Outgoing City Attorney Wants San Diego to Mull Bankruptcy
By Joe Britton - City News Service
November 18, 2008
Lame duck City Attorney Michael Aguirre will ask the City Council during a closed-door hearing today to consider hiring legal counsel to explore taking San Diego into bankruptcy.
Aguirre said Chapter 9 bankruptcy protection would allow for the reorganization of the San Diego City Employees' Retirement System, which faces mounting investment losses amid the national financial crisis.
Actuary Joseph Esuchanko told city lawmakers last week that as of Oct. 31, SDCERS had $3.78 billion in assets, compared to $6.56 billion in commitments to retirees over the coming decades.
If the actuary is correct, the shortfall in San Diego's pension fund has grown to $2.78 billion, up from $1.2 billion in 2007.
"We need someone to help us," Aguirre said.
He will recommend that the City Council retain Orrick, Herrington & Sutcliffe -- the same law firm now representing the Bay Area city of Vallejo in its bankruptcy proceedings -- to "assess the pros and cons" of San Diego entering into bankruptcy.
"Our liabilities far exceed our assets," Aguirre said. "We have now passed over the point of no return."
Darren Pudgil, Mayor Jerry Sanders' spokesman, said it's "just way too premature" to be talking bank-ruptcy and accused Aguirre of "grandstanding" in his final days of office. He called Aguirre's proposal "ridi-culous."
Earlier this month, Aguirre lost his reelection bid to Superior Court Judge Jan Goldsmith, who will be in-stalled as city attorney on Dec. 8. Goldsmith won with nearly 60 percent of the vote.
Pudgil said the mayor's office is working to address the fiscal crisis facing San Diego and will soon ap-proach the city's unions to seek concessions to help stabilize the pension system.
"The mayor knows that we need to talk with the unions about this," Pudgil said, adding that the "new reality" created by the current financial climate makes it more likely they will be willing to talk.
But Aguirre said there is "no indication that the unions will in any way cooperate in trying to lower the benefits."
Outgoing Council President Scott Peters said he doesn't think San Diego faces imminent bankruptcy and that he is "disinclined" to support Aguirre's recommendation to hire the law firm.
"I'm not generally in favor of bringing our problem to the courts when we should be solving them here," Peters said.
Peters, who is termed out and will leave office next month, said San Diego's pension fund is not any worse off than others.
"Clearly the last month and a half in the markets has been difficult on the city as it has been on many people, but I don't think we should overreact," Peters said.
David Wescoe, SDCERS' administrator, is scheduled to discuss the status of the pension fund with the City Council on Wednesday.
The council is holding a series of special meetings to discuss Sanders' plan to close a $43 million mid-year municipal spending shortfall.
Sanders has called on the City Council to cut jobs, trim public safety spending and close some libraries, recreation centers and customer service centers to deal with the budget gap.
Over the past few months, Aguirre has pushed to bring the pension system into reorganization. It wasn't until Monday that he sought bankruptcy for the entire city.
The pension system has been Aguirre's primary focus since being elected. In the four years Aguirre has been in office, he has unsuccessfully tried to wrest legal control of SDCERS and filed a slew of lawsuits related to the retirement system.
Last week, Aguirre's signature lawsuit to roll back pension benefits he deems were granted illegally was dealt a major setback in the courts.
On procedural grounds, the Fourth District Court of Appeals dismissed Aguirre's appeal of a Superior Court ruling that threw out his lawsuit seeking to eliminate $900 million in pension benefits granted to city employees in 1996 and 2002.
The city attorney alleged in his 2005 lawsuit that city officials, by voting to approve the increased benefits, violated a state conflict-of-interest law because they stood to gain from the deal.
Aguirre said his last-minute push for action on the pension system was altruistic and not about preserving a legacy.
"Presidents have legacies," he said. "City attorneys are forgotten."
