EDITORIAL

Back in November 2002, during labor negotiations, the San Diego City Council voted to continue a process of funding the city's retirement system at an unsustainable level while driving up costs by increasing retirement benefits.

During the hearing, Diann Shipione, a member of the City Employees Retirement System Board and now a famous whistleblower, stood up and said the policy was, in so many words, economic insanity. City Councilmember Donna Frye didn't fully understand the complexities of the situation, but she heard enough from Shipione to be concerned. Shipione's testimony was compelling enough for Frye to vote against under-funding the pension system. Hers was the only no vote.

We now know that Shipione was right, and we should know by now to listen to Frye when she raises the red flag.

The foolish under-funding policy began in July 1996, when City Manager Jack McGrory and Mayor Susan Golding were running the city. It has resulted in a pension system that's currently $1.3 billion in the red. It's so bad that even if the city turns its wayward ship around and begins heading in the right direction, by 2011, the system's deficit will reach $2.4 billion. This doesn't count unfunded healthcare costs of $1.1 billion.

San Diego is in seriously deep financial dung, and our leaders have not been leveling with us about it.

In September 2003, Shipione cracked open a copy of something called a preliminary official statement, a document filed whenever a city sells municipal bonds that tells investors what sort of shape the city's finances are in. This particular document was filed as San Diego was preparing to sell $505 million in bonds to finance the sewer system. Shipione found numerous serious accounting errors, and she said so in a letter to top city officials.

The city put the kibosh on the bond sale and, subsequently, filed with Wall Street a voluntary document acknowledging that San Diego has been painting too rosy a picture of its financial condition in municipal bond statements since 1996, the year the city stopped funding the pension system at a sustainable level. In short, San Diego has been telling investors that the city's general fund was far more capable of covering bond indebtedness than it actually was.

In response, Moody's, a bond-rating outfit, last week downgraded San Diego's financial outlook from “stable” to “negative.” The lowering of the outlook is a warning shot. If the city doesn't show Wall Street that it's getting its act together, the city's bond rating will be downgraded, resulting in higher interest rates on paying back municipal bonds. A higher interest rate means higher cost to the general fund, which means the city has less money to fund essential services.

That's why this pension system fiasco is important to average citizens. We have to get past eye-glazing jargon like “actuarial valuation” and “unfunded liability,” and focus on the probable consequences. This is of utmost importance to anyone who likes it when streets and parks are maintained, libraries are open and cops and firefighters are paid and have crime-fighting and firefighting tools.

Mayor Dick Murphy, who had been dismissing the pension problems as little more than a result of a stock-market downturn, was finally forced last week to acknowledge that the city's in deep trouble. But he has yet to admit that his vote in 2002 to under-fund the retirement system was part of the problem.

This city needs a heavy dose of truth. Diann Shipione tried to tell the truth but she was mostly ignored. Donna Frye is forever trying to find the truth, but even she is often thwarted. Before the March 2 election, CityBeat will make some voting recommendations that would inject some truth into what's become a very closed, perhaps deceitful City Hall.

For now, we'll agree with mayoral candidate Ron Roberts, who has asked District Attorney Bonnie Dumanis to investigate whether or not city officials deliberately lied in the documents in order to mask the dire pension system problems. We'd like to know who got so much wrong in those filings and why. Does this have something to do with city auditor Ed Ryan's resignation last month?