San Diego On Saturday, April 21, at the San Diego Four Points Sheraton, City Attorney Mike Aguirre delivered the keynote address to a conference sponsored by Municipal Officials for Redevelopment Reform, whose head is Chris Norby, chair of the Orange County Board of Supervisors. Following is Aguirre's speech.
It's good to see you all. I wanted first of all to thank Chris and Marsha [Norby] for coming to San Diego...and all of you. It's very nice to see some of our San Diego revolutionary leaders out there. I see Richard Rider, a known revolutionary in San Diego.
You know, you all are so important, not only to your communities but to the entire state of California, because you are growing an idea that has, if it can fully flower, a real potential for bringing about the restoration of the power of government to actually serve the purpose that government is organized to serve. Which is to advance the general welfare and not the private economic interests of those bondholders and lawyers and self-seekers who use the government to gain unfair advantage over their fellow citizens and, in the long haul, do great destruction to the ability of government to perform and meet its responsibilities.
I want to paint a picture for you, and I want you to imagine this last Monday morning. I was seated up on the dais, where the city council meets. And in the audience was a very large group of police officers and firemen. And one of the issues of financial irresponsibility that we have engaged here in the city of San Diego is that we created between two and three billion dollars' worth of benefits without any money to pay for it. And I tell my friends in law enforcement...I've been in law enforcement in one way or the other since I graduated from law school in '74. And I would prosecute about 35,000 cases a year with our police department and other law enforcement agencies. And we did that on the premise that our job is to maintain the standard of the law. And I said to our police officers, "How can you enforce the law when you know that you are the beneficiaries of benefits that were created illegally? Both in terms of conflicts of financial interest, and where the financial interest in conjunction with the deals that were made in San Diego in 1996 and 2002, in which benefits were exchanged for an agreement to suspend the rules of arithmetic in counting the contributions that were needed to finance the benefits that were being given. And your union leaders come at the City every year or two or three with more demands and ever-escalating, cascading financial commitments from the City that the City can't meet. So much so that we were responsible for the largest municipal securities fraud in American history, which I had the unfortunate duty of negotiating with the SEC."
Now, you might say, "Well, well, what has that got to do with redevelopment?" What that has to do with redevelopment is that it is a clear signal that those who are in positions of responsibility in government are using their power irresponsibly to benefit those who are driving the political system.
You know, I don't know anything about redevelopment reform -- and Chris knows more about it, and I'm so fortunate to be able to be working with him -- but I will tell you what I've seen about redevelopment reform. In 2002 and 2003 and 2004, the City of San Diego allowed a private developer to wipe out 26 square blocks of downtown San Diego...26 square blocks of downtown San Diego, in and around the ballpark. And the idea was, was this developer would be given that land, and he would use his private capital to build 2500 hotel rooms that would then generate the TOT [transient occupancy tax] necessary to make the payments on the bonds for the hotels. And right at the last moment, because I had been involved in that, right at the last moment, one of the lawyers for the promoter who had received this largesse from the City...told me that the owner had decided not to build the hotels after all because first-time hotel builders don't make any money. And he was going to still continue to receive the land and all of the entitlements but not build the hotels. And I said, "Well, that, that won't be possible," because myself and Pat Shea, both of us were involved in actually being in favor of the downtown ballpark, and we both said, "Well, you won't be able to do that because that would be a breach of your duty to the voters, because they voted for privately providing financing, and the government wasn't supposed to subsidize the payments for the bonds for the ballpark."
Well, I went to see the mayor, the mayor that Time magazine found to be one of the worst three mayors in the country, who is no longer the mayor, and I was not elected at the time, and I gave him a warning. I said, "Here's what I understand is coming...You should stop it!" The local newspaper, which was connected to the new downtown ballpark because nobody reads the newspaper except to read the sports page. Unfortunately. And I say that facetiously, but actually it's true... it's actually true. That if they wiped out the sports page, there would be almost no circulation for the newspaper. And so they've got themselves interconnected...economically interconnected.
