, it is my hope that they will be better negotiators than the City of San Diego was in 1997. Be sure your agreement with the Chargers has a deadbolt clause that locks the Bolts into your stadium without bolting.

BLOG 10.6.06

Sparring?
The consideration of the U. S. Securities and Exchange Commission's (SEC) consent decree by the City Council in closed session this past Thursday was reported in the Union-Tribune as a "spar" between the City Attorney and some members of the Council. The truth is, there was an inquiry about whether certain council members would be able to vote on the SEC settlement because of a possible "conflict of interest." The SEC is investigating the City's financial disclosure practices due to the City's massive underfunding (now at $2.1 billion) of its employee pension system, which was not disclosed to investors on a number of municipal bond offerings.

The City Attorney's Office issued a legal opinion on the matter and advised that affected council members could recuse themselves from voting. This would then trigger the Rule of Necessity, a process for voting when the Council is left with less than a quorum.

While keeping the details of the SEC consent decree confidential, read for yourself the legal opinion and see if you can tell what prompted some "sparring." E-mail me at cityattorney@sandiego.gov.

Office of
The City Attorney
City of San Diego
MEMORANDUM
DATE: October 4, 2006
TO: Mayor and City Councilmembers
FROM: City Attorney
SUBJECT:
Approval of SEC Order; Conflicts of Interest; Rule of Necessity

INTRODUCTION
On October 5, 2006, the City Council will consider the approval of an Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1034 [Order]. The Order provides that the City's consent to the Order is: "Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over it and the subject matter of these proceedings, which are admitted..."

In connection with this matter, the question has arisen whether some Councilmembers have a conflict of interest in participating in a decision to approve or reject the Order. While we do not have enough facts to make a determination on this issue, some Councilmembers may determine that such a conflict exists and choose to recuse themselves from this matter. There are eight members of the City Council and five members are necessary for a quorum. If more than three members recuse themselves, the "rule of necessity" may allow for members to vote.

DISCUSSION
I. General Principles on Conflict of Interest.
In general, public officials are guided by the following governing rule: & 18700. Basic Rule; Guide to Conflict of Interest Regulations. (a) No public official at any level of state or local government may make, participate in making or in any way use or attempt to use his/her official position to influence a governmental decision in which he/she knows or has reason to know he/she has a disqualifying conflict of interest. A public official has a conflict of interest if the decision will have a reasonably foreseeable material financial effect on one or more of his/her economic interests, unless the public official can establish either: (1) that the effect is indistinguishable from the effect on the public generally, or (2) a public official's participation is legally required.
(FPPC Regulation, Tit. 2, Div. 6, � 18700(a) [emphasis added].)

Government Code �1090 similarly precludes a public officer or employee from participating in the making of a contract in which he or she is financially interested. A settlement agreement between the City of San Diego and the SEC may be interpreted to be such a "contract," if it affects an individual Councilmember's "financial interest." Although the term "financial interest" is not specifically defined, case law and statutory exceptions to the basic prohibition indicate the term is to be liberally construed. Thomson v. Call, 38 Cal. 3d 633, 645 (1985).

Similarly, the City's Ethics Ordinance states it is unlawful for a City official to knowingly influence a municipal decision if it is reasonably foreseeable that the municipal decision will have a material financial effect on the City official or a member of his or her immediate family, if the material financial effect is distinguishable from its effect on the public generally.

II. The "Rule of Necessity."
The Fair Political Practices Commission [FPPC] regulations provide that an official is "legally required to make or to participate" only if there is no reasonable alternative manner of decision making. (Cal. Code Regs., tit.2, � 18708(a)).
FPPC Regulation, Tit. 2, Div. 6, � 18708 states in relevant part:

18708. Legally Required Participation.
(a) A public official who has a financial interest in a decision may establish that he or she is legally required to make or to participate in the making of a governmental decision within the meaning of Government Code section 87101 only if there exists no alternative source of decision consistent with the purposes and terms of the statute authorizing the decision.
. . .
(c) This regulation shall be construed narrowly, and shall:
. . .

(3) Require participation by the smallest number of officials with a conflict that are "legally required" in order for the decision to be made. A random means of selection may be used to select only the number of officials needed. When an official is selected, he or she is selected for the duration of the proceedings in all related matters until his or her participation is no longer legally required, or the need for invoking the exception no longer exists.

(d) For purposes of this section, a "quorum" shall constitute the minimum number of members required to conduct business and when the vote of a supermajority is required to adopt an item, the "quorum" shall be that minimum number of members needed for that adoption."
(FPPC Regulation, Tit. 2, Div. 6, � 18708 [emphasis added].)

In the present situation, we have not identified an alternative manner that would permit the City to enter into the Order, absent a vote of the Council. Accordingly, if the City wishes to exercise the "rule of necessity" the FPPC has outlined the steps to be taken. First, the official must disclose the existence and nature of the conflicting personal financial interest in the outcome of the particular action and make it a matter of public records. Second, the official is prohibited from using his or her official position to influence any other public official with regard to the matter. Third, the official must state exactly why there is no alternative route by which action can be taken. Finally, the official must limit his or her participation to action that is legally required.
(Cal. Code Regs, tit. 2, � 18708(b) and (c)).

If an insufficient number of Councilmembers remains to participate in the decision, the "legally required participation" exception is triggered. (FPPC Reg., Tit. 6, Div. 2, � 18708(c)(3).) Under this process, the City would randomly select a sufficient number of Councilmembers to bring the panel to a quorum.1

For example, if five Councilmembers are recused from the eight-member Council, two of the "recused" members would be randomly selected to join the three remaining members for the purpose of handling all action related to this matter. These same two members also should be assigned to work on all action related to the City's defense and not just the one vote on the Order. They would continue doing so unless and until circumstances change for the others recused from the panel. (For example, if a recused member settles his or her case with the SEC, he or she may then be free of conflicts and can rejoin the panel.)

