SAN DIEGO — To a degree unthinkable just a year ago, San Diego enters the new year with its financial future in the grip of outside agencies and the city's much-praised "quality of life" imperiled by a fiscal debacle.
As 2004 dawned, the city appeared to be sailing smoothly, with taxes low, services at a reasonable level and City Hall mostly tranquil, except for a continuing controversy about the San Diego Chargers' contract.
For The Record
Los Angeles Times Wednesday January 05, 2005 Home Edition Main News Part A Page 2 National Desk 1 inches; 45 words Type of Material: Correction
San Diego finances -- An article in Sunday's California section about San Diego's fiscal woes misidentified Carl DeMaio, the president of the Performance Institute, as Carl DiMaio. The article also described the institute as a Libertarian think tank. It is a nonpartisan fiscal watchdog group.
Now the city is being investigated by the U.S. attorney's office and the Securities and Exchange Commission; the City Council and new city attorney are bickering; officials are hiring lawyers and receiving subpoenas; and the city manager's office is planning budget cuts.
On Wednesday, City Atty. Michael Aguirre released information showing that a dozen present and former high-level city officials have been served with subpoenas by the U.S. attorney's office seeking documents and testimony.
Prosecutors are trying to determine whether conflicts of interest were at play in the way the city decided to raise pension benefits and pay for them.
"If you told me a year ago this would be happening, I would have said you were too negative, way off base," said City Manager Lamont Ewell. "Now I'm just waiting for the plague of locusts."
"Every time I think the city is out of shoes, another one drops," said Carl DiMaio, director of the Performance Institute, a Libertarian think tank.
The biggest issue was a decision in the 1990s to generously increase pension and health benefits for retirees, relying on a rising stock market to pay the tab.
When the market slumped after the dot-com bubble burst, the City Council opted against increasing pension fund payments from the general fund, which would have meant cutting services, such as park and beach maintenance, pothole filling and public safety.
A deficit, city officials knew, was bad. Not admitting the problem to Wall Street was even worse.
A whistle-blower on the city's pension board accused the city of hiding the news from Wall Street while floating hundreds of millions of dollars in bonds. Last January, the city voluntarily amended its financial statements to bond underwriters.
Following that move, credit agencies dropped the city's credit rating, although it remains in the middle of the pack among U.S. cities. The SEC began a civil investigation into whether disclosure regulations had been broken, and the U.S. attorney opened a criminal probe for possible conflicts of interest.
