Pension's loss may add to San Diego's money woes

By Marty Graham

SAN DIEGO, Oct 29 (Reuters) - The pension fund of San Diego, California, may have lost as much as $1 billion of its $5 billion in assets recently, potentially adding to the financial challenges weighing on the state's second-largest city.

San Diego City Attorney Michael Aguirre said the losses at the San Diego City Employees' Retirement System amount to a financial calamity, which he added that Mayor Jerry Sanders' administration is ignoring.

Aguirre said the extent of the losses from recent market turmoil must be disclosed and discussed, especially in light of the financial scandal at the retirement system that prompted a probe by the U.S. Securities and Exchange Commission.

"This failure to disclose is exactly how we got in trouble with the SEC and bond investors last time," Aguirre told Reuters during an interview on Monday. "The mayor needs to acknowledge the losses."

San Diego's pension fund was at the center of a financial crisis that prompted federal and state investigations and led to the ouster of Sanders' predecessor. At the heart of the fund scandal was the city's misrepresenting its obligations to the fund in bond issues in 2002 and 2003, according to a settlement with the SEC.

According to Aguirre, San Diego's city pension fund for nearly 20,000 active and retired employees has lost at least $700 million between Dec. 30, 2007, and Sept. 30 -- before the worst of the stock market's recent crash.

The dust-up between Aguirre and Sanders' administration comes on the heels of the mayor announcing a $43 million deficit in the city's $3.3 billion budget for the coming year and as Aguirre faces a ballot-box opponent endorsed by Sanders.

PENSION PAIN DEFERRED

Ultimately, the city is responsible for covering losses at the pension fund. The city, however, will not have to deal with the fallout from any recent fund losses until 2010, according to fund spokeswoman Rebecca Wilson.

"The market volatility won't register until June 30, 2009, and the city's payment derived from the fiscal year numbers won't be made until July 2010," Wilson said, adding that the fund's board will set the city's July 2009 payment to it in December.

San Diego reentered the municipal debt market in May when its credit rating was restored to 'A' by Standard & Poor's, which had suspended the city's rating in February 2004 over missing or inaccurate financial statements.

San Diego has been preparing to sell more than $500 million in debt in the spring of 2009, according to Chief Operating Officer Jay Goldstone.

He agrees with Aguirre's $700 million loss estimate for the fund, but said it is too early to bank on a loss.

"The most relevant point in time is June 30, 2009," said Goldstone, formerly San Diego's chief financial officer. "The rest is premature."

Additionally, the city in July made a required $161 million annual contribution to the fund, Wilson said.