CONCLUSION
To summarize, the Council is required to seat a quorum of its members to handle this matter, and, if too many Councilmembers are disqualified, it can invoke the "legally required participation" law to seat them.

MICHAEL J. AGUIRRE, City Attorney
By
City Attorney
MJA:CB:jb
¹ The regulation merely refers to a random selection process, without suggesting how to accomplish this. One possibility is to have the City Clerk put the names of the "recused" Councilmembers into a hat and choose the number needed.

BLOG 9.21.06

Feeling stronger...
On Tuesday the Fourth District Court of Appeals in Riverside dealt a crushing blow to local businessman Roque de la Fuente and overturned his lawsuit against the City of San Diego. The largest legal setback in City history, the Border Business Park v. City of San Diego, had grown into a $150 million liability for taxpayers. But by the count of ten, De la Fuente's lawsuit, for the most part, remained on the canvas in the Riverside appeals court, unable to stand on its own. A small portion of de la Fuente's lawsuit managed to limp back to its corner and will fight another day but, all in all, a huge burden has been lifted from the City of San Diego.

After my press conference on Tuesday to announce the positive ruling, the story was carried on the front page of the City's business daily, the Daily Transcript, and was reported prominently in the Voice of San Diego (voiceofsandiego.org). However, the "always late with its coverage" San Diego Union-Tribune, was true to form. Matt Hall, the U-T reporter who covered the press conference and submitted a timely story finally saw his byline in Thursday's edition.

In defense of our prosecutors
Now that the U-T has taken its best triple-threat shot against me in its series on the City Attorney's Office, it's time to set the record straight. The truth is, there have been significant changes in the City Attorney's Office since the tenure of the last City Attorney. Here are some of them:

BLOG 9.18.06

Selective news reporting
On Friday, Mayor Jerry Sanders, City Attorney Michael Aguirre, and Council President Scott Peters held a news conference with San Diego County Supervisors Ron Roberts and Diane Jacobs to announce an agreement between the City of San Diego and the County of San Diego to form a new Joint Powers Authority to tackle the issue of a new Chargers stadium.

The politicians that run the Union-Tribune altered reality to cut out my participation in the news conference. Why? They couldn't stand their readers to see a cooperative effort between the County and City officials that included me. In fact, their story used Charger spokesperson Mark Fabiani to paint an entirely different picture. Don't believe it? Here's an excerpt from the U-T story:

Mayor Jerry Sanders, City Council President Scott Peters and county Supervisors Dianne Jacob and Ron Roberts stood in front of the County Administration Center yesterday and said they want the city and county to form a joint-powers authority, which would be able to acquire land or help finance a stadium...

The (Chargers) team...fears that San Diego City Attorney Michael Aguirre's involvement might pose problems.

I was standing right up front. My regret is that my friend, Supervisor Diane Jacobs, was standing next to me, causing her to be left out of the photograph that appeared with the story. That is unfortunate, because Supervisor Jacobs has put many hours and days into coming up with a solution that would protect taxpayers and keep the Chargers in San Diego.

The politicians who run the paper have gone from slanting the facts, to misleading the people of San Diego, to pure censorship. We will never be the City we can be until the U-T politicians become the journalists they're supposed to be.

The letter you'll never see
The following Letter to the Editor was sent to the Union-Tribune by prominent San Diego attorney Kristine Wilkes and copied to my Office. Apparently, they just couldn't find "room" for it in the U-T, but you can read it here:

Please consider the following "Letter to the Editor" in response to the Sunday article (third in a series) regarding City Attorney Mike Aguirre's pension litigation:

As one with a bird's eye view, I can no longer sit idly by while your newspaper continues its witch hunt against City Attorney Mike Aguirre. So my potential bias is disclosed, let me first say that my firm is outside counsel to the City on numerous cases (including the Roque De La Fuente litigation). We were retained, however, by Mr. Aguirre's predecessor and I personally supported Mr. Aguirre's opponent in the election. These views are my own, not my law firm's.

In your most recent attack, you pillory Mr. Aguirre for lack of success in the pension litigation. Your information is weeks and months out of date. In the litigation over the pension benefits, the City Attorney has sought appellate review of the denial of the City's motion for summary judgment, and the Court of Appeal has asked the other side for opposition briefing-a favorable indication for the City Attorney's position. Even if the Court of Appeal decides not to review the case now, however, loss of summary judgment merely means there will be a trial, and the Kroll Report itself concluded that there was a violation of the state conflict of interest law, precisely Mr. Aguirre's argument. As for the purported "blown" appeal deadline, the Court of Appeal has since refused to dismiss that appeal.

In addition, while your article quotes Mr. Michael Conger extensively, you don't reveal that those quotes are months old, made in the heat of litigation. In the intervening months since those statements, Mr. Aguirre has settled the last two cases brought by Mr. Conger (McGuigan and Newsome) on favorable terms for the City, saving millions in attorneys' fees and restoring pension system funding.

I have worked shoulder to shoulder with many lawyers from two City Attorney administrations, and I can assure you that the City has a brilliant, fierce and tenacious advocate as the current occupant of that office. I have seen first-hand Mr. Aguirre working endless hours in a sweltering office on successive holidays-Memorial Day, Fourth of July, Labor Day-and I have received e-mails from him written all hours of the night summarizing his creative research on difficult legal points. The dedication of his senior staff is such that when they aren't working all weekend, they can be seen riding bikes with him on Sundays (hardly the disaffection your paper portrays).

Over my nearly twenty-five years as a lawyer in this town, I regularly have read your paper, the Los Angeles Times, the New York Times, the Los Angeles Daily Journal and the Wall Street Journal. I have never seen such a vindictive campaign waged against any individual officeholder-federal, state or local. Maybe you should look in the mirror and ask where your paper was during the decade-long pension underfunding debacle and why you didn't expose it. Maybe you should also ask why you are now undercutting the City Attorney candidate you endorsed, which probably resulted in his narrow election, when he is carrying out the very mandate you supported. As a City with a single major newspaper, we look for more than what is being delivered in terms of accuracy and fairness.

