SAN DIEGO — Seeking to limit damage from its pension deficits, the San Diego City Council today will consider adopting financial disclosure reforms similar to those imposed on public companies in the wake of high-profile corporate scandals.
City officials hope an overhaul could help placate the U.S. Securities and Exchange Commission, which began an investigation after the city admitted earlier this year that it had failed to tell prospective buyers of its municipal bonds that the city has a pension deficit approaching $2 billion.
The pension deficit and the city's failure to disclose the problem promptly to Wall Street have led to the biggest financial debacle in San Diego's history.
Three agencies have downgraded San Diego's credit rating, causing the city to delay bond sales, including a possible $200-million sale of pension bonds to begin to whittle down the deficit.
"To the extent the SEC values honesty and cooperation, they should appreciate what we've done," Mayor Dick Murphy said at a news conference. "We are on the cutting edge of what may become standard for cities across America."
City officials and securities experts say the measures being considered would make San Diego the first city in the nation to take on the sort of responsibilities that officials at public companies have had to shoulder since reforms were adopted by Congress in 2002 after financial scandals at Enron Corp., WorldCom Inc. and other companies.
"We're providing a template for them," Murphy said.
Other local governments would be wise to follow San Diego's lead, said John C. Coffee, a business and securities law professor at Columbia University's law school in New York.
"This is a constructive proposal in a field -- municipal finance -- that has long been opaque and nontransparent," Coffee said. "While defaults have been few, the practice of raiding public pension funds in times of fiscal scarcity is sadly well established."
San Diego got into trouble by increasing employee pension benefits to satisfy politically powerful labor unions and then counting on a soaring stock market to keep the pension plan fully funded, according to a report done for the council by the Washington office of Vinson & Elkins, a law firm hired by the City Council to investigate why the growing pension deficit was not disclosed until it was out of control.