So when you think about redevelopment and who's getting the goodies as a result of redevelopment, you have to understand that there are a number of constituent groups: the bondholders, I should say the bond underwriters; the lawyers, the big law firms that structure the deals; all the consultants that are hired to wire the deal at the council level; the campaign contribution flow of cash that gets distributed. And then, in this particular case, the mayor was confronted with editorials and lobbying from the chamber of commerce.
Now, this is probably not true in other cities, but our chamber of commerce likes to help, uh, as many times as possible, ignore the free-market system and engage in corporate socialism. Where we, you know, I always say that if Winston Churchill were the mayor of San Diego, he would have said, "Never have so many given to so few," instead of the other way around. And it's true! What happened in this particular case is, the mayor folded. They changed the deal right at the last minute so that the City had to take on the financial burden of the bonds for the baseball park. And the owner got to walk away with the 26 square blocks...that were supposed to be used to build the hotels, and to do with them what he pleased. So the City paid for the ballpark, the owner put a little bit of money into the ballpark, relatively speaking, and walked away with 26 square blocks of downtown San Diego. As I said, I don't know much about redevelopment...but I think that's all you need to know.
The reason I'm so impressed with Chris is that I think he's actually been figuring this thing out, and he's been helping me out during the lunch here. I just wish we could bring him down here to San Diego and that what he has is contagious...because I want to talk about something even, you know, a little broader than the wonderful story I just told you. Because there's something that we have to figure out: Why are you all willing to make all of the personal sacrifices you've had to make in order to participate in this issue, to be involved in this issue, to contribute for nothing, actually to give up your resources, give up your time, to try to make it a better situation for your communities, and for our state, and for the objectives and goals of government? Why are you willing to do those selfless acts, while at the same time our misguided brothers and sisters see government in such a different way? They see it as an opportunity to use the tools for the general welfare for their selfish purposes.
Now, I don't, at one point that struggle has been the eternal struggle in the United States, from the time that George Washington was sworn into office. I mean, think about this...the National Bank was given all of the deposits of the federal government. The National Bank was a private bank and lent out the money to private corporate and special interests, and whatever profit on interest was made, the private bank owners got that money. In other words, we paid and allowed the recipients of all the federal money to make a ton of money for the burden of keeping our money in their bank! And that's what Andrew Jackson stood up and stopped. And put an end to it! And all those people just like, you know, just think if we would have been alive back then, we would have been part of that group that trashed the White House when he got nominated. 'Cause I do see some ruffians out there. I know them, and I've watched them operate, in their guerrilla ways of waging war. But my point is that that goes back to the struggle over the National Bank.
Fast-forward to the time of the Depression. And when everybody was flat on their back, and the economy was reeling and the banks were closing...the business community came to Washington and embraced Franklin Roosevelt and the New Deal. And the moment that stability was restored, they were back at it again. Vilifying him, and uh, vilifying him and what he stood for. As soon as the country was back functional at a level that was much better than the Depression that he had inherited. My point is that this is a constant struggle. So we should understand it as such. But our objective is really very simple. We want to use the power of government to work on common problems to advance the general welfare. And nothing more. And right now what we have is, we have an irrational system.
Let me tell you, in San Diego, where we are right now, in order to paint a picture of where you don't want to get. We have not...we have just finished our 2003 audit, of our, I should say, the audit of our 2003 financial statements. Isn't that great? Let's see, that leaves 2004, '05, and '06. Everybody else is already at '06. We're closing in quick! Now, in order to get our 2003 audit done, we spent not $800,000, which is what the original contract was for, but $8 million on the auditor. And in addition to that, we had to hire two outside firms. One to conduct the first $6 million cover-up -- for $2 million they would have found something wrong, for $6 [million] they said everything was okay. That was followed up by a second major-league cover-up by the former chairman of the SEC, Arthur Levitt, and that cost us $20 million! All a scandal!
Every day when I go to work to try to represent the interests of the people of San Diego, I am confronted all day long either with the consequences of these catastrophic financial mistakes of the past or the effort to thwart any honest resolution and curtailment and reform of how we do business. And it is, it is, in audit terms, they call that whole area "internal controls." We have no internal controls. Internal controls means that you have an attitude at the top that everybody is supposed to comply with the law and the rules and regulations. Okay?