BLOG 9.15.06

Dear Mr. Aguirre:

Good work on the Blog. You need to counter the constant assault from the Union-Tribune and its stable of editorialists masquerading as reporters.

The note above was sent to the City Attorney Web site, prompting me, one more time, to expose the political agenda behind the so-called "reporting" of the Union-Tribune.

The agenda of the politicians who run the U-T becomes glaringly obvious with a quick review of archived U-T editorials. These unelected politicians supported Susan Golding and Dick Murphy for Mayor, architects of the pension fiasco. The U-T supported the Charger football ticket guarantee. They also supported the last minute changes in the downtown ballpark financing that cost taxpayers millions of dollars. Make no mistake, they have political power and use it.

More recent editorials, however, reveal that they haven't learned a thing from their own mistakes. In fact, the U-T politicians "voted" for:

O.K. They're not really elected officials. You know it and I know it. The U-T is a business and their job is to maximize income from advertising from everything from retail stores to cars to real estate to sports. And the part about being a "watchdog?" The only watching they do is watching after their own interests.

The U-T the editorial board is not a fact-led publication, but an opinion-led one – and the opinion wears dollar signs. We pass laws against elected officials accepting dollars for votes, but it's business as usual for the U-T politicians. And they don't even have term limits.

Or do they? A similar group of politicians tried running the major newspaper in Santa Barbara. In protest, a number of high-integrity editors and reporters at the Santa Barbara News-Press rose up and demanded that the paper respect journalistic standards. Could this happen in San Diego?

BLOG 9.14.06

Dollars and sense
Each month San Diego's pension plan distributes 100 cents on the dollar to existing retirees when we know there is only enough money to pay 65 cents on the dollar. The $1.4 billion pension debt is the result of agreements between the San Diego City Council and the San Diego City Employees' Retirement System (SDCERS) Board in 1996 and 2002 that allowed the City of San Diego to under fund pension obligations in exchange for granting increased employee pension benefits.

Ink by the barrel
Some San Diegans have asked me for my reaction to the recent articles and editorials in the Union-Tribune attacking me. I cannot, and will not, be pressured by the newspaper to compromise doing what is right on behalf of the people of our City. I was elected to work for the people of San Diego, not the politicians at the Union-Tribune.

Based on what I am hearing and seeing from the people of San Diego, the public knows that the U-T is conducting a vindictive campaign to discredit my efforts.

My wife and I voted for you to do precisely what you are doing...keep up the great work, rattle their cages; my God, I hope someone has to do time over this fiasco. Every time the Trib attacks you I know you are doing something right! I hope you are aware that there is a legion of unspoken supporters for your endeavors.
San Diego

Your grilling of the Kroll Report "experts" was right on point, cogent and sorely needed in this "feel-good, let's not take responsibility, let's move ahead" city government. There are a bunch of us taxpayers in Pacific Beach who fully support your efforts on our behalf. And we laugh at the sanctimonious SD Union, which was part of the problem all along and now claim they practice "watchdog journalism."
San Diego

U-T's Demand on the SEC
There was a weird editorial in the Union-Tribune on Thursday, Sept. 7 that was so full of factual errors that I don't really know where to begin to set the record straight. Mainly, it criticized the City's proposed Consent Decree settlement with the Securities and Exchange Commission (SEC) because it did not name individuals as culpable in the pension crisis.

Of course the City's Consent Decree does not name names. Last year the City agreed to first settle as a government entity to get the City back to the municipal bond markets as soon as possible.

In response to the U-T's editorial, I submitted the following letter, which the Union-Tribune chose not to publish. The editorial of September 8, "SEC's critical role," expressed a concern whether "this City Council...can be trusted to overhaul San Diego's grossly inadequate financial management practices." I share that concern.

However, your conclusion that the draft Securities & Exchange Commission (SEC) order is "disappointingly weak" is perplexing. The Union-Tribune is not a party to the confidential settlement talks between the SEC and the City of San Diego and your conclusion reflects a misunderstanding of the current status of these negotiations.

Our expectation, based on the City's discussions with the SEC and a review of other SEC settlements with municipal issuers, is that there will be numerous settlements with the SEC that can be categorized into three basic groups:

In general, the SEC prefers to have all settlements finalized at the same time for ease of administration and for the convenience of the SEC Commissioners. At the City's request, the SEC staff agreed to first settle with the City as an entity before settling with individual City officials and Council members. This will allow the City to regain its standing with the financial markets as quickly as possible. As the Union-Tribune well knows, and as I have stated on numerous occasions, this has always been our strategy.

Finally, at no point has the SEC staff suggested that the City must accept the recommendations of the Kroll Report or any other outside consultants. The SEC has made it abundantly clear that they will reach a decision based on its own independent investigation and analysis of the case. At that point, the City must implement remedial measures acceptable to the SEC.

To the extent this newspaper tries to pressure the SEC to follow Kroll's recommendations, it works against the best interests of the City. One of the Kroll recommendations is that the City should hire an expensive outside monitor. Can anyone imagine leaders like Presidents Lincoln, Roosevelt, or Reagan in need of a monitor? The City just needs all public officials to do their jobs.

BLOG 9.06.06

The following is the statement I prepared for the City Council's September 6 special hearing on financial remediation recommendations. My call for public debate is now being endorsed by other public officials and I urge you to become engaged in this important restructuring of City government.

The government of the City of San Diego City is organized by the people for their "mutual protection and well being." The government is the tool through which such "mutual aid and protection" is achieved. The primary function of any government is to serve the public interest.

The failure of San Diego City government to serve the public interest has been proven by the facts of our financial crisis. The San Diego City Council, City Manager, City Auditor, City Treasurer all illegally agreed to a pension scheme that increased pension benefits and decreased pension contributions for 10 years.

