San Diego has intentionally underfunded its City Employees Retirement System since 1996, using the extra cash to balance the city's budget. Despite a warning by pension trustee Diann Shipione in November 2002, Mayor Dick Murphy and the city council voted to continue underfunding through 2009. After the unfunded liability and errors in the city's 2002 financial statements were detailed in January financial disclosure reports, the Federal Bureau of Investigation and the Securities and Exchange Commission opened a preliminary investigation related to pension fund operations and bond issuances.
Filling the pension-funding gap that exists now will be tough. Moody's Investors Service, the credit-rating agency, warned recently that just to maintain the current funded ratio of 66 percent will require an increase in general fund contributions from $55 million in 2004 to almost $90 million in 2005. Murphy, up for reelection in November, has acknowledged that the city may have to cut services, raise taxes and even sell city assets to foot the bill. A pension reform committee is expected to issue recommendations later this spring.