So, now, I don't know if that's the case in Sacramento, but I get a sense sometimes that Sacramento, that they play financial games with the budget. I don't want to go too far out on a limb on that! So in other words, you know, and I wish I had a blackboard here, because my sense of it is that we're like the size of a very small, a pea, here in San Diego. A little, tiny, multibillion-dollar deficit in our pension plans due to financial shenanigans, and then, up here in Sacramento, you've got a gigantic, massive bowl of pension deficit that no one's even acknowledging, or at least they're getting to. Now what does that basically mean? And this is the thing that I told the police officers and the firemen in the audience. To create benefits that you have no money to pay for is a fiction, and you're never going to receive those benefits.
You're from Orange County. There was a famous case from Orange County called First Pension. And there were 10,000 victims of a pension scheme. And for six years, every quarter, the recipients or the participants in that pension, the First Pension Plan, received quarterly statements telling them about the ever-increasing value of their pensions. Unfortunately, it was all a lie. And there was no money, and it eventually collapsed, and it all went away. And there's, there's really nothing as sobering as to look at people who are 75 and 80 years old who have no other options, and they have no pension. And then, you try to figure out how they can put their lives back together. And that's what's going to happen!
The whole...you get the prison guards lining up their pension benefits, negotiating with Jerry Brown, and then Gray Davis. And sometimes I almost think there's a connection between political endorsements and the bestowing of benefits on the political...on the unions. You know what I mean? I don't want to, of course, make any rash allegations. But you understand that when you give municipal unions, and employee unions, the kind of access that they have. That is, they run the election, they endorse the candidate. They then sit down with their endorsed candidate, who is now the elected official, and they negotiate their benefits. Where is the management? Who's on the management side of that equation? Nobody. And so then they create these massive benefits and promises that are basically "insufficient funds checks." And that's what's going on, up and down in every community. And then I hear people say, "Well, well, we're actuarially in good shape!" And I say, "Okay, well, let me take a look at your actuarial report." "Well, we use the EAM method, and then we slid over to the PUC method, and then we dice and slice and we stretch and we know, uh, we've got 20 years to pay, and then, you know, you know, and of course, we're anticipating that the money will be flowing in and..." And you say, you know, "That's what's called 'suspending the rules of arithmetic.' " And what good does that do? Does it make you feel good to have a check that has a very large number on it...that is stamped "insufficient funds"? Because, you know, and that's all that you basically have, because those benefits are never going to get paid. Not at the level that you're talking about.
San Diego, right now, we send 5000 checks a month. Costs us about $200 million a year. Five thousand checks a month, $200 million a year, to our retirees. It's going to become 20,000 checks a month, and $700 to $800 million a year. We are the San Diego City Social Security Department.
Now, do you know that, let me shift over a little bit, because I've talked now about the labor side. The thing I like about San Diego is we are equal-opportunity corrupters. Okay? The Democrats and the Republicans are corrupt. And that's the truth! Labor and business elements are corrupt. It's like a teeter-totter, you know? So let's talk about, on the, on the corporate side. Who thinks it's a good idea to guarantee the sale of every football ticket to a professional football game for ten years? That we guarantee you that you'll sell at least 60,000 tickets a game and that every ticket you don't sell, we'll buy it and you can raise the ticket prices as high as you want, unilaterally. Does anybody...who wants to sign up for that deal? And I go into the inner city, and I say, you know, "I am proposing the Aguirre Financial Advancement Plan. Every one of your businesses, we're gonna buy every good and service you can't sell, and you can set the price as high as you want." Everybody...who is in favor of that? You say, "You're crazy. No one would ever agree to that!" We agreed to that.
Mr. Rider and I had a little opportunity to try and stop it here in San Diego. Now, now think about that, first of all, the NFL, the NFL...the Chargers. What do we hear from our friends in the business community? Save the Chargers! You know, now, now in San Diego, I can go along with saving the seals, you know, or saving the puppies. But save the multimillion-dollar football players, who are not getting enough money? You see, it's insane. So what did we do for them? In addition to the ticket guarantee, which we were going to do for ten years. And, and, you know, Richard and I both warned the City not to do that. So, Richard and I for the last ten years have taken turns...when the ticket guarantee blew up and is costing us millions of dollars, we would take turns to say, who could say "I told you so" in different languages. "Well, yes, we did anticipate that!" "I told you that that's what was going to happen!" "And that's exactly..." Well, we were interviewed so many times as a result of it, but that's the point is that they got it, and then they lamented it, but they still got the money. And they got the money because of all the corporate sports enthusiasts and those who are interconnected with it, you know, supported it.