This breach of duty to the people of San Diego has placed a multi-billion dollar debt on the shoulders San Diego taxpayers.

The first step in the City's plan of remediation should be to re-establish the fundamental principle that San Diego government is organized for the sole and exclusive purpose of serving the best interests of the people of this City.

Fifth, the citizens must build on San Diego's reform tradition to recreate the structure of our City government to ensure that we institutionalize the lessons and wisdom gained from this painful experience.

Sixth, All public officials must dedicate themselves to the proposition that this City will no longer suppress dissent and thoughtful discussion in the interest of expediency, which has been the underlying cause of the crisis we face today.¹ On August 24th, I called for public hearings to be held on any an all remediation recommendations for our City to enact. Let today be the first of many such public debates.

We must all remember that effective leadership requires effective action. The test that citizens apply to any remediation plan is what impact it will have on our pension debt and financial stability. We must take more than symbolic action.

¹ This statement relied upon principles or concepts in "Nothing to Fear", by Alan Axelrod. The last statement in this statement is a paraphrase of a statement from the Kroll report.

BLOG 8.31.06

Fiscal Remediation Plan made easy
If you have followed the events of the last two weeks, you know that I support many of the measures suggested by of the Kroll Report/Mayor's Reform Plan. It came out to about 85% that made common sense and should have already been in place for a City our size. On Aug. 29, my Office released a 21-Point Remediation Plan that called for tougher measures on certain issues, more intense public debate on others, and a completely different approach on still others. To read the plan as released, go to http://www.sandiego.gov/cityattorney/media/pdf/news06/060829.pdf then refer to the following version for the "legalese"-challenged:

Fess up (points 1,2)
The City of San Diego needs to humbly bow before the SEC and admit we screwed up, corruption took place, our bad, what can we do to get back on track. The individuals, including all elected officials, who may later be found culpable will have to get their own lawyers and fight their own cases without the use of public monies.

Meanwhile, the City Councilmembers need to humbly bow before the public and admit they blew it - they were warned, told, emailed, written to, and publicly admonished, yet voted to adopt a pension plan that was not legal and included a disclosure cover-up to sell bonds. Take responsibility for not being the watchdogs of City finances you were elected to be. If you are so sure your actions don't go beyond mere negligence, what are you waiting for?

Undo the wrongdoing (points 3,4,5)
The Council has the power to adopt legislation that would rescind the illegal pension votes and rescind any related indemnification agreements. Just do it. Rescind all the illegal benefits that were granted retroactively, not earned, and direct the Comptroller to take those illegal benefits out of the individual accounts and put them toward the deficit. Save us all some money.

Change the corrupt pension system (points 6,7,8,9,21)
Changes should include the make-up of the pension board from insiders to seven independent outsiders -- not benefiting from a City pension; put the elected attorney back over the pension board, not their own appointee; permanently make any increase in pension benefits subject to a public vote; pay the legal pension benefits and remove the deficit, whatever it takes. Meet and Confer with the SEC and credit rating agencies and make any agreed upon changes before implementing anything.

Pursue remedies (points 19,20)
Take legal action to recover damages and costs from the outside experts who helped cause the problem and against those who took advantage of it by charging us over $26 million for worthless reports. We should mediate any disputes to resolve all outstanding litigation.

Get it right; tell the truth (points 16,17,18)
The Council should take these actions to make sure they get it right in the future - have mandatory financial management training, with continuing education requirements, and pass a test before being able to vote on financial matters; certify the facts, understand the facts, certify the truth of disclosures under penalty of perjury; disclose adverse financial facts immediately to the public - no cover-ups.

Put oversight in the hands of voters (points 10,11,12,13,14,15)
Through the elected City Attorney, financial oversight will be conducted by attorneys e.g. chairmanship of the Disclosure Practices Working Group (DPWG) and the position of Monitor. Voters will determine if there should be a City Auditor, and if the City Auditor should be an elected by the citizens or appointed by the Mayor; any Audit Committee should be comprised of the elected City Auditor; the elected City Council, and the Independent Budget Analyst. The public and City Council shall have quarterly reports on the financial condition of the City.

To get more details from the City Attorney, go to Sign Up for E-mail and receive periodic messages from Michael Aguirre.

BLOG 8.29.06

Monitor the problem or fix the problem
If certain City Council members are so untrustworthy that they need a multi-million dollar monitor, as recommended in the $20.3 million Kroll Report, then it's time to get some new City Council members who can be trusted.

Follow the law
The City of San Diego, through the City Attorney, is attempting to set aside illegal pension benefits under California's conflict-of-interest Government Code �1090, which prohibits government officials from voting on matters in which they have a financial interest. The San Diego City Employees' Retirement System (SDCERS) Board voted in 2002 to allow the City to underfund the pension plan in exchange for an increase in pension benefits. The financial interest was created by the City Council when they hatched the underfunding scheme. Under California Government Code �1092, the benefits created must be set aside.

On August 8, 2006 when the Arthur Levitt and his Kroll team presented their $20.3 million Kroll Report to the public, Levitt's, attorney Benito Romano, admitted that they did not analyze whether the benefits must be set aside under Government Code �1092. Here's the transcript of the dialogue between myself (MA) and BenitoRomano (BR):

MA: So you don't discuss the applicability of Government Code �1092 to the �1090 violations that you find, correct?

The Levitt lawyer did not know about the pertinent section of the Government Code and did not analyze whether or not that Section required the benefits to be set aside. The Levitt lawyer concluded that there was sufficient independence and lack of a linkage between the benefit increase and the decision to allow the City to underfund the pension plan. This was a glaring factual error on the part of Levitt. Or was it?

