San Diego Pension Scandal
Encyclopedia
The San Diego City Employee's Retirement Pension Fund was the source of a multiyear scandal and has been an ongoing financial concern for the city of San Diego, California
. This scandal has been compared to a similar scandal in Bell, California
.
.
Under Susan Golding the City started the practice of diverting money from the pension fund to increase the city budget. Elected city officials and their constituents cheered on the pension system's foray into the stock market, and during the good years, diverted the system's "surplus earnings" to pay for popular city initiatives, such as the ballpark, the convention center expansion, and for the cost of hosting the 1996 Republican national convention. Now, at a time of "surplus declines," the city is on the hook to make up for the losses.. Estimates say that the pension deficit is at $2.1 billion meaning money must be diverted into the pension system.
Also, in recent years the San Diego City Employee's Retirement System (SDCERS) has invested pension assets in higher risk company stocks. Historically, public pension systems have pursued conservative investment strategies. Until the 1960s, the state constitution expressly prohibited public pension systems from investing their assets in company stocks. In 1966, voters repealed this blanket probation, allowing up to 25 percent of pension assets to be invested in stocks of companies that pay regular dividends. In the early 1980s, another voter-approved amendment removed the 25 percent cap, and allowed funds to be invested in companies that pay no dividends.In an era of low interest rates, public pensions all across the country have increasingly shifted their investments away from bonds and toward stocks. SDCERS has been no exception. Equities have come to dominate the system's investment portfolio, representing almost half of all SDCERS's assets in recent years.
, who was replaced in a special election by Jerry Sanders
; the election of controversial city attorney Mike Aguirre
; a complete change of the pension board itself; federal investigations of the bond sales; and criminal charges against several of the pension board members personally. Those charges were finally dismissed by a federal judge in 2010. On August 2, 2011, Terri Webster was cleared on the last charge related to the pension scandal, bringing an end to the scandal seven years after the prosecution started. Webster was the subject of five separate legal actions.
San Diego, California
San Diego is the eighth-largest city in the United States and second-largest city in California. The city is located on the coast of the Pacific Ocean in Southern California, immediately adjacent to the Mexican border. The birthplace of California, San Diego is known for its mild year-round...
. This scandal has been compared to a similar scandal in Bell, California
Bell, California
Bell is a city in Los Angeles County, California. Its population was 35,477 at the 2010 census, down from 36,664 in the 2000 census. Bell is located on the west bank of the Los Angeles River and is a suburb of the city of Los Angeles...
.
Underfunding
Over a period of years the city was under pressure both to allocate less money to the fund but also to increase benefits to city employees. Problems arose in 2000 and 2001 when the value of investments (and therefore the fund itself) decreased, triggering a safety requirement of further funding. The scandal itself arose as a result of 1996 and 2002 votes by the pension board and then the city council that essentially lessened funding requirements and increased benefits (including to several members of the pension board). The underfunding in turn was not disclosed in municipal bond sales until exposed by whistleblower Diann ShipioneDiann Shipione
Diann Shipione is a former trustee of the San Diego, California City Employees' Retirement System pension board, credited with exposing unlawful underfunding of the pension fund and omissions in municipal bond sales.-Situation Background:The San Diego City retirement system had been underfunded...
.
Under Susan Golding the City started the practice of diverting money from the pension fund to increase the city budget. Elected city officials and their constituents cheered on the pension system's foray into the stock market, and during the good years, diverted the system's "surplus earnings" to pay for popular city initiatives, such as the ballpark, the convention center expansion, and for the cost of hosting the 1996 Republican national convention. Now, at a time of "surplus declines," the city is on the hook to make up for the losses.. Estimates say that the pension deficit is at $2.1 billion meaning money must be diverted into the pension system.
Also, in recent years the San Diego City Employee's Retirement System (SDCERS) has invested pension assets in higher risk company stocks. Historically, public pension systems have pursued conservative investment strategies. Until the 1960s, the state constitution expressly prohibited public pension systems from investing their assets in company stocks. In 1966, voters repealed this blanket probation, allowing up to 25 percent of pension assets to be invested in stocks of companies that pay regular dividends. In the early 1980s, another voter-approved amendment removed the 25 percent cap, and allowed funds to be invested in companies that pay no dividends.In an era of low interest rates, public pensions all across the country have increasingly shifted their investments away from bonds and toward stocks. SDCERS has been no exception. Equities have come to dominate the system's investment portfolio, representing almost half of all SDCERS's assets in recent years.
Aftermath
City Attorney Mike Aguirre has filed many lawsuits to roll back benefits but has generally been rebuked by the courts. The scandal had a widespread fallout in the city's politics and financial situation. The pension affair led to the resignation of newly reelected mayor Dick MurphyDick Murphy
Richard M. Murphy is a former U.S. politician. He served as the 33rd Mayor of San Diego, California from 2000 to 2005-Early life:...
, who was replaced in a special election by Jerry Sanders
Jerry Sanders (politician)
Gerald Robert "Jerry" Sanders is an American politician, Mayor of San Diego, California, and former Chief of Police.-Personal life:...
; the election of controversial city attorney Mike Aguirre
Mike Aguirre
Michael Jules Aguirre was the City Attorney for the City of San Diego, California from 2004 to 2008. As city attorney, Aguirre issued 35 investigative reports detailing waste, fraud, and abuse in San Diego City government, particularly in the San Diego City Pension.- Biography :Aguirre was born...
; a complete change of the pension board itself; federal investigations of the bond sales; and criminal charges against several of the pension board members personally. Those charges were finally dismissed by a federal judge in 2010. On August 2, 2011, Terri Webster was cleared on the last charge related to the pension scandal, bringing an end to the scandal seven years after the prosecution started. Webster was the subject of five separate legal actions.