San Diego Retirement System board warns against risk

San Diego — Man bites dog. San Diego appears to be headed in a sensible direction on at least one pension topic. In an informal discussion, boardmembers of the San Diego City Employees' Retirement System have indicated that if the City asks the pension fund to invest money in a new civic center complex, the answer will probably be no.

On July 30, the Centre City Development Corporation put out a request for qualifications, seeking a developer for another so-called public/private partnership to redevelop the four-block area now containing the City Administration Building, Civic Theatre, Convention and Performing Arts Center, Evan Jones Parkade, and City Operations Building.

The Sanders administration claims it can get a developer to build a new civic center at no cost to taxpayers. (Yeah, like the ballpark project, now costing $12 million or more a year. What the City got was a bunch of heavily subsidized condos owned by speculators and out-of-towners who spend little time and money in the city.)

It would be stupid for the pension system to loan money to a broke City that already owes it about $3 billion in pension and health-care funding.

San Diegan Patricia Karnes takes copious notes at pension-system meetings, including committee sessions. On May 17, the investment committee met. One topic that came up was the possibility of loaning the City money for a new city hall complex, although that discussion was not recorded in the official meeting summary.

According to Karnes's notes, board president Thomas Hebrank said he had heard about the pension system being asked to invest in a new city hall. He wanted clarification on possible barriers. According to Karnes, Chris Waddell, general counsel, said the system could participate if the terms were the same as other commercial investments. He said the loan would be limited to 25 percent of the total project. Legally, the pension system can put money directly in an investment, but the board prefers to work only through hired investment managers. (Waddell remembers the discussion but doesn't recall what he said.)

Doug McCalla, chief investment officer, was vociferously opposed to the idea. He noted that the pension system was already a creditor to the City. Since system investments are tax-free, it would make no sense to buy lower-yielding tax-free bonds. (McCalla did not return a call for comment.)

At the May 17 meeting, "It was a hypothetical question; we have not been approached by the City," says Rebecca Wilson, communications director of the pension system. "If this occurred, would it be something we would want to invest in? They didn't take a vote. But there were more reasons not to get involved than in your average investment."

William Sheffler, a member of the investment committee, takes the correct view of the idea: "It is not an appropriate risk for a retirement program. You hitch your wagon to the financial success of a plan sponsor when you are depending on the plan sponsor to fund your plan. You can lose twice in situations like that."

Richard Kipperman, whose term on the board recently ended, says that such a plan smacks of a conflict of interest. "In today's political environment, I doubt if you would be able to get the support of the board to do something like that," he says.

Years earlier, there was talk of the pension system investing in the ballpark and downtown library. The ideas died. Retirees laugh, saying that when it's salary-negotiation time, the City always asks the unions' okay to borrow from the pension fund, says Karnes.