It may not have been an error. It may have been simply another device used by Levitt to let the City Council skate. Here is more dialogue with Romano from the meeting:

BR: You don't get to §1092, it seems to me, unless you conclude that the benefits and their sufficient relationship [to under funding] proves that they're forfeitable. I think our analysis was that there was sufficient independence for purposes of…sufficient independence and a lack of a linkage between the illegality of MP1 and the granting of the benefits so that a court would be hesitant to deprive employees or retirees of their benefits simply because there was a tainted process.

The record is filled with evidence that the benefit increases were conditioned upon the SDCERS Board's decision to allow the City to under fund the pension plan. There is ample documentation of the following:

Inexplicably, Levitt concluded that the SDCERS board did have a financial interest in the benefits-for-less-funding deal, and violated the conflict of interest law, Government Code �1090. But he then ignored Government Code �1092 which requires that the contract approved by the SDCERS board to increase the benefits be set aside. For $20.3 million the taxpayers deserved a better job from Mr. Levitt.

Former SEC Chairman Breeden Should Give City Cut Rate Deal
We learn from a Union-Tribune (August 25, 2006) news article that even before the Council has acted, the Mayor's office is already interviewing candidates to become the City's outside Monitor. One of the interviewees is Richard Breeden, another former chairman of the SEC. He comes with great credentials. He is the monitor for KPMG in the deferred criminal prosecution by the U.S. Attorney's Office in New York against KPMG. KPMG was responsible for the largest criminal tax fraud case ever brought by the Internal Revenue Service. KPMG, you remember, is the outside auditor for the City of San Diego.

Here is how Breeden is described on the KPMG webpage: "Richard C. Breeden, Monitor for KPMG, assumed his role under the Deferred Prosecution Agreement (DPA) between the firm and the United States Government. Under the agreement, Mr. Breeden has significant oversight responsibility and authority, including the power to make recommendations to ensure compliance with the DPA. Partners and employees may choose to contact the Monitor regarding potential illegal, unethical, or improper conduct. The Monitor may be reached by calling toll-free 1-866-279-0260, or by sending an e-mail to kpmgmonitor@breedenco.com."

I learned Friday from a reliable source that the US Attorney in New York recommended that KPMG be prosecuted for tax fraud but that the Bush administration made the decision to let KPMG off the hook. Had KPMG been prosecuted, the City of San Diego would have had a new outside auditor and its audit for 2003 would have already been concluded.

For information you can consult the KPMG ethics webpage at www.kpmgethics.com. What is truly amazing is that while KPMG has been ripping off the City of San Diego and using its leverage to cause the City to pay its lawyer Willkie Farr $10 million and its rainmaker Arthur Levitt $10 million, KPMG has been operating under a deferred prosecution agreement. You can read the KPMG Deferred Prosecution Agreement at http://lawprofessors.typepad.com/compliance_prof/2005/08/kpmg_deferred_p.html.

Under the deferred prosecution agreement KPMG consented to the filing of a one-count criminal information charging KPMG with participating in a conspiracy to defraud the United States. Anyone thinking that KPMG does not have the ability to conspire with Mr. Levitt should take a close look at the criminal information against KPMG. There is also an extensive report about KPMG's tax fraud caper on the U.S. Senate Permanent Subcommittee website at http://www.senate.gov/~govt-aff/_files/sprt10834tax_shelters.pdf.

BLOG 8.28.06

Go figure
U-T Blogger Chris Reed thinks that it's some kind of voodoo that I posted a news release saying that I agree with the 85 percent of the financial remediation measures set forward in the Kroll Report/Mayor's reform plan, and can still criticize the percentage that demands more intense public debate. By the same token, Chris Reed has repeatedly questioned my good judgment, but in my assessment that City Councilmembers who created the pension mess should step down, Chris Reed agrees with me, let's see, about 100 percent.

For the record, there were no legal services withheld from the Mayor's Office last Friday. In fact, the City Attorney's Office worked diligently on many matters with City departments.

Now, for the U-T article title. "Bad for business" it says -- but there are no facts, no numbers, no dollars mentioned except the proposed $45 million remediation costs to taxpayers, and the $20.3 Kroll Report costs. What business is going bad except the business of maintaining the status quo?

Bad journalism abounds. Steve quotes paragraph after paragraph of U-T reporter Alex's Roth's Part I article (August 13, 2006), except in Schmidt's article the names were taken out. Jim Waring, chief of Sander's land use and development department, was quoted as an "official" by Schmidt, although his name appeared outright in the Roth story with the same quote. Nancy Graham, president of the Centre City Development Corporation, had her comments repeated anonymously; even though she told me her words had been twisted the first time around. Next Schmidt borrows dialogue from a hearing that took place last May, and a Rotary Club speech which I gave in June.

Consider the source. The only persons directly quoted with complaints are Fred Sainz, the mayor's media spokesperson, who knows that the more extreme he can make me look, the better Sanders looks; former Assistant City Clerk Joyce Lane, who recently retired with her own Cadillac pension; Jim Madaffer and Scott Peters, the Councilmembers found to be engaged in wrongdoing by the Kroll Report; and Peter Preovolos, president of the San Diego City Employee's Retirement System which is at the heart of the pension crisis lawsuit. Oh, and Arthur Levitt, author of the Kroll Report who refused to hold elected officials accountable for their actions in creating the $1.4 billion pension deficit.

There were interviews of Pat Shea and Councilmember Donna Frye in support of me, but Schmidt only used quotes that fed into his pre-conceived conclusions about me. Everyone else given credence by Schmidt is either a "senior city official," "several council members," or "city staffers." The U.S. Constitution requires that individuals have a right to come face to face with their accusers. Maybe that's too high a standard for the U-T.

Finally, the City of San Diego is crumbling. The infrastructure is wasting away, there are insiders plotting to hide their wrongdoing and outsiders sweeping in like buzzards to pick us clean (Kroll). It's time the U-T used its news resources to look beyond my "style" and take a closer look at who has been obstructing justice at City Hall and hampering open government for our citizens.