So here's what happened. The ticket guarantee worked like this, it, we got 10 percent of the in-stadium revenue, the City did. But we deducted 100 percent of every unsold ticket, and they got to set the ticket prices as high as they wanted. And guess what happened? There was never any plus side for the City, and when there was, it was de minimis. So the deal that we signed with the Chargers lasts 20 years. So the ticket guarantee only lasts the first 10 years. But then in the second 10 years would have made enough money to pay the bond, but by the way, yes, I hate to tell you we took out a 30-year bond. We had a 20-year lease and a 30-year bond -- you can figure that out later -- but, but we took out a bond, and it cost us $173 million for the bond to renovate the stadium so we could get more sky boxes and more club seats so the Chargers could have more money. And then we gave them a ticket guarantee on top of that. And then we pay the bond payment, to put in all the improvements. But in the third game of the 2007 season, so in the third game of this season, the ticket guarantee went away.
Now, the ticket guarantee, as I've described it, was a rent reduction, so the rent is 10 percent of the take, of the in-stadium revenue... deduct whatever tickets we don't sell, and we get the net. But after the ticket guarantee is gone, then we get 10 percent of the net. Now, we added a person who was indicted for corruption here in San Diego, and he was put in charge of negotiating a redo of the ticket guarantee. He was made the vice mayor. And I guess maybe it was because he was the most honest alternative there is. So his name was Zucchet. Now, his name was in some people's minds "Zucket" [rhymes with "bucket"]. Why would I say "Zucket"? Well, because this is what he was charged with: He was at the city council one day, and one of his constituents came in and said that he wanted to stop the strip-joint problem. And Mr. ..., and he said, "I am a constituent of Mr. Zucket's." And it's really Zucchet, "Mr. Zucket's." And so Mr. Zucchet said, "Yes, we must do something about it. I'm gonna follow up on it, and I want that calendared to come back, and we're gonna do something about it."
Unfortunately, the guy really wasn't a constituent of Mr. Zucket's...he was actually a bouncer from a strip joint in Vegas. Who had paid off Mr. Zucchet and two other members of the council to come up with this scheme to actually protect the uh, the uh, strip joint that they were involved with. And unfortunately for them, the FBI was in the audience and took it all down.
Now, after the allegations against Mr. Zucchet became known and he was charged with extortion in federal indictments...our mayor made him the deputy mayor of the city. And of course, at one level, I thought, "Who better to negotiate with the Chargers than someone who is indicted?" You know, we can match them foot, you know, shoulder to shoulder there. So anyways, so they go into negotiations, and here's the negotiations: they got rid of the ticket guarantee. Everybody celebrated their getting rid of the ticket guarantee. You know how they got rid of it? They extended it all the way out to the end of the lease and made it permanent, so it didn't fluctuate anymore with the attendance; it actually was universally low. And it cost us another $75 million. And the mayor had a press conference announcing that they had gotten rid of the ticket guarantee. And the news media carried that story, and that's how we got rid of the ticket guarantee. So, in other words, we're not talking about, you know, I mean, think about that! That's what we're talking about, and we're doing it all over again...right now, in San Diego!
The voters passed a requirement that we have a 15-year amortization on our pension debt. So that means you only get to "slice and dice it" 15 times instead of...20? And our mayor, who, I like our mayor, but on this one I don't agree. Our mayor came forward and said, "Oh," he thought that that was unconstitutional, so we're not gonna obey what the voters said. So we're gonna go back to the 20. Which is really 29, or whatever, slicing and dicing you have to do. We had a...in our pension plan, we had an auditor, I mean, we had an actuary that we fired because he used the wrong assumptions. So then we hired a new actuary, and the new actuary used all the wrong assumptions again! And they justified it, because they said, "Well, that's okay! Because you never have to change...you don't necessarily have to change the assumptions when you hire a new actuary." And that's true, unless the reason that you hired the new actuary is because the old assumptions were wrong!
