"The city faces some major challenges including looming budget shortfalls, problems with the pnsion system and the city's credit rating," the mayor said in a written statement. "We need a strong, decisive manager to work through these extremely important financial issues." Roberts, who had previously called for Uberuaga's ouster, used the occasion to step up his attacks on Murphy. "There are elected officials that need to be held accountable, also," he said.
The federal investigation turned into a dragnet. The Securities and Exchange Commission was looking into whether the city had failed to properly disclose negative financial information to the public, and the FBI was said to be probing alleged corruption of the city council and other city officials. Transcripts of thousands of hours of wiretaps of city phone lines, originally initiated during the Cheetahs investigation, were being reviewed.
The investigation dragged on through spring and summer and into the fall, producing only nebulous, if tantalizing, rumors linking Murphy and various high-ranking city bureaucrats including former auditor Ryan, deputy city manager Bruce Herring, and Uberuaga to a litany of financial crimes, ranging from bad bookkeeping to embezzlement. No indictments were forthcoming, but the lack of specifics seemed only to feed the frenzy of speculation about the mayor's fate.
Meanwhile, the city's outside auditor, KPMG, refused to deliver its final audit of the city's finances for 2003. The firm's bombshell disclosure in November 2003 that it would not proceed with the legally required audit until the city had investigated "likely illegal acts" had triggered the crises in the first place; each month that went by without delivery of the document further destroyed the mayor's credibility.
Murphy struggled to stanch the bleeding by hiring a series of consultants and lawyers who, he promised, would get to the bottom of the mess. The Texas law firm of Vinson & Elkins was retained at a cost of over $2.6 million to represent the city as the Securities and Exchange Commission sent a team from Washington to scour its books for wrongdoing. The lawyers came up with a 268-page report that, while carefully placing no individual blame or naming names, made it clear that the city had gone out of its way to hide bad financial news. That the firm's previous clients included Enron did not go unnoticed by the media.
Murphy and the city council had in 2003 created a nine-member "pension reform committee" that was supposed to review stock market losses at the city's retirement system and come up with painless ways to bail out the troubled plan. Murphy named his campaign treasurer, accountant April Boling, to its chairmanship.
Boling, who was president of the San Diego Taxpayers Association, a pro-business lobby, was also campaign treasurer for dozens of other local politicos, as well as the county Republican Central Committee and the GOP's Lincoln Club. "The Pension Reform Committee is not about reform. It's about covering your backside," claimed one city retiree. Like her client the mayor, Boling would face more controversy as the year wore on.
In the first week of September a New York Times headline announced that "sunny San Diego" had become "a kind of Enron-by-the-Sea." The accompanying story outlined the city's longtime practice of hiding the details of its mounting pension fund liabilities from the public. It highlighted the role of Diann Shipione, the La Jolla investment advisor and city pension fund trustee who the year before had first blown the whistle on the city's growing disclosure mess and then been attacked by the mayor and his supporters on the city council for her trouble.
Murphy refused to be interviewed by the Times; his second-in-command, onetime Evening Tribune reporter John Kern, told the paper that the fall in the stock market, cutbacks in state aid, and even the wildfires of 2003 had been largely responsible for the difficulties.
It was the same mantra the mayor had been using since the pension fund troubles broke into the open back in 2003. "The fundamental fact of the city and its finances is that it can meet its obligations, and we are working through the issues as carefully and methodically and expeditiously as we possibly can." The story added that Kern had "acknowledged inadvertent 'errors' in the city's recent financial statements" but said there were no illegalities.
On the last day of September, the broadening scandal finally brought city councilwoman Donna Frye into the race for mayor as a write-in candidate. "It's hard to explain sometimes when the public becomes very, very frustrated. Sort of like a big wave riding over the ocean, and it just keeps building and building and building momentum," she told reporters.
Frye, a 52-year-old Democrat with a knack for ingratiating herself with reporters, was not as unlikely a mayoral candidate as she was described in the glowing national media accounts that followed her entry into the race. An environmentalist who started Surfers Tired of Pollution (STOP), Frye was a savvy campaigner and a public relations expert who turned to powerful advantage the way opponents regularly underestimated her.
In some ways, her early political career mirrored that of Roger Hedgecock, who as a surfing young lawyer and coastal development opponent in the 1970s built a solid following among liberal-leaning middle- and upper-class voters angered by urban sprawl and the Union-Tribune's pro-growth editorial slant.
Unlike Republican Hedgecock, who was elected county supervisor and then mayor before being brought down in 1985 by charges of money laundering, Frye kept her ego in check and did not seem tempted by the greed that ultimately doomed the fallen mayor.
In the summer of 1996, she turned up at the front doors of the Republican National Convention, being held at the downtown convention center, to denounce the city's chronic sewage problem. "Rarely a day goes by that I don't hear at least two instances of surfers getting sick from ocean pollution," Frye, as always identified as a "surfer," told the Washington Times.
When Imperial Beach Republican congressman Brian Bilbray -- himself a surfer who had ridden the bad-water issue into office -- voted to revise the Clean Water Act against the wishes of environmentalists, Frye called a news conference at Harry's Surf Shop, which she owned with her husband, champion surfer Harry "Skip" Frye. She was standing beside a toilet featuring Bilbray's effigy stuck inside.