Vinson & Elkins Report Sidesteps Issue of Criminal Behavior in City Pension Scandal

"Means” and “Motive” Clearly Led City Hall Insiders to Craft Quid-Pro-Quo Scheme that Resulted in Pension Liability—and Provided for Personal Financial Gain

SAN DIEGO – The Performance Institute today called on the San Diego City Council to reject submission of a report by its outside legal counsel probing possible criminal behavior—and instruct Vinson & Elkins to go back and evaluate evidence that the report ignored in its review. Performance Institute President Carl DeMaio released the following statement justifying this recommendation:

“The Vinson & Elkins report was supposed to provide the public with a full accounting of whether the City’s leaders engaged in criminally negligent behavior in intentionally underfunding the city’s pension and issuing subsequent erroneous financial statements to the public and investors. In addressing the issue of whether underfunding was criminal, the report on page 164 notes “the exchange of short-term relief in budgetary pressure for a potential longer-term obligation to pay an increased pension contribution…is hard to categorize as intentional.”

The Report makes this conclusion despite mounting evidence to the contrary. Specifically, the report does not address the following:

• Clear Advance Warning: The Report does not mention nor evaluate evidence demonstrating the City knew what it was doing was illegal—failing to examine three letters written by Retirement Board Trustee Diann Shippione to City Leaders in May 2002, June 2002, and November 2002—as well as public testimony provided by Ms. Shippione on November 18, 2002—the day the underfunding scheme was approved by the Mayor and Council.
• “Quid-Pro-Quo”: The Report fails to address the “quid-pro-quo” offer by the City Council to raise pension benefits and approve a union contract if the Retirement Board (comprised mainly of city workers and their representatives) approved the underfunding scheme.
• Personal Financial Gain: The Report fails to address the personal financial gain enjoyed by members of the City’s Retirement Board—as well as financial management staff—which provided an average 20-30% hike in retirement benefits or more for those individuals.
• Indemnification: The Report fails to weigh that the Retirement Board asked the City for legal indemnification in exchange for their vote to underfund the pension. Clearly this signals a mature understanding of the legal liability involved in this transaction.

The public is focusing on the extensive descriptions in the Report of a City with horrendous financial management practices. However, the loud admission of poor financial management by the City diverts attention from the real issues relating to criminal violation of fiduciary responsibility. In short, the Report claims the City of San Diego was ‘felony stupid’ rather than ‘felony criminal’ in intentionally underfunding the City’s Pension System. The City paid $1.3 million of taxpayer monies for a report on the facts that led to the Pension Crisis—and instead is getting a whitewash that defends possible illegal behavior in City hall.”

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