You needed to connect those two things, you know, on that.
Let me close by saying this, and I'll be glad to answer any questions. San Diego, during the energy crisis, was the first place to go down! And I represented all of the ratepayers back then, I represented the lieutenant governor who brought a big case, and I don't think we sued Pasadena, but uh, I'm glad you guys got away with whatever you did, I hope you used it for good purposes, but uh, my point is, is that, and I used to tell people that one thing that could have been done with eminent domain is we could have taken back some of those power plants when we knew they were manipulating the numbers and stopped it! And saved, you know, the ratepayers from suffering. But I used to tell people that the energy crisis was a murder/suicide. First Enron murdered the ratepayers, who couldn't afford to pay the bills because of the prices got so out of hand, and that in turn resulted in the suicide of Enron 'cause they didn't have anybody therefore to pay all the bills to make all their expect...er, their projections in Wall Street. And so, the whole industry really took a major beating.
And that is what happens when you have the kind of Ponzi scheme that we're running right now, and it doesn't make any difference if it's abuse of redevelopment, abuse of the collective-bargaining process, the whole imposition of taxes on people that use the taxes for purposes that are not related to the taxes, across the board. In other words, the whole system, the whole system is corrupt. And we need a systematic reform of the system. And we're not asking for anything revolutionary. We're not asking for everyone to put sod on their roofs and immediately, you know, convert to walking to work. What we're asking for is just simply to use the instrumentalities of government to advance the common welfare. That's all we're asking for.
And what you're doing, in advancing the cause of redevelopment reform, is really helping to lift the burden of educating everyone about how the system is being manipulated. My, my friends on the other side of San Diego, this is gonna come as a shock to you, but some of the special interests in San Diego will not be endorsing me for city attorney. They, they, they really feel that they liked the last city attorney a little better than this current one, because the city attorney's office played the role of the plausible excuse-maker for every illegal act that went down. And in exchange, the city attorney's office feasted at the trough of those illegal pension benefits, to the, to the extent that not only did they allow it to go on but that they personally benefited.
In that, in that, in that scam, this is how, this is how far it went: They allowed them to buy 17,000 years of pension benefits at massively below what the real costs are. They allowed them to have a DROP program, that they said was cost neutral, that gave them 5 years, so they could still work for the City and get their salaries and then they also got their pension benefit payment, plus 8 percent guaranteed interest, plus 2 percent cost of living, plus 3.2 percent match, plus a 13th check as a Christmas present. And they have 401(k)s that have matches, and they have a savings plan that has matches. You see what I'm saying?
There is no connection between serving the public anymore in San Diego, because the purpose of San Diego city government that was reconstituted to serve the interests of the people who are supposed to be public servants. And that is what we don't want to see happen in the rest of the state. I don't know how bad it is elsewhere, I don't know how bad it is in Downey or Fullerton or in any of your other cities, or in Orange County. I do remember remotely hearing about some financial problems in Orange County, but I am sure, I am sure that there are no problems with the pensions in the cities and the county of Orange; I know that that probably is not a problem.
But you know, let me just close, uh, and say that you don't need labor unions and civil service. You see what I mean? Civil service really is enough. The labor unions come at the City every year, two years, three years, and they stay, there's no term limits. And they rig the system. I am a liberal Democrat. I represented César Chávez and his union when he died. Okay? I was a UC Berkeley student body president. Okay? I'm not saying this because I'm antiunion. I swear what I'm saying is true. It is absolutely wrong to have the labor unions...controlling the whole process, year in and year out. Jerry Brown is the person who put that system into effect when he was governor. It did not used to be that way in California. It is something that has not worked. The government has been captured by these labor unions. I don't know if that's the way it is at the state level, but in San Diego, that's the way it is. And they have used their power to strangle the ability of government to provide simple services. Last year we spent $15 million on our Qualcomm football stadium so the Chargers could make $70 [million], and $2 million maintaining all the streets and roads in San Diego. Two million dollars! Thank you.