A closer look at Levitt
The canonization of Arthur Levitt, the former U.S. Securities & Exchange Commission (SEC) and author of the Kroll Report, is just one example of the blunders the press makes, again and again, whenever Wall Street or its regulators are involved.

As early as 1997, Arthur Levitt was already being hoisted on a pedestal as, "one of the most powerful and effective SEC chairmen in memory," one who had cleaned up the OTC markets and rogue brokers- when, in fact, thievery was running rampant, unimpeded by Artie's SEC.

Consider what was written about Levitt and investors in Gary Weiss' book Wall Street Versus America:

They (investors) didn't have a friend in Arthur J. Levitt Jr., the SEC chairman during the Clinton administration. Levitt presided over the worst abuses to descend upon Wall Street since the 1920s. He failed miserably at dealing with the problems that he did not ignore entirely, but he did a couple of things better than just about any recent SEC chairman in history-give speeches, and court the press.

Just follow the bouncing ball
So many investigative agencies have been involved in San Diego's pension mess, it's hard to keep them all straight. Nor is it easy to spot the games some have played with one another, to the detriment of San Diego taxpayers.

On October 11, 2004, KPMG, the City's outside auditor, told San Diego officials that the Vinson & Elkins (V&E) investigative report did not resolve the issue of whether the City Council violated federal securities laws. KPMG did not believe that the City "has conducted an adequate investigation in order to conclude that likely illegal acts have-not occurred, or that appropriate remedial action has been taken." KPMG insisted that "Such an investigation is necessary in order for an auditor to complete an audit in accordance with generally accepted auditing standards and Government Auditing Standards."

Twenty million dollars later, Kroll, Inc., led by Arthur Levitt, reached the same conclusion as V&E regarding City Council members. Levitt concluded the City Council did not act intentionally, knowingly, or recklessly. Interestingly, KPMG went along with Levitt's conclusion when it would not do so for V&E. Yet, Levitt refused to explain the basis of his finding that the City Council members only acted negligently and not knowingly or recklessly.

The Levitt report discusses the City Council's liability on pages 231 to 236. In the last sentence on page 236 Levitt wrote: "As such, the Mayor and City Council must share the responsibility for some of the City's disclosure failures due to their negligent behavior." Levitt bases this finding of negligence on the following factors:

The Council members were expressly told of their duties under the federal securities laws by attorneys from the law firm of Bryan Cave who handled the SEC enforcement action against the Orange County Board of Supervisors. In fact, Bryan Cave partner Gerald Boltz met in closed session with the City Council in November, 2001 to specifically inform them of their disclosure duties related to the issuance of municipal bonds.

Still not convinced that the council members knew? In 1997, the National Association of Counties posted on its website a legal article written by Mr. Boltz entitled: "Lessons From Orange County: The SEC's Requirements For Issuers And Public Officials"

In his article, Boltz quotes Arthur Levitt when Levitt was SEC chairman: "Municipal finance is the No. 1 priority of the Commission. It's an obsession of mine, and we're going to come down hard. Municipal officers are the custodians of billions of dollars in public funds, and those who have committed fraud will be called to task".

The question is whether the Council members knew there were material facts that needed to be disclosed to investors and did not take steps to make sure they were disclosed. The Levitt report does not discuss the majority of evidence showing the Council members knew that the pension plan faced significant underfunding and that the Council had authorized increased benefits to pension board members in exchange for allowing the City to decrease its contributions below the actuarial determined limit.

The Levitt report did not hold the council responsible for the information that the Council paid off a San Diego City Employees' Retirement System board member with a significant increase in his personal retirement. The Levitt report did not adequately discuss the in-depth role of the Council in the pension funding scheme which Levitt found was a violation of the State's conflict-of-interest laws when it came to certain members of the pension board.

The evidence shows that Council members knew there was material information about the pension plan underfunding and the scheme to pay off the pension board to avoid the City's payment obligation. That is sufficient knowledge to hold at least some Council members liable under the federal securities fraud laws.

The Levitt report cites to no evidence supporting this claim. The footnote it does cite (No. 1248) says that the Council did not receive certain offering documents as to one offering and that the City Treasurer was charged with final approval of the offering document. Reliance on legal counsel is a defense to a securities fraud case but it does not relieve you of acting when you know facts that have not been disclosed, as in this case. The City's outside bond counsel were not present at the closed sessions when the City Council plotted the pension underfunding scheme from February thru November 2002. The fact that the City Attorneys either ignored or participated in the scheme does not provide the council with an out. Rather it implicates the City Attorneys office in the wrongdoing.

The City Council had even more knowledge than in Orange County. In Orange County the scheme was primarily carried out by the City Treasurer. Here in San Diego the scheme involved payoffs to the pension board with unfunded benefit increases that was not only known to the City Council but the Council participated in over a 10 month period. The Council members were also informed of the massive pension debt growth by the City's Blue Ribbon Committee report, the actuarial reports, and reports from financial consultants.

This simply is not true. The duties under the federal securities laws are the same. The City Council had to authorize the bonds under the Charter and they are required to comply with the same securities laws as the Orange County Board of Supervisors.

BLOG 8.25.06

Perils of wisdom
As the Voice of San Diego Web site (www.voiceofsandiego.org) pointed out in reporting on yesterday's Kroll Report/Mayor's Reform Plan, a mayoral spokesperson said, "Those who obstruct reform do so at their own peril."

Per-il /per ?l/ Pronunciation [per-uh l] noun, verb,
-noun
1. exposure to injury, loss, or destruction; grave risk; jeopardy; danger: They faced the peril of falling rocks.
2. something that causes or may cause injury, loss, or destruction.
-verb (used with object)
to expose to danger; imperil; risk.
(dictionary.com)

There are parts of the $20.3 million Kroll Report, which the Mayor wants to quickly adopt as his Reform Plan, that I approve and, in fact, some have been recommended by my Office for over a year. I say move forward with the reforms we all agree are worthwhile, such as improving the City's financial computer systems, more training for officials in financial disclosures responsibilities, and better internal controls. I support these reforms, which encompass about 85 percent of the Mayor's Reform Plan.

