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Saturday, Oct 1, 2022

SEC Settles With the City Over Pension Scandal, But Fixes Will Be Hard to Make if Attitudes Aren’t Changed

Editor’s Notebook , Thomas York

Lies deceive, and absolute lies deceive absolutely, to rephrase a familiar quote from Lord Acton.

For the past few years, officials have said the $1.43 billion pension scandal was overblown. That it was never as serious as critics or the media made it out to be.

Well that glossing over of the facts , that the scandal was overblown , went by the boards last week after the Securities and Exchange Commission ruled in its cease-and-desist order that the city was guilty of securities fraud in hiding liabilities to investors on a series of municipal bond sales.

The SEC report flatly stated “certain city officials knew or were reckless in not knowing that disclosures were false and misleading” (though it does not name those “certain city officials”).

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Clearly, the SEC indicated bondholders were deliberately left in the dark concerning the city’s financial liabilities, and weren’t given the facts needed to make intelligent , if not prudent , purchasing decisions.

The deception decision-making has a potential negative impact on the $2.55 billion in debt issued by the city, including $260 million floated in 2002 and 2003.

Fortunately, the fraud hasn’t led to investor losses, though bondholders could argue (and probably will in court) that the ratings of their securities might be closer to junk bond status than top-tier Aa.

The possible drop in ratings on the city’s existing bonded indebtedness is one of those things that will have to be sorted out in the months and years ahead.

Meanwhile, San Diego has agreed to pay an SEC-appointed watchdog to monitor financial activities during the next three years to ensure that officials disclose the good, the bad and the ugly in financial matters.

While this chapter of the investigation comes to a close, another chapter continues. The SEC said it would keep investigating those officials who may have been involved in miscreant activities.

In other words, the SEC isn’t yet done with San Diego. Nor should it be.

As noted, elected city officials continue to downplay the scandal. Even after the findings , and settlement , reached between City Attorney Mike Aguirre and Wall Street’s securities cops.

City Council President Scott Peters dismissed the import of the issue by saying that the city could have fought the action in court, as if the outcome would have been any different in a courtroom instead of a meeting room in the local SEC office or Washington, D.C.

Going to court was a course of action that cooler heads wisely sidestepped.

The issue is utterly disgraceful. It’s an embarrassment to all of us who live and work in San Diego.

Still, despite all this, the prevailing attitude appears to be if we ignore it long enough it will go away.

But the truth is lies deceive, and absolute lies deceive absolutely. We’ve been deceived big time.

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The utter arrogance of certain City Hall habitu & #233;s was plainly evident in a statement appearing in the Union-Tribune two days after the Nov. 7 election in which voters had overwhelmingly approved measures B and C.

The paper quoted City Councilman Ben Hueso as saying he didn’t feel obligated to support Mayor Jerry Sanders (in this case support for B and C was framed as support for the mayor rather than support for a change in how things are done at City Hall).

“I have more information available to me than they do,” Hueso told the U-T reporter. “I do this job every day. Voters just get to read a pamphlet, and I have to do what’s in the best interests of all voters of San Diego.”

The condescension is unbelievable, especially in view of the fact he is a politician who holds public office, ostensibly elected to carry out the will of the people.

But Hueso’s telling us he does what he wants when he wants, and the public well the public be damned.

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Last week, Mayor Sanders outlined his five-year plan to put San Diego back on sound financial footing, but his strategy isn’t sitting well with organized labor.

His plan includes eliminating or not filling 570 vacant and management positions, as well as cutting 130 positions a year in the next three years.

His goal is to bring the city’s spending in line with its income. And in this case, the spending includes reducing the pension deficit and addressing the growing shortfall in what’s contributed to cover retiree health care obligations.

Even with his proposed reductions, Sanders says San Diego would face a $25 million deficit in the 2008 fiscal budget that begins July 1.

It’s an uphill battle.

Sanders said his cuts wouldn’t affect police and fire.

But despite assurances, off-duty police officers were out in force last week protesting cutbacks in their department (while other union groups have refused to renegotiate contracts).

What’s transparent in this ongoing saga is that few, if any, want to acknowledge the crisis bearing down on San Diego.

It’s a clash between those who advocate enlightened self-interest and those who advocate unenlightened selfish disinterest , at the expense of taxpayers.

Obviously, steps have to be taken to ensure critical services, such as public safety, be protected from the brunt of cost-savings. It does no good to ignore the fact that San Diego cannot continue spending way beyond its means.

The unions are either part of the solution, or part of the problem.

Thomas York is editor of the San Diego Business Journal.


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