Thursday, August 10, 2006


San Diego Press Telegram

Thursday 10 August 2006

San Diego's awful audit leaves it looking for ways to pay its pension bills.
The all-but-bankrupt city of San Diego has earned the comparison with such financial failures as Enron, WorldCom and Orange County, according to Arthur Levitt Jr., and he ought to know. He is the former chairman of the Security and Exchange Commissions and a respected figure in the field of finance.

Levitt also headed a months-long investigation by Kroll Inc., a New York risk management firm that issued its findings Tuesday. The bottom line: San Diego city officials for many years recklessly mismanaged finances; they owe taxpayers the truth about a bloated and underfunded pension system, and they must face up to the fact the city needs more revenue (tax increases, in other words).

The Koll report said city officials deliberately broke the law, disregarded fiscal responsibility, disregarded the financial welfare of residents and, oh by the way, cheated residents on their monthly sewage fees to benefit large industrial users.

You might expect that would be enough to get some politicians in trouble, and it was. The mayor resigned, along with several other officials, and a federal grand jury has indicted five city pension board members for approving a pension mess that now is sinking the city.

After the scandal become evident, San Diego voters approved a strong-mayor form of government to centralize authority and responsibility. But, the Kroll report says, the city still can't handle such basic functions as bank reconciliations, and long-range budget planning is nonexistent.

Nobody has come close to figuring out what to do about the $2 billion difference between the costs of San Diego's extravagant new pension plan and what the city can afford to pay. The new mayor, Jerry Sanders, has been pretty good with the platitudes, but his only specific commitments have been: no more borrowing to cover up the problem, and no new taxes no matter what. That doesn't leave much room for solutions.

The Kroll report clearly didn't buy the argument of San Diego's city attorney, Michael Aguirre, who argued that since the procedure for granting the big pension increases was illegal, it ought to be legal to simply roll them back. Levitt called Aguirre a demagogue, which seems about right.

San Diego evidently has a long way to go before things get better. So does Orange County, and the reference to its financial problems was timely. The county still is recuperating from a bankruptcy triggered by $1.7 billion in debt, which is beginning to look almost small compared to the current $3.7 billion deficit caused by swollen county employee pensions and retiree medical benefits.

Nobody in Orange County government has figured out what to do about its deficit either, although the county's wisest critic, Treasurer and Supervisor-elect John M.W. Moorlach, told the L.A. Times something has to give and "everything is on the table." That's at least promising.

Should taxpayers outside San Diego and Orange County give a whit about these political and financial disasters? Yes, because politicians' giveaways have created serious underfunding of pensions in state government and in many local entities.

The city of Long Beach is quick to point out that it has no unfunded pension liabilities (though growing retiree medical costs are a separate issue). And its pension enhancements aren't without cost.

After the stock market took a nose dive in 2001, Long Beach had to resume pension-fund payments at the rate of more than $30 million a year, 25 percent of which is caused by enrichment of employees' pension benefits.

At some point, voters will either have to wake up and elect more public officials like Orange County's Moorlach, or accept increased taxes or decreased services, or both.

That, plus the possibility of joining the ranks of Enron, WorldCom, San Diego and Orange County, are more than enough of a wake-up call.