At the risk of my own peril, I suggest more input from the public before making broader changes that remove needed checks and balances on City government. Is that obstructionist? Or just common sense?

Legal Primer
Kroll's representative Arthur Levitt, in the U-T article on Friday, Aug. 25, argues that a 2001 Securities and Exchange Commission (SEC) case called Seaboard shows that the SEC prefers to see companies acknowledge wrongdoing and voluntarily take action without being forced to do so by authorities. However, in the case of Seaboard the company acted immediately to remove those individuals involved in the wrongdoing from their positions. The Seaboard officials also admitted their wrongs.

That has not happened here. In San Diego, the elected officials responsible for the violations remain in power. They have admitted no wrongs; they accept no responsibility for their unlawful actions associated with the City's financial crisis. There is no remediation plan directly affecting them, only City staff. If Levitt wants to cite Seaboard, he should call for the same consequences to befall wrongdoers in San Diego.

Behind the scenes
After the Mayor and Council President Scott Peters held their press conference Thursday to release their reform plan, the Mayor's handlers arranged for Arthur Levitt, author of the Kroll Report, to be available to reporters by phone. The guy took more than $20 million from San Diego taxpayers. He can arrange his own press conference.

Must reading
Beth Barber's Op-Ed in the U-T, Friday, August 25, "It may not have been the council's fault."

BLOG 8.22.06

Face to Face with the SEC
On Monday, outside legal counsel John Hartigan and I, along with attorneys Mark Blake and Don McGrath from the city attorney's office, met with Securities and Exchange Commission (SEC) officials in Los Angeles regarding their investigation into the City's financial disclosure practices and its $1.4 billion pension deficit. The SEC made it clear that their findings and recommendations on remediation will be "absolutely independent" of the $20.3 million Kroll Report that was released on August 8. When? Not sure. I can't speak for them.

Kroll, however, thought they could speak for the SEC. Their report found certain councilmembers had acted only negligently with regard to their disclosure obligations in the sale of city bonds and recommended a remediation plan that would establish an Audit Committee without independence (two members appointed by the Mayor and one member a City Councilmember) and put in place an Auditor General who could be removed without cause by six Council votes.

The SEC's investigation includes legal depositions -- not voluntary interviews vacuumed into attorney summaries. It cites case law -- not the "aw shucks, we don't think a judge would take anybody's pension," opinion of Kroll regarding rollbacks of illegal benefits.

I held a press conference Tuesday morning to make clear that the SEC is not in league with the Kroll Report. "He is the former chairman of the SEC," one of the officials said of Arthur Levitt, "no more than that."

What I do feel is any remediation plan for San Diego needs to be openly discussed and approved by the citizens of San Diego.

Ann Smith's Depo Moves to the Courtroom
Tuesday morning, Superior Court Judge Jeffrey B. Barton granted our request that the pension case deposition of Municipal Employee Association (MEA) attorney Ann Smith take place in his chambers, under his supervision, so that he can preside over the taking of her deposition. The deposition will continue Wednesday, August 23, in Superior Court Department #69, at 9 a.m.

BLOG 8.21.06

Just doing my job, Bob
In Sunday's editorial page, a U-T editorial board member asks questions of Mayor Sanders about who represents the City of San Diego before the Securities & Exchange Commission (SEC). As if they didn't know, under our form of government the voters decide who represents the City in legal matters. Thus, the elected City Attorney takes the lead in representing the City before the SEC.

My office has also retained a very fine attorney, John Hartigan, who is an SEC expert. Mr. Hartigan and I are working together very closely, and have been for almost a year. I, too, have SEC experience. For 30 years, I worked as a securities lawyer, dealing every day with the very laws the SEC is examining.

The U-T editorial member then raised this concern: Did the City Attorney's findings of substantial evidence that some members of the City Council knowingly or recklessly violated civil antifraud provisions of the federal securities laws raise any conflict-of-interest questions? They know the answer to that one, too. The conflict-of-interest issues have to do with the City Council members who may have violated the law, not with the City Attorney who uncovered those violations.

I wrote a letter to the editor on this very subject that was only partially printed in the Union-Tribune on August 15, 2006. At the end of the BLOG is the entire editorial as submitted to the U-T.

Pension testimony contradictions
Last week Municipal Employee Association (MEA) attorney Ann M. Smith and MEA president Judie Italiano gave conflicting testimony. Earlier this year, Ms. Smith testified in the preliminary criminal hearing for the former pension trustees who have been charged by the District Attorney. She swore, under oath, that former City Manager Michael Uberuaga had communicated to the MEA on the afternoon of 11 July 2002 (the day the pension board approved Manager's Proposal 2), that the City had "abandoned" the requirement that the Board approve the City's plan to underfund the pension before certain of the board members could get higher benefits. But in a Hotsheet bulletin sent to MEA members the next day, Ms. Italiano told her membership the condition had been "met" -- not "abandoned," as claimed by Ms. Smith in her sworn testimony in the current D.A. criminal case.

Last Friday Ms. Smith testified in her deposition that Ms. Italiano's Hotsheet was wrong. A hearing regarding Ms. Smith's deposition will be held in Superior Court Judge Jeffrey B. Barton's chambers on Tuesday, August 22, at 9 a.m.

Laws protect the taxpayer?
An unexpected piece of evidence relevant to the question of whether or not former Mayor Dick Murphy and Council President Scott Peters acted intentionally came out of Peters' interview by attorney Benito Romano of the Willkie Farr & Gallagher law firm and finally distributed with the Kroll Report. On 1 May 2006, Peters, comforted by the presence of his taxpayer-financed lawyers, told Romano that he and Murphy were concerned about possible leaks from Closed Session Council discussions about labor negotiations in 2002.

