San Diego OKs Financial Disclosure Recommendations for City Officials

The City Council on Tuesday voted 8 to 0 to endorse a list of recommendations designed to force city officials to be more candid in disclosing financial information even when the information is expected to upset Wall Street.

The Securities and Exchange Commission is investigating the city’s recent practice of withholding information about a pension deficit that has grown to nearly $2 billion.

After learning the city had fudged its budget numbers, three bond-rating agencies dropped San Diego’s credit rating. The lower rating would require the city to pay higher interest rates on the bonds it issues, potentially costing the city millions of dollars.

The council’s action Wednesday was a first step in implementing the recommendations made by the Washington-based law firm of Vinson & Elkins, hired by the council to determine why the city’s disclosure statements had omitted key information.

The firm found sloppy record keeping and a loose management system in which no one seemed responsible for disclosure documents submitted prior to bond sales.

“We want to show the SEC and the rating agencies we’re serious about changing the culture here,” Mayor Dick Murphy said.

The recommendations, modeled after new disclosure rules governing private companies, would require the city manager to vouch for the accuracy of financial information, with the city forming a committee of senior bureaucrats to work on disclosure documents.

Also, the recommendations call for an oversight board on financial disclosure -- composed of experts in accounting, finance, and securities laws -- to advise the council, with council members required to discuss and vote on disclosure documents.

Vinson & Elkins is also representing the city in negotiations with SEC investigators over what action the agency might take against San Diego for its faulty financial disclosures.

Next week the council will consider recommendations from its pension-reform committee. Among other things, the committee has recommended increasing the retirement age for city employees, trimming benefits and increasing the amount the council allocates to the pension fund.