Peters told Romano that, "Both he and the Mayor were concerned about leaks regarding how the negotiations were proceeding, so Council made it a misdemeanor to leak that information."

Here's what he's talking about. During the Meet and Confer process with the City unions in the Spring of 2002, Council members engaged in a scheme to pay off the pension board with higher benefits in exchange for the City lowering its contributions to the pension plan. That was the quid pro quo. According to Peters' testimony, he and Murphy didn't want anyone to know about it and decided to make it a crime to disclose such information to the public. You can look it up -- Municipal Code Section 27.3564(e) added 29 April 2002.

Let's see, you are possibly committing a crime in Closed Session, then cover it up by making truth-telling a crime?

Below is the full text of the Aug. 15, 2006 editorial in entirety, as mentioned above in "Just doing my job, Bob."

Regarding: "A looming concern / Aguirre should not meddle in talks with SEC" (Opinion Aug. 13),

It is apparent that the Union-Tribune has lost all objectivity in its reporting and editorials regarding the appropriate role that the elected San Diego City Attorney should maintain in representing the City of San Diego in municipal legal affairs. The Securities & Exchange Commission (SEC) investigation of the City is one such matter.

Contrary to your assertion, this City Attorney, along with highly qualified in-house staff with proven expertise in securities matters, has been working daily on a proposed consent decree with both SEC staff and our outside counsel John Hartigan. The consent decree is the product of a "working paper" drafted by attorneys at the City Attorney's office in the summer of 2005 prior to Mr. Hartigan being retained by the City. Kroll had absolutely nothing to do with the formulation of the consent decree.

The fact of the matter is that the consultants from Kroll fleeced city taxpayers out of $20.3 million for a report which erroneously concluded that the pension benefits, while illegal, must be kept. The report also erroneously concluded that the San Diego City Employees Retirement System (SDCERS) Board should maintain the same legal structure that contributed to our financial crisis, and that City Council members only acted negligently in approving the scheme.

Unfortunately, as to the actions of elected City officials, Kroll did not conduct the comprehensive illegal acts investigation pertaining to violations of federal securities disclosure laws required by KPMG, the City's outside auditor. At last week's City Council meeting, this line of questioning sent Mr. Levitt into a tirade.

Sadly, Arthur Levitt and his Kroll cohorts broke no new ground and cobbled together their report largely from documents already cited in a series of City Attorney investigative reports released well over a year ago and provided to both the SEC and U.S. Attorney for their ongoing federal investigations. Truly, the Kroll Report represents the most expensive cover-up of municipal corruption in decades.

BLOG 8.17.06

Forum on Kroll, Inc.
Last night's well-attended Community Forum on Kroll's $20.3 million so-called investigative report laid out, point by point, the fleecing of San Diego and its citizens by Arthur Levitt, one of the Kroll Inc. principles. According to its footnotes, the Kroll Report borrowed extensively from my Interim Reports and the exhibits of fact prepared by my office. Kroll's most important contribution could have been the 68 interview transcripts with city officials and personnel, but they didn't include them. All we eventually received were attorney summaries. In examining the 27 boxes of Kroll's exhibits, we have found that nearly 10,000 pages were duplicates - not quite as impressive a job as they claimed.

We also reviewed video portions of the August 8, 2006 City Council meeting when Mr. Levitt tried to wiggle out of the hot seat with name-calling and indignation. Did he ever answer the question about how he arrived at his determination regarding council member culpability under the federal securities laws? Of course not! He and his attorneys didn't even know the appropriate federal and state statutes that applied to San Diego's situation.

The Kroll Report was not original, not complete, and stopped short of the illegal acts analysis that they were hired to conduct into the City's financial disclosure practices and its $1.4 billion pension deficit. We are currently conducting an investigation of the bills submitted by Kroll for payment by the City to determine if there may have been a violation of the California False Claims Act.

By the way, you can learn more about Mr. Levitt in journalist Gary Weiss' book, Wall Street Versus America: The Rampant Greed and Dishonesty That Imperil Your Investments.

You may also view the streaming video of last night's entire Community Forum on Kroll by visiting our Media Center and clicking on Videos.

Why Fry Frye?
Why do I single out Donna Frye as less culpable of wrongdoing than other Councilmembers and why did the U-T single her out in this morning's editorial? Donna has and always will seek openness and truth - something the U-T is fighting tooth and nail.

Oops, they did it again
Today's U-T editorial states that at the Closed Session meeting on Jan. 29, 2002, Council President Scott Peters voted with the majority to "keep the illegal rate structure secret from the public and to do nothing to correct it." For the record, Peters was absent from the meeting.

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BLOG 8.16.06

Welcome to my new BLOG

I'm City Attorney Michael Aguirre and welcome to my blog. It's another part of my continuing effort to make government transparent and provide access to all citizens to what's REALLY going on at City Hall.

Today I'm going to scrutinize last Sunday's Union-Tribune article on the City Attorney's Office, which is a perfect example.

Just one of the ironies of the article is the fact that the U-T substantiated its insinuations by using, as sources, some of the very attorneys that it chided me for not investigating when they were on staff, and the Kroll Report takes them to task.

Before the article came out, Nancy Graham, head of the Centre City Development Corporation (CCDC), left me a voice mail to warn me that the article's author, Alex Roth, was misquoting her. Roth said, "...turnover is part of the reason her agency is considering hiring its own attorney." Not true, Graham told me. CCDC routinely hires outside counsel. She said Roth twisted her comments.

The article makes the point that there have been "a pile" of lawsuits filed. Five lawsuits from the purported 82 attorneys who have left is hardly a pile.

Name another elected official who has not had almost complete turnover when assuming office - City Council members rarely retain previous staff members. The Mayor asked for blanket resignations from every manager. State elected officials, Congressmen, and U.S. Senators are all encouraged to choose their own teams.

The real question is, why is the U-T devoting hundreds of inches of copy in their newspaper to discredit me? They endorsed me i